Avon needs bold change as Jung's CEO tenure ends

Wed Dec 14, 2011 4:33pm EST
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By Jessica Wohl

(Reuters) - Avon Products Inc's (AVP.N: Quote) decision to look outside its walls for a new CEO is viewed as an admission that the cosmetics brand needs a major overhaul rather than the small make-overs it has undertaken in recent years.

Shares of Avon surged as much as 11 percent as Wall Street welcomed the prospect of new leadership at the world's largest direct seller of cosmetics, which has been criticized for resting on its laurels while other direct sellers and traditional beauty companies ate away at its dominance.

Late on Tuesday, Avon announced it would split the roles of chairman and CEO next year, with current chief Andrea Jung moving into an executive chairman role for two years or more, after the company finds a new CEO from outside its ranks.

The lack of an internal candidate is not a surprise, as Jung had run operations without a president or chief operating officer for years. Plus, Avon already moved its former chief financial officer, Chuck Cramb, into a new post overseeing developed markets such as the sluggish United States. But the company pushing Jung out of the CEO spot left some questioning the board's actions.

The apparent lack of succession planning is "an extraordinary indictment of the board," said Mark Cohen, professor at Columbia Business School and former CEO of Sears Canada.

Avon, famed for its "Ding Dong, Avon Calling," campaign of the 1950s and 1960s, saw stellar growth through to the early 2000s as it expanded internationally, bringing the prospect of a career -- or extra pocket money -- to women in locales as diverse as South Africa and South Korea.

However, Avon took its eye off direct-sales competition, such as Brazil's Natura (NATU3.SA: Quote) and Sweden's Oriflame ORIsdb.ST, as well as traditional beauty businesses like L'Oreal SA (OREP.PA: Quote) and Procter & Gamble Co (PG.N: Quote) heading into new markets.

It is still dealing with the fallout from a bribery investigation that began in China in 2008, and the slow process of moving to a direct sales model there.   Continued...