Ralph Lauren is used to getting his way. In the mid-1960s, he couldn’t convince the tie company he worked for to sell a wider version of his design, so Lauren struck out on his own, building a fashion empire and becoming an icon in the process.
But now that he prepares to step down as CEO, the face of Ralph Lauren Corp. (RL) for 48 years no longer holds the reins. Beginning in November, Stefan Larsson, known for rebuilding lower-end retailers Old Navy (GPS) and H&M, will step into the role. Shares of the company have dropped 36% this year, but investors cheered the shift with a 9% bump a day after the news hit.
“Ralph’s age of 76 years old was not unnoticed by investors, and although we still believe he will have an influence on the company remaining as its chairman, we see succession planning as a natural part of the company’s lifecycle,” wrote Morningstar analyst Paul Swinand shortly after the announcement.
But the future success of Ralph Lauren Corp. and Larsson depends on Lauren’s ability to stay on as chairman and chief creative officer while not expecting to dictate every decision. “When a powerful founder steps down, the highest-risk move—but also the move with potentially the best result—is to keep the founder around,” says Harvard Business School professor and author of The Founder’s Dilemmas Noam Wasserman.
With Lauren remaining in a prominent role, the company keeps his name recognition, as well as his years of experience and creative talent that built the brand. That’s the good part, and Lauren certainly plans to stick around.
Where this succession could go wrong is if Lauren continues to demand control. And he’s already put his foot down. One day after the announced change, he sent employees a memo reiterating his position in the company. “I am not stepping down, nor am I stepping back. I am stepping up,” wrote Lauren, according to the memo.
This is where the prominent founder’s presence can backfire. If Lauren continues to dictate as chairman, then CEO Larsson may feel stifled. To see how this plays out, watch for the first major change that Larsson undertakes, notably one with which Lauren disagrees.
“Whenever a controversial decision comes up,” Wasserman says, “especially one that has the potential to change something that’s dear to the founder, such as replacing an early loyal member of the management team—all eyes will first go to the founder to see what he thinks, rather than to the new CEO where the attention belongs”
As an example, look no further than the same industry where Ralph Lauren does business. Men’s Wearhouse founder George Zimmer stepped down as CEO in 2011 after 38 years, bringing on Douglas Ewert as his replacement. But Zimmer continued to be the voice and face of the brand in commercials and at public events. In 2013, when Zimmer wanted more control in decisions, he clashed with Ewert and the board over executive pay and whether to take the company private. In the end, it was Zimmer who lost, while Men’s Wearhouse (MW) had to handle the fallout of firing its founder.
“Even when they are on the same page, the new CEO will face major challenges with taking charge of the company,” says Wasserman. “The best result comes from finding a targeted post-succession role for the founder in which the founder can continue to contribute his irreplaceable vision, cultural leadership, skills, and relationships.”
One of the best examples of a company founder stepping down while remaining a key part of the organization is Bill Gates, who resigned as CEO of Microsoft (MSFT) in 2000 and remained as chairman. Steve Ballmer, who took over as CEO, had helped build the company into a global icon from early on, but everyone recognized Gates as the face of Microsoft. Even after Satya Nadella replaced Ballmer as CEO in 2014, Gates remains a force in the company—offering advice, but not demanding control. Gates even relinquished his chairman title in 2014, becoming a technology adviser to the board.
Knowing how much power to give up is a fine line to walk for any founder. After nearly half a century, Lauren must figure out that balance, or he could find himself out of a job. He does seem prepared for some change, however, telling the New York Times, “When they start designing things I can’t understand, I’ll quit.”
That’s the right thing to say. Lauren’s memo, on the other hand, signals a far more difficult reality check ahead—not just for Ralph Lauren Corp. and Larsson, but for investors as well.