Dream big (sonho grande) how the brazilian trio behind 3g capital jorge paulo lemann, marcel telles and beto sicupira acquir

e executive’s name was Jorge Paulo Lemann, his partners were Marcel Herrmann Telles andCarlos Alberto Sicupira, and their company was the investment bank Garantia.. 5 FOCUS ON CREATING S

DREAM BIG

Published originally as Sonho Grande

Copyright © 2013 by Cristiane Correa

All rights reserved No part in this book may be used or reproduced through any existing means without the written authorization of the writer.

Translation: John Fitzpatrick and Monica Pan Chacon

Research: Débora Thomé

Proof reading: Adam Korn and Peter Lenny

Graphic design and layout: Marcia Raed and Adriana Moreno

Cover: Miriam Lerner

Cover Photo: Webb Chappell

Ebook: SBNigri Artes e Textos Ltda.

Foreword

“In the end, I am a teacher;

that is really how I see myself.”

– Jorge Paulo Lemann

y relationship with this remarkable story began in the early 1990s in a classroom at theStanford University Graduate School of Business I was leading a case discussion for anexecutive program, on the topic of what it takes to build a great company to last ere,sitting in the front row, was an understated executive wearing simple chinos and a casual shirt,drawing no attention to himself en he perked up when I began to gesticulate wildly about Wal-Mart and invoking the entrepreneur Sam Walton as an example I described how Walton cra edculture and built a great organization, and that this better explained Wal-Mart’s success than thenotion of business strategy I argued that Sam Walton was more of a “clock builder” and less of apure “time teller,” and that he was building Wal-Mart so that it need not depend upon his ownvisionary genius and charismatic personality e executive in the front row raised his hand andchallenged me: “Well, I know Sam personally, and I disagree with you,” he said “I think that Sam

is central to Wal-Mart’s success, and his visionary genius has carried it a long way.”

“Yes,” I acknowledged, but then countered: “But don’t you think that true greatness comes onlywhen you’re able to build a company that can thrive far beyond any individual leader?”

We carried our discussion into the hallway, and I could see the executive was taken with the idea

of enduring greatness, beyond any single generation of leadership He asked me if I would beinterested in coming down to Brazil to share my ideas with his two partners and his company I didnot know at that time that this fortuitous moment would turn into one of the most stimulatingbusiness friendships of my life

e executive’s name was Jorge Paulo Lemann, his partners were Marcel Herrmann Telles andCarlos Alberto Sicupira, and their company was the investment bank Garantia I didn’t knowanything about them, so I asked a Brazilian MBA student of mine, “Hey, have you ever heard ofthese guys?” He looked at me like I was crazy, as if I was asking a question like: “Have you everheard of Warren Buffett or Bill Gates or Steve Jobs?” He showed me an article on the investmentbank, and told me the legend of how they assembled a team of young fanatics and built a tinybrokerage outfit into one of the great investment powerhouses in Latin America

Then my MBA student added: “Oh, and they’re into the beer business now.”

“ e beer business?” I thought to myself “What on earth is an investment bank doing in the beerbusiness?” If anyone would have told me then that these bankers had the dream to build thebiggest beer company in the world, and to buy Anheuser-Busch along the way, I would have said,

“That’s not a vision, that’s delusion.” Yet, of course, that’s exactly what they did

I have now been acquainted with the company, its culture, and the three partners for nearly two

decades, and have had the privilege to watch the development of this success story as it hasunfolded in recent years I believe the primary reason we became such good friends is that theydeeply resonated with the question that has occupied my own intellectual curiosity over the sametwo decades: What does it take to build an enduring great company? When Jerry Porras and Ipublished Built to Last in 1994, they instinctively gravitated towards the ideas, and in particular thebig dream of making a great company that would indeed be built to last.

In the intervening two decades, I have learned much from them Here in this preface, I wouldlike to share the top 10 lessons I have gleaned from watching, teaching, and learning from theirjourney

1) INVEST ALWAYS – AND ABOVE ALL – IN PEOPLE. e founders certainly have a strong dose of nancialgenius, but that is not the primary source of their success From the very beginning, their primaryinvestments have been in people, especially young and talented leaders eir philosophy: Better togive talented (if unproven) people a chance, and endure a few disappointments along the way, than

to not believe in people e number one ingredient in their secret sauce is an obsession withgetting the right people, investing in those people, challenging those people, building around thosepeople and watching those people experience the sheer joy and exhilaration of achieving a bigdream together And, just as important, stay with your proven people for a long time It’sinteresting to note that the three founders have worked together for four decades, and are asuni ed as ever And many of the best young people they brought into this system have stayedpassionately involved for decades, such as the current CEO Carlos Brito ey didn’t just get theright people on the bus; they got the right people on the bus for a very long time

2) SUSTAIN MOMENTUM WITH A BIG DREAM. Great people need big things to do, or they will take theircreative energies elsewhere So, the founders built a two-piston ywheel: First, get great people;second, give them big things to do; then, get more great people, and come up with the next bigthing to do; then repeat, again and again is is how they sustained momentum over time eyalways resonated with the idea of BHAGs – Big Hairy Audacious Goals – and built a culture toachieve them Watching them, I learned that sustaining momentum, and therefore retaining greatpeople, is worth the inherent risks of pursuing big goals It’s like a great mountain-climbing team;

on the one hand, there is inherent risk in doing one big mountain, then the next big mountain,then the next-bigger mountain a er that; on the other hand, if you don’t have new big mountains

to climb, you will cease to develop and grow, and you will lose your best mountain climbers Greatclimbers need big mountains to climb, always and forever

3) CREATE A MERITOCRATIC OWNERSHIP CULTURE WITH ALIGNED INCENTIVES. e founders built a consistentculture that gave people the opportunity to share in the rewards of the big dream e culturevalued performance, not status; achievement, not age; contribution, not position; talent, notcredentials By mixing these three ingredients – Dream + People + Culture – into a powerfulconcoction, they created a recipe for sustained success e culture rewarded performance; if you

could make a signi cant contribution, and deliver results, within the boundaries of the culture, youwould do well; if you had the best credentials in the world, but could not deliver exceptionalperformance, you would be spit out e three partners believed that the very best people cravemeritocracy, and mediocre people fear it.

4) YOU CAN EXPORT A GREAT CULTURE ACROSS WIDELY DIVERGENT INDUSTRIES AND GEOGRAPHIES. e trulyremarkable thing is how the Dream-People-Culture model carried from investment banking andnance into beer, from Brazil to all of Latin America, then to Europe and the United States, andnow expanding all over the world For Lemann, Telles and Sicupira, culture is not in support ofstrategy; culture is strategy e three partners have always held to their core values and distinctiveculture, while continually growing into new industries, expanding across geographies, and pointingtowards ever bigger goals – a beautiful example of the underlying dynamic, “Preserve the Core andStimulate Progress” exempli ed by any enduring great company ere is a corollary to this lesson:you can “predict the future by geography.” In the early days of the company, the three founderslooked from Brazil to the United States, saw what was already working; then, instead of simplywaiting for that to happen in Brazil, they would act aggressively to import the best United Statespractices, and do so early

5) FOCUS ON CREATING SOMETHING GREAT, NOT ON “MANAGING MONEY.” e three founders came of age during

a tumultuous economic time in Brazil, and I once asked: “What did you learn about how tomanage money in such uncertain and in ationary times?” e answer: “When everyone else wasspending their time managing their money, we invested our time in building our company If webuilt our company, then that would be the very best way in the long run to generate wealth.Managing money, by itself, never creates something great and lasting, but building something greatcan lead to substantial results.” When the three founders made the decision to buy Brahma beer,many observers expected they would simply use it as a quick nancial turnaround; but now, morethan two decades after the purchase, we can see how they never viewed it as a financial transaction,but rather as another step in building the company ey stand as the antithesis of a built to ipmentality; it is always about being built to last

6) SIMPLICITY HAS GENIUS AND MAGIC IN IT. On almost every dimension, the three founders exempli edsimplicity ey have very simple dress; you would not notice them in a crowd ey kept simpleoffices, never walling themselves off from their people in an executive suite ey used theirincreasing wealth not for opulence, but to simplify their lives, so they could focus on continuing tobuild the company (I learned that the best sign of true wealth is an uncluttered calendar, with timeavailable to focus on the most important priorities.) And their entre strategy is so simple: Get greatpeople, give them big things to do and sustain a meritocratic ownership culture at’s essentially it,not more complicated than that True genius is not making an idea complex, but just the opposite:simplifying a complex world into a very simple idea, and holding to it for a very long time

7) IT’S OKAY TO BE A FANATIC. I once asked, “What is the essence of the type of person you are lookingfor?” e answer: “We are looking for fanatics.” We live in an age when people want a quick x, ashortcut to exceptional results But there is no such easy path ere is only an intense, long-term,sustained effort And the only way to build that kind of enterprise is to be fanatic Such obsessedpeople do not become the most popular people, as they o en intimidate others, but when fanaticscome together with other fanatics, the multiplicative effect is unstoppable.

