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The United/PMA Fiasco:
THE SPIN IS JUST HALF THE STORY
Lessons Learned: Open Up To Industry Input And Focus On Big Things First

Jim Prevor’s Perishable Pundit, July 19, 2012

Back at the United Convention in May, the Pundit approached Bryan Silbermann, the President and Chief Executive Officer of the Produce Marketing Association, and asked if he wanted to say anything about the PMA/United merger talks. He explained that he was under a non-disclosure agreement and could not do so.

So we told him a few things that we already knew, as some of the board members of both PMA and United had asked for advice and, in other cases, the bosses of several board representatives had reached out to discuss the issue. Bryan is a person mindful of his responsibilities and he must have immediately gone to tell those he was responsible to that the Pundit was in possession of a lot of confidential information as, within 10 minutes, we were surrounded by Bryan, Tom Stenzel, President and CEO of United Fresh, and Rich Dachman, Vice President of Produce at Sysco who is the current Chairman of PMA. All of these leaders wanted to urge me to be “responsible” — which was a euphemism for wanting me to keep quiet.

Mostly I have… Obviously we have written about the idea of a United/PMA merger for over a quarter century, not only on this website, but in sister publication PRODUCE BUSINESS as well, and we did recently publish one piece titled PMA And United: To Merge Or Not To Merge? That Is The Question, just as major decisions were to be made. That was our effort to help frame the decision in a manner most helpful to the task at hand and mentioned nothing of the details of the ongoing negotiations.

Partly we were willing to be silent because there was nothing important to say. We don’t traffic in revealing other’s secrets in a vain attempt to make ourselves relevant; we look instead to add value and initiate industry improvement by assessing the meaning and significance of events. Announcing timelines and people’s salaries may appeal to the prurient interests of some. It may even sell some newspaper subscriptions, but it doesn’t actually help improve the situation.

Also we were quiet because important industry leaders were involved in delicate and difficult negotiations. We had pointed out previously that we thought the process was flawed, that there was too much secrecy and that this made the outcome less likely to be a good one. We would say that events have proved us correct. Yet this was the process that industry leaders chose, and it wouldn’t be helpful to distract them from their negotiations with leaks and so forth. So we were, in fact, “responsible” — we held our fire and prayed for the best.

But during that chat with Bryan at United, we told him something else, namely that the whole situation was evolving in such a way that he would wind up being blamed for the collapse of the talks. He said nothing.

Well, we should perhaps retitle the Perishable Pundit as “Prevor the Prescient,” because that is precisely what has come to pass, although it is a bizarrely unfair assessment of the situation.

The narrative that has been promoted both on and off the record by United goes like this:

The negotiations were arduous, but productive. A full agreement had been negotiated and agreed to; the only remaining issue was who should be the CEO of the newly merged association. The PMA board would not accept naming Tom as CEO; United’s board would not accept naming Bryan as CEO. There was an impasse, and the United board suggested punting the decision to the new association board to elect its own CEO. The PMA board would not acquiesce to this and thus the talks collapsed.

The facts are correct, but there is a back story.
There is always a back story. In the early stages of discussions, there was an agreement made as to what the components of a merger agreement would include. One of the issues, one of the major issues, was who would lead the new association, and there was an agreement that this would be determined before any merger and expressed as an integral part of the merger agreement.

The decision to specifically delineate this requirement came about in response to a United inquiry as to whether envisioning co-CEOs might be acceptable. The PMA board completely rejected the idea of co-CEOs as unmanageable and likely to reduce organizational effectiveness.

So what happened is that during the course of negotiations, a big, salient issue that everyone knew would be an issue of great dispute, possibly derailing the talks, was kicked down the road to be decided later. This meant a lot of time and energy was spent discussing less contentious issues for naught. It is as if one were trying to do an acquisition in business and you went straight into figuring out how to consolidate the office space and skipped over big issues, say, establishing a price for the acquisition. If that is your practice, you are guaranteed to waste a lot of time.

Still, progress was made and compromise happened — the PMA board’s initial suggestion that the “merger” should really be an acquisition by PMA of United was transformed after numerous compromises by the PMA board into something much closer to the “merger of equals” that the United board preferred.

