When billionaires battle: The fall of Seagram sheds light on the role blood plays in family-controlled firms

By Howard Green

Special to the Star
Sat., Nov. 13, 2021

THE BRONFMANS

Every family is a delicate ecosystem. But a family-controlled business can be akin to a one-party state. This has been playing out in full view on the nasty channel between members of the Rogers family over control of the company built by the late Ted Rogers.

Family behaviour also reveals corporate governance limits, as it can certainly put boards of family-controlled companies to the test. Governance school can’t possibly teach directors to subdue mudslinging between brother, mother and sisters.

The late Sam Bronfman used to say “blood counts” in reference to the importance of family at Seagram, the liquor colossus he built and controlled. Eventually, a much more private family clash than the Rogers’ feud led to Seagram’s sale and disappearance. A blue-chip board supported what the family ultimately wanted.

Note that Seagram had just one class of shares versus Rogers’s dual-class structure. The latter setup is one that many argue is shareholder unfriendly. By the way, the Bronfman saga didn’t come into sharp relief until the third generation. At Rogers, earlier generations are breaking the good china.

In the latter’s case, observe how blood does and doesn’t count. On one side, Edward Rogers, son of Ted, wanted to replace the CEO. On the other, his mother and sisters, stood by the status quo as the company tries to acquire Shaw Communications. While each side fought for the founder’s legacy, meaning blood counts, each side went at the other, meaning it doesn’t.

Billionaire family blowups aren’t new. The roots of dysfunction are deep and tangled. At Seagram, the disintegration was borne of Sam Bronfman’s iron grip on the company, and his legendary temper. At one point, he forced his brother out of the business (blood didn’t count). When it came time for “Mr. Sam” to pass the baton, he handed it to his eldest son, Edgar (blood counted). His youngest, Charles, became an equal owner. He and Edgar got 60 per cent of the family holding, while sisters Minda and Phyllis got 40.

But Charles didn’t want to be CEO, even though he held the same voting power as Edgar. Although Edgar ran Seagram for years, Charles recounted how his brother was often thwarted by their father who couldn’t let go. (Disclosure: I co-authored Charles’ memoir, “Distilled.”)

Eventually, Edgar anointed his second son, Edgar Jr., as his successor (blood counted) and, according to Charles, gave him “carte blanche.” Governance types would be aghast to learn that Edgar Sr. made Seagram’s succession plan public via Fortune magazine, without informing the board of directors or Charles, his co-chairman (blood didn’t count).

Cue family culture. Charles recalled a lifetime pattern of deferring to Edgar Sr. Ultimately, he went along with his nephew and domineering brother to avoid a family war (blood counted). He wasn’t alone. The rest of the board also went along. While his era had long passed, Sam Bronfman once said board meetings consisted of declaring a dividend and having a drink.

There are two business decisions Charles deeply regrets. Although he tried, he wishes he could have prevented the 1995 sale of Seagram’s holding in DuPont. (Interestingly, with the help of professional management, the du Pont family managed to maintain control for almost two centuries). But Charles’ protests were ignored and he would only push so far. The distiller was the largest shareholder of the storied American company that garnered hundreds of millions in dividends per year for Seagram.

The sale of DuPont led to Seagram’s U-turn into entertainment, with the subsequent purchase of MCA, which became Universal Studios. This would have infuriated Sam, who’d admonished Edgar Sr. for personally buying a piece of MGM in 1968.

Meantime, five years after the purchase of MCA, as the media and technology sectors lurched towards convergence, Seagram sold itself to Vivendi for shares in Vivendi, which began a downward spiral. Not only did Seagram disappear and gobs of money evaporate, Charles called it “devastating” for family, employees, shareholders and his own self-image. For the second time, Charles hadn’t gone to war with the two Edgars (blood counted). In a posthumously published book, Edgar Sr. expressed regret for not consulting his brother.

So, which is more important, money or blood? Sam Bronfman would likely have been aghast at the rupture in his family and the loss of Seagram. One can only imagine what Ted Rogers would think of what’s happened.

A board can be expected to deal with money matters. But when a family controls a company, family matters can overwhelm money, even when billions are at stake.

Howard Green is a Toronto-based author.

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