The perils of keeping it in the family
Zara’s founder is handing a top job at the chain to his daughter. Investors are not convinced that’s wise
Parents who blindly hand the family firm to their offspring without considering the consequences risk going from “clogs to clogs in three generations”, as the adage goes. Especially if your business involves selling goods that are the very opposite of clogs.
So it is not surprising that the “whiff of nepotism” has wiped billions off the shares of Inditex, the owner of Zara, after founder Amancio Ortega announced that he had decided to appoint his daughter Marta as the company’s chair, says Oscar Williams-Grut in the Evening Standard. To start with, Marta’s privileged background couldn’t be more different from that of her father.
The fourth son of a railway worker and a maid, Amancio left school at 14 to work for a local shirtmaker, before leaving to set up his own company, the first step in creating a business empire that would eventually win him “an estimated fortune of $75bn” In contrast, his daughter “grew up going to ballet classes and riding horses”, with her family building riding stables for her to support her amateur career as an equestrian that has seen her competing “in almost 400 horse riding events”.
Starting on the shop floor
To be fair, there’s a reason why Amancio has chosen his daughter over his two other offspring, not to mention “dozens of relatives, many of whom work for The family firm”, says John Arlidge in the Sunday Times. Marta isn’t new to the business: she has worked there in some capacity since her time on “the shop floor in the King’s Road branch of Zara when she was a 19-year-old student at the European Business School in London”. Over the past two decades, she has “earned plaudits for strengthening Zara’s brand image, signing up edgy stylists and image makers”, as well as launching premium collections.
Nonetheless, her appointment means that she “elbows aside a professional who has successfully managed the group”, says Daniel Dombey in the Financial
Times. Under the guidance of Pablo
Isla, her predecessor, “Inditex’s market capitalisation multiplied six-fold”, leading to him being “acclaimed by Harvard Business Review as the world’s top performing chief executive”. Without him in charge, analysts worry that the “fantastic ocean liner” that he has built could deteriorate so that “in ten years’ time, you might look at it and see that it isn’t the Queen Mary any more”.
Maximising the chances
Still, maybe investors are overreacting a bit, says MoneyWeek columnist Matthew Lynn, writing in The Daily Telegraph.
True, business history “is filled with examples of children taking over their father’s business empires, and, in no time at all, making a complete hash of it”, with one study by the Harvard Business Review putting the failure rate “at 70% once the second generation was at the helm”. Still at least Amancio has been wise enough to maximise his chances of success by handing it to a daughter, rather than a son. After all, daughters “don’t come under pressure to take over but do so enthusiastically” and as a result “rarely feel the need to prove themselves with reckless deals”.
“Amancio left school at 14 to work. Marta grew up with ballet classes and horse riding”