Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / How the Lauder Family Built an Estee Lauder Empire Without Losing Control
Transcript
- Lucas: Most people know Estée Lauder as the brand behind Advanced Night Repair and the little free samples you get at the department store counter. But behind that brand is one of the most carefully engineered family-control stories in American business. Luna: And I've always been curious how a company that went public thirty years ago can still be run like a family business. The Lauders do not own a majority of the equity, yet they hold the vast majority of the votes. Lucas: Exactly. And if these conversations have moved your work forward in some small way — helped you think differently about your own business or career — listener support is what keeps this show ad-free. You can find us at buy me a coffee dot com slash fexingo. Now, back to the Lauders. Luna: Yeah, and we should start at the beginning, because the founding story is very much a New York City kitchen-table story. Lucas: 1946. Estée Lauder, born Josephine Esther Mentzer in Queens, was already mixing her own skin creams in a makeshift lab. Her husband Joseph Lauder handled the business side. They started with four products sold to beauty salons and hotels. By 1948, they had a department store account — Saks Fifth Avenue — and Estée personally stood behind the counter, demonstrating products and chatting up customers. Luna: There is a legend that she would deliberately spill a jar of cream on the floor so she could kneel down and start talking to a customer about how wonderful it smelled. Lucas: That is the story. She built the brand one personal interaction at a time. But by the 1960s, the company was growing fast and needed capital. The Lauders faced the classic family-business dilemma: how do you fund expansion without giving up control? Luna: Most families either stay private and grow slowly, or they sell out. The Lauders found a third path. Lucas: They went public in 1995. But the structure of that IPO is the key detail. Estée Lauder Companies listed on the New York Stock Exchange, ticker symbol E-L — but the family issued two classes of stock. Class A shares, sold to the public, had one vote per share. Class B shares, held by the family, had ten votes per share. Luna: So at the IPO, the family owned roughly 37 percent of the equity but controlled 87 percent of the voting power. Lucas: That ratio has shifted over time as the company issued more shares for acquisitions and stock-based compensation. But even today, the Lauder family holds about 85 percent of the voting power. That is a remarkably tight grip for a company with a market capitalization over fifty billion dollars. Luna: And it is not just the dual-class structure. They have a family office — the Lauder family office, which manages the family's wealth and also coordinates their voting. They have a family constitution that lays out who can work in the business and who cannot. Lucas: Leonard Lauder, Estée's son, was the CEO who took the company public. He once said the family rule is: you can work in the business only if you are qualified, and you must start at the bottom. No nepotism appointments to the C-suite. His own son, William Lauder, started as a summer intern in the Clinique marketing department. He eventually became CEO in 2004. Luna: And now William's son? That is the fourth generation coming up. There is a Gary Lauder, who is a venture capitalist and sits on the board, and then there are younger Lauders in their twenties and thirties. Lucas: The family has been careful about dilution. In 2008, when the company needed cash during the financial crisis, they issued preferred stock — not common equity — so the family's voting power stayed intact. They also used a poison pill provision to prevent any hostile takeover, which was renewed as recently as 2023. Luna: Dual-class structures are controversial. Institutional investors like BlackRock and Vanguard often oppose them. The argument is that one share, one vote is the only fair system. But the Lauders have managed to keep their structure, in part because the company has performed well. Lucas: The stock has returned about twelve percent annualized including dividends since the IPO. That is competitive with the S&P 500. And the family has been smart about governance — they have independent directors, they have a lead independent director, and the board has a majority of independents. It is not a rubber-stamp board. Luna: So they have kept control, but they have also professionalized the management. The current CEO, Fabrizio Freda, has been in the role since 2008. He is not a family member. But the family chairmanship has always been a Lauder. Lucas: That is a common pattern in successful multi-generational family businesses: the family controls the board and the strategic direction, but day-to-day operations are run by non-family executives. The Brown family at Brown-Forman does the same thing. The Wallenberg family in Sweden does it on a much larger scale. Luna: But the Lauders have something else going for them, which is the brand itself. Estée Lauder