The last big Lauder gift?

April 11, 2013

The big news early this week in the often overlapping worlds of art, philanthropy, and sophisticated tax strategies was Leonard Lauder’s $1 billion donation of cubist art to the Met. It’s Lauder’s largest charitable donation to-date, and even though he has a long history of philantrophy and is still worth more than $7 billion according to Forbes, it’s unlikely he’ll ever make a bigger gift. Lauder’s wealth is tied up in Estée Lauder stock you see: he simply isn’t rich enough to give away much more money or add to his museum worthy art collection, and maintain his controlling stake in the family’s business.

The more likely scenario is that Leonard, along with his brother Ronald, will maintain their earlier level philanthropy. While large, their earlier gifts were far below the billion dollar level. Leonard has given $131 million to the Whitney, and Ronald is a large supporter of Jewish charities. Both brothers and their wives have also founded, endowed, and serve on the boards of numerous non-profits (the full lists run for text dense paragraphs on the Carnegie Foundation and Estée Lauder websites).

Despite their giving, the Lauder brothers’ net worth has increased.  According to the AP, they inherited a total of $5.1 billion in 2004. Per Forbes, Leonard’s wealth grew to $3.6 billion in 2008, and topped $8 billion just before his gift to the Met. Ronald’s net worth in 2008 was $3.4 billion, took a dive to $2 billion in 2009 and is now $3.6 billion. Particularly for Leonard, that’s not the pattern you’d expect from a lauded  philanthropist. Personal net worth should decline, not dramatically increase. That’s especially true late in life.

Estée Lauder’s proxy shows why Leonard’s wealth has increased so dramatically. As of 2012, Leonard owned 3.6 million class A shares and is the beneficiary of a trust that owns 90 million class B shares. The key difference between the A and B shares is that B shares have 10 times the voting rights whenever they are owned by someone whose last name is Lauder. As a result, Leonard holds a little over 53% of the voting power in company. Ronald holds a much smaller stake in the family business (about 11 million shares). Crucially for both Leonard and Ronald’s personal finances, Estée Lauder stock is up about 200% since 2004. So the fact that Leonard’s wealth is almost entirely tied up in a stock that has tripled, explains how Leonard managed to add $5 billion to his net worth in less than a decade.

It also means that his gift to the Met will probably be the last large donation of Leonard’s life and why, by his own high standards, his peak collecting days are behind him. To build the kind of collection he has given away, he told the NY that you have to be “focused, disciplined, tenacious and willing to pay more than you can possibly afford”.  If Leonard wants to keep control of Estée Lauder, more than he can afford isn’t that much, at least by the art market’s current high standards. He’s rich, but he doesn’t have enough liquid wealth to buy museum worthy art and keep 50+% of the votes in Estée Lauder. Even if you’re worth $7 billion, you have to make choices.

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