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September 19, 2006 5:52 pm

Business lessons from a clan with clout

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The Bronfmans
The Rise and Fall of the House of Seagram

By Nicholas Faith
St Martin’s Press, $25.95

Edgar Bronfman used to insist his family was rich because it did not throw its money away.

He can no longer make that claim. The Bronfmans made their fame and fortune transforming a bootlegging operation on the Canadian prairies into Seagram, one of the world’s biggest drinks groups.

But the family is now notorious for losing a big chunk of its inheritance in an ill-advised thrust into Hollywood, followed by the disastrous sale of the business to Vivendi, the French water group whose head, Jean-Marie Messier, harboured similarly delusional ambitions in the media and entertainment business.

Nicholas Faith is not the first to tell the Bronfmans’ story. Much of his book goes over well-trodden ground, drawing on previously published material. Mordechai Richler’s novel Solomon Girsky Was Here, whose characters are based on the Bronfmans, is repeatedly quoted, virtually as fact.

Still, Faith (a former Financial Times contributor) does a fine job in showing the enormous toll that a dysfunctional family can take on its business. The Bronfmans’ story carries a strong message for every family-controlled company.

In their defence, the Bronfmans did not always have it easy. As Faith notes, they “were Jews in an anti-Semitic social atmosphere, distillers and bootleggers in a country where the temperance movement was almost as strong as it was in the US. The Bronfmans were the richest of families in a basically egalitarian society.”

But these handicaps do not excuse the appalling way in which three generations of strong-willed Bronfmans have treated their milder-mannered siblings and children, not to mention many employees. Sam, the empire’s domineering but insecure found­er, was ruthless in demeaning his three brothers. He excluded their families from Seagram’s official history. When Allan, the youngest, arrived at Seagram’s office in Montreal wearing a Canadian military uniform just before the outbreak of the second world war, Sam flew into a jealous rage. “Ah, look at the fucking hero, you’d think he’d just won the war,” he bellowed. “Christ, they get a few more like him and Hitler’s got a chance.”

Sam’s oldest son Edgar had, in Faith’s words, “the sort of physically spoiled, psychologically rough up­bring­ing typical of sons of monsters”. Now 77, Edgar made his mark as president of the World Jewish Congress, an office that “proved an ideal outlet for the aggressive and arrogant elements in his character”. Once described as the world’s most powerful Jew, he became a “bulldozer” against anti-Semitism. He was instrumental in exposing Kurt Waldheim, the former United Nations secretary-general and president of Austria, as a former Nazi intelligence officer in occupied Greece.

But Edgar’s stewardship of the business was, in the words of an adviser, “rather unfocused, to say the least”. He was slow to recognise the shift from the blended whiskies pioneered by his father. Seagram lagged behind rivals in diversifying into lighter spirits. In a belated quest for a leading cognac brand, Seagram massively overpaid for Martell. By the time it was sold, Martell’s market share had halved.

Edgar’s biggest failing was to put the family business at the disposal of his younger son Edgar junior’s ambitions to become a media tycoon. The father was mesmerised by Edgar Jr even as he sidelined his older son, Sam, who was arguably a far safer pair of hands. Sam was not even consulted about the sale of Seagram to Vivendi.

Edgar Jr, surrounded by sycophants and consultants, had little time for the liquor business, increasingly treating it as a cash cow. That might have been less of a problem had his drive into Hollywood been more successful. At Edgar Jr’s urging, Seagram swapped its stake in DuPont, the chemicals producer, for control of MCA/Universal and Polygram Records. It sacrificed a rich, predictable dividend stream for a presence in the glamorous but risky, low-margin and egocentric entertainment world.

Among later missteps, Edgar Jr relinquished control of MCA’s crucial cable and domestic television assets, leaving Universal, alone among the big film studios, without its own television operation.

Those mistakes were dwarfed by the $35bn deal in 2000 to sell Seagram-Universal to Vivendi in exchange for a stake in the world’s second-biggest media group. Vivendi Universal shares plummeted over the next year, leaving the Bronfmans nursing one of the biggest losses ever suffered by a single family.

Ironically, Messier may have best summed up Edgar Jr. In Hollywood, “he left the memory of someone who forgets to come and support his team during difficult times, but never missed a plane to share in their successes”. But, he added, Edgar Jr “chose well in Hollywood, was a shrewd analyst of a situation and someone worth consulting for his advice”.

Edgar Jr, 51, has begun to rehabilitate himself by focusing on his first love, music. He was part of a consortium that bought AOL Time Warner’s music division in 2004. He remains Warner Music’s chairman and CEO, steering it through several pioneering deals.

The Bronfman story may yet have a happy ending. But at what a cost.

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