Gustavo Cisneros in the Family Business Forum - Speech "Leading the Family Enterprise". 2009. São Paulo, Brasil.
1 “LEADING THE FAMILY ENTERPRISE” BY: GUSTAVO A. CISNEROS World Family Business Forum, Sao Paulo, May 20, 2009 (MAY 8, 2009)I am delighted to be here, and want to express my gratitude to the organizers of this Forum, andin particular to Professor John Davis and his colleagues, whose pioneering work on the topic offamily enterprises has provided many of us with precious insights.I will present an overview of the Cisneros Group of Companies’ corporate history, of the valuesthat guide us and current concerns, and of our vision for the future as a private equity group.Our corporate history has humble origins. We began 80 years ago, when my father, DiegoCisneros, then a seventeen year old boy full of energy and dreams, created his first business.Born in Cuba of a Cuban father and a Venezuelan mother, he was sent to an English boardingschool in Trinidad, where he learnt English and completed his high school studies. He thendecided to come to Venezuela, initially on his own. Once there, and supported by a letter ofauthorization from his mother because he was a minor, he got a loan from the bank and boughta second-hand truck, which he transformed into a bus. The latter grew into a profitabletransportation service that came to be known for its quality and reliability.The business expanded, and in 1939 the “Diego Cisneros & Company” enterprise was founded.It would obtain the exclusive representation for Venezuela of several renowned brands.In what proved to be a giant step forward for all parties involved, Pepsi-Cola Internationalgranted Diego Cisneros and his brother, Antonio, an exclusive franchise for sales and marketingIn Venezuela. Antonio had visited New York’s World Fair in 1939, and there tasted Pepsi-Cola,and decided to bring the product to his country. My father immediately joined the initiative, andthey opened the first Pepsi plant in 1940. The company quickly became the most successfulsoft drink bottler in Venezuela, expanding in time to Brazil, where plants were opened in SaoPaulo and Rio de Janeiro.The Pepsi deal is a good example of the entrepreneurial instinct that characterized DiegoCisneros’ business ventures. Our Pepsi bottling company was, in fact, the first verticallyintegrated business in Venezuela, and it included the bottling company, glass, carbonic gas,
2plastic crates and bottle caps companies, as well as a sugar refining plant. All of this industrialorganization was promoted and marketed by a media infrastructure which sold the product on amassive scale.It can be fairly said that my father was a visionary. The trait was again displayed in his earlyappreciation of the power of television. In 1960, at a decisive moment in Venezuela’s historywhen the recently established democratic government was facing severe challenges, hepurchased the local Caracas TV channel 4. The channel evolved into the Venevisión nationalnetwork, and has become one of the most successful television networks in this Hemisphere.Venevisión is a production powerhouse that occupies a commanding position, generatingentertainment content which is today distributed globally.During these years, my father and mother were also growing their family. My father’sbusinesses were supported by a corporate culture that was, in turn, backed by a sense ofloyalty and purpose on the part of his family. The values he nurtured and instilled are anessential part of our family legacy.He taught us to focus on opportunities to offer quality services to mass markets, to assumecalculated risks, and to maintain a balance between audacity and caution, as well as betweencentral control and the operational autonomy of our companies.In particular, he stressed continuity, family unity, and a commitment to the communities to whichwe belong and in which we operate For my father this meant a commitment to Venezuelandemocracy, to the nation’s economic prosperity, and to Venezuela’s increased profile amongthe countries of the Americas. As the Cisneros Group has grown under my direction, we haveacted to promote education and democratic principles throughout the Hemisphere. What todayis called “corporate social responsibility” has been integral to our operations from the start.Let me expand a little on this point.Philanthropy has always been a part of our family’s activities. To us, social responsibility andsuccessful business practices must go together. We have, in other words, an entrepreneurialapproach to philanthropy, and when we created the Cisneros Foundation in the 1970s, my wife,Patty, and I conceived of it as a central component of our mission.For instance, and just to mention three examples: Our mass-literacy program, named ACUDE,developed by the Cisneros Foundation in Venezuela in the seventies and eighties, reached
3about 300,000 people, in a country with a population of, at the time, around 15 million. Theprogram was executed with the strong support of several of our companies. The nation-widePepsi infrastructure, for example, took charge of distributing learning materials and transportingteachers and other staff, while our media enterprises promoted the benefits of the program.Secondly, the television channel Cl@se, was created as a complement to our DirecTV venture.As we built the first pan-regional television platform in Latin America, we likewise launched thisfirst pan-regional, Spanish-language educational channel. I made sure that the contracts withour various local partners in DirecTV included clauses guaranteeing that Cl@se would be addedin the programming grids for their countries.We had a similar experience with AME, a program created to advance the professionaldevelopment of school teachers, leveraging both TV and the Internet. The educational potentialof the Internet convinced me of the need to take advantage of the opportunities generated by it.Our Group conceived and developed comprehensive training courses for teachers on subjectsincluding health education and the environment, which can be