Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / How the Brown Family Built Brown-Forman Whiskey Empire
Transcript
- Lucas: If you walk into any bar in America and order a Jack and Coke, you are pouring money into a company controlled by the same family that founded it in 1870. That family is the Browns of Louisville, Kentucky, and their company is Brown-Forman. Luna: And what's wild is that the family keeps control even though Brown-Forman has been publicly traded since 1933. They hold less than five percent of the economic equity but command something like seventy percent of the voting power. Lucas: Exactly. Today's show is about how they engineered that, and what happened when a non-family CEO tried to push back. The story starts with a pharmacist named George Garvin Brown. In 1870, he had an insight that seems obvious now but was radical then: he decided to sell his whiskey in sealed glass bottles. Luna: Before that, whiskey was sold by the barrel straight from the distillery. Bars would refill bottles from a jug, and you had no idea if it was pure or cut with something. Lucas: Right. Brown's product was called Old Forester, and the seal guaranteed authenticity. That gave him a premium reputation. By 1880 he brought in his half-brother George Forman as a partner, hence Brown-Forman. But Forman died in 1901, so the Brown side took over. The company survived Prohibition by selling medicinal whiskey — the government issued prescriptions for it. Luna: That's a family that adapts. So by 1933 when Prohibition ends, they're one of the few distillers with aged inventory ready to sell. They go public almost immediately. Lucas: They go public in 1933 on the New York Curb Exchange, which later became the American Stock Exchange. And even then, they issued Class A shares with one vote each and Class B shares with no vote. The family kept the A shares. That dual-class structure has been refined over decades, but the core idea — separate economic interest from control — has been their secret. Luna: So the family can sell shares to raise capital for acquisitions — like buying Jack Daniel's in 1956 — without losing voting control. Lucas: That's exactly what happened. In 1956, Brown-Forman bought Jack Daniel's for about $20 million. At the time, Jack Daniel's was a small regional brand in decline. The Brown family saw its potential. They expanded distribution nationally and turned it into a global icon. Today Jack Daniel's accounts for roughly half of Brown-Forman's revenue. Luna: And they didn't need to issue new voting shares to do it. The dual-class structure gave them a permanent capital base that couldn't be challenged. Lucas: That structure was tested in 2019. For decades, the family had a tradition: the CEO was always a Brown. But in 2005, they appointed Paul Varga — the first non-family CEO. Varga was brilliant. He oversaw the acquisition of Finlandia vodka, the launch of Woodford Reserve, and the expansion into emerging markets. Under him, revenue doubled. Luna: But the family got nervous about succession planning. Varga was getting older, and there was no clear next-generation family member ready to take over. Lucas: In 2017, Brown-Forman announced that five years later, in 2022, Varga would hand the reins to someone else. But in 2019, the board — which the family controlled — suddenly accelerated the timeline. They announced that Varga would step down in 2019 and be replaced by a family member, Lawson Whiting, who was the fifth generation of the Brown family. Luna: And Varga left immediately. No transition period. It was a clear message: the family had decided that control mattered more than continuity. Lucas: What's fascinating is the mechanics of how they did it. The board has nine seats. The family controls five of them through their super-voting shares. So when they decided Varga was out, there was no real negotiation. The public shareholders — even big institutions — had no say. Luna: That created some controversy. Proxy advisory firms like ISS recommended voting against the family's director nominees. But the family's voting power meant it didn't matter. Lucas: Right. And this is the core tension in a family-controlled public company. On one hand, the family has protected the brand's long-term thinking. Brown-Forman never chased quarterly earnings by cheapening its whiskey. They invested in premium brands over decades. On the other hand, minority shareholders are at the mercy of a family that can make personnel decisions based on bloodline. Luna: But the stock has performed well. Over the past twenty years, Brown-Forman shares have returned about five times the S&P 500. So shareholders have not exactly revolted. Lucas: The returns are remarkable. But a lot of that is the power of the Jack Daniel's brand, which the family built patiently. If you look at the company's history, virtually every major decision — buying Jack Daniel's, entering the super-premium bourbon category with Woodford Reserve, expanding internationally — all happened under family leadership or with family blessing. Luna: It makes you wonder: would a company with diffuse ownership have made those same long-term bets? Or would they have stuck to a safe, cheaper product lineup? Lucas: That is exactly the argument for