Sample Management Essay Paper on Hermès


  1. What is the distinctive strategic model at Hermès and how does it relate to being a family business?

Since its founding, Hermès has use one strategic model distinguishing it from its competition: achieving the highest product quality and standard using the finest in material and craftsmanship. The company has used this model throughout its operation years even as it diversified its product lines. Rather than bow to the pressure of industrialization, the company has maintained its tradition, employing only the best artisans, who produce masterpieces through great craftsmanship (Crawford et al., 2014). Hermès focus on quality and craftsmanship follows the company’s philosophy established by the founder, Thierry Hermès, and passed down to successors, all of who were family members. Moreover, the choice of the family member to pass down the reins of the company follows similar careful scrutiny, through an apprenticeship program. The program’s aim is to recognize and retain individuals in the family who have proven business savvy, as well as have the disposition to honor, sustain and develop the family legacy.

  • What is the difference between a public and a private company? Can a public company still be run like a private family business? What do you think?

The difference between a public and private company lies on the shares of the company, wherein while public companies have their shares traded on a stock exchange, private companies are not. Trading on the stock exchange means that the public company has access to capital and liquidity by selling its shares. Private companies, however, do not have such a luxury. Listing on the stock exchange, is possible for family companies, with a possibility of maintaining company traditions. Listing requires at least 25 percent of the company’s shares be held by outside shareholders. Such leaves a 75% controlling stake, making it possible to run a public company like a private family business.

  • Why would a family business go public?

A family business may consider going public to raise funds for expansions in instances when the retained profits are not enough for such expansions. Going public through an IPO (initial public offer), therefore presents a way to raise funds, for such expansions, while at the same time fulfilling the family’s desire to take some more off the table without necessarily cashing out entirely. Additionally, a family business may also seek to create a higher profile and assuage fears among customers and suppliers over the credibility of the company. By offering employees the option of buying into the company, a family business may go public as a way of retaining top talent.

  • How did Bernard Arnault manage to get an ownership stake? Why is he a threat when the family still owns 70%?

Arnault hid his intentions to get ownership in Hermès through financial derivatives (Crawford et al., 2014). He accumulated cash-settled equity swaps contracts through investment companies, allowing him to circumvent legal requirements. Through such circumvention, he was able to acquire a stake in Hermès when it floated its stock in the IPO. Despite the family owning 70% of the company, Arnault is a threat given his chairmanship at LVMH, where Hermès owns a stake. He is a threat in that through Hermès stake in his group, he can launch a hostile takeover bid on Hermès as he tried in 2010 (Crawford et al., 2014).

  • How did Hermès defend itself? What was the rationale behind this move? What are the economic consequences of creating a trust for the family members and for the owners and investors?

Hermès redesigned its ownership structure as a defense against hostile takeover and protection of family legacy. By establishing a holding company that would prevent at least 51% shares from family members from being transferred in the next 20 years (Crawford et al., 2014), Hermès ensured that the family would always have a controlling share in the company. While the move is protectionist against hostile takeovers, creating trust means that family members, owners, and investors do not have the option of a buyout. They, therefore, remain tied to the company without the option of getting their investment through the selling of their shares.


Crawford, R., J. et al. (2014). Hermès Paris. Insead