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Whole Foods Suffers From CEO’s Bizarre Behavior

It is very possible that John Mackey, CEO of Whole Foods, has now killed the merger the company has been seeking with Wild Oats.

As we mentioned here, we disagreed with the FTC’s decision to deny the merger, which Whole Foods has been challenging in court. We felt the FTC was misjudging the relevant market for organic and natural foods and thus assuming that the Whole Foods/Wild Oats combination would be anti competitive.

Supermarkets now sell organic and natural foods, and the share of the market held by Whole Foods and Wild Oats, even combined, is infinitesimal.

Now, however, John Mackey has broken the basic rule of executive management, which is don’t do or say anything that you would be embarrassed at seeing on the front page of The Wall Street Journal or The New York Times.

For seven years, John Mackey, the head of a publicly held company with a fiduciary responsibility to his shareholders and a legal obligation to disclose information to all investors at the same time, maintained a secret identity as “Rahodeb,” an anagram of his wife’s name.

He touted his stock, made stock price projections and bashed Wild Oats, talking down the stock Whole Foods was soon to try and buy up.

What do corporate governance experts have to say about all this? The media reports have been full of the same points. Here are a couple examples:

Whole Foods Is Hot, Wild Oats a Dud — So said ‘Rahodeb’:

For an executive to use a pseudonym to praise his company and stock “isn’t per se unlawful, but it’s dicey,” said Harvey Pitt, a former Securities and Exchange Commission chairman. Told of the Mackey posts, Mr. Pitt said, “It’s clear that he is trying to influence people’s views and the stock price, and if anything is inaccurate or selectively disclosed he would indeed be violating the law." He added that "at a minimum, it’s bizarre and ill-advised, even if it isn’t illegal."

Online Dent to Whole Foods Reputation:

Charles Elson, a professor of corporate ethics at the University of Delaware, described Mr. Mackey’s behavior as “bizarre”.

He added: “A chatroom is not a forum for a CEO of a public company to discuss his business and the industry. I don’t think this is going to be viewed very positively by many people in the corporate community.”

This all came to the fore as a result of a document that was made public in the course of the Federal Trade Commission investigation of the Whole Foods/Wild Oats merger.

This will give the FTC an opportunity to kill the deal because it makes Whole Foods seem obsessive about Wild Oats. He didn’t post secretly about Kroger or Safeway — it was Wild Oats.

Beyond this deal, though, this revelation poses many challenges for Whole Foods.

First of all, this is the chain that has lived on its “holier than thou” pedigree. Yet it turns out that the founder and CEO is out there trying to manipulate the stock while keeping his role in doing it secret.

The wholesome nice place has a CEO out there trash-talking the CEO of its competitor.

The truth is that if the CEO of Kroger or Wal-Mart did this, their boards would fire them. If the CFO of Whole Foods did this, he would already be gone.

So far, John Mackay’s job seems safe, but the reputation of the company he built, much less so.

Tim Vaux Starts New Venture

When Tim Vaux left DuPont, he was in a reflective mood. His many friends from his years of involvement with United’s Produce Industry Leadership Program have waited anxiously to see what Tim would decide to do professionally in the future. Tim now sends word:

After some long discussions (some with myself and many with others), I have decided to “hang out my shingle” and make The Vaux Group more than just a name.

My official website is up and running at www.vauxgroup.com.

I can be a resource for produce businesses, small and large, as an independent set of eyes and ears and as a member of their project teams. For small companies without a lot of in-house capabilities, I can act as a project leader. For large businesses who have in-house resources, I can act as a “devil’s advocate”.

I am open to discussing any project or resource needs you may have. I’m proud to continue as a Board member of the United Fresh Produce Association and look forward to seeing many of my industry friends in September at the Washington Public Policy Conference.

— Tim Vaux
The Vaux Group

We wish Tim every good fortune in his new venture.

Garlic Can Help Reduce Global Warming

A tip of the hat to Jim Provost of I Love Produce . Jim has written us before and we published his thoughts as part of our piece Spinach Recall Reveals Serious Industry Problems, which dealt with the very topical issue of food safety and China.

