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Feb 5, 2016
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Succession issue looms large at world's top glasses maker

Feb 5, 2016

For a man who created the world's leading eyewear company after growing up in a Milanese orphanage and learning metalwork in a tool shop, the issue of who to hand it on to should be relatively easy.

But Leonardo Del Vecchio's return to the helm of Italy's Luxottica, owner of Ray Ban and Oakley sunglasses, at the age of 80 and insistence none of his six children should carry the burden of such a big firm beg the question of who might fit the bill.

His renewed hands-on role follows the departure of his third CEO in 17 months and three sources close to the company say other managers have also left.

Positions are not being filled, two of the sources said, complicating Del Vecchio's avowed search for a second-line manager from within to step up to the plate.

The governance issues coincide with signs of fatigue in the company's main market, North America, and slowing growth in emerging markets. Del Vecchio has pledged to develop e-commerce, where the company lags, investment that could hit profitability.

Luxottica has ambitious growth plans and a reputation for top-notch managers. Most analysts recommend holding onto the stock or buying more, citing a leading position in an industry set to expand as image-conscious consumers age.

The share price has lost 9 percent since the announcement del Vecchio was formally back in charge but remains up 30 percent since the first of the trio of CEOs left.

One source said the departure of long-term boss Andrea Guerra in September 2014 had been followed by that of around a dozen first and second line managers, including the latest head of marketing.

Last year, the group lost Fabio D'Angelantonio, a manager close to Guerra who was in charge of marketing and oversaw retail chain Sunglass Hut. He was replaced in August by Stefano Volpetti, with Sunglass Hut regional chiefs left to report directly to the CEO.

Two of a total of four sources who spoke to Reuters about the company, asking to remain anonymous due to the sensitivity of the matter, said Volpetti had quit and may not be replaced.

A spokesman for Luxottica confirmed Volpetti had left in December for personal reasons and said any decision on his replacement would be announced in due time.

Analysts warn uncertainty at the group after former Procter & Gamble executive Adil Mehboob-Khan lasted only a year as Luxottica's latest CEO could put candidates off.

One of the sources said del Vecchio's concentration of power made it look as if that did not matter much to him.

"The plan he has in mind is himself," the source said.

The company did not make Del Vecchio available for an interview. He has been quoted as saying he is already looking for a successor inside the company and could step down after 2017.


When Guerra left, Del Vecchio's eldest son Claudio, CEO of U.S. clothing company Brooks Brothers, was seen by some as a possible candidate. He headed up Luxottica's operations in North America and subsequently served on the board.

But his role ended when the board was renewed in spring 2015. In a letter to employees the previous October, Del Vecchio said he would keep his family at arms length from the company.

"I would like to reassure you that through these changes there hasn't been and there never will be any influence from my family, numerous and complex, which for this reason I love intensely and equally in its entirety."

The following month, Del Vecchio cut the stakes held by his six children in holding company Delfin, whose 66.5 percent Luxottica stake has made him one of the world's richest people.

They were allocated 12.5 percent each so he could leave a 25 percent stake to his second wife, whom he remarried in 2010.

After Guerra left, Luxottica switched to a two-CEO structure, a move seen by critics as an attempt to divide power.

As executive chairman, Del Vecchio is taking on Mehboob-Khan's responsibility for markets while Massimo Vian will stay on as CEO for product and operations.

An engineer who joined Luxottica in 2005, Vian told Reuters last week he and Del Vecchio shared the same vision on production - the side of the business the billionaire is known to be passionate about. "He's always been involved," Vian said.


The latest change at the top comes at a delicate juncture for the company, which trades at a premium versus peers - leading Goldman Sachs to recommend selling the stock. reut.rs/1Ste2rd

Luxottica, whose 2015 revenue rose 15.5 percent to 8.8 billion euros helped by the dollar's strength, warned in October profit growth may slow as it steps up investments in retail and logistics.

Carlo Alberto Carnevale, a strategy professor at Milan's SDA Bocconi School of Management said Luxottica's network of more than 7,000 shops globally had held back e-commerce investments. Online sales account for around 4 percent of the total.

"The fear of cannibalizing its retail business as well as of being forced to level out prices - hurting margins - have slowed progress on the online front," Carnevale said.

Luxottica last year started aligning prices globally, a decision one source said was taken directly by Del Vecchio.

The billionaire has been a constant presence over the past year at Luxottica's Milanese headquarters, getting increasingly hands on.

"Although we have great respect for the visionary founder, we fear that the octogenarian Leonardo Del Vecchio might not be considered the best candidate to run a 9-billion euro sales company - especially while facing sub-optimal growth in emerging markets and e-commerce challenges," Citi analysts said.

Research on 10,000 family-owned Italian companies shows performance usually worsens after the person in charge reaches 70, said Guido Corbetta, an Italian academic specializing in family capitalism. But there are exceptions.

"What's remarkable about companies like Luxottica, or (fashion house) Giorgio Armani or (supermarket chain) Esselunga is that they do so brilliantly though headed by somebody in their 80s," he said.

"This could lead them to think they have all the more reason to be there ... leaving the succession problem fully open."

Corbetta said a sale could settle any disagreements among Del Vecchio's heirs and some analysts have also flagged the possibility. Luxottica has explored a tie-up with French lens maker Essilor, but dropped it for reasons including shareholding governance issues.

Two sources familiar with Del Vecchio's thinking said a sale was unlikely.

"He'd rather die. Luxottica is the most important thing in the world for him," one source said.


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