A CLOSER LOOK AT THE DYNAMICS THAT LED TO THE COLLAPSE OF THE UNITED/PMA MERGER: Buyer/Seller Disconnect And Consensus-builders Versus Nonconformists
Jim Prevor’s Perishable Pundit, August 2, 2012
With all the sturm and drang over the issue of merger between United and PMA, it is worth a moment to consider the role of buying organizations and the style of association board members in the industry discussions.
The thrust toward merger has always been driven by vendors, by grower-shippers. Structurally this is because it is United’s advocacy work that they see as the most important job of a trade association and they would like to find a way to use the proceeds from Fresh Summit to fund these efforts.
Buyers Versus Sellers
Retailers and foodservice distributors/operators have their own associations — namely the Food Marketing Institute (FMI), the International Foodservice Distributors Association (IFDA) and the National Restaurant association (NRA) — to defend their interests in Washington, DC, and so they rely on any produce trade association more to promote supply chain efficiencies and provide networking opportunities. The buyer groups support advocacy for the grower supply base but don’t worry so much about the advocacy portion.
Emotionally, the drive to merge comes from grower-shippers because they are the ones who write the checks. Whether paying higher dues rates, exhibiting, doing sponsorships or donating to one of the association’s foundations, this is where the money typically comes from. Indeed, many times when representatives from buying organizations have made comments that differ from what some of the big grower-shipper advocates of merger believe, the grower-shippers will dismiss the comments, pointing out that “XX doesn’t write any checks.”
There are many people bitter over the preferential treatment that buyers get in a membership organization. If everyone is an equal member with an equal vote, it is hard to justify why one class of member should get into events free or at reduced price or have a lower cost dues structure.
Of course, these ideas all make perfect sense, except they defy commercial reality.
In business it can often be difficult to really ascertain the source of the profits. Let us take, for example, the PMA Foodservice Conference. This is a successful event, and if you look for the source of the profits in the checks received, you would clearly say that it is the grower-shippers who are the key ingredient in the profitability of the event.
All those booths and sponsorships bring in the big bucks and pay for the event with a surplus left over for PMA.
Of course, stopping the analysis at the checks begs the question of why people send in the checks. For that, you have to credit the buyers. Sysco, US Foods, Pro*Act and Markon all hold big meetings before or after the show and bring hundreds of people to the event. Add in the individual operators and distributors who attend and you have an explanation for why the grower-shippers support the event.
So the checks come from the sellers but the value creation comes from the buyers.
Of course, the definition of “buyer” has become hazy. When Lisa McNeece, Vice President of Foodservice and Industrial Sales at Grimmway Farms, runs into Lorri Koster, Vice President of Marketing and Co-Chairman of the Board at Mann Packing, at the foodservice conference, Lisa smiles. This could be because they are old friends, women pioneers in the business, compatriots in production ag out in California — but it could also be because Mann Packing, conventionally seen as a seller, buys a lot of carrots from Grimmway to put in its various vegetable mixes.
This is the dynamic John Pandol was referring to in the letter he wrote here when he said that he found as an exhibitor at various trade shows that he was paying to be a captive buyer.
This whole dynamic adds to the frustration because shippers and processors get charged as vendors whether or not they also buy. Indeed, because registration fees are typically set by business classification, not job classification, even the actual buyers from grower-shippers wind up paying the higher rate.
Of course, regardless of the frustration vendors may have with the dues and rate differentials for buyers given by the associations — sellers still need the buyers.
This makes for successful events and, also, complicates enormously the merger issue. If PMA and United were both horizontal trade associations serving just grower-shippers, the merger would have happened long ago. Five big guys in a room would have decided they didn’t want to spend their money this way and that would be that.
All this elaborate process is really a kind of Kabuki dance in which the different sectors of the industry try and interact, expressing their preferences, without giving too much offense.
One reason the talks looked like they would succeed when they first began is because United’s board had changed. Reggie Griffin, in particular, had changed the dynamic. Reggie, a former PMA board member, knew PMA well. As Corporate VP of Produce and Floral Merchandising and Procurement at The Kroger Co., he stood at the very pinnacle of produce procurement in America.
It is not unreasonable to think that the PMA board members would have had a little trouble delivering the ultimatum it ultimately did to United if Reggie had stayed in his Kroger position. If PMA had still delivered such a strong statement, explaining it would end the talks if United’s board didn’t agree with PMA’s position on the CEO, then a few well-placed calls to the big grower-shippers on the PMA board and even to his retail peers on the PMA board would have made an extension of the talks much more likely.
