When Estée Lauder Cos announced last week that a long-time insider, Stéphane de La Faverie, was going to be its next CEO, many on Wall Street felt that the slumping beauty giant would have been better off choosing an outsider to really shake things up and bring in new perspectives more than a lifer could.
In contrast, Ross Stores, whose business is healthier than Estée Lauder's though softer than that of its direct rivals, chose an outsider in Jim Conroy, CEO of Boot Barn, despite him coming from a different kind of retailer and Ross's strong talent development machine.
The two appointments underscore how often the insider vs. outsider debate at a company is shaped by what can be contradictory pressures. Your company might need a bit of a shock to the system that new blood can bring, but it might also need someone who knows where the bodies are buried so that he or she can spring more quickly into action.
In de La Faverie, who takes the Estée Lauder reins on January 1, the company has a new CEO who knows the company intimately and has even helped craft its existing turnaround plan. What's more, his purview represents about half of its business, including brands like Jo Malone London and Le Labo. But Estée Lauder is dealing with ongoing difficulties, among them the slowdown in beauty spending after years of growth, the integration of its many acquisitions as well as current CEO Fabrizio Freda's outsized bet on China, a once hot luxury market that had sputtered. Given that, the board seems to have bet that it's more important for the next CEO to know the company's inner workings and move with speed.
De La Faverie, who has been at Estée Lauder for more than 12 years, "won’t have to go through a lengthy assessment and adjustment phase, and can start to implement changes quickly," wrote Linda Bolton Weiser, an analyst at D.A. Davidson. Then again, a long time insider might not be the change agent the 78-year-old beauty company needs. "Some in the investor community were likely hoping for an external hire who could lend a fresh perspective and make more dramatic changes to the organization,” wrote Oliver Chen, an analyst at TD Cowen last week. Estée Lauder investors got a big jolt last week when the company announced it was cutting its dividend in half to put more money back in the business.
While Freda was well regarded for years as his big bet on China paid off and sent Estée Lauder shares soaring, sentiment turned against him more recently as that luxury market faded. Complicating matters at Estée Lauder was that the succession planning became the epicenter of a battle between two branches of the founding Lauder family over whether to hire an insider or an outsider, according to the Wall Street Journal.
Ross Stores, an off-price retailer whose business relies on securing merchandise from vendors that weren't able to sell it via other retailers, went in the other direction. The board was clearly drawn to Conroy's strong track record at Boot Barn, where revenue rose five-fold to $1.67 billion in the last decade. (Boot Barn shares fell 20% on news of its star CEO's departure.) But Boot Barn is a far smaller retailer than Ross, which last year brought in more than $20 billion, and Conroy does not have any experience in off-price retail, in which the required skills executives must have are very specific.
Conroy replaces Barbara Rentler, a Ross Stores lifer who's been CEO for a decade. Still, like TJX, which operates Marshalls and T.J. Maxx, and Burlington Stores, Ross has ridden the "off-price" retail wave, but not quite as well as its peers, pressuring the board to choose a CEO who can close that growth gap but also open up its insular culture.
Ross Stores is, as one analyst put it, a "show-me story." But the chain is being given credit for strong succession planning. Outgoing CEO Rentler said in July 2023 that her plan calls for her to stay on as an advisor to Conroy for two years from February 2025. That is something Telsey Advisory Group’s Dana Telsey applauds because "Conroy is new to the off-price channel” and having a steady hand will help smooth the transition.
Earlier this autumn we saw the saw the same insider vs. outsider CEO debate play out at Nike and Starbucks. Nike in 2019 chose an outsider with no retail experience in former CEO John Donahoe, drawn by his background in tech. But after his disastrous tenure ended this autumn, Nike did a 180 degree turn and went to a Nike lifer, Elliott Hill, for his deep knowledge of the business and ability to rally the troops.
At Starbucks, they chose an outsider. But in former Chipotle Mexican Grill CEO Brian Niccol, the coffee store chain chose someone who has fixed a large chain of restaurants serving food and beverages and put it on a path of growth but also brings in a new outside perspective.
Choosing a CEO is an intensely complex matter for the search committees of corporate boards, with many factors behind why a company might choose an insider when an outsider might make more sense, and vice versa. "Board have to juggle a lot of considerations between the articulation of future strategy, skills, experiences, competencies, and then also the cultural and personal attributes," says Brenda Malloy, the CEO of Herbert Mines Associates, an executive search firm.
At Estée Lauder and Ross, each leader will need time to make their mark, but the stock market has already weighed in: Estée Lauder stock is down 20% since its insider appointment, while Ross shares are roughly at the same level since the news of an outsider joining.
