Cut from the right cloth?


Author: Amy Collins


Recent board moves have reignited the discussion in relation to the composition of luxury fashion brand boards. In June of this year, Alexander Wang, Creative Director of the eponymous label he launched in 2005, added the roles of Chief Executive and Chairman to his list of responsibilities. Meanwhile, just a few weeks later, Burberry moved in the opposite direction, when it announced that Christopher Bailey, its Chief Executive Officer, was to hand over control of the company’s day-to-day management as part of a board overhaul prompted by criticism from investors. Luxury goods veteran Marco Gobbetti is to take over from Bailey as Chief Executive, whilst Bailey will become President, alongside his existing role of Chief Creative Officer.

It is understandable that fashion brands would be inclined to build their businesses around their creative heartbeat. However, it is rare for creative directors to have the kind of business skills or experience that make them the best choice to run multi-billion dollar global brands. Certainly, such individuals will need to be aware of their limitations, and ensure that they are surrounded by colleagues with complementary skill sets if such an arrangement is to work well.

The composition of a senior management team is not just a cultural issue – it is subject to legal considerations too. Every director of an English company has a fiduciary duty towards the company to act honestly and in good faith in the best interests of the company. Directors also have statutory duties under the Companies Act 2006, including a duty to exercise reasonable care, skill and diligence. Under section 174 of the Act, a director must exercise the care, skill and diligence that would be exercised by a reasonably diligent person with both:

  • the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company (the objective test); and
  • the general knowledge, skill and experience that the director actually has (the subjective test).

So, at a minimum, a director must display the knowledge, skill and experience set out in the objective test, but where a director has specialist knowledge, the higher subjective standard must be met. In applying the test, regard must be had to the particular director’s functions, including his specific responsibilities and the company’s circumstances.

Directors who doubt their own ability to take on a particular role should make sure that in accepting the office they are not accepting responsibilities that they will be unable to discharge.

If shareholders are dissatisfied with the performance of a group, they may look more closely at the roles being undertaken by particular members of the board and question whether or not they have the requisite skills to perform those roles. If a director is not satisfying the objective and subjective tests prescribed by law, he or she could be in breach of statutory duty and open to a claim.

Creativity and passion for the brand will be central to the success of a top luxury fashion business, but board members need to take care to ensure that they have the right skills for the specific roles they take on. It would appear that industry experience is becoming less of a prerequisite when luxury retail brands look to fill senior executive positions. At the same time as the announcement that Christopher Bailey was to step down from his Chief Executive role was made, Burberry also announced that it had poached Julie Brown from medical supplies group Smith & Nephew to serve as its Chief Operating Officer and Chief Financial Officer. For luxury fashion brands, the challenge going forward will be to ensure that the creative vision of the business is not lost amid the acquisition of these elite business skill sets.

Amy Collins, Partner, Fladgate LLP (acollins@fladgate.com)

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