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The Guinness Story- Sliding Into Scandal FAMILY WARS

Source : Family Wars – Grant Gordon & Nigel Nicholson

ORIGINS

The Guinness family, originally from Dublin was one of Europe’s historic brewing dynasties that became an industrial powerhouse in the 20th century. Their strong brand was built around their rich and malty stout ale, and their innovative marketing campaigns helped them to become one of the most successful companies in the world. From quenching the thirst of the working-class masses in Ireland, they went on to become a global brand.

EARLY SUCCESS

Family members active in the early days showed strong entrepreneurial drive. Beyond clocking fortunes of success in the beer empire, the family members grew to great prominence in other walks of life as well, like commerce and finance, politics, sports, and the armed forces.

The family enjoyed their elevated social status and gradually were known as one of the elite families of the day. This was also made possible when Sir Edward Cecil, the first Lord Ivegah acquired Elveden Hall in 1894. This sumptuous 23,000-acre country estate became popular amongst the Royal Family and dignitaries from England and elsewhere, in the coming years.

While the family members carried growth in all walks of life, gradually and quite naturally business from the beer empire became a very small part of their life. Eventually, it was decided to bring in non-family talent to help manage and direct the business. This helped to create a more professional corporate culture.

The family members still wanted to be involved in the company, even though they didn’t own as much of it as they used to. They felt like it was their duty to help run the company because it had brought them so much success.

THE PATRICIAN ERROR

Male Primogeniture: The one who was born into the Guinness family was a sufficient call to service in the eyes of the family. Male Primogeniture (the succession of the first-born male) continued to be the norm for selecting the family’s heirs. They believed that this was probably the best way to stem possible dissension from relatives. However, the fact that it offered no guarantee that the bestqualified person got the job was a price worth paying.

No Regard to Competence: Sadly, the appointment of family members to the board was done with no regard to competence. For example, Bryan Guinness, later Lord Moyne, who joined the company’s board in 1935, had been trained in the law but had given up practicing at an early stage to become a farmer. The cost of insularity is usually not borne immediately, but is a risk to future adaptability, as it will be vividly illustrated in the Guinness family case.

Clinging Onto Power: There were several instances in the Guinness family history that the senior generation was in the habit of clinging onto power well beyond their period of peak ability. Rupert Guinness did not hand over as chairman until 1962 when he was 88. The baton of the business was passed on to his grandson Benjamin at the age of 25 as Rupert lost both his younger brother and son Arthur, during Second World War. Benjamin Guinness had no formal training for the position and besides, he had very few qualities that one would associate with strong leadership.

Leadership Vacuum: Benjamin’s leadership turned out to be a period when the family, even though were heavily represented on the board, began to lose their grip on the business. This was directly caused by the combination of Benjamin’s reserve and the remoteness of the other no-executive family directors from the business. The leadership vacuum, thus created resulted in operational decision-making power shifting to non-family managers without the benefit of any proper system of accountability and board control.

LOSS OF LEADERSHIP

The Guinness family was no longer involved in the day-to-day operations of their company and lost control of the company to non-family executives. The company was not doing well and was losing money. Further worsening the situation, the company made some bad decisions, like diversifying into other businesses that they didn’t understand. This made the company even more unstable.

The family directors, who now only controlled about 20 percent of the stock, seemed powerless to halt the slide. Into this vacuum, came a man, Ernest Saunders who brought a turnaround of the company’s performance. He focused the company on its core business, which was making its famous stout beer. To further strengthen the company through a significant acquisition of Bells Whiskey in 1985.

However, the success of this takeover turned out to be Guinness’s darkest hour, as the company’s CEO was implicated in a share price-rigging scandal. The scandal ruined the family firm’s reputation and the family members were left with the embarrassment caused by the scandalous irregularities that were perpetrated right under their noses.

Today, the name of Guinness survives as a brand owned by Diageo, the world’s largest distilled spirits marketer.