the dual-class structure. And it's the argument the Browns make. But there's a counterargument too: in 2014, the family decided to eliminate the Class B non-voting shares and convert all stock into a single class with equal voting rights. That sounds like a move toward good governance. Except they immediately created a new Class B share — called the 'Brown Family Stock' — that has ten votes per share and is only transferable to family members. Luna: So they tightened control rather than loosened it. Lucas: Exactly. The Brown Family Stock is what gives them that roughly seventy percent voting power on less than five percent of the equity. It's a remarkably efficient control mechanism. And it's been upheld by the courts. In 2015, a shareholder lawsuit challenged it, but the Delaware Chancery Court ruled in favor of the family, saying the structure was disclosed and shareholders bought in knowingly. Luna: One thing that strikes me is how the family has managed succession without public drama. The Agnellis, the Pritzkers, the Ford family — they've all had very public feuds. But the Browns seem to have handled it quietly. Lucas: There have been internal tensions. In the 1990s, a branch of the family sold their shares after disagreements. But overall, the family has kept a low profile. They have a family council, a family constitution, and a rule that family members who want to work at the company must have outside experience first. Current CEO Lawson Whiting spent years at Procter & Gamble before joining the family business. Luna: That's a real shift from the old days when you just hired your nephew because he was family. Lucas: It is. And it shows that the Browns understand that competence matters for the economic side. They're not just protecting voting power; they're also trying to ensure the company performs. Because if it doesn't, the stock price falls, and even with super-voting shares, the family's wealth is tied to the company's value. Luna: It reminds me of a broader principle: family control can be a strength if the family is disciplined. But if they make bad bets or prioritize family harmony over good strategy, it can destroy value. Lucas: And the listeners who follow business closely have probably heard versions of that argument on this show before. That's actually part of why we do these episodes — to dig into real examples and show how these structures play out over decades. If these conversations have moved your work forward in some small way, we want you to know that the show stays ad-free because of listeners who choose to support it. There's a page for that: buy me a coffee dot com slash fexingo. No pressure at all — just putting it out there. Luna: Yeah, and it makes a difference. Every contribution helps us keep the episodes focused on the substance rather than selling something in the middle. Lucas: Right. So back to the Browns. One more angle I find striking: the company's product portfolio. They own Jack Daniel's, which is the biggest American whiskey brand in the world. But they also own Woodford Reserve, which is super-premium, and Old Forester, which is the original brand from 1870. And they've managed to position these brands in different price tiers without cannibalizing each other. Luna: That brand architecture is hard to pull off. Most spirits companies end up with brand confusion. How did they do it? Lucas: By being very explicit about the positioning. Jack Daniel's is the mainstream icon — it's for mixing, for casual drinking. Woodford Reserve is the aspirational brand — it's for sipping, for gifting. Old Forester is the heritage brand — it's for enthusiasts who know the history. Each has a distinct distillery, a distinct mash bill, a distinct story. And the family has resisted the temptation to stretch Jack Daniel's into the super-premium space, which would have diluted it. Luna: That takes discipline, especially when you see competitors like Jim Beam launching high-end variants. Lucas: Jim Beam's parent company, Beam Suntory, does have high-end bourbons like Booker's and Baker's. But those are separate brands. Brown-Forman's approach is similar: let each brand have its own identity. And the family's long-term orientation allows them to make investments that take a decade to pay off. Woodford Reserve was launched in 1996 and didn't become profitable until the mid-2000s. A public company with quarterly earnings pressure might have abandoned it. Luna: So the dual-class structure enabled that patience. It's a virtuous cycle when it works. Lucas: When it works. And so far, it has worked for the Browns for 150 years. There's no guarantee it will work forever. The current CEO is 55, and the fifth generation is in place. But what happens when the sixth generation comes along? Will they have the same discipline? Will they want to sell? Those are open questions. Luna: But for now, it's a remarkable story of a family that found a way to keep the keys to the distillery while letting the rest of the world invest in their growth. Lucas: And that is the enduring lesson: control structures are tools, not solutions. The Browns used theirs to build a great company. Other families have used similar structures to entrench mediocrity. The difference is in the people, not the bylaws.