8) DISCIPLINE AND CALM, NOT SPEED, IS THE KEY TO SUCCESS IN A TIME OF POTENTIAL CRISIS. e company enteredthe 2008-09 nancial crisis having just taken on $50 billion of debt to make the historic acquisition

of Anheuser-Busch Every year for the previous few years, the board journeyed to spend time with

me at my management laboratory in Boulder, Colorado ese mountaintop meetings became aplace for the board to engage with the biggest questions As we entered the Boulder meeting inDecember 2008, I expected they might exude a sense of crisis Instead, I was astounded by thecalm, considered countenance as they navigated this time of tremendous peril Never once did Iobserve panic, but only an ethos of careful consideration of options, followed by deliberate anddecisive decisions In times of uncertainty and chaos, people often want to act as quickly as possible,

as if this will make a crisis go away e AB Inbev board followed a different philosophy:Understand how much time you have to make decisions, use that time to make the best decisionspossible and maintain a sense of calm “Sure, it’s human nature to want to make the uncertainty goaway,” said one of the founders “But that desire can lead you to decide quickly, sometimes tooquickly Where I come from, you soon realize that uncertainty will never go away, no matter whatdecisions we make or actions we take So, if we have time to let the situation unfold, giving us moreclarity before we act, we take that time Of course, when the time comes, you need to be ready toact decisively.”

9) A STRONG AND DISCIPLINED BOARD OF DIRECTORS CAN BE A POWERFUL STRATEGIC ASSET. When the Braziliansand the Belgians came together to merge into the biggest beer company in the world, peoplewondered how these two cultures could coexist Yet they became a uni ed whole How did thishappen? It happened because everyone involved had one goal: to do what’s best to make a greatand enduring company ey all embraced the Dream-People-Culture philosophy, and navigatedthe nancial crisis of 2008-09 as a completely uni ed group In the United States, most boards arebenign, and the power resides primarily with the chief executive; boards tend to only becomesigni cant when it comes time to replace a failing CEO e AB Inbev board, however, is theprimary power center in the company It exempli es that boards can play a central role in settingBHAGs, developing strategy, sustaining culture, seizing opportunities and leading throughtumultuous times Without such a strong and uni ed board, AB Inbev would not have comethrough the 2008-09 challenges as strong as it did (and perhaps even not at all) e AB Inbevboard pays constant attention to its own culture, disciplines and vibrancy, with as much fanaticattention as building and preserving the management culture of the company Most important, itmakes decisions and allocates capital for long-term shareholder value, measured in multiple

decades, not in terms of quarterly moments If more boards behaved this way, we would havebetter performing enterprises and lasting companies.

10) SEEK MENTORS AND TEACHERS, AND CONNECT THEM TOGETHER. From early in his career, Jorge PauloLemann actively sought people he could learn from, and he would make pilgrimages to visit them:the great Japanese industrialist Matsushita, the visionary retailer Sam Walton, the great nancialgenius Warren Buffett Not only that, he found ways to connect great people with other greatpeople; he wasn’t “making connections” in the traditional way, but facilitating interactions amongexceptional people and thereby stimulating an exponential level of learning for everyone.Interestingly, as he moved into his h, sixth and seventh decades of life, he continued thislearning quest, o en seeking mentors and teachers younger than himself e three foundersremain always students, learning from the best and then teaching the next generation Jorge PauloLemann, Carlos Alberto Sicupira and Marcel Herrmann Telles have, I suppose, seen me as ateacher; but the great irony is that I have been a voracious student of theirs all the way along

Having studied the development of some of the most extraordinary business stories of all time,and the entrepreneurs and leaders who built them, I can say de nitively that this story – risingfrom such humble beginnings to global prominence – is one of which Brazilians should beimmensely proud It stands in the same league as great business visionaries like Walt Disney, HenryFord, Sam Walton, Akio Morita and Steve Jobs And it is a story that leaders from around theworld should know, as a source of learning and inspiration

Best of all, the story is not yet done As these fanatics never stop asking, no matter how muchthey’ve achieved: What’s Next?

Jim Collins Boulder, Colorado, USA

January 4, 2013

The building of an empire

The highlights of the trio’s meteoric rise

Jorge Paulo Lemann is born in Rio de Janeiro. 1939

1948 Carlos Alberto Sicupira is born in Rio de Janeiro.

Marcel Herrmann Telles is born in Rio de Janeiro. 1950

1961 Lemann completes economics course at HarvardUniversity in three years.

On returning to Rio de Janeiro a er an internship with

Credit Suisse in Geneva, Lemann is hired by the Invesco

nance house e rm, of which he becomes a partner,

goes bust three years later.

1963

1967 Lemann begins working at the Libra brokerage, owned byBanco Aliança, and starts off with a 13% stake in the firm.

Lemann leaves the company a er failing to buy control of

1971 Lemann and a group of partners buy the Garantiabrokerage operating license.

Telles is hired by the brokerage His rst weeks of work are

1973 Sicupira, who meets Lemann while underwater shing,starts working at the brokerage.

e US bank JP Morgan tries to buy the Garantia

brokerage Lemann pulls out, decides to enter investment

1982 Garantia buys Lojas Americanas Sicupira leaves the bankto run the retailer.

Garantia buys the brewer Brahma for US$ 60 million.

Telles is chosen to run it and leaves the bank’s daily

1993

Lemann, Sicupira and Telles found GP Investimentos, the rst private equity rm in Brazil (independent of Garantia) Sicupira leaves Lojas Americanas for GP.

Garantia registers its best-ever year, with a pro t of

1998

Garantia is sold to Credit Suisse for US$ 675 million a er being hit by the effects of the Asian crisis and the weakening of its culture.

Brahma buys rival brewer Antarctica and creates Ambev. 1999

2003

Lemann, Telles and Sicupira sell part of their shares in GP Investimentos to a new generation of partners, led by Antonio Bonchristiano and Fersen Lambranho e three businessmen would sell their remaining equity stake the following year and leave the business entirely.

Interbrew of Belgium buys Ambev, creating InBev Under

the deal Lemann, Telles and Sicupira become shareholders

in the new brewer ey later increase their equity stake in

InBev and become the biggest individual shareholders.

2004 The three entrepreneurs start 3G, a fund aimed at investing

in American companies Alexandre Behring is chosen to run it.

Americanas.com, the retail electronic arm of Lojas

Americanas, buys Submarino, founded by GP

2008

InBev buys American brewer Anheuser-Busch, producer of Budweiser, for US$52 billion e new company, called AB InBev, is the world’s biggest brewer Carlos Brito becomes CEO.

3G buys global control of American fast food chain Burger

2013

3G announces purchase of American food manufacturer Heinz for US$ 28 billion Warren Buffett is the Brazilians’ partner in the deal.

Banks, lawyers and a small group of InBev executives had been working in absolute secrecy on theAmsterdam Project, as the plan had been dubbed e acquisition would transform the companythat resulted from the merger of InBev and AB into one of the world’s four largest consumergroups, behind giants like Procter & Gamble, Coca-Cola and Nestlé Acquiring such a symbol ofAmerican capitalism would not only be the biggest deal the three cariocas, as natives of Rio deJaneiro are called, had ever made, but turn them into the most powerful Brazilian businessmenever, and with the greatest global reach.

Everything had looked under control until their secret was leaked to the whole world at 2:29 P.M

on May 23 in the Financial Times Alphaville blog, which published an item stating that InBev waspreparing an offer worth US$46 billion for the long-established brewer e item gave details of the

nancing model to buy the company, the names of those involved in structuring the deal, andwhen the rst approach had been made to August Busch IV, AB’s CEO and a member of thefamily that gave the company its name Even though he was “lost” in the middle of the largestdesert in Asia, ignoring a leak that could jeopardize the whole plan was simply not an option forLemann

“He remained calm throughout the whole trip to China and sorted everything out by mobilephone in a very objective way,” said Cardoso e former president said he had become friendswith Lemann after leaving the presidency This was the first tourist trip they had made together

Between camel rides and orchestrating the most ambitious business deal of his life, Lemannactively avoided replying to one single e-mail at was from Busch IV, who had been astonished

to read on the Internet that he ran the risk of losing the company founded by his family and waswriting to Lemann to demand an explanation Lemann needed to think of the best way to tellBusch IV that InBev did intend getting hold of his company, a conversation he knew would not beeasy It was better to wait than say anything

he move by the Brazilian threesome may have taken Anheuser-Busch, analysts, investors andjournalists throughout the world by surprise, but it was the kind of move Lemann, Telles andSicupira had been dreaming about since 1989 when they bought control of the Rio-based brewer

At that time, they knew absolutely nothing about the beer sector eir fortunes had been createdthrough an investment bank called Garantia, which Lemann had founded in 1971 This bank madehistory by emphasizing meritocracy (remunerating and promoting employees purely on theirperformance without considering factors such as how long they had been in-house) andpartnership (giving the top performers the chance to become partners in the rm), concepts thathad never been heard about in Brazil Telles and Sicupira, known as Beto, both came from middle-class backgrounds in Rio and personi ed this approach Lemann had hired them both in Garantia’sfirst years and they had moved up the ladder until they became his main partners

Sicupira le the bank’s daily operations at the start of the 1980s to take charge of LojasAmericanas, a retail chain Garantia had just bought No Brazilian investment bank had ever bought

a company to take over its management until that time Telles later followed a similar path andgave up the nancial market to take on the challenge of transforming a faltering brewer into acompany with international standards Brahma, which Telles acquired, was only a tiny fraction ofthe size of Anheuser-Busch, which was the world’s largest beer producer at that time “I used tolaugh and tell people within the company that we would buy Anheuser-Busch one day… I laughed

so that people would not think I was crazy… Although it was a dream, there was a chance ofachieving it by feeling your way forward,” Telles once said

e road to making the bid for AB was long Its main steps included the purchase of the SãoPaulo brewer Antarctica to create Ambev in 1999 and the agreement with InBev of Belgium in