When Reggie left his position back in October of 2011, a lot of heft left the United negotiating team. PMA shrewdly included in its task force both Mike Agostini, Senior Director- Produce/Floral at Walmart Stores Inc, and Rich Dachman, Vice President of Produce at Sysco. That is the largest retail buyer of produce and the largest foodservice buyer of produce — very little can happen in the industry with the active opposition of those two organizations.
Beyond that, it is also very hard for grower-shippers and importers to take strong stands in active opposition to these players. So, though there has been talk of doing petitions and sending letters to the boards demanding action — we were even asked to draft one — fear of alienating these important customers has stayed the hand.
There clearly is a disconnect between the broader produce industry, which seems to find the present state of affairs bizarre, disgusting and inexcusable, and the actions of the boards, which don’t seem motivated to overcome their differences in the choice of CEO.
Consensus-builders Versus Nonconformists
Some of that difference is properly understood as this dance between buyers and sellers, but much of it is also explained as a matter of personal style — in this case, the kind of style that leads people to want to serve on boards or leads companies to want to assign particular employees to boards. Although there are exceptions, almost by definition, the ones who enjoy this type of work and would be good at it are those who have a kind of consensus-building, consultative style that is at odds with the temperament of many in the trade.
Many, probably most of the people who have spoken to us about this subject, respond with profanities and say fire both Bryan and Tom and hire a new guy. To them, it is obvious: You have two well paid guys who would like to keep their jobs and their friends who are more concerned with protecting their friends than with their responsibility to a more anonymous industry.
Even suggestions that we have made — such as that the rejected CEO should be treated generously with extra severance or a consulting agreement — have been generally greeted with hostility. “Why,” we were asked, “the guy has a contract; it has a severance clause negotiated in case the industry wants to get rid of the guy. Why should we give more? You only say that because the cost will be divided between a thousand companies. None of these big shots would pay extra if it was their money.”
There is a lot of truth in all this. But actually these types of things are common in large businesses. You pay money to smooth things over, to buy silence, friendship, avoid lawsuits, to keep employees from competitors and a myriad of other reasons.
We proposed it not only because we thought rewarding the longtime service of these executives was appropriate but also because we thought that the board members who were close to these executives needed a consolation prize to give out if they had to pass on the bad news. Of course, if one is going to pass out money, you hope to do it in the most productive way possible, say really using someone as a consultant.
Yet the consensus-building model of leadership is problematic. It is, by far, the most effective technique. It builds support in an organization for what is coming next, and that very support makes possible what is coming next.
Sitting through meetings, hiring consultants, building a base of support for what you hope to accomplish — all this is crucial.
Indeed, part of the problem is that it was not carried out broadly enough. The consensus-building approach was not carried out through the industry. So there is no industry consensus on the “four cornerstones” or the priorities among those “cornerstones” or the right board composition or how a CEO should be selected.
Because no industry consensus for this plan was built as the plan developed, there was relatively little reaction when it collapsed. If consensus had been developed — at a grassroots level — the plan would have never collapsed because a thousand companies would have resigned membership if it had.
On the other hand, at the executive level, one has to say that this process also shows the limits of the consensus-building approach. You need to build the consensus that one association is optimal — and this process did that. Once that decision is reached, however, you need to act. You need to fire people, close departments, eliminate functions, slaughter the sacred cows, all actions that will offend many and cause cries of unfairness — all actions for which leadership will be vilified.
Think of our industry representatives on the boards as like Moses: they were the leaders perfectly suited to build the consensus that brought the trade to the brink of the Promised Land, but the same traits meant that they were fated not to lead the entrance to the land itself.
That is what Steve Scaroni, Owner of Valley Harvesting & Packing, Inc./Vegpacker de Mexico, was alluding to in his letter when he suggested putting Rick Antle in charge because he didn’t think we needed a consensus-builder; we needed something totally different for the next stage of the journey.
The Jews were led into the Promised Land by Joshua. He was one of the 12 spies that Moses had ordered to check out the Promised Land. Although the spies reported back with a consensus that the land was fruitful, 10 of the 12 spies said the occupants of the land were too powerful and that the Jews should not enter. This so enraged God that His chosen people did not have faith in his promise that he sent the Jews back to wander for another 40 years. He said that all men over 40 had to die off before the Jews could once again approach the Promised Land. The only two spared were Joshua and Caleb, the two spies who had shown faith.
So now we stand with our two task forces. Like Moses, they have brought us to the brink. Will we also have a shortfall of faith and will we too be condemned to walk the wilderness for 40 years before we make it happen? And who shall be our Joshua?