(FORTUNE Magazine) – As the old saying goes, it's rags to riches to rags in three generations.

But cosmetics giant Estee Lauder, with its recent decision to elevate 43-year-old William Lauder to CEO (he's Estee's grandson), seems determined to thwart the curse.

The company, which also owns Origins, Clinique, MAC, and Aveda, spent two decades grooming William, and the board--which contains three family members--made it clear that the CEO job was never his birthright. After college William was expected to get outside experience, so he headed to Macy's in Dallas, where he worked as a merchandising manager. "You don't know when you send the third generation off to Macy's that you are necessarily grooming them to be CEO," says John Ward, a professor of family enterprises at the Kellogg School, "but you do know you are grooming them in case they have the potential to run the family company."

When William did join Estee Lauder in 1986 (as regional marketing director for Clinique), it was not simply to do dad Leonard's bidding. Indeed the two men haven't always agreed on strategy. In the early '90s, William persuaded Leonard to look beyond department stores and open freestanding Origins stores, arguing (correctly) that it would pay off.

But perhaps the best thing the family did for William was not tapping him for the CEO job four years ago. As Leonard approached retirement in 2000, the economy was souring and the board took the unprecedented step of promoting a nonfamily member, Leonard's confidant and 25-year company veteran Fred Langhammer. "Not only would William have been a bit young, but it would be a near impossible task to grow a cosmetic business in an economic downturn," says Deutsche Bank's Bill Schmitz. William spent the interim honing his operational skills. Then, with Langhammer itching to retire, the board surprised Wall Street by giving William the job two years earlier than expected. Now the stock is up 44% over the past year, and the company has ended its acquisition hiatus by recently buying three beauty companies.

So what does William think of those who prophesy a third-generation curse? "I'd say to them, 'Go home and get a life.'"

--Julie Schlosser