2004 In 2008, almost two decades a er buying Brahma, Lehmann, Telles and Sicupira were nallypoised to swallow up the giant Anheuser-Busch and no leaked news story would stop them fromgoing ahead

e silence from his likely executioners le Busch IV, known as “the Fourth,” disconcerted Heand his team wondered whether this band of Brazilians would really have the guts to seize anAmerican symbol However, the truth was that, despite its tradition and size, Anheuser-Busch hadlost its former sparkle e company had been founded by a group of German immigrants in 1852

in St Louis on the banks of the Mississippi and was originally called the Bavarian Brewery Eightyears later, it was bought by Eberhard Anheuser, a local businessman who had made money from a

soap factory e brewer started to take off with the arrival of his son-in-law, Adolphus Busch, wholaunched the Budweiser brand in 1876 He then bought 50% of his father-in-law’s stake andrenamed the company Anheuser-Busch It had remained a family-owned concern until then, withthe command handed down from generation to generation Every member of the family wasintroduced to the brewer, literally, in the cradle e male heirs of the clan were traditionally givenfive drops of Budweiser a few hours after they were born.

is formula worked well for many decades By the end of the last century, AB dominated 60%

of the American market and had the biggest revenues in its sector However, as o en happens withsuch large corporations, the peak was followed by a decline e company concentrated its business

in the United States and squandered the chance to go international while its rivals, like InBev, wereexpanding worldwide AB’s earnings stagnated To make things worse, its heirs and executivescontinued to lead the life they had grown used to, lavished with perks, as the American journalist,Julie MacIntosh, relates in her book Dethroning the King – e Hostile Takeover of Anheuser-Busch

e Busches and the company’s directors had a eet of planes at their beck and call – “Air Bud” –with six private planes and two helicopters, which employed 20 pilots ose who could not get aseat on the company planes were entitled to y rst class Accommodation was always in ve-starhotels, like the Pierre in New York, and the tab for normal business meals approached US$ 1,000

Anheuser-Busch was like a doting mother who let her spoiled children buy anything they wanted,including unusual “toys” like the Busch Gardens and Sea World amusement parks in Florida Justwhat a brewer had in common with roller coasters and trained dolphins is hard to say, but this didnot seem to be any problem for the AB bosses

ere was not the slightest possibility of vanity acquisitions like this being made at InBev, wherehigh costs were regarded as a sin Executives ew coach class and stayed in three-star hotels,sometimes even sharing the same room Meals in restaurants were modest affairs, washed downwith a beer, at most These were two opposite worlds that were about to collide

e InBev executives were well aware of these differences At the end of 2006, they had made adeal to allow Anheuser-Busch to become Inbev’s official importer in the US e agreement gavethe Americans access to famous global brands like Stella Artois and Beck’s that could help pull itout of the lethargy into which it had slumped e deal was even better for InBev which gained acommercial partner in the US and could see at close hand how it operated Busch IV, a formerplayboy who had recently taken charge and only rarely appeared at the head office, did not realizethe danger he was running, and opened the door to the InBev CEO, Carlos Brito

Brito was born in 1960 and studied for an MBA at Stanford, thanks to a grant from Lemann Hewas one of four Garantia employees who ended up in Brahma when the bank bought the brewer

In the decade he had known Lemann and his partners, Brito had absorbed all the trio’s conceptsand become the embodiment of the culture they preached, someone who was absolutely obsessedwith cutting costs and devoted to meritocracy He shunned interviews and the limelight and led aquiet life with his wife and four children He was the opposite of Busch IV and it was precisely forthis reason that he took advantage of every inch of the opening Busch provided a er thedistribution deal Brito saw ostentation and investments for himself that made no sense He also

analyzed the power relationships Although the Busches still had their name stamped on thecompany, the clan held only 4% of AB stock, a smaller stake than mega-investor Warren Buffet, forexample All this would serve as ammunition in the creation of a strategy to conquer the maker ofBudweiser, a brand that was so symbolic for Americans that Brito once described it as, “America in

a bottle.”

hile Lemann remained silent, Busch IV resolved to take action He summoned the board ofdirectors for a meeting with bankers Goldman Sachs, his long-standing advisers, on May 29– six days a er the news had leaked on the FT blog is meeting also included lawyers fromSkaden, Arps, Slate, Meagher & Flom, and AB would also shortly hire Citibank e Fourthwanted to know whether InBev could really put together a loan of US$ 46 billion at a time whenthe nancial market was showing signs of trouble For example, Bear Sterns had just been rescuedunder pressure by JP Morgan e group also needed to know how to proceed if the takeoverproposal materialized

By that time, Lemann had replied to Busch’s e-mail, although only to state tersely that he would

be out of touch for a few days as he was traveling in the Gobi desert He added that he felt it would

be a good idea for them to meet

is meeting was arranged for June 2 in Tampa, Florida Lemann asked Busch to comeunaccompanied by any advisers or consultants Lemann would also be alone – well, almost alone.Telles would be with him Although Busch, an heir who did not know his company well, would befacing two experienced businessmen and former bankers, he rashly agreed to this proposal

Busch was nervous, and wanted to know if an offer would be made and for how much Despitethe fact that they were on the verge of the biggest deal of their lives, Lemann and Telles showed nopressure, maintaining their calm demeanor and the poker faces they had perfected during theiryears on the nancial market ey said only that InBev was certainly interested in buying AB, butrefrained from offering any details In some ways it was the opposite of what had occurred a yearearlier when Lemann suggested during an informal meeting with Busch that the two companiesshould merge He argued at that time that the two companies would be unbeatable if they wereunited Busch did not get the message – or pretended he did not get it

InBev formalized its offer on June 11, only nine days a er the Tampa meeting Brito phonedBusch from Brussels and told him he would be sending an immediate proposal to buy AB InBevwas offering US$ 65 a share (a premium of 18% on the stock’s highest-ever price) He also proposedthat the head office of the new company would remain in St Louis and that it would be renamed

AB InBev, thereby preserving the American name e InBev executives knew that the price wasvery important to convince the AB shareholders, but they also had to show their due appreciation

of the AB traditions to preempt any resistance to the move by AB itself And then of course there

was the court of public opinion Maintaining the location of the head office and awardingAnheuser-Busch rst billing in the new company’s name were the sensible things to do, as any warover status symbols would only hold up the deal.

Brito hung up Before signing the letter, the two representatives of Lazard, InBev’s main nancialadviser, asked for ve minutes of his time Steven Golub, 62 years old at the time and anexperienced banker, warned Brito of the turbulence ahead “ e trip we are starting with this letterwill last a long time,” he said “ ere will be days when we will be up and others when we will bedown e other side will do things we have not thought about and, at some point, we will have torevise our plans Be prepared.”

Although Brito was con dent in the acquisition, he had never led a business of this size, andlistened to the banker’s recommendation in silence e other Lazard representative, AntonioWeiss, a New Yorker, told Brito that he had taken part in a number of mergers and acquisitionsand that when things did not go well, the CEO was usually the rst person to be shown the door

“If I do the right things with my team and the other side decides not to sell, I don’t think I will getthe blame,” said Brito “Obviously, if I mess it up, that will be a different story… People areprepared to take greater risk here and dream on a large scale because they know they will not becrucified if something goes wrong provided they stick to what we have all agreed together.”

Weiss said no more

Golub was right when he warned Brito about the difficulties to come A erce battle broke out forcontrol of the American brewer the moment Brito and Busch hung up e proposal not onlybecame a divisive issue between the shareholders and executives on the two opposing sides, butinternet sites against the deal popped up, making it a national political matter e then candidatefor the presidency, Barack Obama, even claimed it would be a “shame” if AB was purchased by aforeign company

Someone had to explain the Brazilians’ plans to the Americans, and that someone would not beLemann, Telles or Sicupira, who all had an aversion to spin tactics e burden fell on Brito, whowas unused to the spotlight, and not exactly renowned for his diplomacy But the situation was direenough that he had to overcome his discreet but harsh delivery and get ready for the artillery Hehad to make a convincing case and, somehow or other, create great sympathy for the plan Hisbaptism by re occurred on June 16 in Washington during a meeting with Claire McCaskill, theDemocratic Senator for Missouri, and other members of the Senate

“I did not know that McCaskill had invited journalists,” Brito recalled “I had prepared myself totalk to the Senators when suddenly she opened the door and le the room One member of ourteam, who had been outside, came in and said the press was waiting for me ere was only oneway out and I had to go through that door It was like a lm scene: you open the door andeverybody starts rushing at you with microphones, asking about your intentions; whether you aregoing to buy the company or not, whether you will be ring workers or not at’s how we had tomake our case that the aim was to create a single company that would have the best of both sides

on their own We wanted to take Budweiser global and give better opportunities to the best people

We said we had made some commitments – not to close plants, to keep the company name,

maintain the head office in St Louis How could anyone be against this? What could anybody say?

at the companies should stay separate and remain worse than they would be if they gottogether?”