Now, Jim sends along this piece from the BBC entitled Garlic ‘may cut cow flatulence’:

Scientists in Wales tackling the impact flatulent cows and sheep have on global warming may have an answer — putting garlic in their food.

Experts claim cows are responsible for about 3% of Britain’s greenhouse gases.

But initial results from the start of the three-year study show that feed containing garlic could cut the amount of gas produced by up to 50%.

The Aberystwyth research team is testing if this taints milk or meat — and gives the animals bad breath.

The study is being led by scientists at the University of Wales, Aberystwyth, alongside colleagues at Bangor and Reading universities.

In Aberystwyth, researchers are measuring the amount of methane and nitrogen produced by sheep by housing them in a plastic portable tent.

Project leader Professor Jamie Newbold said new types of feed from plant extracts, and grass with a higher sugar content, were being developed to help solve the problem.

“Initial results show that extracts of garlic compound could reduce the amount of methane produced by the animals by 50%,” he said.

“Garlic directly attacks the organisms in the gut that produce methane.”

He added that tests were also being carried out to see if the garlic gave the animals bad breath and more specifically if it could taint milk or meat.

But he joked that this might be “good for the French market”.

Experts consider cows the biggest single source of methane — a gas 23 times more potent than carbon dioxide when it comes to global warming.

The average dairy cow is capable of producing up to 500 litres of the gas every day, mostly through belching.

Reduce that, claim the experts, and farming could not only be made greener and more efficient, but it could also help Britain achieve its commitments under the Kyoto agreement.

A spokeswoman for the Department for Food, the Environment and Rural Affairs (Defra) said recent research suggested that “substantial methane reductions” could be achieved by changes to animals’ feed.

Prof Newbold explained that cattle and sheep were responsible for about 30% of methane emissions in the UK.

In Wales, they produced nearly double that — which amounts to 5% of Wales’s greenhouse gases.

He said the work commissioned by Defra, worth some £750,000, had unified a number of schemes looking into flatulent animals.

The project also involves Aberystwyth’s Institute of Grassland and Environmental Research and environmental specialists Adas.

Obviously this subject will be the source of much humor. The serious point, though, is that we are fools if we look immediately to self-sacrifice to achieve our environmental goals.

We are a technologically advanced civilization and when confronted with problems we should not think in terms of what we must give up; we should think in terms of how we can use our knowledge and creativity to solve our problems.

Building a green world doesn’t have to mean a retreat into eating only the pittance we grow in our backyards. Done properly the challenge of a cleaner world can usher in a new industrial revolution.

Part of that vision is learning how to grow things in a way that BOTH saves the planet and is more efficient.

Animal feed is as good a place to start as any.

Thanks to Jim for passing this along.

Association President Needed In Southern California

Our industry institutions always require good leadership, so we would like to take a moment to draw everyone’s attention to one of our Pundit advertisers. See that red box flashing along the right side of this page? It is an advertisement for “Executive Employment Opportunity” and “Regional Trade Association Seeks President.” Here are some additional details:

Produce/Floral Trade Association

A Southern California regional trade association, representing the produce and floral industry, is seeking a president who will have responsibilities in leadership and management of the association. Key responsibilities include implementation of operational plan, working in partnership with the board on future direction, building relationships with members and external constituents, budgeting and financial management, administration of headquarters and management of staff, communications oversight including website and magazine, and promoting the interests of the industry to external audiences and related organizations.

Association or business management experience required with effective verbal and written communication and negotiation skills; CAE designation preferred or equivalent; volunteer management experience preferred; knowledge of industry helpful, but not required. Fluency in Spanish a plus. Ability to travel. Salary in low six figures; generous benefit package.

This is an important position to be filled, and it will put some lucky candidate in a place to make a real difference in the industry. And you get to live in sunny Southern California.

Tell you what, the Pundit throws in one free surfing lesson to anyone hired!

You can submit your resume here.

Food Prison

What happens if a society decides to significantly improve the quality and healthfulness of meals served to students at school? It sounds like a nirvana for the produce industry, right?

