A Traditional English Family Company

Mr. Seymour

Reverend Sir, distinguished head table guests, members and friends of The Empire Club of Canada: It is my pleasure to welcome as our guest speaker today Norman C. Burrough, Chairman, James Burrough PLC, which has as its registered office Beefeater House, Montford Place, Kensington Lane, London, England.

"Beefeater" is the popular name for the members of the Yeomen of the Guard, including the Yeomen Warders of the Tower of London. First organized in 1485 by King Henry V11, the Yeomen of the Guard still serve as a bodyguard to the King or Queen of Great Britain on formal occasions.

Originally, a Yeoman was a retainer of a feudal lord in early England. In the 1400s, the name Yeoman came to mean "English forester," or small freeholder on a feudal manor.

Later, the Yeomen evolved into an independent class of small landowners and farmers. Famous for their sturdiness and patriotism, they formed their own volunteer cavalry groups, called Yeomanry, after 1761.

The commissioned officers of the Yeomen of the Guard wear a sash across their colourful Elizabethan costumes and carry weapons that date back to the Tudor period. Their tunics are red and have blue and gold facings. They wear red knee breeches and flat-topped hats.

An appointment to the Yeomen of the Guard is honourary. Commissioned officers for the Guard are still chosen from Great Britain's regular armed forces, although the position no longer requires any fighting ability.

Years ago the "Yeomen Warders of the Tower of London," non-commissioned officers from Great Britain's armed forces, were nicknamed "Beefeaters," although it is somewhat difficult to establish the exact origin of this nickname. One theory suggests that it may have started in Tudor days, when servants ate their master's beef.

A more recent theory suggests it may have originated in the 1100s from the French buffetiers, those servants who attended the King and Queen to protect them and to ensure that the food was not poisoned.

The Beefeaters have an ongoing responsibility, inasmuch as the Tower of London houses the Royal Jewel Office. Here the crowns, sceptres, and other glittering royal treasures of the English rulers-known as the regalia-are closely guarded.

Born in Epsom, Surrey, Norman Burrough is chairman of James Burrough Ltd. PLC, distillers of the famous Beefeater Gin.

After completion of his schooling at St. Paul's School, London, Norman Burrough entered active military service in 1944, rising to the rank of commissioned officer in the Coldstream Guards. He left the service in 1947 to join James Burrough Ltd., rising to his present position in 1982.

Mr. Burrough is married, with two sons and one daughter. He resides in Dencombe House, Handcross, Sussex, when he is not conducting his family's business affairs in London and other major urban centres.

Ladies and gentlemen, it gives me great pleasure to introduce Norman C. Burrough, Chairman, James Burrough PLC, who will address us on the subject, "A Traditional English Family Company."

Norman Burrough

Mr. President, honoured guests, ladies and gentlemen: Some years ago, I lived in an old vicarage and on Sunday mornings we walked to church through our private garden gate. We had an excellent vicar and, when he came to make his address, he would say a short prayer.

Either: "God the Father, God the Son and God the Holy Ghost." In that case, we were in for rather a dull time. Or he would say: "May the thoughts in my heart and the words on my lips be always acceptable in your sight, O Lord." Then we would all sit up and take notice!

I trust what I have to tell you today will be in the latter category.

Today, when one hears the term `family company,' certainly in England in any case, the man in the street immediately conjures up images of (television's) Blake Carrington or JR Ewing heading up multi-national, multi-faceted, and multi-problematical organisations where it seems to me that every member of staff from the janitor to the chief executive is either a cousin, brother, ex-wife or some relative of the founder. It always astonishes me how Blake and JR find the time between scandals and skullduggery to run such successful businesses!

No, life at James Burrough-which has been a family company since my ancestor, James Burrough, started to distill Beefeater Gin in Chelsea in London in the early 1800s-is just as exciting as Dynasty or Dallas, but we derive our excitement from distilling and selling the finest gin in the world, rather than from intrigue and back-stabbing.

As you will have gathered, the theme of my speech today is the traditional English family company. I feel that I am well qualified to speak on this subject as James Burrough is '.one of a sadly ever-decreasing number of genuinely old family firms in England.

In 1947, I joined my father, cousin and elder brother in our family company, which had already been established for over 100 years. We were a very small company, struggling to make ends meet, involved with a wide variety of alcoholic beverages. In fact, if it had alcohol in it and you could drink it, we either distilled it, made it, imported it or blended it!

Looking back on my earlier years, having just left the Army, I am amazed just how primitive we were. Father, in traditional shopkeeper style, had his office just inside the front door from where he watched all who came and went. On Thursdays, he cycled across Westminster Bridge to visit the bank and collect the money for the wages.

In the distillery, all plant equipment except the all-important stills was second-hand. The steam pumps, very reliable, had been working for upwards of 40 years.

