Dutiful son, dutiful candidate
Pete Coors improves on his elders, in more ways than one.
“The name Coors,” I once wrote, “carries two very different meanings: It’s the beer Americans love to drink, and it’s the family Americans love to hate” (Family Business, November 1990). Under the outspoken leadership of the third-generation brothers William and Joseph Coors, company and family alike were widely perceived as racist, sexist, union-bashing, right-wing fanatics—who happened to make terrific beer.
The Coors brothers were early supporters of Ronald Reagan’s presidential candidacy and provided the initial funding for the conservative Heritage Foundation think-tank. Nothing necessarily wrong with that, but their combative style rubbed many people the wrong way. Their reactionary outbursts in the ’70s led to a punishing, decade-long boycott of Coors beer by ethnic minorities and union groups.
Just as that fury seemed to be dying down in 1984, Bill Coors poured new salt in the wounds, suggesting at a luncheon for black Denver businesspeople that slave traders had done them a favor by dragging their ancestors to America in chains. Then he gratuitously added that descendants of Mexican “wetbacks” should also give thanks that they got here, even if it meant swimming the Rio Grande. It cost the company five years and some $750 million in social covenants with enraged black and Latino leaders to dig Coors Brewing out of that hole.
Fortunately, the antidote for these shenanigans lay within the Coors family itself. Lanky and soft-spoken Peter Coors, the third of Joe’s five sons, was just as conservative politically as his uncle and father, but temperamentally he was almost everything they were not: Where they were strident and blunt, Pete was tactful, diplomatic, polite, conciliatory, even self-conscious. As CEO, Pete Coors recognized instinctively (as his father and uncle did not) that Coors Brewing had entered a marketing-oriented era in which the company’s image was critical to its success or failure. He was, in short, an instinctive politician who subordinated his ego to the needs of his organization. In the process, he transformed Coors beer from a local cult product into a national brand.
Now fast-forward to 2004. Colorado’s popular Republican U.S. Senator, Ben Nighthorse Campbell, unexpectedly announced his retirement this past spring. Former Congressman Bob Schaffer volunteered to succeed him. But Schaffer was widely deemed too conservative to win a general election. So Pete Coors jumped into the race, proposing to solve the Colorado Republican Party’s image problem just as he did for Coors beer. Like Schaffer, Pete Coors is a conservative Republican; unlike Schaffer he is tall, handsome and widely known, thanks to those beer commercials he’s appeared in for years. (Only former Denver Broncos superhero John Elway enjoys higher name recognition among Coloradans, according to one survey.)
There appear to be few ideological differences between Pete Coors and Schaffer. The only real difference is the same difference that distinguished Pete from his father and uncle: Pete doesn’t set everyone’s teeth on edge.
“I’ve always wanted to serve my country in some capacity,” Pete told a writer when he jumped into the Senate race. “But many years ago, my father said he wanted me to run the brewery and he’d do politics.” Whatever the results of the primary (held Aug. 10, after this issue went to press) or the general election, Pete Coors seems to have made an important discovery about himself: It is he, not his ideological father, who is the family’s true politician.
Where Comcast went wrong
The Roberts family didn’t pay attention to their stockholders because they thought they had no reason to.
Unconventional thought of the month: Comcast’s takeover bid for Walt Disney Co. this year failed because Comcast’s family managers took their own stockholders for granted. And they took their stockholders for granted because Comcast’s governance structure encouraged them to take their stockholders for granted.
Consider: Comcast’s initial offer worked out to an enticing 10% premium above the existing price of Disney stock —an offer that no Disney shareholder, not to mention Disney’s board, could dismiss out of hand.
Yet as soon as the takeover bid was announced, unhappy Comcast stockholders drove Comcast stock down at the same time that Disney’s stock rose. This turn of events wiped out the 10% premium, so that Disney shares were actually worth more on the open market than what Comcast had offered for them. That unappealing situation gave the Disney board a valid reason to reject Comcast’s bid just five days after Comcast announced it.
At that point, Comcast found itself painted into a corner: Raising its offer for Disney, using either stock or cash, would have driven Comcast’s share price down even further, making it necessary to raise its bid yet again in a vicious cycle. By the time Comcast finally dropped its offer for Disney on April 28, its shares were still trading 11% below their price before the Feb. 11 offer for Disney.
Comcast CEO Brian Roberts perceived, perhaps validly, a natural synergy between Comcast’s cable TV systems and Disney’s film and TV studios. But he neglected to make that case to his own shareholders—because, I would argue, he saw no reason to. Under Comcast’s existing two-class stock structure, the founding Roberts family’s 1.5% investment stake entitles them to 33% of the Comcast vote. What’s more, since 2002 shareholders have been formally precluded from removing any board member until at least 2005. Roberts himself cannot be fired as chief executive any time before 2010 without at least a 75% vote of the board. (He was also guaranteed a seat on Comcast’s director nominating committee until shareholder pressure embarrassed him into recusing himself this past spring.)
Thus Comcast shareholders possess no power within their company other than the power to vote with their feet when they’re unhappy— which is precisely how they responded to Comcast’s bid for Disney.
The moral of the story? CEOs need good systems of checks and balances to keep them on their toes. The concept of “shareholder rights” is no mere do-gooder theory. It makes good practical sense, because it forces managers to listen to their investors— which any publicly traded company must do in order to survive.
Whether Brian Roberts has learned this lesson remains to be seen. Following the debacle, he said his only mistake in bidding for Disney was the assumption “that the Disney board would talk to us.” It’s all well and good for leaders to talk to other leaders. But once in a while a general needs to rally his troops —especially when the troops are civilian stockholders who can’t be bossed around.