Well in the UK, this is what happened a few years after celebrity chef Jamie Oliver launched an initiative to improve foodservice in British schools:

School meals are in danger of being scrapped because children are rejecting healthy Jamie Oliver-style menus, caterers warned.

Instead of buying the new lunches made from fresh ingredients, youngsters are relying on cheap takeaways and snack food to get them through the day.

The Local Authority Caterers Association told a conference in Birmingham: “In 2007, the picture is one of considerable concern over the future viability of the school meals service, particularly in secondary schools.”

Oliver’s award-winning TV series three years ago, called Jamie’s School Dinners, exposed the poor quality of the meals and found as little as 56p was spent on ingredients.

As a result, the Government announced a £220 million cash injection over three years followed by a further £240 million until 2011 to improve catering facilities and subsidize the cost of meals.

Schools were ordered to cut down on fried food such as chips and burgers made from reconstituted meat and offer more nutritional alternatives.

But since then some schools have seen a 30 per cent reduction in takings from lunches and vending machines, which have been filled with water, juice and milk instead of pop. Two thirds of local authorities in England report that they are making a loss on school lunches, the LACA said.

In primary schools, the average cost of the food for a meal has gone up from 40p in 2004 to 60p, while in secondary schools it has risen from 56p to 74p.

The switch from ready meals to cooking from scratch has also put up the bill for training and pay, which has been reflected in the price of meals.

An average school lunch now costs £1.64, up by almost 20 per cent from £1.37 in three years.

Sandra Russell, chairman of the association, said pupils had voted with their feet and taken their money elsewhere.

“We cannot expect to reverse an embedded eating culture overnight nor can we convert teenagers to a healthier regime by force,” she said.

“We are in danger of the secondary school meal service fragmenting or dying altogether if we are not careful.”

Last year, mothers in Rotherham staged a rebellion outside Rawmarsh Comprehensive School against the imposition of healthy meals.

Instead of backing the drive for low fat dinners, they offered to collect fish and chips, hamburgers and fizzy drinks for children and were taking up to 60 orders a day.

Chris Wainwright, of the School Food Trust which was set up by the Government to help implement changes to school meals, said: “Our view is that the situation is not as doom and gloom as it sounds, but it is a serious issue and we are not underestimating the challenges at all.

“The difficulty with secondary schools in particular is that pupils can leave the premises and it is difficult to convince teenagers of the benefits of a healthy diet.

“We are working hard with parents to ensure they sign their children up to school meals and fully understand the benefits of healthy meals.”

A spokesman said Oliver was on holiday and unavailable for comment.

The study by the Local Authorities Caterers Association (LACA) also shows that there has been a 20 per cent drop since Jamie’s School Dinners first aired two years ago.

In real life you rarely get the kind of controlled experiments the Pundit likes to see. Here, changes in meals, even though more heavily subsidized by the government, coincided with increased prices, and those who favor the reforms blame the price rises for the drop in demand.

Perhaps. We certainly would have preferred a controlled study. The first rule of which is you only test one variable at a time — not quality and price together — you test either price or quality.

Still, when you take a vending machine that was filled with soda and replace that with water and milk and sales drop by 30%, you have to be a little stubborn to think that this tells us the water is priced too high.

But these “health advocates” are stubborn, they are beyond stubborn, they are a little bit authoritarian. What does this mean:

Chris Wainwright, of the School Food Trust which was set up by the Government to help implement changes to school meals, said: “Our view is that the situation is not as doom and gloom as it sounds, but it is a serious issue and we are not underestimating the challenges at all.

“The difficulty with secondary schools in particular is that pupils can leave the premises and it is difficult to convince teenagers of the benefits of a healthy diet.”

Imagine that! The teenagers in the U.K. have some freedom and they reject what they are being served. If we could only imprison them, then we could make sure they eat properly!

This is the voice of the food police. Arrogant in the certainty that they know what is best for everyone and certain that in a decent society they would be given the power to force everyone to do what they want.

This is not the path to success for the produce industry. All it will do is make certain that the day these children are released from “food prison” and are free to make decisions on their own, they will stay as far from produce as they possibly can.

Here is a shocker: We have to offer products that people — including teenagers — want to buy. If they don’t want to buy our products, we have to make new ones. It is our job to persuade them to buy our products.

