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Seagram and the Bronfmans – The Runaway Leader

Source : Family Wars – Grant Gordon & Nigel Nicholson

Origins

The Bronfman family’s history highlights the challenges faced in passing leadership to the next generation. They followed a pattern where the most forceful male member took over, leading to action but not always effective results. This story shows how a powerful family dominated others, making mistakes fueled by excessive power. Eventually, they faced defeat.

Sam Bronfman, the third amongst the four brothers, established the Seagram Corporation, one of North America’s largest business empires. He was obsessive, egocentric and focused, characteristics possessed by an entrepreneur. However, he was a man of contrasts, soft-spoken at times but with a tongue that could also dispense powerful venom.

The Bronfman family emigrated from Moldova to Canada in search of a better life. Here, they entered and excelled in hotel industry while slowly started penetrating in the alcoholic beverage industry.

Other than Sam, all the brothers faced their own share of struggles. Harry, the second-born, emerged as the leader of the family firm, but was later arrested and accused of bribery and tampering with witnesses. Allan, the youngest, acquired professional qualifications as a lawyer and then came to play a role in business, but was sidelined by Sam.

In 1922 one of the Bronfman in-laws, Paul Matoff, who was married to the brothers’ second sister Jean, was gunned down in a shooting. At the time Matoff was running part of the family’s liquor operations. The incident came as a shock to Harry, who slipped into depression. Sam saw his chance, and jumped at the opportunity to step up from being number two to become leader of the firm. From this point on he never looked back. So the pattern was set to replicate itself through the generations of Bronfmans, of one powerful family member overbearing the moderate influences of all others.

Sam Takes Over

During the Prohibition era in the 1920s, alcohol sales were banned in the United States. The Bronfmans took advantage of this by expanding their liquor operations in Canada. Despite being latecomers, they partnered with British Distillers, acquiring Scotch whisky brands like Johnnie Walker, bolstering their position.

Recognized as a business leader, Sam Bronfman acquired Seagram Distillers, rebranding it to pursue his goal of offering top-quality products. By the end of Prohibition, Seagram’s emerged as a leading North American distilling business. Sam reshaped the spirits industry, creating successful brands and gaining considerable financial success.

Sam focused on the business, but excluded his daughters from it. Phyllis, one of his daughters, became a noted advocate for architects and a philanthropist. His sons, Edgar and Charles, had contrasting personalities. Edgar, a rebel, joined the family business without finishing college, while Charles preferred a quieter life in Montreal. They settled into distinct roles without competing, a decision that later affected Charles negatively due to his compliance with poor decisions.

Sam focused on the business while sidelining his daughters, but his sons Edward and Peter built their successful business. Edgar, a rebel, and Charles, more reserved, settled into distinctive roles, avoiding rivalry and prioritizing peace amongst them.

The Rise of Edgar

As soon as Edgar joined the family company, he began climbing the ranks, which he officially claimed after his father’s death in 1971. In 1963, Sam’s strategic move was investing in an old oil producer, Texas Pacific, which soon became a major income source for Seagram. Despite the company’s success, constant clashes between Sam and Edgar strained morale, typical of many family businesses where the chief overstays.

After Sam’s passing, Edgar could pursue his strategy. In 1981, he sold Seagram’s stake in Texas Pacific for $2.1 billion, a substantial profit. With this windfall, Seagram acquired stakes in Conoco oil and DuPont chemicals, transforming into a hybrid investment-consumer goods company. This shift changed the company’s character, blurring its focused identity.

As Seagram expanded, Edgar gained recognition as head of a commercial empire, earning the family the title ‘the Rothschilds of the New World’. Leading the World Jewish Congress diverted Edgar’s attention from managing Seagram. Sensibly considering leadership succession, Edgar controversially appointed his second son, Edgar Jr, as his successor in 1986 without consulting his younger brother Charles.

Junior's Folly

The choice to appoint someone inexperienced, like Edgar Jr, with a showbiz background, to such a critical role reflects more on Edgar Sr than his son. It seemed like Edgar Sr’s response to his own father’s late power hold, showing immense faith in his faultless son. However, this decision turned out to be a serious misjudgment, severely impacting the business and shareholders. Despite objections from Charles and the board, Edgar Jr took control.

Edgar Jr, resembling his father in arrogance and overconfidence, proved to be an inadequate leader, steering the business poorly. His lack of preparedness and academic discipline showed in his leadership. He advocated for high growth in the entertainment industry, disregarding the safer but slower-growing alcohol market. Seagram then made significant entertainment investments, including selling DuPont and acquiring MCA/ Universal Studios. Charles, avoiding conflict, went along but sensed the lack of capable leadership for these new ventures.

Unchecked by the board, Edgar Jr’s next disastrous move was selling Seagram to Vivendi during the dotcom boom in 2000. Despite warnings, the Bronfmans chose to be paid in overpriced Vivendi shares, leading to Vivendi’s mounting debts and the subsequent collapse of share prices. This decline severely impacted the Bronfman family’s wealth, described by Phyllis as ‘a Greek tragedy’.