Friday, March 12, 2004

A Family Affair at the Estee Lauder Companies

STANFORD GRADUATE SCHOOL OF BUSINESS—It's a down-home American success story with a global-economy twist.

Mother whipped up fancy face creams during the Great Depression with the help of a chemist uncle. Father kept the books and ran the factory while she worked her marketing magic. Their son, the former errand boy,took over a quarter-century later, and his son will do the same this July.

But please, don't call it a family business.

"Our credo is that we're not a family business—we're a family in business," said Leonard Lauder, chairman of Estee Lauder Companies Inc., speaking March 12 at the Stanford Graduate School of Business.

There's an important difference, explained the second-generation leader who dramatically expanded the cosmetics company and took it public."We've always considered ourselves responsible to our shareholders and—equally if not more so—to our stakeholders," said Lauder. "So our point of view [also] differs from the Enrons of the world.

"Going public, by the way, was one of the best things that ever happened to us. We're smarter, tougher, more competitive, because we're under the scrutiny of the public."

The three-decade growth spurt over which Lauder presided represents"a remarkable transformation and change in any company, and[something] very hard to do in what started as a family-owned company," said Business School Dean Robert L. Joss in his introductory remarks to the crowd of more than 300 that filled Bishop Auditorium for the student-sponsored View From the Top speech.

Sales stood at $800,000 when Leonard Lauder came on board. Today, the figure is$5 billion. Estee Lauder Companies is now one of the world's leading manufacturers and marketers of prestige-line beauty products, with 19brands sold in more than 130 countries.

Those 19 brands—"a balanced portfolio," the company calls them—have driven much of the expansion. Lauder's principal growth strategy has been to acquire or create new brands with potential for global development, and bring them under the corporate umbrella while maintaining their entrepreneurial competitiveness. Among them are names like Clinique, Aveda, Tommy Hilfiger and Bobbi Brown—well recognized but seldom linked to Estee Lauder in consumers' minds.

"I had the idea in 1968: Let's put different brands in competition with each other," Lauder said. "We do not put our company name on any brand we own, so everyone shops at a different counter and thinks they're dealing with individual entities. These are all run by entrepreneurs. . . . Talk about sibling rivalry!"

His mantra "multiple companies, multiple countries" has thus broadened demand for Estee Lauder products, which appear to smell as sweet by several other names. (Beauty is, after all, in the eye of the consumer.)

Managing people in such a complex environment calls for a decisive leader who instills trust and maximizes everyone's strengths."Leadership is an acquired skill. I don't think there is such a thing as a born leader," said 70-year-old Lauder, whose first great leadership teacher was a Navy captain. "I did some terrible things when I was an ensign."

A good leader, according to Lauder:

  • Has a strong sense of self ("Your ego has got to be under control.")
  • Takes risks ("The more risks you take, the more successful you will be.")
  • Knows who should make each decision. Is fair to others. ("If you're fair, people will trust you.")
  • Is a good listener ("If you can't listen, forget it.")
  • Is visible ("I like walking through the halls. I like other people seeing me. I like seeing them.")
  • Never knowingly sets goals that people can't achieve.
  • Gives people their dignity ("When it comes to firing, I'm better than Donald Trump.")
  • Has a clear vision. ("Know where you want to go. If people can buy into your vision, they will take you there.")

Ultimately, he said, a leader is only as successful as the people who work for that person want him or her to be. "So you want to make people successful, because the more successful you make them, the more successful you will be."

On July 1, a new leader will take charge. CEO-designate William Lauder,43, worked at Macy's before joining Estee Lauder 18 years ago.

During the Q&A, someone brought up the dismal success rate for third-generation business heads and asked Lauder what he had taught his son. Lauder cited William's impressive resume, adding, "Except for a short period, he never worked for me, and he has never reported to me directly. He carried a [delivery] bag just like me; he did everything that I ever did."

The departing veteran paused, then shrugged. "Listen, I'm not my mother or father, and he's not me."