Private company, public good: why The Body Shop was never a family business

Gordon Roddick

Co-founder of The Body Shop

Together with his wife, Anita, Gordon Roddick founded and ran The Body Shop. They floated part of the company on the stock market in 1985, and then sold their remaining stake in the business to L’Oréal in 2006. Anita Roddick died in 2007.

We honestly didn’t ever feel that The Body Shop was a family business. Both Anita and I believed that ownership of a company should be a matter of merit, not nepotism. So perhaps we were lucky that neither of our daughters were interested in taking over from us, or in climbing the management ladder. They wanted to have their own life, and we wanted the business to thrive independently of our family.

Ironically however, our first attempt to find an independent existence for the business was a disaster. We sold some of the company to shareholders in 1985, and it was clear almost from the start that we’d made a mistake.
Instead of worrying about the business, we began to worry about the market. There was a relentless pressure for short-term performance, and we simply weren’t interested in that. Our focus was on our customers, employers, suppliers, franchisees – and not on the shareholders. Some shareholders, like Prudential, were happy with this. They understood our values and had invested in them; others were not.

“Our focus was on our customers, employers, suppliers, franchisees – and not on the shareholders.”

One source of constant unhappiness in the City was the fact that the founders controlled about 40 per cent of the business, so we were never a realistic takeover target. That made some investors very unhappy, as they preferred companies that were vulnerable.

I particularly minded that there were so few long-term shareholders; with a few honourable exceptions, most were in and out within a week. They bought when you looked good, and sold when you didn’t. Anita and I wanted to take the long view.

At the same time, we weren’t putting the management ahead of the shareholders as is the case in so many businesses. So there were no huge golden hellos, parachutes, massive salaries. We saw our remuneration in terms of our shareholding, so in that sense our interests were aligned with the markets.

When we realised the mistake that we’d made – getting involved with the stock market, an inherently short-term institution whose principles we didn’t share – we did try to escape.

Photo by rawpixel on Unsplash

Several times we looked at going private, but the numbers didn’t add up, as we’d have had to take on too much debt. On one occasion I asked one of our expensive advisers for a solution, and he said that in a few years we could take the business public again and pay off the borrowings. He simply didn’t understand where we were coming from.

Unable to go private again, and unhappy with the market, we needed a third solution. In part this was because we’d grown so fast, had 2,000 shops worldwide, nearly 30,000 employees or franchisees, and we felt we were getting too old and tired to run the business on our own.
The process of succession planning – which we felt we owed to our employees and share- holders – was a nightmare. You couldn’t replace someone like Anita, with such strong opinions and values and a natural gift for publicity. We wanted to protect the business, and felt that simply selling our remaining stake into the market would have meant surrendering much of what we’d worked for.

“You couldn’t replace someone like Anita, with such strong opinions and values and a natural gift for publicity.”

Then we met Lindsay Owen-Jones, the chairman and chief executive of L’Oréal. He had dinner with us because he said he wanted to meet the people who’d given him so much trouble over the years. The three of us really got on, and we continued to talk over the following year. We discussed our concerns about the company with him, and eventually he suggested that he could buy it.
It’s true that L’Oréal was a family controlled business as well – the Bettencourts and Nestlé between them have a controlling stake – but we weren’t influenced by that. We never met the Bettencourt family, what mattered to us was that we trusted Lindsay. Of course, he gave a number of undertakings that he would preserve the values behind the brand, but we knew that the written commitments meant nothing. What mattered was that we trusted him and his successors.

Nearly six years on, and L’Oréal has kept its promises. It has protected the independence of The Body Shop; supported our franchisee system; it has run some great campaigns (on women and violence, for example); it has invested in the business, and as promised has also introduced the idea of community trade into L’Oréal itself. I feel they’ve done a great job.

If you start a business that is based on powerful values – and the best businesses are – it’s incredibly difficult to ensure that those values endure when you leave. Anita and I didn’t believe the way to do this was by arranging for our children to inherit. We felt that would have placed an unbearable burden on them, and we saw inherited businesses as feudalistic, a throwback to an earlier aristocratic era. That’s not to say that Anita and I weren’t paternalistic despots, because we were. But the tyranny ended with us.

Your best bet is that the rectitude of your argument is persistently persuasive. We believed that we had built a business which was so founded on values that it would have been very difficult for a new owner to have undermined those values without destroying the business. The franchisee system helped too – having thousands of small business owners tied into our company helped cement our world view because they believed in it so strongly as well.
Anita and I believed that the best businesses, those that endure, are run ultimately for the public good. That’s what we set out to achieve with The Body Shop, and I hope we have managed to hand over that founding principle to the people who own and run it today.