The Rules of Business Strategy 3: Don’t go public if you want to keep control of the firm

David Bruce Allen

Anita Roddick, in one of her customary failures of common sense, is surprised that The Body Shop loyalists are angry at her for selling out to L’Oreal, which engages in animal testing.

We would like to inform long-term The Body Shop customers that Ms. Roddick actually lost control of the company when it went public in 1984. The moment to get mad was then, not now. Everything that has happened since then has followed the most fundamental of corporate governance which states: A CEO, even if he or she is the founder of the company and owns a controlling interest in the company, will be fired for not making money.

By 1990, Body Shop shares tanked thanks to a poorly planned international expansion. Finally, after struggling for nearly a decade, in 1998 Ms. Roddick was fired, and Patrick Gurney from Danone, the people of the perfect bodies (not Ruby, the normal woman Ms. Roddick was championing) took over to begin restructuring. The sale to L’Oreal this past March 19th was simply the culmnation of a process that began 22 years ago.

What is Ms. Roddick's view of the process? In a visit to IE Business School two years ago, she confirmed that she should never have gone public. When I asked Roddick why she did not buy back the company, all she could say was that "I tried, but it wasn’t possible."

Other entrepreneurs such as Guy LaLiberté, who co-founded Cirque du Soleil in 1984, have been more astute about control. In 1998 he bought out his partner to become sole owner, ostensibly to protect the firm’s unique product. Repeatedly he has said, "I won’t go public … it would kill our creativity."

Of course, what Mr. LaLiberté really means is that going public means answering to shareholders. LaLiberté, who is ranked number 562 on Forbes’s list of the world’s richest, understands how much fun it is to have to answer to no one. Of course, there are those who would argue that the discipline of the stock market would make Cirque du Soleil more efficient. Others would remind us that with so many employees and other stakeholders dependent on Cirque du Soleil, LaLiberté view that the company is his and his alone is socially irresponsible.

I wonder if anyone has asked Mr. LaLiberté if he has a succession plan.

Tags(clickable): The Body Shop, Cirque du Soleil, LaLiberte,