Succession drama at LVMH risks EU’s economy
Bernard Arnault has built a luxury powerhouse, but his promotion of family members to key roles endangers more than his empire
I‘Five children fighting it out is new. It is hard to believe it will end well’
f the producers at HBO are trying to work out which company could be the model for a follow-up to the hit drama Succession it is not hard to figure out the most obvious candidate. Last week, Antonio Belloni stepped down as deputy to Bernard Arnault, the billionaire chief executive of France’s luxury goods powerhouse LVMH. That comes against a backdrop of manoeuvring for the succession, with five of Arnault’s children now in senior positions. But while we can all look forward to the Canal-Plus dramatised version, this is a foolish way to run what is Europe’s largest company – and the battle for the Arnault’s succession will be a moment of high danger for the wider Continental economy.
It is certainly a gripping drama. The leadership of LVMH makes the internal machinations of the Roy family look amicable by comparison. The latest twist came over the last few days, with the resignation of Belloni as group managing director. Since joining the conglomerate in 2001, the Italian-born executive has been the effective number two to Arnault, keeping the day-to-day operations of the sprawling luxury goods conglomerate running smoothly. He rarely grabbed headlines. But most great entrepreneurs have a deputy they rely on to keep everything ship-shape, and investors will be worried that he will turn out to be more important to its success than his low-profile would suggest.
Belloni’s departure comes as Arnault has been placing his children in key positions within the group. His eldest daughter, Delphine, 48, runs Christian Dior Couture; Antoine, 46, has control of image and communications for LVMH; Alexandre, 31, is the number two at Tiffany & Co, overseeing products and communication; Frederic, 29, runs the watch division; and Jean, 25, is in charge of developing Louis Vuitton’s watch category. We hope that they all get along well, and can amicably agree on who should take charge of which unit when their 75-year-old father finally decides to step back from day-today management of the empire. But you wouldn’t want to bet your last bottle of Moët on it. After all, you hardly need to know much Shakespeare to worry that when you have five siblings all competing for vast power and wealth there is potential for disagreements over who gets what.
This is a terrible way to run a company. LVMH is not some minor fashion business any more. Fuelled by the extraordinary demand in China, and elsewhere, for luxury status symbols, it has assembled dozens of heritage brands to create a world-beating conglomerate.
With a market value of €425bn (£365bn) it is Europe’s largest company by a wide margin. The Dutch semiconductor giant ASML is €100bn behind it, and none of Britain’s giants comes anywhere close to its size or strength. The shares hit an all-time peak earlier this year, taking it through the €400bn barrier for the first time, and there is speculation that it could become the first European company to hit the $1 trillion (£790bn) milestone, joining the likes of Apple and Microsoft among the world’s elite corporations.
The French stock market depends on it. It accounts for 15pc of the Paris CAC-40 index’s total value, and dealing in LVMH shares accounts for 40pc of trading on the Paris market. In many ways, France has turned into an upmarket handbag and perfume manufacturer with a slightly shabby country attached. What happens to LVMH matters to the health of the French markets and economy, and by extension to the whole of Europe, including the UK, as well.
No one would deny that Arnault is a brilliant businessman, with an uncanny ability to spot the right deal, and to add value to a brand. The performance of the conglomerate is proof of that. The shares are up by 165pc over the past five years, and more than thirty-fold since 1990. It has been a spectacular run, and one that has made Arnault one of the richest men in the world. And yet, his control of the empire is opaque, with 48pc of the equity, and 68pc of the voting rights.
The world’s other major conglomerates are steadily normalising their management even if they have entrepreneurial roots. There are no offspring of Steve Jobs at Apple, or Bill Gates Jnr at Microsoft, or a younger Bezos or two at Amazon. Investors can feel confident that as the influence of the founders fades, professional managers, chosen solely on ability, will steadily take over control on behalf of the shareholders.
Arnault appears to be going in the opposite direction, with the senior executives who have been with him on the journey steadily leaving, while he places his children in key roles, waiting to see which of them has the steel to take over when he steps aside. Many entrepreneurs have placed one or two children in senior positions – the fractious Murdoch clan is the most obvious example – and left them to battle for control. Five of them fighting it out is something new. It is hard to believe it will end well.
There is too much at stake for anything to be allowed to go wrong. Regulators in Brussels and Paris spend all their time fretting about AI, or trying to break up Apple, or whatever the latest fashionable crusade might be. In reality, they have a potential problem far closer to home.
Arnault seems to be turning LVMH into a family fiefdom. The luxury goods business is already risky enough, with demand in China slowing down, as the collapse in the shares of the Gucci owner Kering showed last week. In reality, this is a moment of high danger for the French stock market, and even the wider European economy – because if Arnault gets this wrong it is far more than just one family fortune that will come crashing down.