distributed across Latin America,and AME has become a flagship teaching program of vast social impact, that keeps producingexcellent results.In addition to these efforts, the Cisneros Group also partners with the Cisneros Foundation onprograms devoted to the preservation and promotion of Latin America’s cultural heritage, suchas the Patricia Phelps de Cisneros Art Collection and its associated projects.Returning to our storyline, my father suffered a stroke in 1970, which weakened him, thoughwithout dampening his optimistic outlook on life. I was then 25 years old, and had recentlycompleted my studies at Babson College. The circumstances forced me to assume leadershipof the Group. With my brother Ricardo we began a new phase in the evolution of the family’sbusinesses. We had already diversified into a number of industries in Venezuela, and reachedall of the national market, and thus we began an ambitious process of international expansion.There were possibilities on a number of fronts: We could leverage our exceptional track recordin soft-drink bottling and in television production, and make the jump to the U.S. market. On theother hand, in Latin America there was growing demand for international brands, and, given ourexperience in consumer products, we could extend popular and profitable brands throughout theregion.Here are a few examples of how we proceeded:
4Our Group, in conjunction with Fortsmann Little, acquired All American Bottling Company, aU.S. bottler of Seven-Up and Royal Crown Cola, from Beatrice Foods in 1981. When it was soldin 1987 we enjoyed an eight-fold return on the investment. This was possibly one of the firsthighly leveraged deals of that era, and quite innovative at the time, an experience we duplicatedwith the purchase of the Galerías Preciados chain of department stores in Spain in 1984.Also in 1984 we acquired Spalding, a maker of sports equipment, and Evenflo, a recognizedbaby products brand, in a combined deal from Donaldson, Lufkin & Jenrette for $ 350 million. Intwelve years we tripled Spalding’s sales. When we sold them in 1996 we enjoyed a 25% returnon our investment, and Spalding and Evenflo were firmly established in Latin America, and werealso two of the most recognized companies in their respective industries worldwide.In 1992, together with Emilio Azcarraga and Jerry Perenchio, we purchased the Univision TVnetwork from Hallmark for $ 505 million. We already had experience selling televisionprogramming in the growing Hispanic market in the U.S., and by this time there was demand fora world-class Spanish-language network. Univision soon became the leading Spanish-languagemedia company in the USA. We sold our participation in 2008 at a great profit.In these deals and others we share many similarities with private equity groups. And as afamily-owned and controlled group we also have distinctive traits. One of them is that we dosometimes take more time to resell companies. With a longer-term vision in mind, we canexplore new approaches to management and finance. In addition, given our long experienceand familiarity with our markets, we can act audaciously when justified. In the end, we are ableto realize a truly maximum return.This was in evidence in our 1996 switch from Pepsi to Coca-Cola. At the time Venezuela wasone of the two countries in the world in which Pepsi led Coke in sales by a wide margin. But wehad become disenchanted with some aspects of that operation, and, in exploring our options,negotiations led to an agreement that took the business and financial worlds by surprise. In thespan of a couple of days, all of the production and distribution infrastructure for Pepsi inVenezuela was switched to Coke. The country’s supply of red paint was used up changing thehuge industrial plants, and the hundreds of trucks, from Pepsi blue to Coca-Cola red overnight.The switch was highly profitable.I think it is time to sum up:
5The Cisneros Group is characterized by a certain way of doing business, which embodies ourprinciples and the lessons learnt by experience. This is a model we still follow, placing apremium on high quality work, maintaining highly experienced, talented and loyal employees,and on a partnership approach, working with other groups and bringing values to bear for allparties involved.Our Group began as a group of companies with Venezuelan roots and international aspirations,and it gradually evolved into an international organization with a presence on five continents.We are now nurturing new business initiatives in the U.S., Latin America, Europe and Asia, thehuge Chinese market being one of our priorities.What our Group will become, as it reaches the 80-year mark and prepares for new decades ofchallenges, will very much be in the hands of a third-generation of the family. My fatherunderstood the importance of timely generational change. I want also to embrace it.I am a firm believer in the right of the younger generation to do things according to their ownvision. Also necessary is a healthy respect for what the past can teach us, and for theachievements of our predecessors. And I trust that the values that have guided us thus far –among them: entrepreneurial initiative, an emphasis on quality products and services, employeeand family loyalty, and a sense of purpose in the communities in which we operate- will continueto prevail.My wife, Patty, and I have three children. We love them, and see that each is distinctly talented.Our younger daughter, Adriana, has enthusiastically followed in the family’s business tradition.She is devoted to her family and to her work, and has recently been appointed Vice-Chairmanand Vice-President of Strategy.Patty and I, Guillermo, Carolina, and Adriana are the members of our Family Council, whichoriginated in the recommendation made by our trusted friend John Davis, to provide the familywith a structured channel geared to the exchange of views and the discussion of new ideas andprojects.It is now Adriana’s turn to tell you, in her own words, how she intends to build our corporatefuture.Many thanks.