That they can go elsewhere is not a problem. It is called capitalism.

Pundit’s Mailbag — Do Consumers Want To Eat Healthy?

Our piece, ‘Nutrition-Education Doesn’t Work’ Says Associated Press Review Of Literature, which was followed up with Pundit’s Mailbag — ‘More Matters’ Can Be A Rallying Cry For The Industry, brought some comments about “health claims,” which we also dealt with in our piece FDA Nixes Health Claim Of Tomatoes Because Of Poor Evidence…Can PBH Step In?

This trenchant letter expressed decided opinions on the matter:

Some very astute observer whose name I can’t recall once claimed, ”Every good cause starts as a movement, degrades into a business and ends up as a racket.” With health claims, we’re there. Is there anyone who doesn’t know that being overweight is bad, that eating fruits and vegetables is good; that smoking is bad, that exercise is good and that unprotected sex is risky?

The only benefit derived from generating and propagating more health claims is money made by those who generate and propagate those claims.

People want to be thin more than they want to be healthy. Most dieters fail not because they lack information, but because they lack willpower. We want it easy and we want it now. Atkins and liposuction and Fen-Phen and dozens of miracle elixirs sold on Sunday morning infomercials are popular not because they have scientific merit but because they promise a quick and easy result.

The challenge of obesity is to change the behavior. The approach must be motivational and not informational. PBH has changed to an emotional appeal from the educational approach. Johnny won’t eat his peas, so we must convince him it’s fun and cool and hip and pleasurable to eat his peas.

So in a few years, after dedicating much time, talent and treasure to create emotional appeal to consume produce, will we be a thinner and healthier nation? Emotion is a fickle motivator and I fear not a sustainable one.

Weight reduction is not quick and easy but requires sustained self discipline. Ultimately self discipline is the behavior trait we must figure out how to trigger to make a dent in the obesity epidemic.

— John Pandol
Vice President Special Projects
Pandol Bros.

It was the longshoreman-philosopher Eric Hoffer who is responsible for the saying John recalls. He also worked as a migrant farm worker and was quite skeptical of the way the intellectual elite fawned over nature, since as a migrant farm worker, he mostly experienced painful interactions with the great outdoors.

The whole issue of marketing by focusing on the healthy aspects of our products, a position as close to a religion as exists in produce, is in fact highly questionable… Partly because many of the health claims are highly questionable, but also because it is not clear that we are delivering what consumers really want.

As John accurately points out, the health information is out there, and that raises this question: Do people really want to eat healthy and exercise — or do they want to eat what they feel like, watch TV and take Lipitor to solve any negative consequences?

Put another way, if we want to sell strawberries, is the most effective method to turn them into some kind of medicine that can prevent ailments or is it to partner with the chocolate, whipped cream and Champagne people and sell them as an indulgence?

Can we do both?

One thing we shouldn’t do is fool ourselves. Consumers are what consumers are, and they react the way they react. If consumers are not responsive to our message, we have to change our message. It is too easy to “blame the customer” for being “too stupid” to respond to our entreaties.

Eric Hoffer wrote a number of longer books, but we have always liked one particular quote that came from a book of shorter entries, entitled The Passionate State of Mind. Try this one on an employee, a co-worker or a child next time they come up with an excuse for why they can’t succeed in life:

“There are many who find a good alibi far more attractive than an achievement. For an achievement does not settle anything permanently. We still have to prove our worth anew each day: we have to prove that we are as good today as we were yesterday. But when we have a valid alibi for not achieving anything we are fixed, so to speak, for life.”

We can always find a million alibis for why our efforts don’t succeed… or we can work harder to find alternative approaches.

We thank John for his useful reminder on these matters.

Pundit’s Mailbag — Fairtrade And Harsh Capitalism

At the request of the United States, the WTO has set up a panel to investigate whether the European Union has violated WTO rules in how it handled an earlier verdict in favor of the U.S. and various Latin American countries related to banana imports.

Simultaneously, we have received a letter from Mr. Richard Yudin of Fyffes Tropical Produce. We previously heard from Mr. Yudin and addressed his letter in a piece entitled, Why Don’t American Retailers Just Standardize On EurepGAP?

