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Three Possible Reasons For The Collapse Of The United/PMA Merger Talks

Jim Prevor’s Perishable Pundit, July 21, 2012

Our piece, The United/PMA Fiasco: THE SPIN IS JUST HALF THE STORY — Lessons Learned: Open Up To Industry Input And Focus On Big Things First, brought many thoughtful letters. This one came from a former Chairman of PMA:

Thank you for that comprehensive and entertaining account of this, the fourth iteration of merger talks (that I am aware of) in today’s edition of the Pundit.

As you know from our many discussions over the years, I have been an opponent of this (and previous) proposed mergers mostly due to the disparate agendas and corporate cultures of the two organizations.  Thank the heavens that this one fell apart as well.  From my discussions with industry leaders, my view is that this effort went much further down the path not because it was the right thing to do, but rather as a defensive measure against backlash from the big financiers of both organizations.  My impression is that many PMA leaders were holding their collective noses and trying their best to “make this thing happen” even though their personal opinion was the antithesis of this process.

The only one point that I hope eventually becomes clear in the media while they are airing the recriminations of this process is how completely selfish, myopic and shortsighted the “major players” have been.  Your article even pointed out how very little money would be saved by combining the two organizations.  I was aware of that fact when I was Chairman of PMA years ago and know that other Chairmen had come to the same conclusion independently, and certainly these Task Forces were aware of that fact this time around. 

In spite of this, the big boys pushed this agenda (and pushed very hard and surely will continue to push hard).  Why?  To save THEIR organizations money… not to serve the industry by creating a more efficient national trade organization.  So, we came incredibly close to putting together what could have proven to be the disaster of all time combining PMA and United to help the short-term budgeting of these organizations???  Shame on them. 

So, instead of throwing bricks at the two Boards, or the two CEO’s or whomever, I only hope that the industry awakens to the fact that a few selfish companies throwing around their weight caused a half million dollars of industry money to be burned up on this ridiculous exercise of corporate power.

So now, as an industry, we move to where we always should have been… that is capitalism.  It’s up to each organization to provide member value.  Those who perceive that there is value to membership or participation will continue to support the organization.  Those who do not receive that value are free to discontinue support of that organization. Does this make the two associations worse off?  Heavens, no.  Competition is good for everyone. 

Look at how nervous you’ve made others after the success of The New York Produce Show you created with the Eastern Produce Council.  It spurred your competitors toward the genesis of a show in Chicago.  Other regionals have done a fantastic job of creating value for exhibitors and attendees for their shows.  Are all these shows good for the industry and long term features of the industry landscape?  Who knows?  That’s what marketplaces determine.  Those that provide value will flourish… those that do not will fail.

Now, let’s hope the word merger disappears from our vernacular and we get on with the strategic plans of all respective organizations. Too much time and too much treasury has been burned at the pyre of corporate egotism.

This epistle raises some important issues. Most notably, the narrative that has been promoted is that the two associations agreed to all components of a merger except the question of leadership. Then over the question of who ought to be CEO of the newly merged organization, the whole thing collapsed.

Now we know this story is literally true, but it is also a story that tells another story — namely that whatever was agreed to, the benefits this new arrangement must have been perceived to bring to the industry must have been few indeed. Only tepid support can explain the willingness of both PMA and United to walk away when a deal was there to be achieved.

Think of it this way: If two people are about to start a new business, everything is planned out and agreed to, save the question of who should be CEO of the new corporation. Should it be partner A or partner B or a third party? If things get contentious and the likelihood of the business being lucrative is small, the partners might just walk away.

But if, instead, the two partners believe that the new venture will easily make each partner a billion dollars a year, they will probably find a way to make the deal happen.

Ok, let us assume that PMA was always lukewarm about the idea of merger. It has a big component of leadership that is from the retail and foodservice segment. Although these people are certainly part of the produce industry, and they need a vibrant production sector to produce product for them, their interests are different than that of production agriculture or that of the wholesale sector. They may be willing to lend support to lobbying efforts, but they really don’t perceive that as their battle to fight. 

United certainly has many fine programs, but those are fully accessible to the retailers and foodservice operators without a merger and, in any case, most could be duplicated by PMA if push comes to shove. PMA doesn’t need United’s money or revenue streams. There is no obvious strategic gap that a merger with United would fill, so it is perfectly logical that PMA’s support for a merger would be tepid. One can thus understand why the PMA board might draw a line in the sand on the question of leadership.

But what could possibly explain United’s unwillingness to grab the deal it could get? Supposedly United really felt strongly that one association was truly in the best interests of the industry. OK, some people don’t like Bryan Silbermann for whatever reason; let us concede that. Still, he is obviously a respected, successful and well trained association executive. And remember the new board could always fire him. Sure the association might have to pay some penalty to terminate his contract early, but he still would always serve at the pleasure of the board of directors. How could United, supposedly seeing a merger as so crucial, just walk away rather than have Bryan be CEO?

