Why did the choice of CEO matter so much? This is the key question to help us understand why the merger talks between PMA and United collapsed over the CEO issue. Understanding this issue may also provide a key as to whether the industry ought to proceed with a merger.
On the surface, the current position of the boards, both of them, is exceedingly odd. The position is that both boards came to agree that a single unified national trade association was desirable for the industry, yet the talks collapsed because the two could not agree on a staffing issue: Who should be CEO?
Yet this makes no sense. There are successful executives on the boards of both PMA and United, some of the best served on the joint task force and still other top people served on the special committee charged with evaluating the two CEOs, Bryan Silbermann and Tom Stenzel. Sure, there is institutional and personal loyalty, but it is impossible to believe that these top notch professionals simply lost all sense and abandoned something they thought would be really important for the industry over a personnel matter.
These are executives who know how to fire people — they know how to sit down with a friend and say it just isn’t going to happen, but we have prepared a nice severance package to ease the pain.
Tom and Bryan are both perceived to have successfully run trade associations and, certainly, there are lots of other people who have a good track record at running associations. So, why was it so incredibly important to people to have “their guy” run the new association?
The answer, quite clearly, points to a problematic issue regarding the merger agreement. It is an issue so problematic that it ought to make the industry pause for a moment and reconsider whether it makes sense to merge at all.
The core motivation for a merger is simple. United is perceived as the organization with the core responsibility for lobbying on behalf of the production agriculture base of the produce industry in Washington, DC. This is an expensive task with few opportunities to sell sponsorships, etc.
On the other hand, PMA’s core focus is networking. This includes opportunities to sell lots of booths, sponsorships, ads, etc., as it involves mixing buyers with sellers. The example par excellence of this focus is Fresh Summit, which produces loads of money for the association.
So the industry puts most of its revenues in one association, PMA, while it puts most of its expenses in another association, United.
The merger is an attempt to reorganize the industry’s affairs to avoid this quirk.
The reason the impetus for merger has always come from United and its board, not PMA or its board, is that advocacy is expensive and divisive, so if another association can handle this, it probably helps PMA to stay out of it.
Of course, this is not entirely true. PMA has many members that are not members of United, and those members, in surveys at least, indicate they want PMA to represent them in government. Thus PMA’s gingerly moves in recent years into the advocacy arena.
In any case, the key point for many grower-shippers is to increase revenue for important programs that they believe in. One shipper explained its case this way:
We do have issue as a company. We are longtime members of both organizations, but utilize the services of one more than the other. We believe strongly in combining these two organizations, but also strongly support the very important work that United does for our industry every day on advocacy, influencing public policy to secure the most cost-effective legislative and regulatory business climate, leadership development, education and training, and food safety services, just to mention a few.
We support a new organization with emphasis focused on these very important issues and don’t feel that just because PMA is bigger that they are better. PMA does a great job at their trade shows, but that should not be the defining factor in selecting their model or their CEO.
This articulate critique of the issue from an important grower-shipper is fascinating because the merger agreement that was reached does not, in fact, guarantee that the new association would be “focused on these very important issues” at all!
The agreement creates four “cornerstones” — Global Networking, Advocacy, Business Solutions and Marketing/ Consumption — none binding in any way and none prioritized over another, and, quite possibly, the new board and CEO could decide to focus on global networking as the priority. Although there was a pro forma budget worked out, and it did provide some increased funding for advocacy, it was not binding on any future board or CEO.
This is very different from some approaches that had been considered in previous efforts. The Pundit had been retained to run a strategic planning process for United 20 years ago. We did retreats and surveys and all kinds of work. One option considered was withdrawing United from all marketing activities and, in exchange, PMA would pay United a set fee to be used to enhance advocacy in government. The deal never happened, but the point was that United would maintain control of its agenda and a mechanism could be established to guarantee increased funding for government relations efforts in the future.
Under the recent effort, there is no guarantee of anything — nothing that says, for example, 30% of association revenue will go to government relations. There is no declaration that the single most important function of the association is XXX. Yes, the initial board was split 50-50 between United and PMA but that is just a one-time event. In trade associations, the board is the boss but the CEO lasts decades and gets a new boss every year, so the CEOs have great influence.
Put another way, the “constitution” of this new association doesn’t really define what the association will be. As such, leadership is crucial.
If Bryan becomes the CEO, it is not irrational to think that the association would be PMA with a U put in front of the name and an expanded Washington, DC presence.
If Tom becomes the CEO, it is not irrational to think that it would be United with a lot more money and a new governance structure.
And because of the power of precedent and the nature of a self-perpetuating board working under the influence of a CEO, how this first CEO approaches the task is likely to define the nature of the association for many years to come.
In other words, the task force was anxious to find a way to make the idea of one association work. The way it succeeded was by accepting both association’s objectives as “cornerstones,” but these cornerstones are sometimes contradictory. For example, the more the new association focuses on domestic political advocacy, the less relevant the association will be to non-US produce companies.
There is nothing in the agreement that indicates if times are tough which area or programs should be cut.
There is no fundamental decision made such as that the primary purpose of the association is to advocate for grower/shippers in Washington, DC, and so the only voting members of the association should be grower/shippers; others should be non-voting ancillary members or customer members.
This all raises the stakes for the CEO.
It reminds us of the way the battle over seats on the Supreme Court has been transformed over the years. For many years, the assumption was that justices were interpreters of the law. So one looked for good lawyers and fair men. Though certainly many justices were nominated for political reasons, the evaluation of the justices was not particularly ideological. Then justices began to be seen as “legislating from the bench” or making substantive decisions, not struggling to interpret the text of the law or constitution. This meant that the political leanings and personal opinions of justices mattered a great deal, so the stakes were raised and we have the current hysteria around every Supreme Court nominee.
Equally, the fact that the deal for the new association did not make any clear decisions as to what was most important, what was least important, etc., the fact that the deal did not provide dedicated funding for any specific priorities, etc… all this has made the new association a kind of tabula rasa against which everyone can project their dreams and/or nightmares.
In this environment, the CEO selection is not just a matter of competency but a matter of ideology. That is why nobody would bend.
Of course, the question this all raises for the industry is whether the new association is actually worth having. Doubtless, the task force did what it had to do to get the deal done, but if it achieved unity only by skirting the issues rather than resolving them, is the new association likely to be a success or is it to be a scene for endless battles?
For those who are looking for more background on the issue, we have previously run four 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.
July 21 pundits, dealt with four important industry letters addressing the merger issue.
A Modest Proposal For Reviving The Merger Of PMA And United laid out a practical way a business decision can be reached when the parties are at an impasse, with a specific proposal for how to choose a CEO.
For those wanting more background, we have been writing about the subject for many years.