How the Bettencourt family spat has put the future of L’Oréal in doubt

Sarah Butler

A family torn apart by a battle over unimaginable wealth – featuring a butler making secret recordings, Nazi sympathisers and a charming younger man lavished with gifts.

This story is not plucked from the shelves of a bargain bookstore – it has unfolded on the pages of the Financial Times and Le Monde.

The family in question heads one of France’s leading companies, L’Oréal, the cosmetics giant which supplies hair salons and ladies (and men) who tint around the globe.

Liliane Bettencourt, the daughter of the company’s founder, has been placed under the guardianship of her 25-year- old grandson, Jean- Victor Meyers, after fears that she was being swindled out of millions of euros. The judgement ends a three-year feud with Liliane’s daughter Françoise Bettencourt-Meyers. Betten- court-Meyers believed her 89-year-old mother was being manipulated by her financial advisers and the society photographer François-Marie Banier, a younger man she said ‘amused’ her.

Recordings made by Liliane’s butler appeared to support fears she had handed Banier gifts thought to be worth more than €1 billion, including an island in the Seychelles, and was planning to leave him much of the rest of her fortune, outside her L’Oréal shares, in her will. He has now been arrested and formally accused of fraud, money laundering and embezzlement.

“Recordings made by Liliane’s butler appeared to support fears she had handed Banier gifts thought to be worth more than €1 billion”

The public family spat and Liliane Bettencourt’s generosity has put the future of L’Oréal in doubt and brought a controversial family history to the fore. The debt L’Oréal owes to its family backers is in no doubt. Liliane’s father Eugène Schueller was working at the Sorbonne in Paris when he was asked by a barber to come up with a safe and effective hair dye. Within a year he had developed Aureole, a dye he named after a popular hairstyle of the time. The son of a humble pâtissier who partly paid for his son’s education in cakes, Schueller soon set up his own business selling the dye to hairdressers throughout the city. He then moved into shampoos, soaps and hair creams.

Over the next 50 years he ambitiously expanded his business, acquiring rivals as early as 1920. His grooming products were snapped up by women who had been liberated by the war, taking on previously male dominated jobs while men fought in the trenches.

L’Oréal may have benefited from women’s earning power but Schueller personally was against them having a role outside the home, according to Ruth Brandon, author of Ugly Beauty: Helena Rubinstein, L’Oréal, and the Blemished History of Looking Good. When Schueller’s only child Liliane was born in 1922, there was no question that she would be trained up to join the family business. ‘Schueller thought a woman’s place was in the home looking after children,’ says Brandon.

Instead, Liliane married André Bettencourt. He was a protégé of her father and, as a youth, had been a member of a violent fascist group which Schueller funded before the second world war. While Liliane stayed at home, Bettencourt and his college friend Françoise Dalle were like ‘surrogate sons’ to Schueller, according to Brandon. They were the ones mentored and trained up to lead the company.

When Schueller died in 1957, Dalle, who had risen from marketing manager to become Schueller’s right-hand man, became president and director general. It was Dalle who built up the research team and expanded abroad, buying rivals Lancôme and Garnier. André Bettencourt went on to become deputy chairman of L’Oréal, and oversaw the family interests in the company when Schueller died.

That pattern has continued into the next generation. Liliane’s daughter Françoise diverted her attention to writing studious books on Greek myths and the Bible while her husband Jean-Pierre Meyers has been on the board of L’Oréal since 1987 and is now vice chairman.

The family has also stuck by Schueller’s belief in outsiders, generally taking a back seat and bringing in professional managers to handle the day-to-day affairs of L’Oréal. That strategy has certainly served the company well, with Dalle’s successors Charles Zviak and then Lindsay Owen-Jones driving the company on to international expansion. It is now the biggest cosmetics company in the world, with annual turnover of €19.5 billion.

“The family has also stuck by Schueller’s belief in outsiders, generally taking a back seat and bringing in professional managers to handle the day-to-day affairs of L’Oréal. “

But Liliane Bettencourt has not been without influence. She held a majority stake in L’Oréal even when the company listed in 1963. In the mid 1990s her husband’s war-time writings for an anti-Semitic Nazi propaganda publication were revealed. Now a prominent politician, he admitted writing the articles but said they were the ‘errors of youth’ and that he had tried to rectify his mistakes by joining the French Resistance, albeit very late in the war. Still, he stepped down from L’Oréal and transferred his shares in the business to his wife.

Photo by Mat Reding on Unsplash

From that time, Liliane Bettencourt took a seat on the board of directors (from 1995), and sat on the strategy committee of the company. She also chaired the management and remuneration committee until 2007.

Even today, Liliane Bettencourt retains a seat on L’Oréal’s board of directors and its strategy committee. It’s a point which has worried independent shareholders who fear her judgment could be impaired or unduly influenced. Those fears were stoked in September when Liliane’s lawyer warned she was ready to declare ‘nuclear war’ on her daughter by reclaiming billions she had given her in L’Oréal shares. Independent shareholders have called on the octogenarian to resign and be replaced by an independent director, given the uncertainty created by the court cases.

Sources close to the family say there has never been any concern about the future of the Bettencourts’ stake in the business. They point out that, while Liliane retains the voting power over shares equivalent to about 30 per cent of the company, she signed over the ownership of nearly half those shares to her daughter some years ago.

However, Nigel Nicholson, an expert in family business matters at London Business School says that L’Oréal’s predicament suggests that its systems of governance have not developed sufficiently as the company has grown. He suggests the Bettencourt’s public fall-out could have been avoided if a family committee managed the whole family’s interest under which, for example, shares could not be sold, without agreement from all. Nicholson says: ‘The family needs to control itself and have a single voice of representation to the business so that the professionals can then be guided without being controlled by the family.’

“Nicholson says: ‘The family needs to control itself and have a single voice of representation to the business so that the professionals can then be guided without being controlled by the family.’”

Without those controls in place, the high-profile family fall-out has not only worried independent shareholders, it might also have implications for the Bettencourts’ relationship with Nestlé, a fellow major shareholder.

In 1974, amid fears that the company might be nationalised, Dalle oversaw a deal in which Liliane Bettencourt signed over nearly half of her shares to Nestlé in exchange for a stake in the Swiss company. Under a recently renewed shareholder pact, Nestlé agreed not to sell or increase its 29.7 per cent stake in L’Oréal until six months after Liliane dies. That pact runs out in 2014 when Nestlé could sell its stake without offering the family first refusal, or make a bid for L’Oréal. The Swiss firm has said it won’t take a decision until 2014.

Analysts say that L’Oréal’s share price is partly supported by hopes that Nestlé may make a bid. But the Swiss company could equally sell its shares. Although Nestlé has the resources to buy L’Oréal, it may find acquisitions in its core food markets more tempting. The recent legal battle and concerns over governance are only likely to help persuade them to look elsewhere.

Analysts say that L’Oréal’s performance has not been affected by the family feud. But doubts over the intentions of its major shareholders may yet bring more twists to the Bettencourt family’s relationship with their creation.