The idea that the salesmen should have a company car to help them in their work was outrageous. In fact, I don't think they knew how to drive anyway! Bowler hat, gloves, rolled umbrella, spats and striped trousers were the order of the day.

As the years went by, more by evolution than strategy, we concentrated more and more on one product-Beefeater Gin. By 1967, twenty years on, Beefeater had gained worldwide distribution, was brand leader of imported gins in the United States, and has since become leader in may other countries, including, of course, this country (Canada), Japan, Norway, Spain, and the success story continues.

We have now come full circle because, by 1980, we were actively looking to acquire companies and to broaden our base with new products. These ventures include the acquisition of Elsenham Quality Foods, a high-quality company making the finest Marmalades, Preserves and the famous Patum Peperium The Gentlemen's Relish, an anchovy paste.

And the launch of the ready-to-drink Beefeater Double Gin & Tonic in the U.K. and now in the United States.

I believe a family company still has a number of advantages. There are also a number of problems. I would like to share with you my thoughts and fears.

Firstly, we have the advantages of loyalty, drive and dynamism, speed of action and decision taking and, dare I say it? paternalism and the ability to communicate. Everybody knows who is the boss!

Most family businesses have been established by the determination, ability and personal commitment of one person. However, the majority of family businesses have come unstuck when, after the original dynamism of the founder of the firm has been passed on, in diluted form, to succeeding generations, the line of succession comes to rest with the family twit born with a golden spoon in his mouth. He proceeds to ruin everybody's hard work through spending profits on wine, women and song, while simultaneously neglecting the development of the business.

There are, of course, notable exceptions to this trend: Family firms like:

Trust House Forte, started by Charlie Forte, a London barrow boy, who in his lifetime has built the empire of Trust House Forte, now rated the 89th largest U.K. company with a turnover of £963 million. Ably managed by Charles Forte's son, Rocco.

Guinness. Here is a very interesting example of a longestablished family company based on one product, Guinness, which is becoming outdated and out of fashion. The family decided that it must diversify and it would appear that each director "did his own thing," resulting in the firm acquiring some 160 companies in a completely un-coordinated fashion. Ernest Saunders, the non-family Chief Executive, has now sold some 130 of these acquisitions.

Another barrow boy, the late Maxwell Joseph, built Grand Metropolitan Hotels, which now ranks as 10thlargest U.K. company, with a turnover of £4,468M. This is another success of building empires from nothing within one generation.

McAlpines still run that eminent construction company; Cadburys still makes excellent chocolate; Sainsbury has a successful chain of very good food stores; and there are a host of regional breweries, the odd private bank, grocery businesses and many other examples.

The ongoing ownership and management of a family company over the generations needs careful planning.

We have always aimed to select the best person for the job, family or not, on the basis that the success of the company is for the benefit of all the family shareholders. The danger, of course, is that you may get to the situation where the family has little or no direct interest in the business and so loyalty wains.

The other major problem for family companies is the area of finance.

For many years in England we had high personal taxation. This has precluded private individuals and family shareholders from being able to invest additional capital in their company for its expansion. The present Government has started to reverse this trend and private investors are beginning to reappear.

So the financing has to come from the retained profits for the company's future development.

But the problem has been much worse than that, as members of the family have wanted to sell shares to pay for their children's education, to buy a house, or many other eminently commendable projects.

But worse is to come-Estate taxes. As the generations change, so the executors-or perhaps "executioners" is a better word-need to sell shares to pay the taxes. The more successful the company, the higher the taxes, in addition to which capital gains tax has to be paid. So we have a vicious circle.

Over the years at James Burrough, we have had very sympathetic family shareholders, for the policy of retaining profits in the company. The only cry was when we acquired Elsenham Quality Foods in 1980. A shareholder spoke out at our annual general meeting: "Jam yesterday, jam tomorrow, but never jam today."

So how do we navigate through these rocks?

Firstly, by making our shares available on the O.T.C. Market, where we have some element of control and our shareholders can obtain a fair market price and outlet for their holdings. On this side of the Atlantic, the O.T.C. Market is well known and understood. In London, it is very small and distinctly frowned upon by the traditional city institutions and particularly by the London Stock Exchange.

James Burrough was one of the pioneers into the O.T.C. Market and it has worked well for us. After eight or so years of operation, some twenty-eight per cent of the family shares has been sold into pension funds etc., so-called "safe hands" where we hoped that some shareholders' loyalty would exist. We have certainly always been able to identify the true ownership of any holding. Recently, the law has been strengthened on this point; it is now mandatory to declare the true owner of every share, if asked.

To slow up the drift of family shares away from the company, we have found a route by issuing preference shares, which classify as voting shares but only if the dividend is in arrears. This class of share has a ready market in other family trusts.

