Dethroning the King (19 page)

“August IV has successfully prepared himself by leading the U.S. beer company through a period of great change and challenge,” his father said in a press release dated September 27. “He brings with him the new thinking of his generation, yet appreciation for the great traditions and values of this company.”

After 49 years at Anheuser-Busch, 68-year-old August III retired as chairman of the board on November 30, relinquishing a bit further his official hold on the group. Stokes, 64, who had been with the company for 37 years and had worked directly with The Third for more than 30 of them, took over as chairman.

Both men cut deals to remain highly paid consultants for the company, as per tradition for many of Anheuser's departing or demoted executives. August III agreed to consult part-time for six years, and Anheuser pledged to continue covering his business travel, office, and security expenses and even to continue leasing its corporate aircraft from his company. It also pledged to provide free draught and packaged beer to his house upon request. In December, he elected to be paid his $37 million pension, along with another $27 million in deferred compensation, in one lump sum rather than having payments spread out over many years. Stokes made a similar election and received $34.6 million in pension and deferred pay—bringing the amount Anheuser paid its two former chiefs that month to nearly $99 million.

After spending exactly half of his life working at Anheuser-Busch, 42-year-old August IV—who was literally born to be chief executive—took over on December 1 and brought with him an easy-going, approachable leadership style that contrasted sharply with that of his father's.

The mood at the company, though, was hardly euphoric. Investors and analysts were concerned about its heavy dependence on the United States, where there were few opportunities for growth. Budweiser's market share had been slipping for years, and neither The Third nor Stokes had been able to stop it. Wine, craft beers, and imports were continuing to grow in popularity, and Anheuser-Busch was struggling to invent “beer occasions” that provided excuses for people to drink. Beer's total share of the alcohol market had dropped to 55 percent from its peak of 60 percent in 1995. The market was even topping out when it came to devoted beer drinkers. The human stomach is only so big, America's obesity problem notwithstanding, and Anheuser-Busch wasn't likely to convince many people to chug a case of Budweiser a day no matter how hard it tried.

The company's stale share price reflected these concerns, and investors were getting frustrated. It marked the toughest era for the company since The Third had taken the reins in the 1970s. August IV was staring a mountain of hard work in the face.

A few things changed when he took office. With the company under heavy pressure to rein in costs, he quickly decided to shutter Anheuser's ostentatious executive dining room. The luxurious eatery had served as a place of respite for Gussie and The Third for decades, but it was little more than a nerve-wracking poaching ground for many of their subordinates.

“He used to have breakfast in our dining room, which was like a bank dining room,” said Bob Lachky, referring to August III. “It was gorgeous. [The Fourth] shut it down and made it a call center. He said it was ridiculous that only certain people in certain grade levels got to use it, and it was starting to separate the employees. Plus, I don't think The Fourth ever used it.” Many of Anheuser's other top staffers also avoided the place like the plague. They weren't eager to get cornered and reamed out by August III as they tried to scarf down a ham sandwich. Still, most of them remember being summoned up there at one point or another.

One morning after his retirement, The Third helicoptered to the office and called down for breakfast, not knowing that his son had pulled the dining room's plug.

“And they said, ‘But sir, we don't have the dining room anymore, ' ” Lachky said, recounting the story. “He goes, ‘What?' And they said, ‘Well, it's not here. It's closed. August IV closed it. ' And he was like, ‘
What?
' He thought he'd come back to his old haunt, and it didn't exist.' ”

A much bigger point of cost-related contention between father and son, however, involved The Fourth's decision to cancel delivery of a new $40 million Dassault Falcon 7X—Dassault's first fly-by-wire plane, which could make it all the way from St. Louis to China nonstop. The Third had been eagerly awaiting the aircraft for years, and Anheuser-Busch was scheduled to be the plane's U.S. launch customer. The Fourth strenuously objected to the idea, however, contending that it would send the wrong message to shareholders. He canceled the order, which made for one of the biggest rifts the two men's already-sour relationship ever suffered.

“There was a lot of consternation surrounding that decision,” said board member General Shelton. “I don't know behind the scenes what went on, but maybe in retrospect, there wasn't as much prior coordination done before that decision was made to set it up so that it would not be a kind of ‘In your face!' to his dad.”

Those were minor cultural shifts, however. The Fourth faced a major battle against Anheuser's historic inertia if he wanted to enact meaningful change. While he was now officially CEO, some people on Wall Street suspected that he still might not be able to wield much control over the company with his 69-year-old dad still lurking behind the curtain and Stokes acting as chairman of the board. “Mr. Busch now has center stage for himself, but it remains to be seen if this is indeed his company and if he has the will—and the full support of the board—to move the King of Beers in the bold new direction it must go to deliver for shareholders,” said analyst Carlos Laboy.

Stokes could have helped guide The Fourth through the transition. After 38 years with the company, he knew every button to push and had an ability to work with both father and son. But his continued presence seemed to help cement The Third's control.

“Pat was a good executive, he knew where all the levers were, and he was there ostensibly to help The Fourth,” said one former top executive and strategy committee member. “But to put Pat in at chairman of the board was basically a transparent move to stay in control of what was going on.”

“It was odd,” the former executive said, summing up the environment within the company after The Fourth was put in charge. “It was his dad's way of keeping August at bay. By having Pat there, it was his dad's way of saying, “You're not quite ready. You have the title, but you're still not quite ready.”

