Inditex is one of the most admired companies in the world. It has a presence in more than 40 countries with 1,747 shops and eight fashion chains – including Zara, Pull & Bear, and Massimo Tutti. Its management model is considered worthy of a case study. A defender of organic growth – without any advertising – it manages its image with the utmost discretion, locating its shops in the most important corners of each city. But one thing that brings a great deal of attention to Inditex is the company’s leadership model. President and founder Amancio Ortega is a ferocious defender of his privacy, the only time he has conceded an interview was this past 18th of September to the British newspaper The Times.


José María Castellano, vice-president and managing director of Inditex, is the most accessible face of the company and its spokesperson for investors. This duo provides Inditex with a necessary mixture of discretion and transparency, but the arrangement has also raised all sorts of questions about the company. In this interview, Universia-Knowledge at Wharton discussed these issues with Castellano.


Universia-Knowledge at Wharton: One thing about Inditex that attracts lots of attention is the way your leadership is secluded from view. Can this factor have an influence on the confidence of investors?


José María Castellano:  Since May 2001, Inditex has been a publicly traded company. That’s more than two years. Before issuing shares on the exchange, the company made a major effort to make itself known to investors, explaining its structure, its business model, and its organization. Investors showed their confidence by taking part in a public share offering in which there were very high levels of oversubscription, especially in the tranche devoted to institutional investors. Since then, we have continued to apply a policy of maximum transparency, and I believe that has been matched by the confidence of investors.


UKnowledge at Wharton: How do you explain that the president of the company isn’t the one who publicly responds to investors about the progress of the group?


Castellano: That involves a personal decision by our president, and it is perfectly well known – and understood, I believe – by investors. What investors require is information that is punctual and detailed concerning the evolution of our business, as well as free-flowing contact with the team that runs the company. In this sense, I believe that we respond fully to their expectations.


This 19th of September, the day after Inditex announced that had grew 21% in the first half of the year, its stocks fell 12,8%. This is not the first time that investors have lost confidence in the fashion group. Last March, Inditex was shaken up on the stock market when the stock fell 20% after growing by “only” 29% in 2002.


UKnowledge at Wharton: To what do you attribute this sharp drop? Can you justify a collapse of this sort when there was such high growth?


Castellano: When all is said and done, the movement of stock prices corresponds to buying and selling decisions that investors take in accordance with the information that is available about a company and its prospects. In March of this year, there was a slight difference between the forecasts that some analysts had created and the financial results that Inditex ultimately presented – which, despite being good from an objective point of view, caused a certain degree of disappointment. During subsequent months, prices have recovered and investors have regained confidence in our business.  However, any company that is on the exchange has to presume that the market is free at any time to judge its performance. In fact, one of the goals of being on the stock market is, precisely, to have an outsider’s point of view regarding the progress of a company.


UKnowledge at Wharton: Might the sense of mystery surrounding the company have any impact on the collapse of the share price?


Castellano: I don’t get the feeling that this company generates uncertainty, or that it is surrounded by mystery. Quite the contrary, I believe that we are one of the most transparent companies in our sector, not just within Spain but globally speaking. We are well known by managers and analysts, by specialized journalists, and by investors. Even the general public has an image about our company, through the communications media. Our company is used as a case study in business schools in Spain and other countries. Frankly, I don’t believe that any company plays around with uncertainty as a factor in its evaluation; at least, Inditex doesn’t do that.


UKnowledge at Wharton: Do you believe that the market will eventually require the president to take a larger public presence?


Castellano: Frankly, I believe that the market understands perfectly Amancio Ortega’s position, and that it doesn’t demand this kind of role on his part. Nor are there reasons for making him do so in the future. What the market requires of us is profitability and transparency.


UKnowledge at Wharton:  What do you think is behind the desire of Mr. Ortega to remain anonymous?


Castellano: The decision of Amancio Ortega to minimize his public presence has to do with his defense of his private and family life. Inditex’s center of operations is in a small city where it is not easy to preserve privacy. That would be practically impossible for anyone if he were to play an outstanding role for the communications media.


UKnowledge at Wharton: How have you drawn up the sharing of power within Inditex between the president, Amancio Ortega, and you, the managing director? What role does each play?


Castellano: Apart from being the largest shareholder of Inditex, with almost 60% of its shares, Amancio Ortega is executive president of the company. This means that he is the person who bears the most responsibility, in a direct way, playing a role that is perfectly defined both with respect to the company’s management structure and its day-to-day operations. It’s logical that, after many years as head of the company, Amancio Ortega has brought together a team of professionals – including myself – to whom he has delegated everyday management of various aspects of the business. He continues to be at the head of the company with respect to its strategy and major decisions. His collaborators occupy different levels of responsibility that correspond to our positions within the company. In my particular case, that responsibility is to be the managing director, whose only specific role with respect to other companies is the following: I have assumed a clear public role that the president has preferred not to carry out by himself.


UKnowledge at Wharton: Inditex has always boasted about its discretion – not only with regard to what we’ve just talked about but also in other regards, such as its desire to grow without advertising. Can Inditex continue doing that now that you are a publicly traded company?