While InBev was making efforts to win over the Americans, Anheuser-Busch was preparing itsdefense strategy e AB executives were not remotely willing to hand the company over to theBrazilians ey knew what had happened to Belgium’s Interbrew, which had also been a long-established family-controlled rm Although Interbrew had actually bought Ambev, it was theBrazilians’ culture and management style that ran the show

e Fourth needed to convince investors that, although AB shares had been stagnating recently,selling the company was not the best way to regain growth With the help of executives, advisersand some members of the board of directors, he drew up a cost-cutting plan At the same time, hetried to form an alliance with the Mexican company Modelo to show that AB could expandwithout having to surrender its control to a rival His strategy made the turbulent relationship hehad with his father, August III, even worse While the Fourth wanted to resist the bid at any cost,the Third thought it would be better to sell out to InBev at a fair price than create a great fuss

“ e ird’s greatest worry was that the share price would plummet if the offer was rejected,”said a person who followed the negotiations e rst obvious sign that the deal between thebrewers was raising concern among some shareholders came when Warren Buffett, the second-largest stockholder with a stake of almost 5%, started selling stock on the market at around US$ 60

a share – five dollars below the InBev offer

“ ere were people on the board who, in my opinion, tried to carry out highly non-commercialthings to block those they called the ‘invaders,’” Buffett said about the episode

uffett is one of the world’s richest men Forbes magazine reported in March 2013 that he wasthe fourth richest man on the planet, with a fortune of more than US$ 53 billion Buffetoperates from an office on the 14th oor of an anonymous grey building in Omaha, a city of427,000 inhabitants in Nebraska He has been making the same daily trip from his home to hisoffice for 50 years Despite his fabulous wealth, he has not changed either address e head office

of his company, Berkshire Hathaway, only has 24 staff, including the founder himself Visitors donot encounter any security or even a receptionist ere is just a small plate bearing the companyname on the office door with a doorbell alongside for those who want to enter It is decorated in anold-fashioned way, with dark furniture, wooden blinds and shelves lled with books e Sage ofOmaha’s own office measures a modest 25 square meters On a sunny Saturday morning on May

19, 2012, Buffet made himself available to talk about his longstanding friend, Jorge Paulo Lemann,whom he met in 1998 when they were both sharing views and experiences on the board ofdirectors of Gillette Buffet was wearing khaki trousers and a long-sleeved, blue shirt bearing the

he said things that made sense He didn’t pretend to know things he didn’t or talk just to hear thesound of his own voice He had a tremendous view of business and was articulate, which cannot besaid for all board members.”

Buffett and Lemann share a lot in terms of lifestyle and working habits and this was the basis forthe rm friendship they built up ey hate ostentation, dress simply and are straight talkers Bothhave created relationships that have lasted decades – Buffett with Charlie Munger; Lemann withTelles and Sicupira e two have the same ambition of building up companies that are sustainable.Buffett likes to see Berkshire as his great “painting,” a work of art that will never be perfect andshould become more beautiful with every passing year Lemann’s dream is to build a managementmodel that will be a benchmark for companies in the 21st century Accumulating money is more aresult than an objective for both of them

“It’s not about thinking ‘if I win a million dollars or a billion dollars, the game is over,’” saidBuffett “That’s because after a certain point, money is of no more use.”

Despite their close relationship, Buffett said he had been taken by surprise by the Brazilians’ offerfor AB:

“I thought that he would do it one day, but did not know it would be at that moment It was anenormous step at a completely hostile time ere was one moment when I honestly did not thinkthe deal would go ahead It was the only transaction of that size at that time My decision was toevaluate whether, against that backdrop, the share price would rise or not and whether the dealwould really be made despite the crisis I then sold a part of my stake which annoyed some people

I didn’t know how the AB board worked I had met the Fourth only once at a baseball game andspoken personally to the ird about 15 years earlier I had never spoken to them by phone or hadany relationship is happens sometimes with companies in which we invest We had a biginvestment in AB but not as big as we have in Coca-Cola, for example I liked the company and wehad been part of it for many years It would be difficult to lose money there just as it would bedifficult to make any great gain It was a solid option, but nothing particularly exciting.”

nder pressure, the Anheuser-Busch representatives decided to counterattack If the Americanbrewer had to end up in other hands, then it would be at the best possible price On July 8,Busch IV phoned Lemann Two members of the AB board of directors, Ed Whitacre and SandyWarner, were by his side Both were old acquaintances of AB and friends of the family Whitacre

had made his career in the telecommunications sector and become CEO of AT&T Warner was aretired banker who had become famous a er selling JP Morgan, the bank he headed, to ChaseManhattan in 2000 e message the three men sent Lemann was crystal clear: if he wanted to buy

AB, he would have to move quickly and pay more money than he had foreseen As soon as hehung up, Lemann called the main players in the bid One of the rst to be told about the Busch IVcall was Roberto ompson, who was known to people close to Lemann, Telles and Sicupira as “theex-bankers’ banker”

ompson had met them a er returning from an MBA course at Wharton in 1986, when hewent to work at Garantia In 1993, he followed Sicupira, who had le the Lojas Americanas retailchain to set up GP Investimentos, the rst private equity rm in Brazil It was during his time at GPthat ompson saw how big companies were run on a daily basis He gradually gained the trust ofthe three until he became a kind of consigliere for them He was responsible for structuring thelarge acquisitions by companies they controlled, such as the São Paulo brewer Antarctica and thesale of Ambev to Interbrew Someone who took part in a meeting with ompson described him as

a polite, cold and pragmatic person who rarely smiled or raised his voice – a winning trait in thewar of nerves these large negotiations usually turned into

“ e AB representatives said we had 24 hours to make our best offer,” ompson said, referring

to the Fourth’s phone call to Lemann “We quickly called a meeting of the board by phone, as everymember was in a different part of the world We had to redo the accounts and everything had to bewell thought out e amounts involved were very large and there would be no share swap butcash payments At the end of the meeting, we decided that we could raise the bid by ve dollars ashare.”

On July 13, a er weeks of arm wrestling and several meetings that directly and indirectly involvedalmost 500 people, including shareholders, lawyers and bankers, Anheuser-Busch nally relented,accepting InBev’s offer of US$52 billion But the deal still needed the approval of the shareholders

of both companies and the regulatory bodies

Convincing the Americans to give up control of the company had been very difficult, but thoughthey were now the world leader in the beer market, the worst was yet to come for the Brazilians

e global economy had been showing signs of cooling for several months when on SundaySeptember 14, 2008, in an event more dramatic than even the pessimists had predicted, LehmanBrothers, the fourth-largest bank in the US, led for bankruptcy protection a er a number of failedattempts to rescue it e end of Lehman Brothers, an institution with 150 years of history, was thespark that set off a grave nancial crisis similar to 1929 Fear spread throughout companies andbanks and encircled the world Merrill Lynch agreed to be sold to Bank of America for US$50billion, one–third of its market capitalization Companies listed on the New York Stock Exchangelost over one trillion dollars in market value in a single day is state of affairs was a matter ofgreat concern, to say the least, for the Brazilians from InBev who needed to pay US$ 52 billion tothe Anheuser-Busch shareholders as soon as the deal was completely approved How could thecompany honor its debt with virtually all the world’s sources of money drying up?

“For two months, between the crash of Lehman and the end of negotiations, we were really

anxious,” recalled Brito “ ings were out of our hands and nobody knew where the world wasgoing We announced the transaction in one world and signed the contract to buy it in another Some of the banks in our consortium almost disappeared It was as though we had entered atunnel and, somehow or other, had to get to the other end – only by the other end, it had suddenlystarted to rain What could you do? Begin to think of a plan B, a plan C, on other ways ofnancing One good thing was that no-one wasted time accusing anyone else with nonsense like,

‘I told you this would happen’ we had to deal with an unexpected situation.”

Lemann, Telles and Sicupira followed every step attentively ough the collapse marked anunprecedented development, they had developed the ability to remain as calm as possible duringdramatic episodes, not only during their time as bankers and entrepreneurs but also in sport.Lemann is an excellent tennis player and before his status as an accomplished businessman,competed at professional level Perhaps even more impressive is that the three partners practiceunderwater shing, a radical sport that combines physical resistance and absolute precision in ring

a harpoon, and this moment demanded the preparation, patience and execution they haddeveloped together on the seabed

e acquisition of AB did not unravel, thanks, to a large extent, to the intricate agreement created

by the InBev CFO, Felipe Dutra, with the consortium of banks that would nance the operation.Like Brito, Dutra, also from Rio, had worked with InBev’s controlling partners for many years Hewas an economist and joined Brahma in 1990 He had been CFO since 2005 Dutra was detail–oriented and had established an aggressive set of conditions in the contract with the 10 banksinvolved in the deal – Santander, Bank of Tokyo-Mitsubishi, Barclays Capital, BNP Paribas,Deutsche Bank, Fortis, ING Bank, JP Morgan, Mizuho Corporate Bank and Royal Bank ofScotland His greatest triumph was to successfully exclude a clause known as the Material AdverseChange (MAC), which guarantees the institutions the right to renegotiate the nancing conditions

in the event of any sudden worsening of the situation As the banks did not have this clause in thecontracts, they were obliged to adhere to all the conditions to which they had agreed before thecrisis broke out and they were legally prevented from abandoning ship Along with this watertightcontract, the Brazilians also had a generous dose of luck None of the banks within the consortiumwent broke, like Lehman Brothers, although some of them were pretty affected, such as the Belgianbank Fortis, part of the group of lenders and one of those most affected by the global turbulence.The government of Belgium intervened before it was too late

“If we had placed Lehman instead of Fortis, everything would have been screwed up,” ompsonsaid

At the same time, InBev’s main shareholders also had to provide some money Lemann, Tellesand Sicupira jointly put up 1.5 billion Euros of their own money to guarantee that the transactionwould be honored As most of their personal assets consisted of shares in the companies in whichthey invested, they had to take out loans and cut their personal spending is even extended totheir office on the 15th oor of a building in the Southern Zone of São Paulo e area was cut byhalf to reduce the cost of renting it and has remained so to this day

