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

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.




An Unusual Perspective — Leader Who Has Served On Both United And PMA Boards Offers Insights On Merger Failure: HARD TO BELIEVE IT REALLY CAME DOWN TO CEO

This letter, in response to 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, came from a member of a rarified fraternity — those people who have served on the Board of Directors of both United and PMA:

I think many of the elements of your commentary were spot on. I would, however, like to offer some additional thoughts as I've watched this unfold.

I think the real issue at hand is whether or not PMA wanted this to happen in the first place. As you've heard me say months ago, I have never been of the opinion that the PMA Board, and in particular, the Executive Committee (which included Bryan), had any interest at all in a "merger".

I think you correctly pointed out that in PMA's view, this was being approached as an "acquisition."

If that were indeed the motivation, then your logic pattern of having the larger association's CEO run the new organization follows that. (I might point out that it is not totally uncommon for the CEO of the smaller company to take on the role of CEO in a merger with a larger company. It's not the SIZE that makes the difference; it's who is best suited to lead a new organization.)

I would also point out that the recommendation that United suggested was EXACTLY what PMA did when Bob Carey retired. As you recall, Bryan was the Exec VP and "second in command" to Bob. Yet Bryan was not "Guaranteed" the role. He went through a vetting process with a search committee.

While history tells us that Bryan was the best person for the job, those in a leadership role of PMA at the time were very wise in doing this. They recognized that passions in the produce industry run high, and that there were many members of PMA who thought Bryan was too "aloof," too " intellectual," and "didn't drink enough" to suit them!

But Bryan turned out to be the right person for what the association was to become, not what it was. And by going though a vetting process, the membership did not look at Bryan as being "coronated," but rather the outcome of a thoughtful, objective process.

With regards to the current situation, it was not the role of the PMA members on the merger task force to protect the "interests" of PMA. That's the Board's job. It's the Board that would ratify a new proposal for a new association. Clearly, the task force members would know the "deal breakers," and work to resolve them. But let's not forget that the task force was charged with looking OBJECTIVELY to the possibility of a single, national trade association. In fact, a 3rd party was retained (at no small expense) to help maintain objectivity. And yet here is the "spin" that the industry is supposed to swallow:

Allegedly, ALL OF THE ISSUES that supported the creation of a single national trade association had been agreed to. Let that seep in for a moment. Here was assembled the current leadership of both trade associations, supposedly the most capable people our industry has to offer, AGREE that a single trade association was both proper, should and COULD take place, and yet, this falls apart because one group had to have their "boy" or they were taking their balls and bats and going home?!? And allegedly, this was a deal buster 18 months ago?!?

That's a tough pill for ANY objective observer to swallow. In fact, it's a total travesty of the entire process.

Now in saying that, I'm not at all suggesting that Bryan would not be, in fact, a fine CEO of the new association. I'm not saying Tom wouldn't be either. Both have tremendous skills and experience that could help lead a new association to meet its goals. But for me, the key word in that is "GOALS". Supposedly, this new association was not a greater manifestation of either PMA or United Fresh, but a hybrid of both.

So while Bryan is EXACTLY the right leader for PMA currently, and Tom is EXACTLY the right leader for United Fresh, either or both may NOT be the BEST candidate to lead a new association. And without a vetting process, the industry will never know. Personally, I can think of at least 3 other people within the industry who would have the "chops" to lead a new association as well as many more outside of the industry who could qualify. And if, in fact, the selection of the new CEO was to be done prior to the conclusion of a merger, then this vetting process could have begun last summer.

So it's my view that there needs to be ".....some 'splanin’ done Lucy...."

This joint industry task force was NOT charged with naming a new CEO. It was charged with examining the possibility to create a single national trade association. And significant money and time was spent to do this. And as I understand it, this group determined that yes, it was both possible and desirable to have a single national trade issue. But to trash all of that effort and simple say, "yeah.... it's the right thing to do, but we can't agree on the CEO...." misses the entire reason this effort took place. And rather than "spin doctor" this, the leadership needs to detail the reasons WHY this isn't happening. And if the ONLY reason is the pre-determination of the CEO, then I, for one, feel embarrassed for the leadership of the group involved. 

So while I think you point out some very good “lessons learned" about the process, I think the real issue has not been addressed: There are many who believe that a single, national trade association is in the best interests of the industry. There was a group selected to examine that. Are we left to accept that the selection of the CEO is the ONLY reason this is not going to happen?