Castellano: Inditex complies scrupulously – I would say, in a way that is more than excessive – with its obligations to provide information to its shareholders, to investors and to the marketplace in general, as a result of the conditions placed on a publicly traded company by the stock market. It does that with independence and with a communications policy that has clear outlines. With regard to advertising, I don’t believe that commercial campaigns perform an informational role for investors.


UKnowledge at Wharton: In fact, this discretion has always been seen as one of the distinctive signs of the company and one of its weapons. Is it really a strategy or simply a reflection of your lack of confidence in the impact of advertising?


Castellano: Inditex has adopted a performance plan that corresponds with its own philosophy, with its business culture and, at the same time, it has adapted to its interests from a business point of view. In our activity, I don’t believe that you can talk about discretion. Our shops are quite visible in places that have the most pedestrian traffic in hundreds of cities in Europe, America and Asia. We don’t distrust the public but we have opted for an unconventional sort of investment in advertising. Our advertising platform is the shop windows of the more than 1,700 shops that we have in the world.


UKnowledge at Wharton: Have you gotten any criticism from institutional investors, mainly foreign ones, concerning the refusal of Amancio Ortega to appear in public?


Castellano: Never. They have asked us about that, we have explained the position of our president, and that has been accepted and understood.


A model of Good Corporate Governance


UKnowledge at Wharton: Inditex is one of the most transparent and advanced companies in regard to governance. Do you believe in regulating corporate governance and the functioning of the council?


Castellano: We not only believe in that, we have taken several significant steps in that regard, making progress even in the regulation of certain aspects. Ten years ago, we incorporated the first independent advisor on Inditex’s Administrative Council and today they represent half of its members. In 2002, we created, within that council, audit and nomination commissions, and we approved a regulation that, since 2002, means we make annual public reports on corporate governance.  At the last general meeting of shareholders, in July of this year, we approved modifications in the articles of association and a regulation of the council itself. This was done in order to comply with the new obligations concerning transparency, information and the protection of investors, which were introduced by the Law of Reform of the Financial System, and with the recommendations contained in the Aldama Report, even before they are specified by law.


UKnowledge at Wharton: Can the same rigorous terms of good governance be demanded of a family business like Inditex as with a company that is publicly traded but has no family connections?


Castellano: The severity level must be the same because the companies are publicly traded, regardless of the structure of their shareholdings. The existence of a nucleus of stable shareholders drawn together by ties of family or of another sort cannot determine the level of requirements made on a company.


UKnowledge at Wharton:  Inditex has separate roles for president and for managing director. The codes of good governance recommend this splitting up into two. Do you really consider this division important?


Castellano: In our case, this separation of roles is the product of the history of the company. I couldn’t argue that our organizational chart is better or worse than that of other companies that have a different model. In any case, it is what wound up being more useful and efficient, but it is not necessarily the best for other companies with other sorts of conditions.


International Expansion: Focusing in Europe


UKnowledge at Wharton: The United States is still pending as your company’s strategic challenge and you have a dozen stores there. When are you planning to mount a definitive offensive there?


Castellano: We have not yet considered a schedule for expanding in the United States. Day by day we are concentrating our resources on growing in Europe, especially in countries such as the United Kingdom, Germany, France and Italy, markets where there is still a lot of room for us to grow. To give you an example, we have fewer than 30 shops in Germany, where some of our competitors have more than 200 shops.


UKnowledge at Wharton: What obstacles do you face [in the U.S.] that you haven’t had in other countries?


Castellano: As for the United States, we are opening new shops at a pace of two or three a year, and we have extended our presence from New York, where we opened our first shops, to Florida and and Puerto Rico.  Before the end of this year, we are also going to open our first shop in Washington. We’re not excluding the possibility of opening in other cities, but not as part of any expansion plan. The United States is a very large market. It is complex and different from Europe, and it will require us to make a great effort, the way we are now making an effort to grow in Europe.


UKnowledge at Wharton: Are you thinking about boosting your capability for advertising in order to attack a market that is so wide — and where image has so much importance — as the United States?


Castellano: We haven’t made any plans, especially considering that we haven’t even put any expansion plan into effect there.


UKnowledge at Wharton: Is Inditex going to maintain its model of organic growth, or is it not ruling out possible acquisitions in order to tackle new markets?


Castellano: We are not ruling out any possibility and, in fact, we have made some acquisitions in the past. But for our business model, it is much simpler to create a new [fashion chain] format than to bring in a separate company from outside – which would require an important process of adaptation. We did that successfully in the case of Massimo Dutti and Stradivarius, but those are only two of the eight chains that form our group today.


UKnowledge at Wharton: One of the main question marks concerning Inditex is leadership succession. What alternatives is the company considering? Could you lose your family character?


Castellano: The managers who will run Inditex in the future will do so with the mandate of the Administrative Council and, clearly, with its shareholders, as in any other company. Regarding ownership of the company, that is something that exclusively concerns current shareholders. In any case, I must point out that one of the company’s goals for coming out on the stock exchange was to clear up the uncertainty regarding the significance of its plans beyond the life cycle of its founder.