The rise and rise of Jorge Paulo Lemann

Brazil’s richest man is relatively unknown outside of his home nation – for now. Elizabeth Matsangou takes a look at the fascinating career of Jorge Paulo Lemann, and how he has become a corporate takeover legend

Riding the wave: a dramatic experience surfing in a storm taught a young Jorge Lemann the importance of going for things, and taking risks. He has since gone on to become one of the most successful business leaders in the world
Riding the wave: a dramatic experience surfing in a storm taught a young Jorge Lemann the importance of going for things, and taking risks. He has since gone on to become one of the most successful business leaders in the world 

Born in Rio de Janeiro to a Swiss father, Jorge Paulo Lemann grew up to become a business class hero in Brazil and to have a career that spans the dreams of multiple lifetimes. Lemann’s $26.3bn net worth is self-made, and it seems there is more to come. His growing fortune has recently overtaken that of oil tycoon Eike Batista in the rich list by Forbes Brasil, while his long-term business partners, Marcel Herrmann Telles and Carlos Alberto Sicupira, are also climbing their way up the rankings. The formidable trio, known as ‘The Three Musketeers’ in Brazil, have transformed the face of business culture in the country.

Despite efforts by the media-shy and notoriously secretive Lemann, his investment firm, 3G Capital, is now receiving greater attention in the western hemisphere due to its recent high-profile acquisitions. Yet he is still under the radar, relatively speaking. Outside of the financial world, how many people know that Lemann owns household-names Budweiser and Burger King? Or that he owns Heinz in a joint venture with the world-renowned entrepreneur Warren Buffett? At 75, Lemann is not slowing his global aspirations, with many speculating that corporations such as Kraft, Campbell’s Soup or even PepsiCo could join his remarkable investment portfolio.

Born to be great
Signs of greatness were evident even from Lemann’s early days; he was accepted to Harvard in 1958 to study economics, a rare feat for a young Brazilian at the time. According to the book Dream Big, which tells the story behind the success of The Three Musketeers, because Lemann didn’t enjoy his Harvard days, he successfully completed the course in three years instead of the Ivy League college’s intended four. Lemann’s fearlessness in business stems from his time at Harvard, but surprisingly he learned a lifelong lesson when surfing in a dangerous storm while back home on vacation, as opposed to in the classroom studying.

Brazil’s rich list

1. Jorge Paulo Lemann
Net worth: $25bn
Industry: Various

2. Joseph Safra
Net worth: 17.3bn
Industry: Banking

3. Marcel Herrmann Telles
Net worth: 13bn
Industry: Various

4. Carlos Alberto Sicupira
Net worth: $11.3bn
Industry: Various

5. João Roberto Marinho
Net worth: $8.2bn
Industry: Media

During a rare speech in 2011 at an event organised by Lemann’s scholarship organisation, Fundação Estudar, Lehmann spoke of this metamorphic experience to a group of dazzled Brazilian students: “I took the wave and felt the blood go to my feet. It was a lot faster than I was used to, and a lot taller, but I went for it, and I managed to get out before it crashed. My adrenaline was at the maximum. I thought back to that wave I surfed in Copacabana far more than I thought about the things I learned in college. It gave me a certain self-confidence when it came to taking risks.” This boldness and risk-taking would be the backdrop to Lemann’s subsequent success.

Lemann’s passion for sports has remained an important part of his life. But, more than just a mere spectator, the billionaire was once an avid tennis player and even ventured into a professional career. In his youth, he became five-time national champion and via his dual citizenship, represented both Brazil and Switzerland in the Davis Cup. It was after competing at Wimbledon that Lemann stopped pursuing his tennis ambitions. In another decision that speaks volumes for his levels of determination, he moved onto another career path in which he could become the best in the world.

