Sotheby’s goals and strategies have changed under its newly constituted board, but Bill Ruprecht, the firm’s savvy, steely CEO since 2000, may not have changed along with them. That’s my speculative takeaway from yesterday evening’s cryptic but not surprising announcement that Ruprecht and Sotheby’s would be parting ways.
In listening over the years to the quarterly conference calls with stock analysts presided over by Ruprecht, it seemed clear to me that the firm was veering away from strategies he had advocated before the ascension of activist investor Daniel Loeb (who had previously called for the CEO’s ouster). Loeb and his two handpicked candidates came on Sotheby’s board on May 28, after what the NY Times had called, “one of the bitterest corporate fights in recent memory.”
I haven’t yet been able to get a response from Sotheby’s to my repeated queries about the reasons for or terms of Ruprecht’s departure, described yesterday in Sotheby’s announcement as arrived at “by mutual agreement.” (He will stay until a successor is in place.)
So far, the speculation in the press has centered on the rift between Ruprecht and Loeb, and Sotheby’s continued underperformance in contemporary art sales. (The best and most detailed initial report I’ve seen on the CEO shakeup is from the Wall Street Journal‘s Kelly Crow and Sara Germano.)
It appears from this SEC filing that Ruprecht’s current employment agreement ran to Aug. 31, 2014, “with one-year renewals thereafter unless the Company or Mr. Ruprecht provides notice of non-renewal at least five months prior to the end of the term or an annual extension.”
That would seem to indicate that he is now on a “one-year renewal,” which was to have ended next August. The severance terms (as detailed in the above-linked SEC filing) would depend on whether the “mutual agreement” was amicable, as it appears to have been from the board’s praise for Ruprecht’s “long and exemplary service” and the CEO’s vow to “contribute to a smooth leadership transition.” (I have asked Sotheby’s whether the terms contained in the Sept. 3, 2010 Form 8-K have been subsequently amended, but I have not yet received a reply.)
One striking departure from Ruprecht’s previous business strategy is Sotheby’s interest in attracting lower-valued consignments, as evidenced by its new eBay initiative. The NY Times described that as “a striking reversal from Sotheby’s decision in 2006 to concentrate primarily on the high end of the business.” (Sotheby’s had tried an alliance with eBay in 2002, found it disappointing and discontinued it.)
In a 2012 conference call with analysts, Ruprecht had argued that per-lot expenses related to selling lower-priced items weren’t cost-effective, noting that “a focused commitment to the high-end of the market” had enabled Sotheby’s to sell “half the lot volume of our competitor, but at double the average price point.”
Fast-forward to the May 7, 2014 conference call, when Ruprecht announced that Sotheby’s would pay more attention to cultivating the “middle market” (defined by him as works valued at $50,000-$3 million). At the same time, he criticized what he called Christie’s “bewildering allocation of resources” to lots valued under $5,000.
Another possible change in approach involves “auction commission margins,” defined as commission revenue divided by hammer price. In response to analysts’ questions, Ruprecht had previously downplayed (correctly, in my view) the significance of that metric. He pointed out that for high-priced objects, commission margins are, by definition, lower, because of the sliding scale for the buyers premium, which makes that commission a much smaller percentage of the hammer price when the bidding soars into the millions.
Commission margins for high-priced works are also lowered by auction houses’ willingness to reduce or even eliminate the sellers commission to snare major consignments (and even, in some cases, to give away some of the buyers premium to the seller). Although the dollar amount of the revenue for multimillion-dollar works is high; the “commission margin” percentage for them is relatively low.
Nevertheless, Sotheby’s has recently suggested it would try to improve its auction commission margins. A greater focus on low-priced works, for better or worse, may help to accomplish that.
Given Loeb’s contemporary-art focus as a collector, Sotheby’s much publicized lackluster auction totals in that megabucks field are likely part of what’s driving the quest for new leadership. Jumpstarting contemporary art sales, however, is arguably not as linked to who’s in the executive suite as to who’s in the specialist department in this intense, high-profile field, where the universe of auctionable artists and avid, well-heeled collectors is always a moving target.
The executive search firm for Ruprecht’s replacement in Sotheby’s hot seat is Spencer Stuart.