A Modest Proposal For Reviving The Merger Of PMA And United
Jim Prevor’s Perishable Pundit, July 24, 2012
One thing that came through loud and clear at PMA’s Foodservice Conference is that many industry leaders believe we should have one national produce trade association. They consider the collapse of talks between the two associations to be a ridiculous kind of petty inside-baseball by the two associations, an example of leadership forgetting about the broader strategic imperatives of the industry and getting distracted by non-issues like whether their favorite CEO got the job or not.
These industry leaders want to see consolidation of PMA and United into one national trade association. Steve Grinstead, Chief Executive Officer for Pro*Act, may have expressed this viewpoint most clearly when he told the Pundit: “The industry should tell the associations that we do not accept the conclusion.”
Now we have to say as a prerequisite that we are not certain that the advocates of one association would actually have been satisfied with the deal that was reached. Although there was some elimination of obvious duplication, virtually no programs were eliminated, two trade shows were maintained for four years, etc.
Indeed we believe — getting past all the claims and the counter-claims — that the real reason the talks collapsed was that nobody thought the deal so compelling that it was worth much in the way of sacrifice.
Of course, this is just to say that much of the heavy lifting was left to the new board and new CEO in terms of ultimately rationalizing programs. It would have been too contentious to select out things to pare right now, so the planning called for virtually all programs to continue. Over time, one association could certainly be expected to review and rationalize its staff and programs.
We have been approached by a number of industry heavyweights to lay out what went wrong in the collapse of the talks and to lay out a specific proposal for how the issue at hand could be resolved so that the two associations can complete the merger as originally contemplated.
We know there is a lot of bad blood, a breakdown of trust, etc. Still it is not all that uncommon in business negotiations to have an acrimonious breakdown in talks on Monday and a deal consummated a month later. If there is value in doing a deal, you get past the emotions and you make it happen. Let us deconstruct the breakdown of the talks and lay out a specific proposal for how to resolve the issue at hand. Then, it is up to the corporate leadership of the industry to decide if they care enough about the issue of merger to insist that this proposal be adopted.
One key moment in the breakdown of the talks came 18 months ago when United raised the issue of there possibly being co-CEOs, and PMA made it clear that this was not acceptable. One has to say that PMA had the better argument on this point. Co-CEOs diffuse authority and make the efficient and effective leadership of an organization exceedingly difficult. PMA insisted, and United agreed, in writing, that one key issue that would be decided as an integral part of the merger agreement was who the new CEO would be.
As a result of United’s agreement to this term, its decision at the end to propose punting the decision to the new board was not right. United had only two choices: To keep coming up with creative proposals to select a new CEO before the merger agreement was finalized — in reality United made no such proposals at all — or to simply acknowledge that the talks had failed because the associations had not been able to agree on all the terms they both agreed at the start of the talks were integral to coming to an agreement.
To have come out at the end swinging and proposing things outside the agreed framework of the talks and, de facto, blaming Rich Dachman and the PMA board for not going outside the agreed framework for the talks was not right and not conducive to good industry relations. The truth is that Rich worked very hard, persuading an often hesitant board to see the process through and to think with a broad industry hat, rather than a specifically PMA hat. Really, everyone should take a time out and Rich deserves the appreciation of the industry for doing yeoman’s work in trying to keep the focus on industry obligations.
United got virtually everything it asked for in the talks — a new name for the association, a board of directors that was to be a 50-50 split between PMA and United boards, etc. This is all evidence that PMA, principally at the urging of Rich Dachman, was trying to make it happen. After all, PMA is much larger, has many more members, etc. — it would have been perfectly rational for PMA to say that the new board’s make-up should be divided by a ratio of membership numbers, etc.
One cannot say it is irrational or unreasonable for PMA to say that it is the far larger association and that it is bringing more members, more money, etc., to the new association and that its price is that the initial CEO should be of its choosing.
Indeed, as a business analyst, one could make the case that United has made a colossal mistake. It had in its hand a merger agreement that served its strategic purpose — to get its hands on PMA’s enormous cash flow so that it could be redirected over the long term to causes and priorities that United holds dear. It walked away over an issue of only temporal importance. After all, the new board could fire any CEO on its first day in office if it so desired — paying only some severance. From a business perspective, it was a mistake, a non-strategic decision.