We followed up this letter by asking our correspondent to define what the issue is and received this response:

I think the heart of the issue is whether or not a single national trade association is desirable. To me, that is THE single issue. You have spoken to this issue before. Or said another way, what is it that you want accomplished and how do you want to pay for it?

* Does a single national trade association accomplish a set of desired goals?

* Does the current national structure accomplish that?

* Does it satisfy the needs of its membership both now and in the future?

I have yet to see the answers to those questions. This much I DO KNOW: What served the industry in 1980, 1990, 2000 is not reflective of the industry in 2012. And it WON'T be what serves this industry in 2020!

We inquired as to why we couldn’t simply let capitalism determine which associations exist and which do not.

Excellent question. I would answer it this way: Do we, as an industry, address this "strategically" or in a "Darwinian" fashion? Said another way, do we "create" our future or "react" to it?

Jim, you are the finest "thinker" I have ever met. Don't soft-peddle this.

This is a most thoughtful letter from a most engaged industry participant. He raises four important questions that explain a great deal:

1)  Did PMA want a merger to happen? In other words, was this just an acquisition to them and did they even want that to happen?

This is really the nub of the issue, and we think the answer is unambiguous. PMA saw no strategic purpose, for PMA as an association, to merge with or acquire United.

PMA has a successful business model, so was not looking to acquire one. It saw no likelihood of significant increase in membership should United disappear. There is no distinct sector of the industry that PMA would enter as a result of acquiring or merging with United. It didn’t seem that Fresh Summit would get larger. There are no foreign countries where United has a big membership base where PMA is not represented. United does not have large cash reserves for PMA to get its hands on. And United has no large surplus cash flows that would enable PMA to fulfill its mission better.

Areas where United is focused, say government lobbying, are contentious and expensive and not even obviously a focus for a global trade association. So “acquiring” this function seems unlikely to have been a big win.

So there was no strategic impetus for either a merger or an acquisition. And doubtless this, in the end, explains one reason why PMA didn’t make additional compromises on the CEO issue.

PMA’s board saw no real upside for PMA as an organization to do this and, of course, the downside was substantial. Nobody could be certain that the successful business model that PMA possesses would have survived the merger — maybe all those retailers and foodservice operators that have defined PMA would find the new association boring and not be as engaged. We can’t know.

So with substantial downside risk and no association upside, the directors of PMA were not highly motivated to make this happen.

Still, out of a desire to serve the greater industry — and not just the interests of PMA as an association — and to be responsive to those members who saw a big upside to one association, PMA went through the process. It is fair to say that every compromise was perceived by many on PMA’s board as for naught. If there is no upside in a deal, why compromise to get a deal? Still a lot of compromises were made.

To our way of thinking, the more interesting question is why United wouldn’t bend on this issue? For United, there were lots of strategic reasons to want to combine with PMA, most notably this would be a marriage where PMA brought a big dowry. United, even more so after severance was accounted for, brought much, much less to the table.

And, after all, the new board of directors would have had total authority to fire Bryan at any time if he was such a terrible choice and didn’t work out — so the merger would cost a little more in additional severance. Big deal.

As our correspondent implies, if the deal really fell apart over the CEO issue, that would speak poorly as to the leadership. In reality, it is clear that PMA’s board did not see an upside sufficient to take a risk on an unknown person as CEO, and United’s board did not see the upside as so substantial that it was worth swallowing its pride on the issue of the CEO.

It makes one think that the many people who see great value in there being only one trade association are not the kind of association partisans who volunteer for board service on specific associations.

2)  Should there be a vetting process as there was when Bryan was selected to succeed Bob Carey as Chief Executive of PMA?

There is no argument that there should not be a coronation and we don’t think anyone at PMA actually argued this. The agreement made at the start of the process was not that Bryan should be CEO; it is that a CEO would be identified in the merger agreement. There was a search committee set up and both Tom and Bryan had to submit to many interviews.

Despite the committee being charged with finding the CEO whose expertise best met the four key components the new association was supposed to express, and despite committee members pledging to be objective, in the end — and we would say quite predictably – all the United members on the committee said that Tom was best and all the PMA members voted for Bryan.