On November 18, 2008, almost six months a er the Financial Times revealed InBev’s secret, the

operation was nally concluded ree Brazilian businessmen, Jorge Paulo Lemann, Marcel Tellesand Beto Sicupira, had become the main shareholders in a new giant corporation with an annualturnover of US$ 37 billion, over 200 brands in its portfolio and a global presence In less than twodecades, they had transformed a regional brewer with a strong name and feeble results, Brahma,into the biggest company in the sector at global level All this had been achieved by repeating adnausea the mantras of the corporate culture Lemann had adopted at the beginning and thenspread to all the companies in which they invested: meritocracy, relentless cost control, hard workand a lot of pressure that not everyone could endure ere were no perks or status symbols.However, for the best – people like Brito, ompson and Dutra – the opportunities gave them thechance to become business partners It has been estimated that since Banco Garantia was founded

in 1971, between 200 and 300 people who worked in the three partners’ various businesses haveeach earned more than US$ 10 million Forbes magazine reported in March 2013 that Lemann wasthe 33rd richest man in the world, with a fortune of almost US$ 18 billion (Telles and Sicupirawere ranked in the 119th and 150th positions, with US$ 9.1 billion and US$ 7.9 billion,respectively) e three are among the 10 richest people in Brazil ose who know Lemann wellhave no doubt that he only became a top-level billionaire because he enriched dozens of people onthe way e acquisition of Anheuser-Busch, as was to be seen later, would transform anothergroup of executives of a brewer controlled by Lemann, Telles and Sicupira into millionaires Itwould also only be the rst of a series of moves the Brazilians would make on big Americancompanies

A surfer at Harvard

orge Paulo Lemann was born in Rio de Janeiro on August 26, 1939, and has had acomfortable nancial life since childhood His father, Paulo, moved to Brazil from the Swisstown of Langnau at the beginning of the 20th century Jorge’s uncles, his father’s brothers,emigrated at the same time – one to Argentina and the other to the United States e three lebehind a cheese and dairy business, which had been the family’s mainstay for decades and stillexists today Paulo came to Brazil a er being hired by the Swiss shoemaking rm Bally, owner ofCortume Carioca, which operated in Rio’s Northern Zone, and spent several years working withleather and shoes until he decided to resume the family tradition by opening a dairy plant inResende He called the company Leco (an abbreviation of Lemann & Company) Years later, itwould be bought by Hélio Moreira Salles, brother of Walter Moreira Salles, the founder ofUnibanco

A er he had been in Brazil for several years, Paulo met Anna Yvette, a Brazilian girl of Swissparents, who became his wife (Her father worked in a cacao trading company that sent managers

to the Ilhéus and Itabuna region.)

“ e Swiss came to Brazil to work, were captivated by the place and ended up staying,” said AlexHaegler, a cousin of Lemann (Haegler’s mother was Anna Yvette’s sister.) e family set up home

in a comfortable but not extravagant house in the Leblon district Lemann’s parents were bothraised according to the Protestant ethic, which is based on thri and a disciplined approach to workand would be one of the foundations of his intellectual formation

e parents made a point of seeing that their son had a good education and he entered theAmerican School of Rio de Janeiro, one of the best in the city, at kindergarten level and stayed until

he was 17 a er nishing what would now be regarded as high school He became uent in English

at an early age, which was a rare skill at that time and became extremely useful when he enteredthe nancial market At the age of seven, he began playing tennis, a sport he has followed hiswhole life, at the Rio Country Club in Ipanema, which was a bastion of high society Lemann wasultracompetitive on the court, winning a number of children’s championships and becoming theBrazilian juvenile champion when he was 17 He attributes his early athletic success to strictadherence to a sportsman’s lifestyle: no dances, alcohol or heavy food He gave up red meat formany years and, to this day, not only refrains from alcohol, but carries raisins or dried fruit in hispockets for snacks between meals

His day began before dawn, when he would get up at ve o’clock, run a few kilometers along theshore at Leblon and then climb the wall into the Country Club to hit a ball around before the doorswere opened to members e tennis court was where he learned a lesson he still follows One of

his coaches told him that nobody ever won a game by playing to the crowd In other words, ratherthan show off his skills to the audience, he should concentrate on improving his game is advicewas worth its weight in gold to a disciplined boy who already seemed to favor discretion

His weak point: girls “However, he only dated those who did not interfere in his habits of going

to bed and getting up early,” said Haegler

When he was not playing tennis, Lemann could be found sur ng on the beaches of the SouthernZone He was “one of the best surfers in Rio de Janeiro” in his own, not exactly modest evaluation

It was while sur ng that he got one of the biggest scares of his life One day, he and a group offriends decided to tackle the choppy waters at Copacabana beach a er a heavy storm He wascon dent about his skills and was not put off by the giant waves that were three times higher than

he was used to Lemann spoke about this episode in 2011 at an event organized by the FundaçãoEstudar (a foundation he had created almost 20 years earlier to nance Brazilian students at homeand abroad):

“ e waves were colossal It was almost impossible to swim beneath them I felt the bloodrushing to my feet I got onto a wave and managed to get out of it before I was trapped Myfriends said we should do it again but that experience was enough for me My adrenalin was at itshighest I liked that feeling, but I didn’t want to feel it again You have to take risks in life and theonly way is to practice I practiced in the waves, at tennis and later in business I have o enremembered that wave at Copacabana more than the things I learned at college.”

When he was only 14, Lemann had to cope with the unexpected loss of his father, who was runover by a tram in Botafogo From one moment to the next, the youngster of the family became theman of the house His sister Lya, who was 10 years older than him (now deceased), had emigrated

to the United States a er marrying an executive in the pharmaceutical industry At that time,Lemann became even closer to his cousin Alex Haegler who was six years older than him Haeglerwent to study at Harvard, where he became captain of the tennis team Lemann, who was electedthe “most likely to succeed” by his classmates at the American School, decided to follow the samepath and enrolled in an economics course at Harvard – a decision that would change forever theway he looked at the world

ith over 350 years of history, Harvard University stands alongside other Ivy League teachinginstitutions like Yale and Princeton as an elite force within the American university system.Eight American presidents studied there – John Adams, John Quincy Adams, Rutherford B Hayes,

eodore Roosevelt, Franklin D Roosevelt, John F Kennedy, George W Bush and Barack Obama– as have more than 40 Nobel Prize winners Located in Cambridge, Massachusetts, a town withjust over 100,000 inhabitants, its campus covers almost ve square kilometers and currently attracts21,000 students from all over the world e prestigious Massachusetts Institute of Technology

(MIT) is nearby and Boston, the birthplace of American independence, lies just over the CharlesRiver.

Gaining access to Harvard means the student has to overcome two hurdles e rst is to beaccepted by the university, a distinction reserved for only 7% of its applicants e next is to be able

to afford the annual undergraduate fee, which, including credits, meals and accommodations,came to about US$ 80,000 in 2012

Lemann did not pay much attention to this exclusive aspect and tradition when he arrived inCambridge in September 1957 to study for an undergraduate diploma Brazilian students were rare

at the university at that time with an average of only one candidate a year, compared with around

100 nowadays His debut at Harvard was a disaster e “beach boy” was freezing to death in hisrst visit to the US and missed the waves, terribly His homesickness was exacerbated by a newlyacquired rebellious streak, that didn’t only compromise his grades, but that nearly undermined hisacademic career

At the end of his rst year, when he was about to go on holiday, he set off some reworks in themiddle of the main square at Harvard e joke was a success with the students, but campusauthorities, who caught Lemann in the act, were less than impressed, and when he arrived back inRio some days a er the incident, he received a letter from Harvard recommending that he takeleave of absence for a year in order to mature

Lemann, who regarded Harvard as a nuisance, was initially tempted to take advantage of thechance to abandon his studies But he ultimately returned to Cambridge, as the letter had only

“recommended” and not forced him to accept a hiatus

To escape his boredom but successfully graduate, he decided to complete his studies in three yearsinstead of the usual four While this would be no easy task, Lemann knew he could devise anefficient system to achieve his goal, and started by inquiring to former students and teachers aboutthe kind of work and time dedication required of classes he was considering During one of theseconversations, he learned that all the previous exams were led in the library, which would be hisnext stop

It did not take him long to notice that teachers had made few changes to the exams from one year

to the next All he needed to do to prepare for the exams was to study those from previous years.His grades drastically improved, and within a short time, Lemann changed from being a problemstudent to the rector’s favorite, concluding his course when he was 20 – the age he had set forhimself

Commenting at a recent event about how Harvard had changed his way of looking at the world,Lemann said, “I was a surfer and tennis player who had never been out of Rio de Janeiro andsuddenly I was there in this place full of great ideas I had to take a philosophy course in my rstyear I began to read Plato, Socrates, things I had never thought of giving a glance is changed

my view of the world My dreams, which had been to win a tennis championship or surf biggerwaves, became larger People who know me and my companies know that I always say that, ‘having

a big dream brings as much work as having a small dream’ e other thing I learned at Harvard,and has become part of my nature, was the importance of choosing people I was among the best

espite his creative brilliance, like any new graduate, Lemann went job hunting He wanted anopportunity in the Brazilian nancial market where he could earn a lot of money, and got ajob with a company called Deltec, founded in Rio in 1946, to sell shares on the Latin Americanmarket e owner was an American, Clarence Dauphinot Jr., who was also a member of theCountry Club, and hired the young uent English speaker as a trainee Lemann’s rst boss wasRoberto Teixeira da Costa, who was already well-known in the area and would become the rsthead of the Brazilian Securities and Exchange Commission (CVM) in 1976.