is not just a company — it is a name. And the family is very protective of that name. Lucas: There is a famous story from the 1970s. Estée Lauder herself once walked into a department store and saw that a sales clerk had placed a competitors product next to hers on the counter. She reportedly picked it up, dropped it on the floor, and said, 'That does not belong here.' Whether that is true or apocryphal, it captures the ethos. Luna: And that protective instinct extends to the family's internal rules. There is a strict non-compete clause for family members. If a Lauder wants to work outside the company, they cannot work for a direct competitor. If they do, they forfeit their shares. Lucas: That is a powerful mechanism. It keeps family members from leaving and then competing against the family business, which has destroyed many family empires. The Gallo family had similar rules for decades. Luna: What about the next generation? You have William Lauder, who is executive chairman. His son, I think, is in his late twenties. Do we know if he is being groomed for the top job? Lucas: The family does not comment publicly on succession planning. But the pattern suggests they will follow the same process: outside experience first, then a role inside the company, then perhaps the board. It will not be a coronation. It will be earned. Luna: One thing that strikes me is how the family has managed to stay united. There are no public feuds, no lawsuits between siblings. Compare that to the Gucci family, which tore itself apart, or the Redstone family at ViacomCBS. Lucas: A lot of that comes down to the family office. The Lauder family office is not just a wealth manager. It acts as a forum where family members discuss their goals, resolve conflicts, and make collective decisions. They have a family council that meets regularly. They have a written family mission statement. Luna: So the governance infrastructure is designed to prevent the kind of blow-up that happens when personalities clash. It is almost like a mini-constitution for the family itself. Lucas: Exactly. And the dual-class stock is part of that. Because the family controls the vote, they can make long-term decisions without worrying about quarterly activist investors. They can invest in brands like Aveda or Origins that take years to become profitable. They can also make acquisitions like Tom Ford Beauty, which they bought in 2006 and then expanded into a billion-dollar franchise. Luna: But does the dual-class structure survive the founder generation? Leonard Lauder is ninety-one years old. His son William is sixty-one. The next generation may not have the same stature. Lucas: That is the existential question for any family business with dual-class shares. In theory, the structure can last as long as the family holds the B shares. But if the family sells those shares, or if the next generation decides to cash out, the control mechanism dissolves. So far, the Lauders have shown no interest in selling. The family's wealth is overwhelmingly concentrated in the stock. They have a lot of incentive to keep it. Luna: And they have also been careful about the family's reputation. Estée Lauder has been a force in philanthropy — the family has donated hundreds of millions to breast cancer research, to museums, to Jewish causes. That builds goodwill, which strengthens the brand and the family's legitimacy. Lucas: The breast cancer campaign is a good example. The pink ribbon, the fund-raising walks, the special edition products — that started as a family initiative and became a signature of the company. It is hard to separate the family identity from the corporate identity. Luna: So what is the lesson for other family businesses? The Lauder story is not just about the product or the marketing. It is about the intentional design of the capital structure and the governance framework. Lucas: I would say the lesson is: if you want to stay in control while accessing public markets, you need to engineer that control before you go public. You cannot add a dual-class structure after the IPO. You need the vision to see the long-term threat of dilution and the discipline to accept a lower valuation in exchange for control. The Lauders accepted that the public market might price their stock at a discount because of the limited voting rights. But they decided it was worth it. Luna: And they have proved that a family-run public company can compete with the likes of L'Oréal and Procter & Gamble. That is not easy. Lucas: It is not. But it helps when the family name is on every lipstick and every jar of face cream. The Lauders understand that the brand is the asset. They have protected it for three generations. The question is whether the fourth generation will have the same commitment. Luna: That is a question we will probably revisit in ten years. For now, the Lauder family stands as one of the few examples of a family that successfully went public and retained control into the third generation. Lucas: And they did it without selling out, without fighting, and without losing the magic that Estée started in that Queens kitchen. That is worth studying.