So there was a vetting process. The interesting question is why the leadership allowed it to be set up this way — where a stalemate was possible.

We would argue that the committee’s choice should not have been limited to Tom and Bryan. It should have been able to look at anyone. Very possibly, the best solution would have been to start fresh. You can try to retain Bryan and Tom as consultants, but it is not insane to think a new association should have new leadership.

What is insane is setting up a committee with an even number of people. You want to get a decision made, so you have to set up a process that will result in a decision. We can discuss who should be added to the committee, after PMA and United board people, in our piece the other day, we suggested adding a university professor with expertise in trade association management.

But there are a lot of other alternatives. One could add Ed McLaughlin from Cornell. He has worked with and done projects for both PMA and United for decades. This Pundit could be on the committee; we’ve known both Bryan and Tom for decades, worked with both on many issues, know their strengths and weaknesses. Put two people from the United board, two people from the PMA board, Ed and the Pundit and have Ed and the Pundit choose a neutral chairman who doesn’t know any of us, such as a trade association management expert or a consultant from McKinsey, and the seven of us would come to a conclusion.

In fact, the dynamic of adding people to the committee without vested interests would probably have led some of the PMA and United board members to abandon the party line.

The vetting process was set up in a way where it was highly predictable it would fail. This tells us that neither side saw the kind of upside to a deal whereby it wanted to make sure that a decision was reached.

Another key issue is timing. By law, no board could pass a binding resolution to hire a new CEO until it was constituted. The whole vetting process Bryan underwent years ago happened while Bob Carey was firmly in control at PMA. To set up this new association and then undergo a process is quite risky — maybe the board will reject all the candidates and want to start over. What assures that the new board will come to a decision? If we were going to do a business partnership, and we were going to put millions of dollars into it, we wouldn’t think ourselves crazy if we said our participation was contingent on finding a satisfactory CEO.

3)  With all the issues settled except the CEO, how could the deal be allowed to fail?

We see four answers:

A)  There are a lot of objections to doing a deal that no agreement can overcome. For example, one PMA board member has for a year-and-a-half been telling us he is opposed to the whole thing because he thinks a merger will be highly disruptive and distracting to the important work he believes PMA is doing.

B)  The compromises may have been sufficient to get a handshake, but they didn’t really resolve the fundamental issues. For example, there is a group that clearly believes a majority of the board of directors should be from the buying community because they believe that a buyer-driven community will both most likely help the industry because it will drive solutions through the supply chain and because the buyer presence will make the association successful because the buyer presence will attract attendees and members.

There is another contingent that says the association should be driven by production agriculture and its core purpose is to help fruit and vegetable producers. You can sit down to create board allocations and if everyone wants a deal, you can make a deal – but you are just papering over this kind of fundamental difference.

C)  The upside wasn’t there. All these compromises can produce an agreement, but if the whole process isn’t driven by a conviction that achieving the deal has a big upside, then compromise after compromise adds up, and people start to wonder what is the point of the compromise? They start to look for reasons to walk away.

D)  The leadership is the key question. In choosing between Bryan and Tom, few people were choosing between total strangers. There is history… maybe someone wanted to advance in one association or another and felt the CEO held them back, so fled to the other association. That can be dangerous in trying to get an agreement.

If a headhunter brought in two totally new CEO candidates, they would surely have human flaws, but nobody on the board would know them. There would be less emotion. This particular letter-writer has served on both the PMA and United boards, so he has seen both Bryan and Tom up close and personal — few board members have that experience.

What if you are a PMA board member and — correctly or incorrectly — do not believe Tom Stenzel could run the new association? What if you believe his skill set is great for a Washington DC-based lobbying group, but would be a total failure for a global trade association? How do you justify turning over millions of dollars to achieve an abstractly beneficial goal — one trade association — when you think the concrete result will be blowing up of the business model and losing the money?

We should emphasize that we are not saying any of these things about Tom. He has, we believe, done a terrific job with United. We didn’t interview him to see what his plans for the combined association would be, so we don’t know — but he might well have done a great job running it. The question is how should a board member vote who thought differently? Is it incoherent to say that, with the proper leadership, we can make this work? With the wrong leadership, it could be a disaster. We are not prepared to say that.

4)  What do we, as an industry want to accomplish with a single trade association, and how will we pay for it?

 It is embarrassing if the leadership made the decision to form one association and then allowed the CEO issue to interfere.