To call what existed at that time the “capital markets” would be almost an exaggeration erewere few clients, and the number of companies that were prepared to disclose their earnings wasfew and far between Even in 1966, there were no investment banks operating in Brazil eBuenos Aires Stock Exchange was bigger than that in Rio while São Paulo’s was even less important

It was, therefore, a market that needed to be created Deltec had a team of around 300 salesmen tosell shares in a limited number of companies, two of which being Listas Telefônicas and theBrazilian subsidiary of the American carmaker, Willys Overland e sales force went from door todoor, searching for new clients around the country

“At the end of the 1950s and start of the following decades, there were no domestic specialists todeal with investors and give them information ,” wrote Teixeira da Costa in his book Mercado decapitais – uma trajetória de 50 anos “Annual reports were extremely concise in terms of providinginformation that was of real importance for shareholders and were limited to the legal minimumbalance sheet and nancial statements information ey were unaudited and unclear about thecriteria used.”

Seeing the embryonic stage of the Brazilian capital market at close hand, Lemann felt it would bedifficult to prosper in those conditions, so he decided to get some experience abroad His plan was

to travel, learn from the best minds and then return to Brazil anks to his father, he had doublenationality and decided to try his luck in Switzerland and obtained an internship at Credit Suisse inGeneva

But what seemed like a unique opportunity turned into a small nightmare For the rst time, hewas working for a large institution, with a strict hierarchy and rigorous processes he did not like in

the slightest He felt everything was too slow, rigid and predictable and quit a er only sevenmonths.

e time in Switzerland wasn’t all for naught A master at time management who never quite let

go of his dream of success in the ranks of professional tennis, Lemann maintained his sportsman’slifestyle, and competed in some tournaments in Switzerland, ultimately accepting an invitation tojoin the national Davis Cup team

His debut in May 1962 was uninspiring and he lost by three sets to zero “I never liked grass,” wasthe excuse he gave in an interview with a sports magazine But he lived as a professional tennisplayer for a year and a half and even quali ed for two of the four Grand Slam tournaments –Wimbledon in England and Roland Garros in France

Ultimately, though, when he objectively evaluated his prospects, he didn’t see himself as a topcontender, which was severely at odds with his personal goals for success

“ e more I played, the more I realized it would be difficult to get into the ranking of the 10 bestplayers in the world,” he said “I decided to stop as I would not be a star.”

On his return to Rio in 1963, Lemann was hired by Invesco, a small company that operatedmainly in the credit sector and competed with commercial banks He set up a capital markets area,which very quickly began to upset the traditional stock market traders At the time, seats on thestock exchange could not be bought, but were held for life and operated according to a system likethat of a notary concession Neither Lemann nor Invesco had inherited anything, but he was notready to stay on the sidelines in the game of buying and selling shares e way in, he discovered,was to create a kind of “parallel stock market,” in which the shares were sold over the phoneoutside the official trading session is new approach turned into an excellent business for him, asthe shadow stock market ended up with the equivalent of 5% of the volume of the Rio exchange,but, as expected, the big brokers did not look kindly on this daring approach

“ e brokerages hated me because they thought I was a threat,” he said e atmosphere became

so tense that when Lemann once visited the Rio Stock Exchange, he was expelled from the building

by two security guards at the request of a group of brokers

anks to his good education and the fame he was gaining on the market, Lemann startedwriting a column on investments that appeared in the Sunday edition of the Jornal do Brasilnewspaper However, his journalistic career was short when a few months a er his debut column,the newspaper director, Alberto Dines, discovered he worked for a brokerage and regarded thesituation as a clear conflict of interest

Working alongside Lemann in Invesco’s capital markets area was José Carlos Ramos da Silva, asmart-talking young man with a degree in economics from the Universidade do Brasil (now UFRJ)who was known on the nancial market by the nickname Jaguatirica (Ocelet) Ramos da Silva camefrom a very different world from Lemann His father was a Portuguese immigrant who had spentmost of his life working in garment stores His mother had studied accountancy, but had neverpracticed, instead dedicating herself to raising the family Ramos da Silva spent his main holidays inCambuquira, a tranquil spa in Minas Gerais state, but, when it came to nancial ambition, Lemannand Ramos da Silva were very alike and this similarity far outweighed class differences

On the face of it, things were going extremely well e company was growing, lendingincreasingly more money, and the parallel stock market it had created was expanding eproblem, as Lemann discovered too late, was that more money was going out than coming in eresult was that Invesco went bust in 1966 as it did not have strict enough credit controls and itsmanagement was haphazard At the age of 27, Lemann went under with it His stake in the rm –around 2% of the capital – now worthless (Invesco was eventually taken over by Banco Ipiranga,belonging to the Lutterbach family, which bought another four nance houses to create aninvestment bank.)

But the sudden death of Invesco taught Lemann two great lessons e rst was that it is asimportant to look a er revenues as expenses – a maxim that became an obsession with him and hispartners in the following decades e second was that a business needed good, well-remuneratedpeople, even in those departments that were unglamorous or did not turn a profit

“The goalkeeper also has to gain a lot,” he said

Instead of lamenting the defeat, Lemann considered these lessons in thinking about his nextundertaking

ociety” was always a word on Lemann’s lips Only once in his career did he launch a newproject on his own ings were no different a er the failure of Invesco He wanted tocontinue working in the nancial market but had no capital and no intention of paying foreverything himself ere was only one solution in his mind: nd good people who were ready towork on a new business and capitalist partners to finance it

e rst part of the plan was easy Ramos da Silva, Jaguatirica, had the entrepreneurial spirit thatLemann wanted by his side e money to pay for the project came from another source: theRibeiro Coutinho family from Brazil’s Northeast

e family originally made its fortune from sugar plantations in Pernambuco and Paraíba statesand had expanded its business interests over the years One of its main bets at that time was BancoAliança, which was located in an imposing building designed by architect Lucio Costa in the center

of Rio beside the Candelária church e head of the family, João Úrsulo, wanted to expand theoperations of the Libra brokerage, which was controlled by Aliança and focused at that time onselling bills of exchange Lemann needed the money and Úrsulo needed someone who wouldunderstand this new business The combination looked perfect

Lemann and Ramos da Silva began working for Libra in 1967 To make the deal attractive, JoãoÚrsulo offered a 26% stake in the brokerage, split evenly between them e aim was to beginoperating mainly in the new open market where public and private securities were bought and sold.( e activity was so new that the Central Bank did not even set up a trading desk for these assetsuntil 1968.)

e pair quickly got the brokerage moving at full speed and, within a short time, it occupied theentire 11th floor of the bank’s building One of the staff Lemann and Ramos da Silva hired then was

a young talent who had helped the Escritório Levy rm transform itself into one of the largesttraders of Central Bank securities He came from a lower middle class background in Santa Rita doPassa Quatro in upstate São Paulo and began working as an office boy with Bradesco when he was

14 a er leaving home, following a row with his father He had been a poor pupil who had notcompleted his elementary school and stopped in the sixth grade at that time He was creative andobstinate at work His name was Luiz Cezar Fernandes

“Jorge was totally lost there, working a bit on the stock exchange, a bit on the market He wasoverworked,” said Fernandes “He called me and I went along.”

Paradoxically, the more the brokerage grew, the more dissatis ed Lemann felt His shareholding,despite Libra’s excellent results, remained the same To make things worse, under the regulationsset by the brokerage’s controlling shareholders, he could not offer any stake in the business toanyone else is was a “carrot” Lemann believed was the best way of winning over talentedyoungsters

He found himself in a dilemma Since his years of study at Harvard, he had been thinking ofrunning a company with a culture based on meritocracy and a partnership system e idea ofdividing in order to grow captivated people like Ramos da Silva and Fernandes, but the RibeiroCoutinho family was not interested in entering this game A er three years without any prospect ofincreasing his stake in the brokerage, Lemann decided it was all or nothing He told his bosses that

he was not happy with the situation and he wanted to buy them out in the belief that the RibeiroCoutinho clan, owners of various other businesses, would agree To his surprise, the family made acounter offer and forced Lemann and Ramos da Silva to sell their stakes and leave the firm

At the age of 31, Lemann was unemployed once again But this time, he had US$ 200,000 in hispocket, a lot of money in those days, and he had in his head the business model he had beendreaming about – in which the wealth generated would be split with the best employees Histhinking had nothing to do with being a nice guy and everything to do with his purely pragmaticstyle of multiplying earnings and then dividing them He would o en repeat in the future, always

in a loud voice and extending the vowels, as he does: “Good people, working together, make thefirm great.”