Before I leave this topic, I would just like to make one more observation on the institutional shareholder. It is inevitable that the fund manager's loyalty is to his client and not to the company. This is fundamental of the difference between a loyal family shareholder and an institutional one.

One doesn't have to look farther than our own pension fund, ably managed by an investment manager. I chair our quarterly trustees' meeting to review the investment policy and examine the share movements over the period. We applaud where a share has been sold to lock into the fund a useful capital gain.

Britain is in the grip of takeover fever, particularly in the wine and spirits sector, with a record number of bids totalling billions of pounds having been announced in the last twelve months. Gradually, those family businesses which have remained private or with the majority of the shares held by relatives, have succumbed to the lucrative offers of the conglomerates or institutions run by grey men with little or no regard for the traditions or standards of the firm they are taking over.

For a few moments, I would like to tell you about the current state of play of some of the extraordinary events in our industry.

I was speaking a little earlier of the family company of Guinness, and I stopped at the point where its non-family chief executive, Ernest Saunders, had sold off many of the unattractive acquisitions that had been made. This action resulted in Guinness becoming far more profitable and in funds being made available for further acquisitions. Last summer, it struck, acquiring Bells Scotch Whisky, ably run by Raymond McQuell, who had made Bells brand the leader in the UK against Distillers and other brands.

The acquisition was hotly contested but, in the end, Guinness succeeded because its offer was sufficiently attractive to the institutions in that they could lock in a capital gain in accordance with their investment policy.

My sadness is that I believe this takeover was purely for financial considerations and not about the synergy of the two companies or the effectiveness of their managers and only a little to do with Bells Scotch being a strong brand.

One of the more extraordinary events of the current acquisition scheme is the fact that significantly smaller companies are bidding for very much larger companies.

A case in point: James Gulliver Company Argyle Foods, perhaps known over here for its ownership of Barton Brands, has put in a bid for the mighty Distillers Company with an offer of £2.2 billion. The board of Distillers, thoroughly alarmed at the prospect, has asked Guinness to acquire them.

The public slanging match with acrimonious advertising has to be seen to be believed. (I have a few samples taken from last week's London newspapers with me, if you care to see them later.)

The High Court actions, the Office of Fair Trading, the

Monopolies Commission is mind-boggling.

Distillers Company is so keen to keep out of the clutches of Argyle that it has actually agreed to pay Guinness all of the latter's costs of the takeover, estimated at £38M.

We have two other larger takeovers in progress in our industry.

Firstly, the Australian John Elliott's company, Elders IXL, is bidding over £2 billion for Allied Lyons, on the basis that it can do a much better job and use its brewery expertise. However, its first venture into brewing was 18 months ago when it acquired Carlton & United Brewery in Australia (of Foster Lager fame).

Secondly, Hanson Trust is bidding for the Imperial Group which includes Courage Brewery and other wine and spirits interests. Hanson's requirement here would appear to be the necessity to be able to show continuing growth, which can only be achieved by acquisition.

The list is endless. It is estimated that at least £10 billion is on offer within our industry sector at this time.

The cost of mounting one of these bids must be in the order of £40M, where in each case they are being hotly contested. Among those who gain must be the professional advisers, advertising agencies, and newspapers, from which we have a continual barrage of vitriolic comment.

We at James Burrough are able to carry on virtually unhindered with the most important task of building our brands and developing our companies, instead of having to use management time in fighting a defensive action.

Even so, the size of these takeovers is sending ripples through the marketplace, to which we have to respond.

I wonder, when all the dust has settled and the takeovers are complete, whether the new boards of directors in our industry will have the same problem as an insurance group that merged some years ago and had difficulty in finding a new corporate emblem for the combined companies.

So what are the chances for the future of James Burrough continuing as a family company? With the scenarios that I have just described, I believe they are excellent.

Firstly, we can continue to claim the loyalty and interest of our family shareholders, including the growing band of employees owning shares, by ensuring a continuing stream of increasing profits, that they can see that their company is progressing and keeping their personal interest in their investment.

Secondly, by making it possible for family shares to be sold without diluting their voting power.

Thirdly, by demonstrating that we are a well-managed, progressive company, with an efficient management team that will ensure success for the future.

Fourthly, that we have a continual development policy with new products and new companies.

Fifth, that we continue the philosophy of small, self-contained units of management where initiative can thrive and managers can reap the rewards, not only financial but also of personal commitment to his and the company's success. That he can proudly say:

"I built that."

Finally, and not least, that we continue to produce the finest products we are able, that we can be justly proud of our company and the service we give to our customers.

The appreciation of the audience was expressed by Robert Armstrong, a distinguished Past President of The Empire Club.