Still, just as we are prepared to critique United’s decision to propose that the new board choose the CEO as contrary to what was agreed to in the framework of the talks, we also have to say the PMA’s insistence on Bryan Silbermann as the CEO of the new association — it has never proposed any alternative or methodology that could possibly lead to any other choice — was also disingenuous and not in keeping with the commitments PMA made in agreeing to pursue a merger.
Eighteen months ago, PMA could have said to United that the deal breaker was the CEO and that it had to be Bryan or the talks could not be consummated. That is not what PMA said. It said that a CEO must be identified as part of the merger agreement. In making that demand, and not demanding that Bryan be CEO, the PMA board made a moral commitment to consider fair-minded procedures that might result in someone other than Bryan being selected as CEO.
In business, the methodology for dealing with issues where two parties can’t agree is simple: If the two parties can’t agree on a substantive answer to a question, you agree on a procedure to come to an answer.
For example, if two partners want to dissolve a partnership but cannot agree on the value one partner should pay the other, they might agree to a procedure whereby one partner makes an offer — he names a price — and the other partner is free to either sell his interest at that price or to buy out his partner at that price. Because one doesn’t know if one will be buying or selling at the price offered, this mechanism leads to reasonable valuations.
If partners own a piece of land and want to sell it to one of the partners but can’t agree on a price, they might agree to each appoint a licensed real estate appraiser and have those two appraisers appoint a third neutral appraiser and then average the three appraisals to come to a selling price.
The point is there are a million mechanisms that could be used to help resolve seemingly intractable issues — if people want to solve the problem.
PMA was 100% correct to say that a CEO should be identified as part of the merger agreement. The special “search committee” deadlocked because it was 50% United and 50% PMA — with no tie breaker. This is EXACTLY the composition of the newly proposed board — 50% United and 50% PMA. Who is to say the new board won’t deadlock for months and be unable to come to a decision on the CEO? It could set back the industry enormously.
But PMA did not demand that Bryan be CEO, and it should not insert that demand into the talks this late in the game. It needs to be true to its reasonable insistence that a CEO be chosen, not insert a new demand that it must be Bryan.
We’ve started to suggest in previous pieces a mechanism for how this can work, and we would like to flesh it out here as a specific proposal.
ONE KEY CRITERIA:
We need a mechanism that is certain to produce a CEO.
Here is how we get there:
1) The boards of PMA and United each select two members to serve on a special search committee for the CEO.
2) We appoint, Ed McLaughlin, the Robert G. Tobin Professor of Marketing, director of the Charles H. Dyson School of Applied Economics and Management's undergraduate program, and director of the Food Industry Management Program at Cornell University, to be a member of the committee. Ed is a highly respected academic associated with the produce industry. He has done numerous projects for both United and PMA and knows Bryan and Tom well. He is partisan for no side and clearly would desire for the industry to prosper.
3) We appoint this author, Jim Prevor, to be a member of the committee. The Pundit is a highly respected journalist, the recipient of The Timothy White Award for Editorial Integrity, his work has been published in The Wall Street Journal, and his commentary regarding the industry has been featured on CNN, Fox, NPR, the BBC etc. He also has lectured about the produce industry on every continent, save Antarctica.
The Pundit has worked closely with both produce associations. He has worked with both Bryan and Tom since the day they each became CEO and knows both well. The Pundit is a partisan for no side and also would clearly desire for the industry to prosper. He is the fourth generation of his family to be active in the United States produce trade.
4) Ed and the Pundit together appoint a neutral party to chair the committee. This would be a person not affiliated with the produce industry in any way. Examples of ideal candidates would be a Harvard Business School professor who focuses on trade association management or McKinsey consultant who works with trade associations.
5) The committee would be charged with evaluating the key components of the new association, evaluating the CEO candidates and identifying the best match between the new association and the candidates.
6) The committee would vote and issue a recommendation on who would be the best first CEO for the new association. Both sides would agree, in advance, to accept the recommendation of this committee.
The key variable would be the time frame. Although normally we would prefer consideration of all possible candidates as this would reassure the trade that we had the best possible leadership for our industry association, because this has dragged on so long, we need to wrap it up quickly. As such we would say it is best, at this point, to confine the evaluation to Tom and Bryan.