Lemann had a good idea in mind – to open his own brokerage – and a streamlined team to start

by his side – Ramos da Silva and Fernandes – but he needed capital e money that he andRamos da Silva had received for the sale of their stake in Libra would be paid in installments, butcash was needed to buy a brokerage’s license e stock market was experiencing a period ofeuphoria at that time in 1971 and the prices of permits were sky high

Bere of money for the brokerage, Lemann and Ramos da Silva had to be content with a smallerbusiness, a securities distributor ey were negotiating the purchase of a small company calledVésper, which belonged to the Rio-based building company Metropolitana, when they weresuddenly interrupted

“One of Jorge’s clients who was almost a friend arrived one day and asked what we were doing,”said Fernandes “He said he knew we were buying a lousy distributor and that it was absurd for us

to have gone from a brokerage to doing that He went on and on about it.”

e client in question was Adolfo Gentil, a former Congressman and owner of Banco Operador,based in Rio Gentile, who came from Ceará state, was rich, a tennis enthusiast and 20 years olderthan Lemann He offered to finance the purchase of a brokerage

To help out, Gentil called his friend Guilherme Arinos Barroso Franco, a descendent of Tapajó eItacoatiara Indians from the Amazon, who had begun his career as a clerk in Banco do Brasil Hewas a law graduate and, at the age of 26, had become a personal consultant to ex-president GetúlioVargas A football (soccer) fanatic – he supported his club Botafogo with a passion and had 40reserved seats at the Maracanã stadium – he later also became known as the father of the formerBrazilian Central Bank chairman, Gustavo Franco His offer meant that the team to nance thepurchase of the brokerage was ready

e solution to nding a target could not have been more prosaic Gentil put an ad in anewspaper: “Brokerage for sale sought.” e acquisition was concluded in August of that year

to the commercial area of the financial institution Lemann had created.

But Lemann and Ramos da Silva had learned their lesson from the Libra experience andnegotiated with Gentil until they managed to get a 51% stake split equally between them Gentilkept 39% and Arinos held the remaining 10% Soon a er the formation of this initial quartet,Gentil would sell a small part of his stake to Fernandes and Hercias Lutterbach who had beenamong the former owners of the brokerage and still wanted to remain in the business

e brokerage rm had almost no assets Its modest office was situated in the 34th oor EdifícioAvenida Central building at Rio Branco Avenue, 156, next to Largo da Carioca, in the center ofRio e Garantia brokerage had three rooms without air conditioning in the mezzanine of thebuilding – one for the traders, another for the management and the third one for the custody ofsecurities and shares kept in a safe

“ e structure was limited to three phones, and we didn’t have any money to pay a secretary,”said Fernandes e rundown office was no problem for the young partners ey were moreinterested in the potential of the Rio Stock Market, which was attracting an increasingly largenumber of investors is was mainly due to the recently-created Fund 157 that allowed incometax payers to invest up to 12% of their taxes in shares e Stock Market index jumped almost by48% between January and March 1971 and the volume of money more than doubled It seemedtoo good to be true – and it was e sharp rise resulted more from speculation than any realgrowth As with any bubble, it also burst Two months a er buying the Garantia permit, the stockmarket began to fall and did not stop Over 18 months, the index plummeted by 61% Lemann andhis partners saw their main brokerage business decline gradually by the day Furthermore, theybecame known as the investors who had paid most for a brokerage permit – a title they boreshamefacedly for almost two decades It was not exactly a promising start

he stock market crisis and urgent need to nd a new path led to the decision to concentrateactivities on the open market More than ever, Lemann needed an aligned team As he wasnow one of the main shareholders of the company, he could put the principles of meritocracy that

he always believed in into practice To do so, it was important to have talent and sweat Friendship

or blood relations had no value and could even be a problem at times Children or spouses ofpartners, for example, were banned from working in the brokerage Romantic relationships in theworkplace were banned ( is may have been the rule that was least respected, as there were anumber of marriages between people who worked there – even partners such as Fernandes and

Eric Hime married fellow employees In these cases, one of the couple was forced to leaveGarantia.)

ere was a particular kind of professional for whom Lemann was always on the hunt, and whom

he baptized with the abbreviation PSD: Poor, Smart, Deep Desire to Get Rich At the beginning, aneducation at a top level school or international experience was not one of the main résumé itemsfor which he was looking e reason was simple At the time, Brazil was growing mainly as a result

of government intervention, with the creation of state-controlled enterprises, incentives to exportsand projects nanced by foreign debt e Garantia brokerage and other nancial institutionsprospered in this rudimentary environment, mainly by trading government debt erefore, it wasbetter to have staff who were exible, with sales air and even some cunning than brilliant youngpeople without any experience

“ e ‘University of Life’ for most of the people there was the beach,” said Clóvis Eduardo Macedowho joined Garantia in 1976, became a partner and was one of the PSDs Garantia turned into amillionaire “They were different times Kids are now brought up in front of a computer.”

Macedo, who stayed with Garantia for two decades, follows his former bank’s hymn in his ownasset management firm, Nobel, located in Rio’s southern Leblon district

Imagine a world without Internet, or even without any kind of computer or nancial calculator

At a time when telex was a great technological advance (fax machines only began to be produced in

a large scale abroad from the 1970s), all the nancial transactions were “physical,” i.e the sale of ashare required the vendor to actually deliver the paper to the buyer Securities and shares werealways marked “to bearer.” is meant that nobody knew who really was buying or sellinganything, which opened the way to all kinds of manipulation If a security was stolen or lost, forexample, a court application had to be made to cancel it and issue a new one to replace it eBrazilian Securities and Exchange Commission (CVM) and the Central Bank, created in 1964, werestill novices in a number of areas is rather loose regulatory scenario le room for a huge grayarea e secret for doing well in the Brazilian nancial market in the 1970s was to operate at thevery limit, and the PSDs Lemann recruited outdid the others under these circumstances

It was essential in this atmosphere of precarious communication that there should be no barrierswithin the brokerage, at least Keeping professionals locked up in their own cubicles, isolated fromeach other, was something that made no sense to Lemann For this reason, he immediatelyadopted a workplace model that was still new in Brazil Instead of the traditional succession ofclosed offices, the Garantia brokerage office was a large open room, with no divisions betweenemployees and partners If, on one hand, the lack of walls ended privacy, on the other, it made thegroup’s work more exible and reduced the obvious hierarchical differences Lemann himself spentmost of his time at a table in the big room He and the other main partners – Ramos da Silva,Arinos and Gentil – only shut themselves away in their private rooms when there were con dentialsubjects to discuss Otherwise, anyone could get close and talk with the boss without any greatformality

To complete the informal atmosphere, Garantia brokerage people dressed casually at a time whenmost nancial institutions had an official uniform consisting of dress suits and formal shoes Casual

trousers (khakis virtually became the Garantia standard as time went by) and shirts with rolled-upsleeves became the norm e staff looked more like students on a university campus thanstockbrokers

othing in uenced the culture that Garantia created as much as that of Goldman Sachs eAmerican bank was founded in New York in 1869 by German Jew Marcus Goldman, his son

in law, Samuel Sachs, entering the rm three years later e company became the most in uentialand powerful investment bank in the world Charles D Ellis, the author of the book ThePartnership – The Making of Goldman Sachs, reveals some of its main features:

‘Goldman Sachs was a total meritocracy Mr Weinberg [Sidney Weinberg, who for decades was theleading partner at the bank] tolerated none of the politics or infighting that hurt so many of the otherfirms (…) One use of that power was to keep payouts to partners low, forcing them to build up equity

in the firm ‘Sidney Weinberg set the policy on tough capital retention,’ says partner Peter Sacerdote

‘It was good for the firm because it made everyone focus always on what was best for Goldman Sachs

as a whole firm And it was good for the individual partner because it kept you financially modest.You couldn’t get into fancy spending habits because you didn’t have the money to spend.’ (…)

Absolute loyalty to the firm and to the partnership was expected While strong feelings – includingpersonal dislikes and flashes of anger – were evident for the partners within the partnership, animpenetrable wall of silence kept almost all internal tensions invisible to outsiders (…) Personalanonymity is almost a core value of the firm Most things that other firms might celebrate ordramatize are deliberately understated Morgan Stanley, for example, has elaborate, large, neon-lighted signage with stock quotes visible from several blocks away In New York, London or Tokyo,there is no indication whatsoever of Goldman Sachs’s presence – other than well-dressed young menand women coming briskly in the building early and going out late.”

Lemann made contact with Goldman Sachs a er a push from his uncle, Louis Truebner, a bigcocoa trader Truebner lived in the US and knew that GS would open the doors to his nephew Acentury separated the foundation of Goldman Sachs from the incorporation of Lemann’s Garantia,but the similarities between the two institutions are notable

Goldman Sachs professed meritocracy as a central value ey encouraged thri , put the bank’ssuccess above personal luxuries and encouraged internal competition is approach had been part

of its culture for over a century but was new in Brazil and thus new to Garantia, and if this modelwas to work, an almost messianic fervor had to be instilled into the team

e best jobs in Brazil in the 1970s were with multinationals Most recent graduates andexecutives dreamed about working for companies like Shell, IBM or Volkswagen Not only was the

salary high in these companies, but there was an all-round package of bene ts – chauffeur-drivencars, schools for their children and even club memberships Large Brazilian business groups werestill rare and usually owned by families, in which the “underlings” rarely reached the top erewas a clear distinction in these companies between the “owners” and the “others.” Variableremuneration, both in Brazilian and multinational companies, was a secondary issue.