CEOs who earn their pay
Bob Toll doubled his compensation the old-fashioned way.
So much has been written lately about overpaid CEOs that it’s nice to stumble upon welcome exceptions: CEOs who richly deserve every penny they make. Two examples:
Example 1. The problem: How do you expand your family company without diluting your control? Many family firms (the Fords, Sulzbergers, Grahams, Bancrofts and Lauders, among others) used to solve this vexing headache by creating a special class of super-voting stock for the controlling family. But thanks to its abuse by the Roberts family (whose 1.5% equity stake in Comcast entitles them to 33% of the vote), this tactic may not be available much longer. What to do?
Consider the challenge confronted earlier this year by John Brock, CEO of Interbrew SA, Europe’s second biggest brewer. Interbrew, controlled by a group of aristocratic Belgian families, wanted to expand globally and had its eye on Brazil’s AmBev, South America’s largest brewer. But Interbrew, under its charter, couldn’t weaken the control of its majority shareholder families. And AmBev, under Brazilian antitrust law, couldn’t legally be bought. Again, what to do?
The ingenious solution was a takeover masquerading as a merger masquerading as a stock swap. AmBev controlling shareholders received $4 billion in new Interbrew shares, which they then placed in Interbrew family trusts that will control 56% of votes in the new entity (called “InterbrewAmBev”). Interbrew’s founding families continue to own another 18% outright. (The remaining 26% is publicly listed stock.) Interbrew and AmBev both got four seats on the new entity’s board (independents hold another six), but Interbrew’s John Brock became CEO. Meanwhile, AmBev technically remains a separate company, but Interbrew now owns 57% of AmBev stock and 85% of AmBev’s voting interest.
The practical result: Happy Interbrew family stockholders (who retain control), happy Brazilian antitrust regulators, and a new brewing powerhouse that’s the world’s largest beer company by volume. I say: Give Brock a big bonus. He richly deserves it.
Example 2. Bob Toll—co-founder, CEO and largest shareholder of luxury home builder Toll Brothers Inc.— doubled his compensation in 2003 to $21.5 million in salary and bonus, but he did it the old-fashioned way: by tying his bonus directly to the company’s performance. Under Toll’s compensation plan, his bonus is a percentage of company profits, so it rises or falls with the company’s earnings. And he receives his bonus entirely in company stock priced at $19.31 a share, its value when this plan was created in December 2000. Toll Brothers’ earnings rose 20% in 2003, while its stock price rose into the 40s. The result: a big payday for Bob Toll, but one in which even his smallest shareholders can rejoice along with him.
After the business is gone…
His father’s sale of the family firm was the best thing that happened to Joseph Cullman.
Is there life after a family business?
For any owner, manager or heir who has pondered this question—and who among us hasn’t?—consider the careers of two family business executives who died this past spring: Joseph F. Cullman 3rd and Maurice Lazarus.
Cullman’s father, son of a cigar maker, spent $850,000 in 1941 to buy control of a small cigarette company named Benson & Hedges. B&H’s sole product was a hand-rolled luxury cigarette called Parliament, with a recessed mouthpiece and a cotton filter (both rarities at the time). The father coveted B&H as a distribution outlet for his cigars. But after Cullman returned from World War II in 1945 and took over its management, he seized on Parliament’s snob appeal as a promotional gimmick, and sales surged.
Philip Morris, then dead last in sales among the six major U.S. tobacco producers and anxious to add a filter cigarette to its line, acquired Cullman’s father’s interest in Benson & Hedges in 1954 for Philip Morris stock valued at $22.4 million. That was the end of the Cullman family business, but hardly the end of Joseph Cullman 3rd, who was 42 at the time.
With the acquisition, he joined Philip Morris as a vice president and major stockholder. The following year he was named executive vice president, and in 1967 he became chief executive, a role he kept for the next 21 years. By replacing Philip Morris’s outdated “cigarette boy” symbol with the virile “Marlboro man,” Cullman maneuvered Philip Morris from last place in cigarette sales to first in the world by 1983. Equally important, he used the company’s cigarette profits to seriously diversify, acquiring giants like Jacobs Suchard, Miller Beer and Kraft General Foods—a prescient move that reduced the company’s dependence on tobacco at the very time that medical researchers were establishing a link between smoking and cancer. Today Philip Morris is the largest consumer products company in the world.
“Thinking back about my life,” Cullman wrote in a memoir, “… I realize what a lucky guy I have been.” Would he have said that if his father had held on to Benson & Hedges? Doubtful.
Maurice Lazarus was born into the family that founded the F&R Lazarus Department Store in Columbus, Ohio, in 1851 and in 1929 created the Federated Department Store chain in tandem with other famous chains like Filene’s and Bloomingdale’s. Maurice served as president of Filene’s in Boston from 1958 to 1964 and stepped down as its chairman in 1965, when he was only 50. Although he remained involved at Filene’s as chairman of its finance committee, at this point Maurice Lazarus turned his primary attention elsewhere. In what he called “the second half” of his life, he took what he learned from his family’s retail business and applied it to making health care more accessible and affordable. The result was the Harvard Community Health Plan (now Harvard Pilgrim Health Care), one of the nation’s first non-profit health maintenance organizations.
Have HMOs solved the need for accessible and affordable health care? Not yet, but the final chapter of this story remains to be written. More germane to our discussion here is this question: Is there life after a family business? In these cases, at least, and how!