In any case, we would now have a seven person committee. Note that PMA and United board reps would compose a majority of the committee, so if they are unified, they could select the next CEO.
If they are divided, you have three other people on the committee, one an expert in business, management and/or associations and two very knowledgeable and committed people desirous of advancing the industry, to move things along.
Since we have an odd number we can say, for certain, a decision would be reached. Quite possibly the alteration of the dynamic from an “us against them” by adding non-PMA and non-United players could well lead to consensus.
Presenting this proposal is really a test of the sincerity of both association boards. Was PMA being disingenuous when it said that a CEO had to be determined before a deal was made? Did it really always mean that only Bryan was acceptable? If so, shame on the PMA board for not making that demand clear and explicit 18 months ago. This proposal being on the table will smoke that out.
Equally, United has made no proposal that does not give the United board blocking power. Has it always intended that Bryan is simply not acceptable? If so, shame on the United board for not making that demand clear and explicit 18 months ago.
It has become clear that, at the end, both associations lost sight of the goals they had worked so hard for. Whatever happens, it should be noted that the people involved were trying to create something great. After it all collapsed, we had separate social chats with both Steffanie Smith and Rich Dachman and both looked as if they were in mourning. The sense of loss was palpable.
Both David Krause and Rich Dachman are highly ethical individuals who know how to cut a deal. They should accept the collapse of the talks and the subsequent outcry of the last ten days as a kind of industry temporary insanity caused by stress and emotion, gather themselves together and accept the proposal we have laid out to solve this last piece of the puzzle. It is completely fair and will result in a decision.
The solution we propose here is a little scary for the board of each association, because it means giving up control, but it is giving it up to people who love and respect the industry just as much as they do.
This is not the biggest decision in the world. If both Bryan and Tom were, God forbid, to be hit by a bus, both associations would pick new CEOs and go on to thrive. The new board can fire whoever is chosen at any time. There is no perfect way to know who will be best. There are arguments for both Tom and Bryan. We just need to make a decision and board members alone, quite understandably, are most comfortable with the person they have worked with. So we need to bring in a few other people.
We would add one more caveat — both Bryan and Tom have served long and hard and delivered exceptional service to the industry. They deserve to be treated more than well. Because of personal dynamics, we can’t recommend having one work for the other, but we do think that either should be treated generously. We suggest that in addition to such severance as might be called for in his contract, the one not chosen as the new CEO be offered a generous consulting contract.
First, Rich and David, please dig down deep and see if you can’t see it to present this proposal, with your recommendation, to your board. You don’t want to let the best be the enemy of the good. If you believe in the idea of a merger, this is a very fair way and a practical way to make it happen.
Second, those who have access to the top association leadership should call them up and urge them to adopt this proposal.
Third, we will publish letters on this subject, so those who wish to communicate their desire for the association leadership to adopt this proposal, select a CEO and finalize the merger should send us a message here.
Those opposed please send a note here.
People can always quibble and can always find reasons to object to things they don’t want to see happen. So someone will say that Roberta Cook from UC Davis is a better choice than Ed McLaughlin or that we should ask Jack Allen from Michigan State to come out of retirement; doubtless some people will not like the choice of this Pundit to be involved — but, in the end, this is all just a way for people to blow up the process if they fear losing control.
Up till now, everything has been resolved by consensus and compromise. The CEO issue obviously can’t be resolved that way, so we are offering a viable plan to reach a conclusion in a way consistent with the best interests of the industry. Those who really want to see this happen will accept it so we can proceed.
The association leadership owes the industry more. Either they come out and say that after careful study they have decided a merger is not desirable or they make it happen. We are providing a simple mechanism to make it possible for it to happen.
For those who are looking for more background on the issue, we have previously run three Pundits related to this issue:
PMA And United: To Merge Or Not To Merge? That Is The Question, gave a basic review of the issues surrounding merger.
The United/PMA Fiasco: THE SPIN IS JUST HALF THE STORY — Lessons Learned: Open Up To Industry Input And Focus On Big Things First, assessed why the talks failed.
July 21 pundits, dealt with four important industry letters addressing the merger issue.
For those wanting more background, we have been writing about the subject for many years.