We would agree with asking the above question as a rational approach to the issue, but we are reminded of something Ronald Reagan used to do that annoyed us: He loved to quote Thomas Paine, saying, “We have it in our power to begin the world over again.” It is a beautiful thought, but not true, and certainly not much of a conservative idea. There is something enormously arrogant about thinking we are smart enough to whip out a clean sheet of paper and wipe out everything previous generations have built and start anew.

We have spoken to a fair percentage of the players, and we are not convinced that there was a strong consensus that one association would provide an enormous upside for the industry. And it is that consensus that typically provides the surplus that enables us to smooth over the differences.

So if all the board members really thought that our government-relations efforts would become so much more effective with one association, that regulatory costs for the industry would drop by a hundred million dollars a year, then it is no big deal to pension off both Bryan and Tom and bring in some unifying neutral party — and, in fact, that is what would have happened if such a consensus existed. But it doesn’t.

In fact, we could do it right now. The suggestion we made about two people from PMA, two people from United, Ed McLaughlin, the Pundit and an independent professor or consultant from, say, Harvard or McKinsey chosen by Ed and the Pundit … we could have that set up in two days and we would have a decision in 30 days max.

Is there a consensus that the upside of getting a deal is sufficient to warrant trying to revive the deal? We have our doubts.

***

Our letter-writer was very flattering and asked us not to soft-pedal our analysis. So here it goes: If the boards of both associations strongly believe that there is a substantial upside to the industry in having one national trade association, and if, in fact, all the prerequisites of that have been fully agreed to and the only obstacle is who should be the CEO, then it would be an enormous failure of leadership to allow that one issue to block a merger.

But actions speak louder than words. Forget PMA for a moment as we agree with our letter-writer that PMA’s interest has always been tepid — yet PMA came to an agreement. United could have had its merger exactly in accordance with that agreement, by either acquiescing to Bryan as the first CEO or by offering an acceptable methodology for selecting a CEO right now.

That United chose to walk rather than accept Bryan or come up with an acceptable alternative tells us that even on the United side, the motivation was not all that strong. If the Gates Foundation had studied the produce industry and offered a hundred million dollars in order to incent both associations to merge for greater efficiency, the boards would have merged. They would have selected Bryan or Tom or someone else. They would have seen the upside and gotten past any concerns.

The real problem here is that not enough people see the upsides as substantial enough to compromise enough to actually get there.

Many thanks to our letter-writer for sharing his insights.




Pundit’s Mailbag — Putting Leadership First: Consider The Example Of The Ohio Florist’s Association

David Sasuga, Founder of Fresh Origins, has been a frequent contributor to the Pundit, weighing in on important industry issues. We’ve featured his input in pieces such as the following:

Pundit’s Mailbag — As ‘Spiked’ Organic Fertilizer Investigation Widens, Potential Grows For Weaker Consumer Confidence In All Fresh Produce

‘Spiked’ Organic Fertilizer Raises Consumer Doubts About Organic Definition

Pundit’s Mailbag — Organic Industry’s ‘Situational’ Standard

Pundit’s Mailbag — As ‘Spiked’ Organic Fertilizer Investigation Widen, Potential Grows For Weaker Consumer Confidence In All Fresh Produce

Well, it turns out that in a prior life, David was in the floriculture business, and he sent us a note with an example of how an effort similar to what we were doing in produce has been done more successfully in the floral industry:

Thank you for the outstanding "rest of the story" regarding the failed merger! I enjoyed your piece, The United/PMA Fiasco: THE SPIN IS JUST HALF THE STORY -- Lessons Learned: Open Up To Industry Input And Focus On Big Things FirstI thought I might share an interesting parallel: 

The OFA — referring to Ohio Florist's Association

Despite its name, it has become the preeminent trade association for the floriculture industry.  Floriculture is a fancy term for decorative plants, both indoor and outdoor.  They are quite successful even in light of a very depressed industry and put together a fantastic trade show/conference each July in Ohio. 

 I used to be in the floriculture business many years ago.