Former Anheuser staffers have mixed views on whether Stokes could have softened the blow of The Fourth's transition or whether he was equally hamstrung by The Third. “If there is anything I can blame Stokes for is that he didn't develop The Fourth,” said Bill Finnie. “I am going to give him the benefit of the doubt, that maybe he could not have driven change. Stokes may not have been able to do a whole lot while he was CEO. But he sure could have made sure his successor would drive change. If Stokes had developed The Fourth, and The Fourth had not just had his own people but people with the same cojones that The Third had . . . it would have been a different story.”

The Fourth did make several early attempts to promote new executives of his own choosing—he pushed hard to appoint one potential chief operating officer, but The Third disagreed and shot the candidate down. He did the same with several of his son's other nominees, and even targeted executives who were already with the company and who ultimately departed under pressure.

“He didn't trust anyone anymore,” said a former strategy committee member. “His son said, ‘Look, if you want me to be the guy, I should be allowed to pick my team and you should let me make some strategic decisions.” The Third slapped many of them away, though, unchecked by a board of directors he had known for years, if not decades.

“If I can't have my team, how can you hold me accountable for performance?” The Fourth said in one newspaper interview.

The Third and The Fourth were polar opposites when it came to being able to trust and delegate. The elder was loyal mainly to people who provided commendable service to Anheuser-Busch. His son appreciated people who could be loyal friends, and was trusting to the point where it seemed that his father considered the trait a fault. The Fourth depended heavily on deputies and hangers-on, both at the office and away from it, and he struggled to differentiate between people who were truly competent at their jobs and those who were just good at being friends. The Third seemed determined not to let his son make certain mistakes—even if it meant constructing a workplace environment that allowed his son few comrades.

If August IV had asserted himself more strongly, he might have been able to avoid being professionally emasculated by his father. He never established his own nucleus of power to help him usurp his dad when the time was right. Right up until the time of InBev's bid in 2008, many people at Anheuser-Busch still saw themselves as “III guys” or “IV guys.” The Fourth had strong support from the sales and marketing teams, but he never won the broader buy-in he needed from staffers in other key areas of the company—brewing, operations, and corporate planning.

The Fourth might never have been able to summon the sheer force of will he needed to outstrip his father's immense power, however. Stacked up against each other, The Third seemed to tower impossibly high over his son. “Mr. Busch never let go of the power base,” said Bob Lachky. “August IV never really had a chance at building it, because his dad had rigid control. It was not for August IV's lack of trying. It was just blocked.”

“I think he worshiped his dad,” said Charlie Claggett. “I think he desperately wanted to please him, wanted to do the right thing. But that was the catch. Ultimately, I think his dad knew The Fourth was going to have to do to him what he had done to his father. In order to be a successful leader, you have to be able to make decisions on your own. You can't keep running to the old man all the time. You have to be willing to take risks and put yourself and your reputation on the line. I don't think he saw his son doing that, or maybe he saw him doing it, but not very effectively.”

The stark personality contrasts between Busch CEOs were no secret to analysts and the media. “Mr. Busch remains a bit of a mystery as a leader, though he is viewed as outgoing and personable, especially compared with his father, who is regarded as stern and aloof,” said the
Wall Street Journal
. As August IV's tenure got into swing, industry watchers sat back and waited with curiosity to see how the new arrangement at the top would play out.

The Fourth offered his dad at least one olive branch in an attempt to prove that their goals for Anheuser-Busch weren't mutually exclusive. Not long into his stint as CEO, he invited The Third to attend a strategy committee meeting where each executive would be presenting his or her vision for the company's future. The Fourth wasn't obliged to include his dad, but The Third accepted the invitation and took a seat with the rest of the group that day to listen to their series of 20-minute pitches.

It quickly became clear that he didn't like what he was hearing. “Man, he was visibly—not quite angry—but visibly rejecting certain people's comments. People who had the audacity to say, ‘We should buy Miller' or ‘We should go do this,' ” said one person who presented at the meeting. “He was just getting madder and madder and madder. It was so obvious it was a hostile environment for bringing in new ideas. And yet he was there, because he knew he controlled the board.”

“The Fourth was reaching out to try and make sure his dad knew that ‘I respect you, ' ” the executive said. “The Fourth was trying to get his dad to be a nurturer, to be a mentor. Mr. Busch would never be a mentor. He's not a mentoring type of person. He's not a person who says, ‘My legacy is going to be to help the next generation.' Are you kidding me? He's the only generation that matters. That was the heart of August IV versus the coldness of his father, totally personified.”

If there was ever a time for The Fourth to prove himself to his hard-driving father, this was it. “Mr. Busch is taking over at a truly seminal moment,” wrote analyst Carlos Laboy. “As the August Busch IV era begins, A-B is not without options to recapture growth, but it is increasingly apparent to us that the current model is quickly running out of steam.”

The Fourth spread his net wide in search of solutions, and investors were encouraged by the sense that he was more open to changing the company's strategy than his father had been. Yet even after ascending to Anheuser-Busch's highest perch and caving to many of The Third's demands, August IV was still laboring to win his approval. He said as much in a May 2008
Wall Street Journal
interview that elicited a near-universal cringe.