Following his brief tennis fame, Lemann stepped into a world that he would one day dominate: finance. Another impressive entry to his varied curriculum vitae was Lemann’s foray as a business journalist for one of Brazil’s oldest newspapers, Jornal do Brasil, while training at Credit Suisse. After a series of short-term roles came a critical point in Lemann’s astounding career when he founded Banco Garantia in 1971. It is commonly known in Brazil that Lemann envisaged the bank to be the country’s answer to Goldman Sachs, and took many lessons from its business ethics and operating systems.

Throughout its duration of almost three decades, Garantia became one of the largest investment firms in Brazil, and gained a legendary reputation. Lemann and his two partners, Telles and Sicupira, completely transformed the business and banking world in Brazil. “What they did is equivalent to a modern Industrial Revolution, and I call it an Entrepreneurial Revolution!” says Vandyck Silveira, CEO, of the FT | IE Corporate Learning Alliance. “In Brazil we can talk about banking in two great eras, BL [Before Lemann] and AL [After Lemann], this is the impact they had and continue having – even after Garantia went bankrupt and was sold.”

Leader of a revolution
Lemann had pioneered a new culture based on meritocracy that was revolutionary in Brazil at the time. Open-plan offices, a ban on collectibles in the workplace, cutting company perks and slashing big pay cheques served to bring the old pillars of hierarchy and elitism crashing down. Rather than giving shares as annual bonuses, Lemann offered the best performers the opportunity to purchase shares with their bonus. “Lemann is a genius because he brought to Brazil a very powerful management model and style that is 100 percent focused on meritocracy and on talent”, says Silveira.

And it wasn’t the senior staff members that were awarded with bonuses, but the top achievers. Beyond that, this new business style also cut costs in a way that was unprecedented, “The culture that he put in all his companies is an obsession to increase the profit margin… that was new in Brazil, because in Latin America, very often [the] labour cost is not that high, so the search for efficiency comes from cheap labour costs. There was no focus on productivity until he installed this tremendous focus on [it]”, says Professor Lourdes Casanova, Senior Lecturer of management at Cornell University.

As explained in Dream Big, winning the opportunity to work at Garantia was a feat in itself and an unenviable task for ambitious young Brazilian men. Candidates were interviewed by an intimidating panel of eight to 10 partners who would ask inappropriate questions to catch candidates off guard. Lemann chose to hire those whom he believed could become partners and fulfilled an interesting criteria: “Back in Garantia, people used to say that Jorge Paulo looked for PSDs – Poor, Smart, Deep desire to get rich people. Until these days he and his partners get involved in that. Recruiting is not a HR task in their companies – it’s something that all the leadership has to get involved with”, Dream Big’s author, Cristiane Correa, tells World Finance. Sicupira was the best example of a ‘PSD’ candidate, joining the bank at 17.

The idea of imitating well-established business models was a signature style of Lemann and his partners. His former associate Luiz Cezar Fernandes was sent to undertake an internship at Goldman Sachs in order to learn more about how the investment bank worked from the inside. The learning curve didn’t stop there. Following the acquisition of ailing retail chain Lojas Americanas, Sicupira sent letters to the CEOs of the world’s best companies – asking to pay a visit. After a personal invitation from none other than Sam Walton, Lemann and Sicupira travelled to Oklahoma – the home of Walmart. The lessons they learnt from the world’s biggest retailer were then used to revive Lojas Americanas.

Despite its incredible success, things at Garantia started to turn sour following the Asian financial crisis; the investment firm was subsequently sold to Credit Suisse in 1998 for $675m. It was a huge blow for Lemann to lose the firm that he had built from the ground up. “The failure [had] much more to do [with] unbridled ambition and a certain lack of control. ‘It was said – the kid is making money and is talented, and this led to some abuses and a certain arrogance’.

“However, Lemann and his partners understood this and have corrected the route at other companies such as Imbev, GP Partners, Heinz, and Burger King”, says Silveira. The period was a trying time for Lemann. In 1999, an attempt was made to kidnap his children on their route to school. What is telling about the incident is Lemann’s cool collectiveness and unfazed focus; his children still attended school that day and Lemann was only a little late to the office. The potential abduction did, however, prompt the family to move to Switzerland; now Lemann splits his time between the two countries, as well as the US.