—David Sasuga
Founder
Fresh Origins
San Marcos, California

David then sent along an article from a newsletter known as Green Profit, published by our friends at Ball Publishing:

OFA + ANLA = New Organization

This past week at the OFA Short Course, the association’s board of directors voted to begin the process of organizing a new association with the American Nursery and Landscape Association (ANLA). The two organizations announced back in January they were entering a joint venture, and, to put it in relationship terms, if the “dating” period went well, they would consider getting married. This week’s message could be considered a wedding announcement. And quite honestly, the industry was expecting wedding bells to ring since they started holding hands.

That’s where the wedding analogy ends. To be clear, OFA and ANLA
are not merging. They are formally exploring the creation of a NEW trade association that will bring more value to both memberships and the industry as a whole, combining the best of the best that they do—business education and government relations. The boards hope to have this new association in place by July 2013, and by no later than January 2014. And keep this in mind: This new association will replace both ANLA and OFA.

Retirement and a New Chief
Remaining on the OFA and ANLA front … ANLA’s executive vice president Bob Dolibois will be retiring at the end of this year (we’ll miss you, Bob!). And as the OFA and ANLA joint venture progresses and becomes a new organization, OFA’s CEO Michael Geary will assume chief executive duties for both associations beginning January 1 of next year. They’ll continue to operate separately until the new association is created, and Michael seems nimble enough to keep the whole shebang going smoothly.

The “new chief” in my headline doesn’t refer to Michael’s new gig, but to Dr. Charlie Hall. The good doctor has been appointed OFA’s chief economist. Charlie knows the economics of this industry inside and out, and chief economist he’ll work with OFA to “provide vision, leadership, analysis and technical competence.” Welcome aboard, Charlie!

If you want to stay atop the developments, you can read all about it at www.OneVoiceOneIndustry.com (that URL about says it, huh?).

We thank David very much for sending this along. It shows a completely different approach to creating a new organization, one in which leadership is not an afterthought but, instead, a vital part of the process. The website OneVoiceOneIndustry.com offers many useful parallels and contrasts with what the produce industry just went through. We thought this section of the Q & A made a strong point:

Q: I heard ANLA and OFA are talking about a future merger. What will the dues and leadership structure be?

A: The devil is in the details. The most important detail was the question of whether working together made sense. Both organizations' leaderships have answered "yes." When it's the right thing to do, you figure out how to get it done. If the two organizations decide to move beyond their current "joint venture" agreement into an even closer relationship, the details will take hard work, but it's easier when you are committed to the outcome.

That last line —“it’s easier when you are committed to the outcome” — says a lot. In this case, one association focuses on product grown outside, while the other focuses on product grown under glass. They sell through the same stores for the most part. So the parties seem to have found a strategic reason for uniting, just as PMA or United could consider combining with a frozen food or juice association to increase its scale.

The problem in the produce industry is that the strategic purpose of this proposed merger is still not clear. The upside is still not well defined and, as a result, people are not committed to the outcome and thus allow the effort to collapse.

Many thanks to David Sasuga for sharing an alternative approach.




Pundit’s Mailbag — Power Lies In The Pocket Book

Eric Schwartz is a frequent Pundit contributor and has shared many letters and done many interviews over the years. You can see some of the issues on which he has spoken out right here:

Pundit’s Pulse Of The Industry: Dole Vegetables’ Eric Schwartz

Pundit’s Mailbag — How About Subsidy Money For GTIN Conversion?

Pundit’s Mailbag — Dole’s Schwartz Comments On Silent Buyers

Pundit’s Mailbag — More Questions About Leafy Greens Board

Pundit’s Mailbag — The Deadline Approaches

Pundit’s Mailbag — Organic Industry’s ‘Situational’ Standard

Single Step Award Winner — Eric Schwartz Of Dole Vegetables

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, led him to make a point:

You hit the nail on the head. The power to change lies within the “pocket books” of the membership more so than the boards. As long as companies financially support two organizations, there will always be two. The day they decide with their wallets for one over the other, it will be so.

Both are great associations, but no matter which organization comes out on top, the expertise of the surviving board in either case will find a way to fill the void that the former association left behind. This shouldn’t be about winners and losers, but what offers the best value proposition in a struggling economy.

—Eric Schwartz
President and Chief Executive Officer

Patterson Vegetable Company  
Patterson, California

Without a doubt, there is a kind of oddity in the whole discussion over a PMA/United merger. One large company representative was pointing out to us the other day that he exhibits at the two national trade shows and that he finds one “worthless.” He spends several hundred thousand dollars at each show.

