Why does it matter who controls a giant watchmaking, jewellery and fashion brand corporation?
For most people, it seems like an Apprentice style sideshow. But the battle for boardroom control at Richemont has long term implications. If you read the history of business, then you’ll know that it’s usually the product line that suffers when things get messy at the top.
To recap; Swiss law is slightly quirky as regards having two sets of shares in a company with voting rights. More importantly, there is a variable percentage allocation of decision making, between Preference A/B shares. In short, the balance of power is not defined by the number or percentage of shares held in the company.
One big investor wants a key C suite executive position on the Board at Richemont to oversee their investment and call the shots. The old guy who runs the show at Richemont doesn’t want that to happen and so a dogfight is in progress. With me so far?
The latest press release suggests the fight is going to be a long, bitter one.
“On 15 August 2022, the Board of Directors (the ‘Board’) of Compagnie Financière Richemont SA (the ‘Company’) provided additional information regarding the Company’s 2022 Annual General Meeting. Since then, the Board has received queries from Bluebell Capital Partners LP (‘Bluebell’) in relation to items 4.1 and 5.17 of the Notice of Meeting and the related Board recommendations. In the spirit of transparency towards shareholders, the Company is providing the following additional information on the queries and the Company’s response.
Bluebell has asked the Board to withdraw its recommendation not to elect Mr Francesco Trapani if he were to be designated as representative of the holders of ‘A’ shares. To Bluebell, this recommendation is inadmissible because it is made without a valid reason within the meaning of Swiss law.”
What does that corporate waffle mean?
It means that Bluebell asked the Board to stop demanding their guy was not elected to the Board. They did that in confidence. Then Richemont decided to go public, so they can shame them a little bit, claiming it’s not legal. Everyone in business knows you can sue, and argue about the corporate structure and the people involved for years if you have the cash. Legal means nothing, Swiss corporate law is there to be challenged, ignored or even modified by force. The EU proved that years ago.
LESSONS FROM HISTORY
Long ago motorcycle giants like BSA-Triumph and Harley-Davidson had boardroom fights.
Famously, BSA-Triumph collapsed in 1972 after 5 years of in-fighting following the appointment of Lionel Jofeh as Managing Director in 1967. Jofeh famously said he didn’t like motorcycles, which is probably one of the many reasons why the Ariel 3 wheeler and other Umberslade projects, soaked up development time and cash. Meanwhile the modular range of twins and triples never made it off the drawing board in the late 60s as the Japanese began making bigger machines.
Jofeh resigned in 1971, but BSA collapsed the following year.
In the 1980s Harley-Davidson was blessed with tariff protection by the US government, which gave it breathing space to develop new bikes instead of relying on ancient V-Twins forever. At that point Willie G Davidson, the guy who styled bikes like the Low Rider and Fat Boy pretty much established a fiefdom within H-D. His word was God’s Law.
But although Harley-Davidson made a ton of money in the 1990s and early 2000s from finance plans, plus merchandising the brand name, it has spectacularly failed to make serious money by building and selling motorcycles in volume. Moreover, the V-Rod should have been in production a decade earlier, alongside a Buell type sportsbike, probably featuring an engine tuned and derived from Aprilia, KTM or Ducati.
Even today, where’s the 500cc A2 entry level dual purpose/trail bike and 600/650 retro cruiser from Harley?
As a company, you pay a high price for having one person appoint himself – or herself – Caesar at the top of an empire. For although a unique, personal vision can be made into metal and gears, the long term effect is always the same; more time is spent fighting wars of ideas, power and management, than developing the products that will sell mass-market.
Richemont needs to learn that lesson fast, or the watches it produces in future will reflect the turmoil within.