Corporate governance issues

No! What happened at Luxottica? Another management disagreement with the founder and major shareholder no doubt, Leonardo Del Vecchio, taking the co-CEO role from Enrico Cavatorta, who quit. Another company director, Roger Abravanel also quit. The board is revolting against Del Vecchio. Del Vecchio has not filled some key positions, some independent board members are threatening to quit unless the roles of co-CEO's are filled. For the time being, the other co-CEO who was set to be beside Enrico Cavatorta in the sharing role, Massimo Vian, he has been suspended by the board. There seems to be a corporate governance breakdown, that is what the two independent directors are alluding to. Perhaps the founder and main shareholder, Leonardo Del Vecchio, who owns more than 60 percent of the company is flexing his muscles a little too much.


The people buying sunglasses probably have little idea who owns the business and how it is run, the fact that the major shareholder (yes, the founder too) is possibly proving to be more than a little prickly. The statement, which deals with the I am in charge until further notice, when a suitable candidate is found, is followed by a sales update and profit guidance for the third quarter, which was inline with the markets expectations:


The Board acknowledged the Group performance of the third quarter, which shows a strong free cash flow generation, sales growth in line with the first half of the year at constant exchange rates and an expected increase in net income of approximately 10%.


I like the business a lot, it falls into a category of both healthcare and consumers globally trading up to fashionable and affordable luxury in eyewear. Perhaps the most noticeable of all luxury items, they sit squarely on your head. Protection of the eyes, it does a job too. I think that whilst the corporate governance issues are sorting themselves out, whilst the board is looking for someone to run the business, the company continues to “do well". Clearly shareholder influences will impact on the business, too much interference will see the company lose out to their competition. This is a negative event that has sent the stock plunging 9 percent, it is however an opportunity for us.