Success Secrets: Crown Jewels or Paste

When Shakespeare wrote, “Uneasy lies the head that wears 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 play – the tale of how 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 series of risky and ultimately disastrous acquisitions. It’s 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 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 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 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 no-brainer.

Seagram, on the other hand, had 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 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 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.

When Sam’s son Edgar took over, he led successful diversification, buying $2.6 billion worth of DuPont stock. The chemical giant and the liquor empire shared excellent business pedigrees: they both enriched their shareholders. The upward mobility made sense, too.

But then America’s drinking habits started changing in the ’70s and ’80s. Blended whiskeys, it seemed didn’t appeal to the younger set. White wines and lighter spirits, such as vodka, became chic. When Edgar Jr was handed the reins to Seagram, he tried to steer the company in new directions. He made the fatal mistake, however, of confusing glitz with glamour, flash with fundamentals. In word, he went Hollywood.

Crown jewels retain their value because of what they represent. Hollywood, the place where illusions are scripted, has no brands that customers care about. Actors are the brands. And Edgar Jr’s obvious desire to become player in Tinseltown doomed his family’s business and the Seagram shareholders. He sold the DuPont stock that had become almost as valuable as the liquor business, and bought MCA, mostly for its music business and Universal Studios. Within couple of years Seagram stock fell 12 percent, while DuPont rose 77 percent. When Universal’s first slate of movies under the Bronfman imprimatur failed, Bronfman discovered that being king is fun only when people have reason to treat you like one.

If there is crown jewel in your line of business, there is rationale to buying it. Buying Hotel Bel-Air makes sense if you’re Four Seasons; Macy’s can consider buying Tiffany’s; Ford could buy Jaguar or even Land Rover. These are among the ways to upgrade your image and your brand.

But buying your hobby or your fantasy is dangerous. This is especially true for businesses that run on vapours, ignore the laws of business gravity, or depend on regular infusions of cash from starry-eyed outsiders. If you can afford to buy football, baseball or basketball team as bauble and pastime, that’s fine.

But if you’re planning on making money, stick to your own business – unless you’re prepared to run it with the kind of toughness and devotion to sound management principles that you’d bring to company with absolutely no show-biz cachet.

Mark McCormack is the founder of International Management Group

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