Bacardi Breaks with Tradition To Keep the Company and the Family Together
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"When I announced sitting right in this room that, in consultation with members of the board and other shareholders, I was ready to make a proposal for my successor," Cutillas recalls in the boardroom of the company's Mies van der Rohe-designed Bermuda headquarters, "and when I said that that person was Chip, not only the people that were here, but members of the family, their first reaction was shock."
Cutillas, 64, had decided that the best person to lead Bacardi into the future was George B. "Chip" Reid. The shock to the Bacardi family came not because they thought Reid, 48, was unqualified, but because this would be the first time that the company was to be headed by someone other than a member of the Bacardi family.
Traditionally, Cutillas says, "the leader of the business has always been a family member. This is the first time that we depart from the tradition, or custom, of 134 years and it is a sign of the times."
It's also a sign of recognition by the Bacardi clan that after many battles trying to reconcile family and business interests, the two are best kept separate, to a point. The extended Bacardi family, descendants of Don Facundo Bacardi y Maso, the inventor of rum as we know it today, still owns more than 95 percent of the shares in the privately held company.
"It took two days for the people [the family] to call me to analyze the situation and to agree wholeheartedly that this was an excellent decision," Cutillas says of the delayed reaction to his January announcement recommending Reid. In March, the board unanimously approved the recommendation. In April, Reid became the new executive vice president of Bacardi Ltd.; he will take over for Cutillas next March. Cutillas will retain his chairmanship of the board, but after 42 years of working seven days a week, he says he will take more time for fishing and traveling with his wife.
George Reid ("My friends call me Jorge," he jokes) is a corporate finance lawyer, trained at Yale and Harvard, who, while working full-time at the Washington law firm of Covington and Burling, also spent seven years as deputy general counsel to the Republican National Committee under President Ronald Reagan. Reid first came into contact with Bacardi while representing Hiram Walker, the Canadian spirits firm, in its investment in Bacardi in 1977. While a partner at Covington and Burling, Reid advised Bacardi on how to consolidate the five companies in its empire into a single holding company, essentially designing the company's current structure. By extension, Cutillas says, Reid also helped bring together an increasingly contentious family that argued about the direction of any one of the five companies and of the Bacardi empire as a whole.
"I think that the family is very pragmatic," Reid says, sitting next to Cutillas and smoking a Macanudo Prince Philip. "It took a look at the changed world, the enterprises, one enterprise now, which has demands now, increasingly sophisticated financial demands. They simply determined that I was the right person for the company circumstances today and were, I think, sophisticated and pragmatic enough to put the best interests of the business ahead of perhaps an emotional desire to continue a tradition, even if that particular tradition wasn't the best for the business today."
If anything has defined the success of Bacardi, it is the company's agility in moving with the times, and the times that define the rum business today present a challenge. In 1995, Bacardi rum--Bacardi Light, Dark, 151, Black Reserve and Anejo--represented the number one selling distilled spirits brand in the United States, as calculated by Impact Databank. Impact International's list of the Top 100 Premium Spirit Brands Worldwide also ranked Bacardi rum as number one in the world. (Impact and Impact International are alcoholic beverage industry trade journals owned by M. Shanken Communications, parent company of Cigar Aficionado.) Last year, Bacardi sold 6,155,000 nine-liter cases of rum in the United States and a total of 19.2 million worldwide. Yet these figures represent a 1.5 percent drop in U.S. sales from 1994, and a 5.5 percent dip worldwide.
In 1992, as part of a strategy to navigate market realities, the five companies--Bacardi International in Bermuda, Bacardi Imports in Miami, Bacardi Corp. in Puerto Rico, Bacardi & Company Ltd. in the Bahamas and Bacardi Mexico--were brought under central command. Many associates and industry experts had advised Cutillas against even trying to reunite the companies, which had originally been set up with tax burdens in mind, because of the difficulty in sorting out the tax laws of the various countries involved. Cutillas thought it could and should be done. Reid designed the plan and executed it without incurring tax liabilities.
"We could not afford to continue as five separate entities, each sort of doing their own little thing," Cutillas says. "What we did, in a nutshell, was to create this Bacardi Ltd. holding company in Bermuda, and then Bacardi Ltd. acquired shares from the shareholders of the five independent companies in exchange for shares [in the new company]. So, in the end, we ended up with the same group of owners owning shares of a holding company which in turn owned the five independent companies, but now the central sort of guidance, direction, is from the top."