Today, however, Mr. Yudin writes us in regard to our piece, Banana Import Policies In Europe Defy Logic And Ultimately Hurt Consumers, in which we argued that it made no sense for Europe to punish former Spanish colonies by favoring former British and French colonies in the banana business:

The other side of the coin is that the assured markets for their produce allowed many thousands of smallholders in the Caribbean islands to enjoy a steady income and remain in their land. No other low-tech fruit crop is harvested all year round and this ensures a weekly income to the growers. The preferential treatment for these economically weak nations kept their rural communities economically viable and socially stable.

The Commonwealth marketing schemes existed since the 1940’s, favouring Belize, Jamaica, and the four Windward Islands. They are by no means new creations that appeared since the advent of the Common Market.

The US actions in support of the banana multinationals based in that country have destroyed the market preference these small countries once enjoyed, leading to migration to the already-inadequate cities, a rise in crime in both urban and rural areas, and economic devastation. Tourism is not the answer, it is focused on a few coastal areas, on a few islands where a jet-worthy airport exists, and the jobs available to local employees are only seasonal.

At a time when the US government is straining to control the import of illegal substances, the demise of the banana industry has led to more drug crops being grown, intended for the US market.

It is sad to hear that international donor bodies are now discussing poverty-alleviation schemes for these island states which once were very pleasant places to live in, thanks to their steady flow of banana income.

— Richard Yudin
Fyffes Tropical Produce
Coral Gables, Florida

This is the other side of the coin and we ought to think about it.

The first problem is that although these were, as Mr. Yudin states, longstanding programs, they never affected important markets such as Germany. It might have been easier to negotiate a transition or even an exemption if these longstanding programs were preserved in their longstanding markets but the rest of Europe traded freely.

The second problem is that every country has its own favored places. Whether due to history, geography or policy, every country has favored suppliers. Whatever the case to be made in favor of St. Lucia and similar places, it is hard in international negotiations to pluck out one industry, select places and say that here, and only here, free trade stops.

The third problem is that the U.K. and Europe are themselves very limited in their commitments to these places. The WTO provides one clear exemption allowing one country favored status over another: A free trade agreement.

All Europe has to do is take a place like St. Lucia, enter into a free trade agreement and all its bananas can enter duty free — regardless of what duties are imposed on other producers. That Europe declines to do so leads one to suspect that Europe only wants to help St. Lucia to the extent in can do so on the back of Colombia and other Latin American countries.

The fourth problem is that, as Mr. Yudin says, these are old preferences, meaning everyone knew about them during several rounds of WTO and earlier GATT talks. These agreements are contentiously negotiated, and if Europe wanted to preserve the right to offer preferences on bananas it surely could have achieved that goal, but it would have had to trade something away. It wasn’t willing to do that.

All this says is that under WTO law, Europe gave up the right — whatever the benefits may be — of providing preferential access to one country over another in the banana industry.

So we hold to the position that, as a matter of law, Europe’s position is simply indefensible. It is the opposite of what the WTO was designed to accomplish.

Now to the substance of his point, we agree with Mr. Yudin — the loss of a traditional industry has enormous consequences. This is true of St. Lucia, downtown Detroit and countless old mill towns in the U.K.

In this case drugs, emigration, violence, urbanization, etc., are all real consequences.

Yet the solution can scarcely be to freeze in place and to maintain industries that are no longer competitive.

We know Europeans sometimes see this as “harsh capitalism”; we would just say it is reality. If we subsidize non-competitive industries, we will get poorer and poorer and the producers will never get richer as they, in effect, will live their lives as our charity cases.

What to do? We can help some. And we should do what we can. But, for the most part, the help we can provide is to open our markets.

In the end, these countries and these people have to find ways to help themselves. We say that without animosity. We wish these people only the best. But if their traditional industry is not competitive, they have to find a way to make it competitive or find something else to do.

In a world where outsourcing is common, there are opportunities. Perhaps in subsidizing old out-of-date ways of making a living, we keep blinders on people and they don’t find new ways that could lead them to greater prosperity.

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