Still, it was a big waste of industry time and money to even be discussing the minutia of organizational issues when leadership or a mechanism for selecting leadership had not yet been established.

If you want a business lesson to draw from this whole fiasco — try this: Before you waste your time on small matters, make sure you have resolved the large matters.

 My friends at United are making the case that a great structural change in the industry should not be contingent on any personnel matter — and that, of course, makes perfect sense. Presumably, the boards of both PMA and United believe their associations are strong and that if Tom and/or Bryan were to quit or, God forbid, fall ill, the associations would find new leadership and would prosper.

Yet, faced with a PMA board that felt that it couldn’t in good faith approve a merger without being confident that the CEO would be a person the board members believed capable of successfully launching the new association, it is worth noting that United could have had its merger but declined to accept it because of a personnel matter: it wasn’t willing to accept Bryan to be the new CEO as part of the merger agreement.

To look at how things are done in the private sector, PMA is a far larger and richer organization than United. Indeed, once severance was paid to excess employees as a result of this merger, there would have been very little net worth left in the United treasury. PMA owns its own building and excess land; it has many millions of dollars in financial reserves. It is quite common to make the CEO of the larger organization the CEO of a newly merged organization.

It makes sense. The CEO of the larger organization, after all, has experience with a larger percentage of the merged organizations’ operations. In other words, if Wal-Mart merges with Supervalu, you can bet that the CEO of the combined organization will be Wal-Mart’s CEO. And in fact when the old United Fresh Fruit and Vegetable Association merged with the International Fresh-cut Produce Association to form the United Fresh Produce Association, Tom Stenzel stayed on as CEO, and Jerry Welcome, then President at IFPA, was made Executive Vice President of Business Development of United. So the CEO of the larger association stayed as CEO of the combined association, and thus, the precedent was set in the industry as well.

PMA’s board was willing to not only honor Tom’s contract, but there was not likely to be a problem with being generous to Tom, perhaps retaining him as a consultant or providing additional severance.

If something that everyone claims to want doesn’t happen, you have to question the enthusiasm with which the parties are viewing the “thing” that they all want.

In this case, the proposed merger was always opposed by a substantial minority of PMA board members who believed that the cultures of the two organizations were simply incompatible. It is also true that United’s board, although theoretically always in favor of a merger, was only interested if various conditions could be met, including not naming Bryan as the CEO in the merger agreement.

This hesitancy to really commit to a merger can be seen by the obviously flawed methodologies used to resolve the issue.
United and PMA set up a committee to “search” for a new CEO. The committee was not allowed to entertain outside candidates and so only interviewed Tom Stenzel and Bryan Silbermann. Completely predictably, the committee split, with the United contingent saying that Tom was the best candidate and the PMA contingent voting for Bryan.

Now if one is serious about resolving such an issue, you don’t set up a process that is predictably going to fail, a process without a tie breaker.  If you really want to find a CEO and you want a committee to do that, you have three people from the United board and three people from the PMA board and jointly they pick one person who is not in the industry, say a University professor expert in management of trade associations. Then you do the interviews and, since there are two candidates and seven votes, you will have a decision.

So why didn’t the boards set up such a mechanism? Possibly no one thought of it. When we wrote urging a more public process, this is a perfect example of what we meant. Imagine sending out a request to the industry saying: “Should a merger be successful, someone would have to be CEO of the combined organization. We have two highly regarded CEOs to choose from. We don’t want to go the route of co-CEOs because we believe clear lines of authority are necessary to successfully carry out the work of the new association. We also do not want to bring in an outsider because we fear that the learning curve would slow down industry progress. So that leaves Bryan and Tom. We can expect that board members of PMA and United will tend to favor the CEO they have worked with. What mechanism could we establish that might help us select a CEO should a merger agreement be successfully negotiated?” Then one gets input from a lot of smart people who would suggest mechanisms that would succeed, not fail.

Of course, there are a lot of smart people on the boards of United and PMA, many with vast corporate experience; it seems unlikely that nobody could come up with a mechanism that would succeed. So the more compelling answer is that support for a merger was always highly conditional.