The five reconstituted regional companies--Bacardi-Martini of North America, Latin America, Asia-Pacific and Europe, and Bacardi International--are controlled by the board. Board meetings could be considered the modern-day equivalent of the original Bacardi family sitting around the dinner table in Santiago de Cuba discussing the business of the original Compania Ron Bacardi, S.A. Family members, the shareholders, hold 15 of the 17 board seats, and 40 of them work in what longtime employees like to call the Bacardi corporate family.
There are now between 300 and 400 shareholders, according to Cutillas. They are hard to track, because the shares are owned by different trusts and individuals throughout the world. How many shares each family shareholder holds is a result of the original formula Don Facundo used in passing the company on to his children. His three sons and his only daughter each received 25 percent of the company. The Bacardis, now into their seventh generation, hold a pro-rated percentage of shares in the new company based on the percentage of shares they held in the five independent companies. Cutillas, a direct descendant of Don Facundo's eldest son, Emilio Bacardi Moreau, is reluctant to place a value on the shares, or the company.
"Well, there is no real value, I mean, no sort of value that we like to say, 'This company is worth so much,' because the shares don't have a value as far as the marketplace is concerned," Cutillas says earnestly.
"We don't calculate its value," Reid chimes in. "It's not traded. One of the nicest things about being a private company is you don't have to worry about the day-to-day vagaries of the stock market. Bacardi actually has no reason to, and therefore doesn't, come up with any value on the shares," Reid says, adding with a laugh, "We like to say it's very valuable."
The New York Times recently reported that Bacardi holdings are worth $2.2 billion. That figure is certainly too low. "Our revenue last year was $2.5 billion," says Cutillas, smiling and puffing on a custom La Gloria Cubana corona with a cigar band carrying the Bacardi bat logo. The Bacardi trademark has been designated by London's Financial World magazine as one of the world's 10 most valuable; it is the only one from a spirits company among that list, which includes McDonald's, Marlboro, Kodak and Coca-Cola. The Bacardi rum trademark--principally identified by the bat and wave devices prominent in the company's ads and on its labels--and the more than three dozen other trademarks now owned by the company have what Cutillas calls a "high value," but one that is difficult to calculate because the company is not for sale.
"It's the statistics that really sort of describe our value," says Reid. "Bacardi rum is the number one selling brand of distilled spirits in the world, not just of rum, but all distilled spirits. About 20 million [cases]. Way higher than number two. Martini and Rossi [which Bacardi acquired for $1.8 billion in 1992] is the second most prolific brand, heavily in Europe. So we have two great brands. We are the largest privately owned spirits company, fifth overall, but the four that are larger [Guinness-United Distillers, Seagrams, IDV and Allied-Domecq] are part of mammoth public companies. So, we are big enough to compete vigorously," Reid says, beginning to smile, "but nimble enough to be able to respond very quickly to targets of opportunity." The message is clear: Bacardi is looking to grow.
Bacardi now produces rum under the same formula in seven countries and sells its wide range of products in 170. In many respects, world events have precipitated the company's growth to this point. The original Compania Ron Bacardi, S.A., was founded in Santiago de Cuba in 1862 by Don Facundo Bacardi y Maso. Seeking opportunities in the New World, Don Facundo, as he is reverently known, left Catalonia, Spain, for Cuba in 1839 with two of his brothers. In Santiago, Don Facundo became a wine merchant and also sold the rum of a local producer. That, and being in Cuba, close to all that sugar cane, made experimenting with making rum a natural step.
Molasses, a by-product of refining sugar, would be diluted with water and fermented with yeast. The alcohol was then distilled.Don Facundo tested every step of the rum-making process, but it was his addition of filtering the rum through charcoal to remove impurities that proved revolutionary. By applying the methods of winemaking, such as aging in oak barrels and blending, Don Facundo came up with a light rum that was unlike any distilled spirit the world had previously tasted.
The modern version of this process can be seen while taking the tour at Bacardi's distillery in Puerto Rico, established in 1936 to avoid tariffs on rum shipped to the United States. The land on which the distillery stands is an old mangrove swamp across San Juan Bay from the El Morro Fort. The view from the terrace makes it appear that the fort on one side and the distillery on the other are protecting San Juan from invaders.