e Goldman Sachs model copied by Lemann turned this order upside down Garantia paidsalaries that were below the market average but the bonus could amount to four or ve extrasalaries, a potentially huge amount of money at that time Of course, this was conditional on theemployees beating their targets It was a clear and simple rule that was valid even for the officeboys: work well and you will be rewarded Lemann believed it was essential that everybody, eventhose at the very bottom, felt like “owners” of the business Lemann decided that was the only waythey would give their best and make the institution grow To encourage people even more, thebonus was paid twice a year

e Garantia pyramid went the opposite way from most companies, and there was nomultiplication of hierarchical levels Staff was basically divided into three areas The new arrivals, all

of whom were eligible for a bonus e group immediately above worked on commission, andinstead of receiving a multiple of their salary, as those below them did, commission workersreceived a small percentage of the company’s total pro t is usually resulted in each receivingbetween 0.1% and 0.3% of the rm’s total pro t ose at the bottom could not rise to the groupabove them, nor was there a minimum time for the worker on the bottom level to move up andwork on commission Everything depended on performance

e advancement from a bonus to a commission was the rst big step under the meritocracy thatLemann preached However, even those who made this move could not relax As they were allassessed on a half-yearly basis by their bosses, peers and subordinates, any one of them could havetheir commission reduced if their performance during that period was below expectations.Furthermore, if someone increased his commission (or a new worker on commission was chosen),someone else had to lose

“Once the partners had le the meeting room and announced who had won and lost, there was

no further discussion,” said Diniz Ferreira Baptista, one of the longest serving Garantia partners,having joined in 1977 and le in 1995, when he had a stake of almost 5%, to found Banco Modalwith two other ex-Garantia partners, Macedo and José Antonio Mourão (another ex-Garantiapartner, Ramiro Oliveira, took over Macedo’s place in Modal later on) “Sometimes, someonewould complain to Jorge, but this was not well-regarded.”

ose who were good rose ose who were not inevitably turned up as a subject of discussion atthe partners’ annual meeting, known as the “smoke signal,” which decided who would be red

e practice was to get rid of around 10% of the headcount annually Garantia worked with a team

of just over 200 people for more than a decade is was a rule created by Lemann to prevent the

rm from expanding too much is meant that getting rid of the worst performers was the onlyway to open room for new, talented young people e atmosphere at the bank was very tense onthe days when the “smoke signal” meeting occurred ose who were called soon a er the partners

le the room knew their destiny: the street e idea of a comfort zone did not exist in theGarantia vocabulary.

e third step higher – which was even more difficult to maintain – was to become a partner eprivileged few who belonged to this group gained dividends as well as commission Around 40employees reached the very top in almost 30 years of Garantia’s history Oddly enough, there wasnever a woman among the elite team e only way to reach this height was to bring spectacularresults for the bank and be accepted unanimously by the other partners, who also de ned the size

of the new partner’s stake e potential candidates never knew if and when they would becomepartners, nor the prospective size of their stake (Some ex-Garantia staff interviewed for this bookfelt this showed a lack of transparency in the procedure.)

“From the bank’s earnings, 25% was distributed as pro t sharing, 15% as dividends and 60% wascapitalized,” said Baptista “It was a doctrine that could not be changed.”

Regardless, Garantia’s variable remuneration system was aggressive at the time, not onlycompared with Brazilian companies and the subsidiaries of the multinationals, but also otherfinancial market institutions The Multiplic bank was a good example

Multiplic was founded in Rio by Antonio José Carneiro and Ronaldo Cezar Coelho as a brokeragethat would be transformed into a bank years later – a route identical to Garantia e bank grewexponentially in the 1970s until it became Garantia’s main rival In his book, Passaporte para o ano

2000, Luiz Kaufmann, who was Multiplic’s CEO from 1985 to 1990, said that by the end of 1989,the group had shareholders’ equity of US$ 160 million and assets under management amounting toalmost US$ 2 billion However, despite their origins, the Multiplic and Garantia styles werecompletely different

e main reason for the differences between Garantia and Multiplic was that Multiplic had had aforeign partner since 1978 – the Bank of London – which had a 50% stake Distributing sharesamong the employees would have, in this case, caused some imbalance, something that neither sidewanted

“We owned the market,” recalled the 70-year-old Carneiro, sitting in his office at the top of athree-storey building in a quiet street of Leblon’s district, and decorated with two beautifulpaintings by the southern Brazilian painter Iberê Camargo “We paid higher salaries and distributed

a bonus at the end of the year, but we did not offer any chance of partnership.” A er selling theBrazilian stake to Lloyd’s Bank (who bought the Bank of London) in 1997 for US$ 600 million,Carneiro, who began his career as a teller in a branch of Banco Mercantil de Minas Gerais in Rio,started to invest in different businesses, ranging from advertisement agencies to construction rms

A large part of his fortune in 2012 came from his holdings in electrical energy companies

While Garantia staff could become owners, reaching the top came at high price e bank did notgive an equity stake to the new partner but sold it A case study on Garantia, prepared years later byformer students of the Insper Business School, Fernando Muramoto, Frederico Pascowitch andRoberto Pasqualoni, details how the new partners paid for their stake

“On average, 70% of the new partner’s earnings were allocated to pay for these shares over two orthree years,” the study says “In quantitative terms, 1% of shares could mean an initial debt of US$

600,000 for the new partner, which would be paid off from pro t sharing, commissions anddividends at annual interest rates of 6% in dollar terms.” Only 30% of the variable remunerationwas actually paid to the partners at the time

is mechanism ful lled two purposes at the same time e rst was to retain talents, sinceleaving the bank before receiving the entire share holding was a bad deal At the same time, itprevented the partners from having too much money in their pockets and perhaps losing their focus

on work

“It was very tough at the beginning because what you earned was barely enough to pay for theshares,” said Diniz “However, as everybody thought the business would take off, those who hadthe chance always wanted to buy.”

e rule also helped maintain the austere working atmosphere that Lemann preached inside andoutside the bank He was always a man of simple habits He had no private secretary (a small group

of staff looked a er all the partners), did not wear luxury watches or drive imported cars When hereceived people for lunch at Garantia, he would dispose of waiters and help serve the guests Onsaying goodbye to visitors, he always made sure to accompany them to the elevator (a habit he stillmaintains) is simplicity once saved him from what could have been a dangerous situation in

1991 He was driving along the Rio-Santos highway and stopped at a lling station While he waslling the tank, the place was robbed, but his car, a Passat with more than 10 years on the clock,was of no interest to the thieves and Lemann was able to continue his journey unscathed

osé Antonio Mourão personi es the rise that was possible within Garantia as few others can

He was born in Vista Alegre, a suburb of Rio, and started working with his father in a butcher’sshop in the district before entering the brokerage in 1972 as an office boy at 16 years old Despitehis humble origins, Mourão, a real PSD, always believed that if he worked hard, he would makemoney

Working during the day and studying in high school at night, Mourão would arrive at the office atseven in the morning and stay until it was time to go to school His jobs included getting lunchesfor the office staff and running to Lemann’s house to retrieve his tennis racket when a gameunexpectedly arose

He had no idea what the word meritocracy meant when he joined Garantia, but quickly felt itseffects

“A er a few months there I earned more money than I had been expecting,” said Mourão

“That’s when I realized that things worked very differently there.”

Mourão saw an opportunity for growth, so he decided to study economics at the UniversidadeGama Filho to get to know as much as he could about the bank’s daily operations and pulledcountless all-nighters at the bank He worked in a number of areas until 1985 when he became a

partner, 12 years after entering Garantia and still not 30.

Mourão’s rst mission was to move to São Paulo to take care of an operation that was smaller thanthe head office, but that held great potential e company forced him to abandon an old habit ofcalling Lemann “Mr.”

“One day he told me that we were partners and it no longer made sense to call him thatanymore.” Not bad for a boy who began his career at Garantia carrying the owner’s tennis rackets

Mission announced is mission accomplished

orking in the nancial market – inside and outside Brazil – has, of course, never beeneasy Making decisions that move lots of money over short periods of time means beingunder constant pressure Those without nerves of steel give up halfway

Life on Wall Street, the nancial center of the United States, has always been particularly tough.According to Charles D Ellis in his book on Goldman Sachs, workaholics are the norm, and theroutine at the world’s most powerful investment bank requires employees to dedicate almost theirentire lives to work New hires usually work from eight in the morning until six in the evening, stopfor a quick meal and then resume their working day until nine or ten at night For manyemployees, it didn’t even stop there

e working day was equally frenetic at the former Salomon Brothers, founded in 1910 and sold

to Travelers Group in 1998 Former employee Michael Lewis, who worked there in the 1980s,dramatically recounts the life of an analyst like himself in his book Liar’s Poker:

“Bosses attached beepers to their favorite analysts, making it possible to call them in at all hours Afew of the very best analysts, months into their new jobs, lost their will to live normal lives eygave themselves entirely over to their employers and worked around the clock ey rarely sleptand often looked ill; the better they became at the jobs, the nearer they appeared to death.”

e pressure and merciless pursuit of results at Garantia were raised to levels of paroxysm erewas nothing exceptional about arriving early, leaving late and working through the night eworking day o en lasted 12 to 14 hours and extended to the weekends Personal and family lifewas obviously sacrificed

“I worked a lot and did not see my children grow up,” former partner Diniz Ferreira Baptistaadmits In the open-plan offices where everyone scrutinized everyone else, anyone who got up toleave earlier than usual to go home was usually greeted with a round of applause is was done in

a sarcastic way and usually accompanied by an awkward question: “Are you working part-time?”

e tone may have been jocular, but the venom could not be hidden Obviously not everyonecould stand this kind of set-up A legendary story arose about a lawyer who was hired by Garantiaand walked out on his first day He went out to lunch and never came back

Dedication was uncompromising, and Garantia staff had to be ready to change their departments

or even cities at a moment’s notice For example, former partner Clóvis Macedo was “invited” to