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Executive changes at Inditex take the market by surprise and leave investors uneasy

By Angela Gonzalez-Rodriguez


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Business |ANALYSIS

Image: Zara, Spain official website

Inditex, the world’s largest apparel retailer, took the market by surprise when it announced changes at the helm. The departure of Pablo Isla and his replacement with the group’s founder’s daughter, Marta Ortega, as well as new CEO’s appointment dragged the company’s shares and left investors uneasy.

On Tuesday, Inditex became the value that fell the most at the opening of the trading session at the Spanish Stock Exchange, following the retail group’s announcement of Chairman Pablo Isla’s departure and replacement by Inditex’s founder’s daughter Marta Ortega as of March 31, 2022. “I have always said that I would dedicate my life to building upon my parents’ legacy, looking to the future but learning from the past,” Marta Ortega said in a statement.

“The doubts [about the succession] that existed don’t exist any more,” said a person close to the matter quoted by the ‘Financial Times’, adding that “We now know what is going to be in place

New corporate governance model

Marta Ortega, the daughter of Amancio Ortega, the company’s founder and owner of 60 percent of Inditex’s shares, will become the company’s chairwoman on April 1. She has worked for Inditex for 15 years, focusing on developing Zara brand. She is expected to continue to oversee that area, according to the company.

There will be some differences though. Inditex advanced that unlike the now former chairman Pablo Isla, Marta Ortega would not be executive chair, as Inditex would be adopting a more “Anglo-Saxon” corporate governance model. This newly created management committee will be formed by the heads of the different brands together as well as other executives such as the head of human resources and the chief financial officer.

That committee will “beef up” Inditex’s leadership during the transition, Cedric Rossi, an analyst at Bryan Garnier said. “Although this transition phase seemed to have been prepared internally, the departure of Pablo Isla may leave a great void in the near-term,” he further added.

“Bad news” for investors

At the same time, Pablo Isla will finish his 17-year tenure at Inditex the last day of March. He told analysts and reporters that the company had been preparing the changes behind the scenes for some time. “Making this transition a reality is the culmination of my commitment to Inditex and to Amancio Ortega,” said Isla at a press conference.

“We are doing this now because it is an optimal moment,” added Isla. “We are very solid, we have a well-defined strategy, fantastic teams in every area . . . Obviously we have been preparing this transition for some time, in a discreet way, as we generally do things in Inditex.”

Those didn’t seem to give much peace of mind to investors, with Alantra Equities calling the management changes “bad news” as Isla is difficult to replace and the new CEO doesn’t have experience in retail.

Inditex will also see its CEO, Carlos Crespo, replaced by Óscar García Maceiras. The former will be returning to his former job as chief operating officer after a term marked by the pandemic, which caused record drops in retailers’ revenue. García Maceiras, general counsel and secretary of the Inditex board, will take over immediately as chief executive.

He joined Inditex eight months ago as general secretary and secretary of the board. He previously held executive positions at Banco Popular and Banco Santander SA.

Surprise organizational announcement weights Inditex trading

On the wake of the news, shares in Zara’s parent group fell 6 percent. Inditex market capitalization stands at 88 billion euros, making the group the largest company by market value in Spain. Tuesday’s announcement took markets by surprise, although the group said it marked the completion of a “generational handover process” that began in 2011, when Pablo Isla, the outgoing executive chair, replaced Amancio Ortega himself.

In this regard, Lorenzo Bernaldo de Quirós, president of Freemarket consultancy highlighted that “One of Amancio Ortega’s great successes is that he professionalised the company and reduced the role of the family.” He pointed out that “This is a backward step.”

Pablo García from Divacons Alphavalue highlighted in a conversation with ‘Estrategias de Inversion’ that this was a logical transition, a generational change that responds to a need to move forward. “It has been managed very well, but this always causes uncertainty.”

Image: Zara official web