After determining that his newly invented sipping rum might prove profitable, Don Facundo and his three sons bought the small distillery in Santiago for 3,500 pesos from the man whose rum they had previously sold. To commemorate the founding, the family planted a small coconut palm, El Coco, in front of the distillery. There, legend has it, Don Facundo found a family of fruit bats living in the rafters. Don Facundo's wife, Amalia Lucia Victoria Moreau, suggested the bats, a Cuban symbol of good luck, would make an easily identified trademark in an era when many people could not read. So the bats stayed in the rafters and went on the Bacardi label.
The new rum went on to win international awards and in 1888, two years after Don Facundo's death, Bacardi was appointed purveyor to Spain's royal house. That relationship took an auspicious marketing turn when, four years later, the court's doctors used Bacardi rum to cure the future king, Alfonso XIII, of the grippe. Bacardi began to advertise that it produced "the rum that saved His Majesty's life." As Peter Foster writes in Family Spirits, his compelling history of the Bacardi family and company, the Bacardis, as proud sons of Catalonia, opposed the rule of the Spanish Bourbons, yet still adopted the slogan, "Bacardi...El Rey de los Rones: El Ron de los Reyes." ("Bacardi...The King of Rums: The Rum of Kings.")
Future potentially ruinous world events, even as they roiled the Bacardis as patriotic Cubans, provided the Bacardi company with similar marketing opportunities. In 1895, the revered Cuban poet and revolutionary José Martí landed a boat just east of Santiago, beginning what Americans have come to know as the Spanish-American War, and what Cubans regarded as a war of independence. Martí was soon killed in battle. Manuel Jorge Cutillas' great-grandfather, Emilio Bacardi Moreau, who had taken the reins of the company, was a disciple of Martí and took great risks during the fight for independence, resulting in his living in exile with his family, first on the isle of Chafarinas and then in Jamaica. The impact of his absence and of an economy wrecked by war nearly devastated the Bacardi company.
The Americans were brought into the war in 1898 by the explosion of the battleship Maine in Havana's harbor and the jingoistic journalism of William Randolph Hearst. The disparate legends created by the war included the charge up San Juan Hill by Teddy Roosevelt's Rough Riders and the invention of two rum drinks: the daiquiri and the rum-and-Coke.
The daiquiri is named for a Cuban copper-mining town east of Santiago where American troops had landed during the war. The story goes that in 1898 an American mining engineer, Jennings Cox, was hot and thirsty. To remedy the two conditions, Cox is reputed (in the Bacardi corporate literature) to have "devised a marvelous new cocktail based on BACARDI Rum and lime juice." Of course, rum mixed with lime had been around for about a century before that, starting with British sailors--limeys--who came up with the mix. Reportedly, Cox's innovation was to pour the rum and lime over ice. The story was commemorated in a 1963 Bacardi ad that shows a rugged American miner holding a tall daiquiri under which appear the words, "The original daiquiri was made with Bacardi (The best still are!)" Notably, in those early Cuba embargo days, Cuba is not mentioned anywhere in the ad.
The rum-and-Coke, according to cocktail lore and a 1966 Bacardi ad extolling the virtues of the libation, rose from another serendipitous collaboration between Cubans and Americans. The ad ran in Life magazine in 1966, and features three men, two of whom are in U.S. military uniforms. They are sitting around a table with a Coke bottle (in a style that didn't exist at the turn of the century) and one of the soldiers is pouring from a bottle of Bacardi. "So that's how 'Rum & Coke' was invented!" reads the caption. Filling out the page is an affidavit telling what is purportedly the true story of the invention.
"FAUSTO RODRIGUEZ, being duly sworn," the document read, "deposes and says: In 1899 I was employed as a messenger in the office of the U.S. Army Signal Corps. I became friendly with a Mr. [the name is blacked out], who worked in the office of the Chief Signal Officer. One afternoon, in August, 1900, I went with him to the [name blacked out] Bar, and he drank Bacardi rum and Coca-Cola. I just drank Coca-Cola, being only 14 years old. On that occasion, there was a group of soldiers at the bar, and one of them asked Mr. [name blacked out] what he was drinking. He told them it was Bacardi and Coca-Cola and suggested they try it, which they did. The soldiers liked it. They ordered another round and toasted Mr. [name blacked out] as the inventor of a great drink. The drink has remained popular to the present time."