It makes no sense, and there are only three possibilities:

First, as it is written: “Pride goeth before a destruction, and an haughty spirit before a fall”. So it is possible that pride got the better of the association. The board members just couldn’t accept PMA as having won the upper hand and thus walked away from a deal that the board believed would be very valuable for the industry. If so, this is a failure of leadership. In business and in life, one must never allow the best to be the enemy of the good. And in business, the one who wants to make the deal happen is usually the one who has to pay to make it happen.

Second, there is the possibility that United’s board not only preferred Tom Stenzel, but actively believed that Bryan would be catastrophic for the industry. So they killed the deal to avoid a failure by the new association. The problem with this theory is that United’s proposal did not preclude Bryan from being CEO of the newly combined organization; it only deferred the decision to the new board. Yet if the conviction that Bryan would be a disaster is so strong that it merited killing the deal, then it would be irresponsible to merge and put all of United’s assets, programs and services to the industry at risk  because some other board might do something so incredibly stupid.

Third, and most logically, the United board did not feel it desperately needed a merger and did not feel the benefits of a merger would have been very substantial, so rather than swallow its pride and do the deal because it was simply so valuable and count on changing CEOs at a later date, it just walked away from the deal it could have gotten.

This parallels our letter-writer’s idea that merger was not really perceived as a big win by most of the PMA board members but, instead, was really being pushed by only a few big league players.

The motivation for a merger has always been difficult to quantify. Some have focused on the idea that the industry needed “one voice” in Washington, DC. Yet it is hard to identify the harm that has come from having two national associations and arguably, with their slightly different focus, the difference has enabled more allies to be enticed to the table. In any case, a merger wouldn’t silence the plethora of regional groups that also speak up in DC.

There is no question that some large companies have pushed for one association, but the economies have always been difficult to identify. A big part of the expense of these organizations goes under the rubric of staff and programs, but it is hard to see how a merger reduces these costs very much. For example, virtually the whole industry applauds United’s Produce Industry Leadership Program and would want it to continue under one association — and it won’t be any less expensive to execute under one association.

Equally the desirability for a DC lobbying office wouldn’t disappear, and even costs that one would think would disappear — say one CEO instead of two — are not sure economies. After all, CEOs of larger associations get paid more than the CEOs of smaller associations; CEOs of larger associations tend to have bigger offices, more underlings, etc., etc.

The issue our letter-writer alludes to is that big companies spend a lot of money with the associations that they would rather not spend. They spin this as supporting the associations and, doubtless, sometimes, that is true. For the most part, though, it is marketing by another name. So if a big buyer asks for a sponsorship, the vendor feels it is in its interest to say yes. Or the vendor doesn’t want bad publicity, say trade press reports that the failure of Company X to renew its booth has led to a collapse of exhibitor numbers at one show and threatens its viability.

There is a lot of evidence that the large well established tobacco companies became more profitable when cigarette advertising was banned. They saved on the expenditure and new entrants couldn’t easily challenge their dominant market share. Equally, if a law was passed against trade shows or publications, these giants might be more profitable. In other words, if trade shows were banned in the produce industry, it might well help the profitability of major players as it would reduce their marketing costs while preventing smaller players from building market share — but that doesn’t mean the overall industry would be larger or more prosperous. Our letter-writer’s plea for a capitalist solution accords with our own thoughts on the matter. We raised the point in our piece, PMA And United: To Merge Or Not To Merge? That Is The Question, where we said this:

Will the industry lose the benefit of competition? Although it is easy to see the waste of duplication, it is hard to see if people are motivated to do a better job because they know members can go somewhere else. Most of the industry is made up of capitalists. We believe consumers get better and cheaper products when we make retailers compete against each other even though, theoretically, it would be much more efficient to have just one retailer. We understand that the efficiencies in, say, logistics and marketing can easily be outweighed by a reduction in human motivation when not spurred by competition. Why do we think that trade associations are, somehow, uniquely exempt from this

Yet there is an alternate view. David Glass, when he was CEO of Wal-Mart, expressed this other perspective when he opined: "The best way to ensure success in the future is to INVENT it."

Theoretically that is true. But the Soviets tried to create their future with a series of well designed and carefully thought out five-year plans. It turned out that chaotic, messy, unpredictable American capitalism out performed them. Now Soviet communism lies on the dustbin of history.

It turns out that a group of smart guys sitting down and trying to create the future are not able to process all the information that reality creates; that many people operating in diverse sectors of the economy are able to each act independently in a way that, combined, produces prosperity that no top-down approach can ever match. Perhaps a thought that might provide solace to those who believed merger might produce a more prosperous industry.

Many thanks to our letter-writer for raising such intriguing issues.

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