Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / How the Hermès Family Defied LVMH's Takeover Bid
Transcript
- Lucas: Picture this: it's 2010, and the family behind Hermès, the six-generation saddle maker turned global luxury icon, gets word that Bernard Arnault, the chairman of LVMH, has been quietly buying up their shares. By the time they discovered it, he already owned twenty-three percent of the company. Most analysts assumed it was only a matter of time before Hermès lost its independence, like so many other family brands before it. Luna: I remember reading about that. But what I've never understood is why the Hermès family didn't just sell, especially at a premium. They must have been tempted. Lucas: Sure, but this is a family that still sees itself as custodians of a craft, not just shareholders. They make their scarves and bags the same way they did in the 1800s, with the same obsessive quality control. Selling to LVMH, a conglomerate built on financial engineering, was unthinkable. So they came up with a defensive move that's now a case study in family governance. Luna: What did they do? I'm guessing a poison pill or something? Lucas: Sort of, but better. In December 2010, fifty-two family members signed a pact to pool over fifty percent of their shares into a holding company called H51. The holding company itself is listed, but the shares inside it have severe restrictions: no holder can sell to a non-family member without unanimous consent from the other fifty-one family lines. That locked up control almost overnight. Luna: So Arnault couldn't buy any more shares from family members? That's a brilliant structural lock. Lucas: Exactly. But LVMH didn't just roll over. They sued, claiming the family had illegally breached disclosure rules or something. There was a long legal battle that dragged on until 2014, when a French court ruled that the family's actions were lawful. In the end, LVMH had to sell down its stake, and the family's control was cemented. Luna: How did the family manage to get fifty-two relatives to agree? That's a lot of different branches, different interests. Lucas: That's the fascinating part. The family had been preparing for a succession crisis for years. They had a family council, regular meetings, and a clear governance document known as the 'family pact,' which outlined values and decision-making processes. When the threat came, the trust was already there. They voted quickly because the groundwork had been laid long before. Luna: So the lesson for other family businesses is that you have to build governance structures before the crisis hits, not in the middle of one. Lucas: Exactly. Hermès didn't just react; they had a plan already embedded in their family culture. And that culture is what makes them unique. They even rejected a proposed merger with Louis Vuitton back in the 1990s because they didn't want to compromise their independence. Luna: Speaking of that culture, I read that the family still insists that all CEOs come from within the family and must serve an apprenticeship in at least three different divisions before becoming head. That's a ten-year training. Lucas: That's right. The current executive chairman, Axel Dumas, a sixth-generation member, started as a leather goods salesman. He didn't just inherit the job; he earned it. That's the kind of deliberate succession that prevents internal power struggles. Luna: It's almost the opposite of what we saw with the Kerkorian family and MGM, where a lack of family involvement led to loss of control. Lucas: Totally different approach. Hermès treats the business as a long-term asset to be preserved, not a commodity to be flipped. And the financial markets actually reward them for it. Their compound annual growth rate over the past decade is one of the highest in the luxury sector. Luna: So the defensive move didn't just work; it also enhanced the brand's mystique. 'The family that can't be bought' is a great marketing story. Lucas: It is. And that brings me to something I've been thinking about. If these conversations about family business strategies have been useful for your own work or your own company, there's a simple way to support the show. It's ad-free because of listeners like you. Luna: Yeah, I feel the same way. When someone tells me they've used a tactic we discussed, it makes the whole research worthwhile. Lucas: Exactly. So if today's episode was worth a coffee to you, the link is buy me a coffee dot com slash fexingo. That's it. No pressure. And now back to Hermès. Luna: So after the H51 structure was in place, did the family become complacent? Or did they keep innovating governance? Lucas: They kept evolving. In 2021, they created a new holding company called H2 that sits above H51, essentially a double fortress. They also introduced a loyalty share program that gives long-term shareholders double voting rights, further discouraging short-term raiders. Luna: So they're constantly reinforcing the castle walls. Any other takeaways for business owners listening? Lucas: The biggest one: don't rely on sentiment alone. Legal structures matter. If you want to keep the business in the family, get a good lawyer early and negotiate a family pact before you even need it. Hermès proved that prevention is far better than a poison pill. Luna: And that the family can be the greatest asset or the greatest liability. Hermès clearly built a culture of trust. Lucas: Right. So next time you see a Hermès scarf, remember: that silk isn't just fashion. It's a symbol of a family that refused to sell its story.