The Beverage Industry: This One’s on the House!
May 4, 1998
I. Corporate Governance Analysis
Balance of Power
Of the six beverage companies we have chosen for our valuation, only Molson (which is
managed by CEO E. James Arnett) is not family operated. For example, Brown-Forman is run by
Owsley Brown II and Anheuser-Busch is overseen by August A. Busch III, the CEO for the past
21 years. Excluding Anheuser-Busch, the managing families also own a significant portion of
their companies’ publicly traded stock.
Moreover, incumbent management maintains its power primarily through their boards of
directors. Generally, the composition of the boards of directors include a Fortune 500 CEO and
at least one member of the originating family. Many directors are insiders (current executives,
former executives, or family members) or have close ties to the controlling families.
Robert Mondavi and Brown-Forman provide representative examples of the board
compositions of our companies. Of the eight members of the directors of Robert Mondavi, four
are employees and members of the Mondavi family, and they own a combined 48% of the
outstanding shares. The remaining four directors hold very little stock in comparison, only 3.8%
of the outstanding shares, and have no discernable connection to the company. One is the CEO
of Netscape and on the board since 1996, while another is the CEO of Medical Data Company
(on the board since 1989). The board of Brown-Forman is comprised of four insiders and five
outsiders. Of the four insiders, three are related to the CEO and have been on the board for more
than 26 years. The fourth is the Vice-Chairman of Brown-Forman and has been on the board for
27 years. The remaining five board members are or have been senior executives at other firms.
They include the former CEO of British-American Tobacco Company Ltd. and the former CEO
of Kraft General Foods.
The CEO’s of the companies we analyzed all receive gen