The affidavit is notarized: "Sworn to before me this 24th day of October, 1965."
The coincidence is that this ad, which also fails to mention Cuba, appeared just after Coca-Cola launched its 1965 "Things go better with Coke" campaign and after Bacardi had made a deal with Coke to advertise jointly. The truly remarkable coincidence is that Fausto Rodriguez, irrespective of whether he worked for the U.S. Army Signal Corps, did once work for Bacardi's New York office as head of publicity. So well known was Rodriguez in the industry that he was tagged "Mr. Bacardi." Regardless of what really happened in the old American Bar on Havana's Calle Neptune, the many different versions of the tale, reported in Family Spirits, always end with the bartender serving the drink to U.S. servicemen and toasting, "Por Cuba libre!", giving the drink its true name, the Cuba Libre.
Just as the Spanish-American War had hurt the Bacardi company and family, so did the Volstead Act, though to a lesser degree. Passed in 1920 by the U.S. Congress and overriding President Woodrow Wilson's veto, the measure made Prohibition the law. Four years earlier, Bacardi had set up a bottling plant in Manhattan. As Foster reports, "When the Eighteenth Amendment appeared on the horizon, the company found itself in danger of being left holding 60,000 cases of rum. Enrique Schueg [who had become the head of Bacardi, having entered the family through his marriage to Don Facundo's daughter, Amilia Bacardi Moreau] came up with an ingenious way of disposing of this stock. He sold 60,000 shares in the company, then wound the company up and distributed its assets--one case of rum per share--to grateful and thirsty shareholders."
While hurt by Prohibition, Bacardi had an advantage over the more popular Scotch whiskies of the day, because the company was based in Cuba, 90 miles from U.S. shores. Cuba became a watering hole for many vacationers and gave fame to bars like Sloppy Joe's and El Floridita. The daiquiri was king.
Among the popular tourist attractions in Santiago was the Museo Emilio Bacardi Moreau, which was inaugurated in 1928; curiously, it had little on display to indicate any relationship to rum. The man after whom the museum was named had died in 1922, but he had contributed so much to the city of Santiago, of which he was once mayor, and to Cuba, whose war of independence he had actively supported and in whose senate he later served, that he and the Bacardi family in general were considered Santiago's "first citizens."
Today, the museum has been preserved by the Castro government, most likely because of its testaments to Cuba's earlier revolutionary history and its heros, and its pre-Columbian and Spanish colonial heritage. The museum is also a tribute to Emilio Bacardi Moreau as a man of letters and the arts, a novelist who also wrote about Cuba's history. His best-known work is the posthumously published 10-volume Cronicas de Santiago de Cuba (Chronicles of Santiago de Cuba).
For those in the United States who want to get a sense of the accomplishments of Don Emilio--which include taking the first Egyptian mummies to Cuba--and of other Bacardis throughout history, the place to go is the company's building in Miami, itself noteworthy for its architecture. On the ground floor, in what used to house an art gallery, is the Bacardi museum en el exilio. Jose "Tito" Argamasilla Bacardi, a great-grandson of Don Emilio, led the way in putting together the exhibit, which holds the only photograph of Don Facundo Bacardi y Maso known to exist. The display is a labor of love and the work of family and friends who were asked to look for relics of the family's and company's history. There is even a collection of vintage Cuban cigar bands, including a Romeo y Julieta that cross-promotes Bacardi.
The museum in Miami also exhibits the company's old ads, including one that commemorates a 1936 decision by the appellate division of the New York Supreme Court that a Bacardi cocktail (Bacardi Light, lime juice, sugar and grenadine) wasn't a Bacardi cocktail unless it was made with Bacardi rum. Bacardi lawyers had called dozens of bartenders to testify in the case, bringing them in from all over the world. They supported the company's argument, Foster writes, "by stating that no self-respecting barman would serve anything else in a Bacardi cocktail."
That battle was by no means the most difficult Bacardi ever fought, nor the most painful decision Bacardi ever made, to protect its trademark. In another indication of the prescience of the company's leaders throughout its history, Jose M. "Pepin" Bosch made a move that was provoked by revolution and that provided the company the platform to become what it is today.