Magazine article New Zealand Management

Crown Jewels or Paste. (Success Secrets)

Magazine article New Zealand Management

Crown Jewels or Paste. (Success Secrets)

Article excerpt

When Shakespeare wrote, "Un-easy lies the head that wears a crown" he was talking about royalty, but I'm sure the travails of today's business elite would have attracted his attention. The recent demise of the House of Seagram, for instance, might be worthy of a play--the tale of how a third generation CEO loses the family empire.

The international business media is heaping scorn on Edgar Bronfman Jr, the Seagram scion whose Hollywood-influenced dreams led to a series of risky and ultimately disastrous acquisitions. It's a fate that comes with the territory of all those who would be king. To me, what is most interesting about the story is what it says about the strategy of buying crown jewels.

When a business becomes as dominant and successful, as Seagram was by the 1950s, it has little choice but to expand, acquire and diversify. The companies and brands that are brought into the corporate family are like new in-laws whose relatives show up at family functions, laden with baggage, hangups and closets of skeletons unrattled before the wedding.

It's always a challenge to meld and merge families and businesses. When class issues are involved, it gets even trickier. Suddenly, the bottom line is not the bottom line any more; status, snobbery and pedigree jostle for equal attention with cash flow, market share and productivity. And there's a rationale to it all.

Marrying royalty and common sense

When you buy jewels for your crown, it's pays to take stock of who you really are--and who you want to be. The logic of Volkswagen buying Rolls-Royce/ Bentley, for instance, didn't seem obvious: How could the Bug and the Silver Ghost share the same garage? There were obviously other synergies involved, complicated by other assets that came to the marriage, but nobody could say it was a no-brainer.

Seagram, on the other hand, had a good track record of pursuing quality in the decades leading up to the Vivendi-Universal debacle. Canadian Sam Bronfman made the canny decision to stockpile blended whiskeys during America's 1920s-1930s flirtation with Prohibition. When the dry era ended, he introduced products that promised a classier image than bootleg liquor. Labels such as Seagrams 7, Royal Crown, and V.O. Crown brought the country along, taste-wise. Profits poured in and Seagram bought a trio of crown jewels: Mumm Champagne, Perrier-Jouet Champagne and Chivas Regal scotch.

This kind of royal marriage made sense, both to the customer and the company's accountants. In this climate, acts of conspicuous consumption, like Sam Bronfman's commissioning of leading architect Ludwig Mies van der Rohe to design the Seagram Building in 1955, were acceptable. …

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