Investment strategy
It was also in 1999 that The Three Musketeers created AmBev, a conglomerate of the breweries they had collected so far, which had started with Brahma in 1989. AmBev was a pivotal point in Lemann’s career, not only because it was a precursor of future acquisitions, but also because this is where he firmly established his roots in the investment world and his innovative leadership style in Brazil. “There is a business magazine, Exame, [which] looked at 60 years of history in Brazil, [and] Brazilians voted for AmBev as the company that they admired the most. The company changed – not only the beer industry – but changed the business culture in Brazil”, says Casanova.

For example, instead of repeating annual budgets, each year managers would have to start at zero and make the case once again for all of their expenditure. In 2004, AmBev amalgamated with Belgian counterpart, InterBrew, for $11bn to become Ambev IB. Another noteworthy merger with Anheuser-Busch turned the firm into Anheuser-Busch InBev, making it the largest brewery company in the world. With a quarter of the world’s market share, the company owns global brands such as Budweiser, Corona, Stella Artois, Beck’s, Hoegaarden and Leffe, as well as a series of leading local brands.

Again in 1999, 3G Capital was created. What makes 3G different from other venture capitalist firms is the way in which it raises funding for large buy-outs. Whereas other organisations tend to acquire investment from multiple parties, Lemann keeps to a close-knit circle of super-rich families. By approaching the wealthy elite in the US, Europe and Latin America, Lemann is in better stead to keep upcoming deals under wraps. Besides, despite being relatively unknown in the wider world, Lemann is renowned among the financial elite for his innate ability to make money.

Investors in 3G include the Santo Domingo family of Colombia and the Reimann family of Germany. Fellow tennis fanatic and world champion Roger Federer, and fund manager William Ackman, are also part of Lemann’s international dream team. The company’s buy-and-hold approach is different to competitors in the industry, but gives greater scope for the profit-boosting that Lemann has become known for.

After Lemann and Buffett met on the Gillette board, 3G and Berkshire Hathaway joined forces in 2013 to buy Heinz in the fourth-biggest food and beverage acquisition of all time. Buffett speaks very highly of his business associate; such is his trust in Lemann that 3G solely runs Heinz, despite Buffett owning the majority share. “I’ve always liked him, and the more we do together, the more I like him”, Buffett told The Wall Street Journal.

The recent example of Burger King, which 3G bought for $3.3bn in 2010, further exemplifies the success of the ‘Lemann touch’. Trusted colleague Bernando Hees was put in charge, but Hees’ move from railways to burgers was no concern – it’s the style that works. The new CEO wasted no time in axing 600 office employees and replacing 11 senior roles with Burger King’s top performing staff. Again, in Garantia fashion, the office walls were demolished to create an open-plan working environment in order to promote better communication, while also sticking to the cost-cutting ethos – even colour photocopies were banned.

Furthermore, by re-establishing the franchise model, 3G was able to shift 28,000 employees from Burger King’s balance books. This meant that the costly refurbishment of branches was passed onto the franchisee, but with incentivising loans for them to do so.

The right model
Although there is less fat to trim from Heinz than there was from Burger King, faith in Lemann’s ability appears to be unwavering. “I think Lemann’s recipe can work in any company or any size or any nationality, I would bet he pulls this though at Heinz”, says Silveira. Lemann’s approach seems to work with any type of business, while trial – and some error – through the years has seen it improve with age.

With his focus now spreading throughout the globe, particularly in the US, Lemann does not appear to be slowing down – quite the opposite. This can be attributed not only to his entrepreneurship, but also due to the current economic climate in Brazil, which has seen the devaluation of investments due to a depreciation of the real. “Brazil right now is in a difficult moment”, says Casanova. “Of course the US is coming out of the crisis quite strong, with a much more favoured currency and a path for growth. My opinion is that Lemann is trying to diversify his risk and looking at investments in the US as well.” It seems that as Lemann makes bigger waves outside of his native Brazil, he is slowly becoming a more recognisable figure in finance.