He points out what a waste this is, as much of the money doesn’t even go to the associations but goes to airlines, limo services, fancy restaurants, etc.

He used this expenditure to argue for a merger.

We, of course, asked him why he didn’t stop exhibiting if that was unprofitable for his company? After all, even if he wanted to support the associations, he could probably give a donation of 10% of what he is spending and the associations would come out ahead.

There were lots of specifics: his company probably wouldn’t allow him to just make such donations; he was allowed to spend money on marketing, not donations. Exhibiting was important to certain customers who were involved with the associations, and they didn’t want to offend them. Also his presence attracted other exhibitors to the convention, so the loss to the association was more than just the financial contribution. Likewise, his competitors were still exhibiting and he didn’t want to be conspicuous by his absence.

Of course, we pointed out that these “reasons” for not wanting to exhibit were actually explanations of why exhibiting was profitable – by exhibiting he secured the loyalty and support of key customers and prevented competitors from securing a competitive edge. Exhibiting was not, in fact, “worthless” but, instead, sufficiently profitable to induce him to do it.

Of course, if he could somehow get a law passed banning a second national show, then he would not have to worry bout alienating customers or being conspicuous by his absence.

There is a large flavor of that in all this discussion over merger -- a notion that what some of the big boys want is not so much to see the industry gain great synergy by having only one national trade association as to be saved the pain of having to make difficult decisions on their own

We experienced all this 27 years ago when we were launching Pundit sister publication PRODUCE BUSINESS. The small and medium size companies were quick to support us. The largest companies were cordial but delayed decision. At the time we thought it bureaucracy, but over the years we’ve come to see it was strategy. These large companies have large market positions, so a lot of their marketing is defensive – designed to maintain that market position. Smaller and medium size companies tend to market aggressively to increase market penetration.

What this means is that the larger players might be content with a world where all marketing was banned – as this would save them money while also making it almost impossible for new companies to build market position and thus threaten the incumbent’s market share.

So, although theoretically the proper response to not getting value from a trade show is to simply stop exhibiting, if that show is substantial and credible, big companies find the need to defend their turf by being there. But they don’t see any real upside to exhibiting; it is all defense, so they would just as well have the event not exist.

So the long and short is that these companies are attempting through the merger process to achieve a market situation that would be more optimal for them.

It is not clear, however, that this is even possible.

As we mentioned in our piece analyzing the breakdown in the merger talks, the final plan called for maintaining two shows for at least four years! Whether this would continue is unclear, but four years is a long time and, anyway, it seems unlikely that the combined association would abandon a profitable second event.

Beyond that, if there is a profitable event to be run, one suspects that someone else – a regional association or a private company, would go ahead and fill the market gap.

Indeed, one wonders if the one-association situation being so magnificently negotiated is sustainable at all. One thing we are clearly learning from this experience is that a lot of people don’t prefer one or another of the CEOs of the associations. This isn’t, of course, because of their particular attributes; it is because they are human beings and will get along well with some and not well with others.

The implication of this reality is that when people don’t get along or are unhappy with one association – for policy or personal reasons – they may decide to devote their energy and intellect to something other than the industry – which is a loss for us all – or they may decide to set up a new association.

We saw this happen for policy reasons with both the National Association of Perishable Agricultural Receivers and the International Fresh Cut Produce Association.

In our piece analyzing the pros and cons of a merger, PMA And United: To Merge Or Not To Merge? That Is The Question,we mentioned the case of Karen Caplan, Vice President/Secretary at Frieda’s, Inc. We pointed out that she had been on the PMA board, had hoped to rise through the ranks to become chairman and was thwarted. As a result, she took her formidable personality and skill set and walked over to United where she ultimately became the first female chairman of either of the big two national associations -- Lorri Koster, co-chairperson at Mann Packing, was the first female chairman of a national produce trade association when she chaired IFPA.

If there hadn’t been United… if there was no pressure valve to let people who weren’t favored at PMA – for policy or personal reasons – to still go and contribute to the industry, what would Karen Caplan have done?

Maybe she would have poured her energy into non-produce ventures – a loss for the trade or, maybe, just maybe, she would have worked to form a new trade association.

This seems like an awful lot of work to achieve a status – one national trade association – that may very well not last very long.

Many thanks to Eric Schwartz of Patterson Vegetable Company for sharing his insight with the industry

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