“Family companies are more long-term oriented than other public companies. And I personally believe that a long-term orientation of capitalism is one of the most important contributions we can make in the world,” says Fabrizio Freda.
Freda, President and CEO of the Estée Lauder Companies and a member of the Company’s Board of Directors, was a guest expert — along with President of Exea and ex-Chairman of Puig Mariano Puig (PDG ’64) — at the MBA 50th anniversary celebration at IESE New York this week.
“Family companies are authentic,” he said, “and this authenticity is increasingly valuable in today’s flat world. We don’t need more commodities — the Internet has made everything available in developing countries. But because there is a story behind these products, that adds value for people. Family companies are so much more interested in long-term quality because their name is on the door or the product, or in the history of the company.”
A Sense of Purpose
The anniversary celebration was opened by IESE Dean, Professor Jordi Canals, who likened IESE’s values to those that characterize family business: “We have a purpose, a wider vision of what we want to do. We want to develop leaders who have a positive, lasting impact on other people, working for companies and society at large with a sense of professional excellence, integrity, and service.”
“I think that when you try to translate those ideas into the world of family businesses, you see that family businesses like Estée Lauder, and Puig also have a long-term sense of purpose. I think this sense of purpose has helped us become a special business school.”
Mariano Puig, whose father began importing perfumes to Spain 100 years ago, echoed Canals and Freda’s words: “We have generated wealth for our society, our company, and our shareholders by adding value to our products; we want buying our products to be a pleasure for people.”
“In 100 years, we’ve had good and bad moments. When the company was losing money, our suppliers, backers, and employees carried on because they saw that the family was involved and committed. The same family and same principles have run the company from the beginning, and that gives security to all the people working there.”
Moderating the discussion was Ivan Lansberg, an organizational psychologist in New Haven, Connecticut, and academic director of Family Enterprise Executive Programs at Northwestern University’s Kellogg School of Management.
“Wall Street is catching onto the long-term value of family-controlled companies,” he said, pointing to new research, which indicates that they outperform their competitors, in part because of “the trust level between multiple stakeholders that allows for fluidity in implementation of strategy.”
Getting the Professional Mix Right
“Family companies do well to understand when the moment has arrived to join forces with professional managers who can do what the company can’t do internally,” says Freda.
He credits the special partnership, built on mutual trust and admiration, between himself and the Lauder family for the firm’s booming success. Worth 6 billion when Freda joined seven years ago, the company is now worth 11 billion.
The Lauder family, he says, respects his “experience” (he is a former executive at Procter and Gamble) while Freda deeply appreciates both the general advantages of a family firm and the particular strengths of the Lauders. “You have to be humble enough, as an external leader, to understand that if the business is strong, it’s because the family has done a wonderful job.”
From the family perspective, Puig recalls taking the reins along with his siblings after his father’s death. It was, he says, a question of “putting people around us who knew more than we did.”
Puig is a graduate of the IESE Executive Education PDG Program. The school, he says, prepared him to make the “right decisions at the right moments,” throughout his career overseeing brands including Nina Ricci, Carolina Herrera, Prada, and Valentino.
From Familiar to Global
“Family companies tend to be very strong in one area. Unfortunately, the world is so volatile today, the only way to manage that is to add more agility, more speed, and to diversify, so there is no one single thing that could happen around the world that could damage your business. Estée Lauder has become global, well diversified, and rooted in the strengths of the past,” says Freda.
Whereas 65 percent of Estée Lauder’s business was based in the U.S. seven years ago, now that figure is 37 percent. “Becoming global is about developing the ability to be locally relevant wherever you are in the world,” he says. “We put in local management wherever we are, and we don’t standardize — we listen to local consumers.”
Passing on Family Values
As the ranks of family members swell, how can the older generations make sure the values that made their name so prestigious are sustained?
“The dining table, where my father talked about his successes and his failures, was a very important place to learn how to do things,” says Puig. “We received from the older generation a sense of responsibility — that we’ve been entrusted with a legacy, and our job is to grow that legacy. My wife and I have continued to do this in our house.”
As he travels to the company’s offices around the world, a priority is to share the ethical values and culture of the family to employees. Puig and relatives have created a governance body to “help us make good, objective decisions in order to pass the torch to the next generation.”
Partly an effort to “professionalize” within the family as well as reach outside of it for expertise, the fourth generation, while they are shareholders, have not been granted automatic entry as employees.
“We decided that they should find their own lives, and then later, if some become excellent business people, we will see.”