United, a proud century-plus-old group, was intent that it not be perceived as a junior partner in the new association. That is why it fought hard for symbolic changes such as a new name for the merged association. The resistance to Bryan as CEO is not that Bryan is perceived as incompetent; it is that they do not like the imagery of Bryan as the senior, surviving industry CEO.

PMA has long been a more technocratic group; it has a lot of executives who have gone through the effort to get the Certified Association Executive credential. It was more focused on a kind of consultant perspective: Identify key attributes that the new association was supposed to execute and do a match of executive experience and expertise with those attributes. Almost inevitably, with PMA being so much larger, Bryan has much more of the relevant experience by this metric.

So although it is easy to say that personnel matters shouldn’t hold up a fundamental industry reform, the bottom line is that United’s board wasn’t willing to be seen as subordinate, and PMA’s board didn’t think that Tom had the experience to make the new association a success.

The PMA board was going to basically be transferring millions of industry dollars to a new entity and didn’t feel comfortable doing it if they weren’t convinced the new association would succeed. And they wouldn’t be convinced unless they had confidence in the new CEO. They saw it as an abrogation of their responsibility to let some future group of people make this decision.

So where does the industry stand now?
There is significant bad blood. PMA board members thought they had a non-disclosure agreement and a commitment to issue a joint statement and are now bitter at what they perceive as United board members’ transgressions of these commitments. They view the whole CEO issue as a setup where, despite an agreement to include a CEO in the merger agreement, United kept kicking the can down the road in the hope that the PMA board would cave once other issues were all settled.

Many United board members are shocked that PMA’s board held up the agreement over the issue of a CEO.

Trust has broken down completely between the boards. We should not expect any deference from one association to the other.

One thing that should be made clear is that neither Tom nor Bryan can properly be held responsible for any of this. Even if they had their own agendas — and we don’t have any evidence that they actually did — the votes were held by the boards of directors of each association, and board members are legally and ethically responsible for their votes.

Some don’t think this is the final word. The Pundit received calls from key executives of several of the larger companies in the industry who were hoping to reduce expenses by creating only one national industry association. They flatter us by asking if we would please do something to make a merger happen.

It is nice to be asked, but it is a funny request coming from such large and important organizations. After all, these associations rely on support from companies such as the ones who called the Pundit. If these companies actually did something themselves to force the issue, the issue would be forced.

We suspect they won’t.  Despite many threats to cut off support for one or another association if a merger doesn’t happen, few companies donate to these associations strictly as a public service. They support them because — in totality — they think they benefit from supporting them. That may be because there is a board member who is an important customer or for reputational-enhancement reasons. In any case, we can’t see why that would change very much.

And we also suspect that many would have been disappointed by how little money was going to be saved by the merger. So many speak about the benefit of only having one convention a year but, here’s the rub: The merger agreement anticipated maintaining two separate conventions — albeit repositioned in various ways — for at least four years.

We’ve had enough talking for a while; we need to focus on doing.
If you really want to have one association, the best way to do that is not through negotiations. It is by delivering such member value that nobody needs another association.

PMA is a giant and is considered one of the most professionally managed trade organizations in the country. It has to guard against arrogance and remember that not everyone functions in a corporate fashion. But it is a very strong organization and its future is bright.

United, although smaller than PMA, has a deeply passionate member base — many would say more passionate than PMA’s. It has some world-class programs, such as its Washington Public Policy Conference, the United Fresh Leadership Program, the United Fresh Produce Executive Development Program, and, through its trade show, has an alliance with FMI. Lots of growers and wholesalers see United as their association in a way PMA is not. There is not a reason in the world why it can’t be successful.

Our advice to the industry would be to not feel it necessary to support an association just because it exists. Support it because it does important work or delivers value to you.

We can’t help but feel that after so much work, it was too easy to abandon the effort. Had the process been public and had there been 50 town hall meetings, maybe an engaged and energized industry would have forced through a solution. By working behind curtains, the effort could be abandoned quietly.

Hopefully this will be a lesson learned for future industry initiatives.   

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