Cargill history becomes revealing, dynamic guide

by World Grain Staff
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CARGILL: FROM COMMODITIES TO CUSTOMERS
By Wayne G Broehl, Jr.
Illustrated. 370 pages
Dartmouth College Press, University Press of New England, $40

In this, the third volume of Professor Broehl’s masterful telling of the history and development of this singular global business, recounting history gives way to revelation about the decisions and the strategies that made Cargill the hugely successful business it is today. Assuming that everyone in the global grain and grain-based food business is aware of these accomplishments, it may be stated without hesitation that this last book of the Cargill trilogy offers fascinating and illuminating insights that make the book a must-read for anyone wishing to gain understanding of what by any measure is one of the greatest business-building stories of the 19th, 20th and 21st centuries.

Putting aside his formidable skills as a thorough historian, which is underscored in his writing about the first 110 years of the company in the first two volumes, Professor Broehl in this book presents a story of cultural commitment and change as well as strategic transformation. The reader is prompted, as if living the actual experiences, to listen to the internal deliberations and debating that fired such huge business changes. No holds are barred, no disputes are swept under the cover, no disagreements are neglected, in telling how Cargill reacted to and then adopted to fundamental shifts in how it could best do business in the late 20th century. Tough battles, both within the company and within the two families — the Cargills and MacMillans — who own the business are spelled out in intriguing detail. Any reader involved in a family-owned enterprise, which are still very important in the global grain and grain-based food industry, will find amazing, yet also real, the disputes and the acrimony that somehow culminated in creating and establishing the presentday business. It was not always easy, but the company’s culture — something that appears to mean more at Cargill than in almost any other large company — and its strategies shifted to fit momentous global developments.

Nothing is more instructive than the way Cargill changed from a business managed by family members and owned solely by the family to one that is now partly employee-owned and with a board of directors comprised of family members, non-family executives and independent outside directors. The internal discussions and arguments that led to this form of management, which is probably unique to Cargill, are among the most fascinating insights offered by Professor Broehl.

The first four chief executives of Cargill dominated in the two earlier books. They are the founder, William Wallace Cargill, who led the company from its start in 1865 to 1909, followed by his son-in-law, John MacMillan, from 1910 to 1936, John MacMillan, Jr., from 1936 to 1960, and Erwin Kelm, from 1960 to 1977.

The return of a family member as chief executive, with Whitney MacMillan as chief executive officer (CEO) from 1977 to 1995, provides the focal point of this third volume. MacMillan, as the determined leader and principal player who brought Cargill to its current stellar position on the global stage, is credited with guiding the company through a period of dramatic growth, diversification and globalization. How he worked with management colleagues and family members in reacting to complex issues of corporate governance, including a board that eventually gained genuine independence, make a major part of the Broehl story.

An example of how Cargill followed a path different from its traditional competitors in grain trading and grain processing is the decision to enter into beef and later pork processing. Professor Broehl notes that this entry became a significant point of differentiation, requiring the company to develop new skills in managing labor-intensive disassembly businesses and also bringing a different cyclicality. "And it pushed Cargill into closer contact with a new world of customers, including supermarket chains and the restaurant trade," he notes.

Another significant step taken under MacMillan’s guidance was bringing C.K. Prahalad, then a University of Michigan professor and a highly regarded management theorist, into a consulting role at Cargill. Professor Prahalad’s focus was to urge corporations to think of themselves as a set of skills, rather than a group of businesses.

It was agreed that Cargill’s competencies were in risk management, distribution, transportation and commodity trading. It also was agreed that "more were needed, particularly marketing skills and the ability to identify and manage the nuances of new environmental threats arising on all the agendas of American corporations."

This approach prompted MacMillan to warn against insularity, which he defined as "the trap of being so locked into diverse lines of business and different geographies that we lose our ability to leverage our resources and expertise to their full potential."

In looking at the most recent focus on customers, which accounts in part for this third volume’s title, Professor Broehl stresses Cargill’s emphasis on Strategic Intent. Based on the "three pillars" of high performance, innovation and customer focus, Strategic Intent gained high priority when the board of directors became concerned about an earnings decline that occurred in the late 1990s, just as Ernest Micek took over as CEO to succeed MacMillan. As a result, Strategic Intent became the dominant theme for management, replacing the search for core competencies. Warren Staley, who followed Micek, shifted from management-centered practices to the emphasis on customer needs, actively formed in response to the wants of customers who had to deal with increasingly dynamic markets. This shift was facilitated by a strong leadership team removed from daily business operations and dedicated to building trust with one another as well as with customers. The realized goal of this team effort was to change the mindset within the company from being a commodity trader to being a value-added provider of solutions desired by customers. Under Staley, there was no question that he intended to change the company in a pronounced manner, performing the amazing feat of moving the entire organization in this new direction.

So far as overall direction is concerned, the company under MacMillan outgrew the informal governance processes of the past generations. This was pushed along by a new generation of owners who wanted to assert a role. The result was what the book describes as "new arrangements that more crisply and clearly defined the roles of owners, directors and managers."

Broehl’s assessment of how the board of directors has been reworked is reflected in his description of "competing but sympathetic and mutually related interests." Management directors speak for their stewardship and strategies for growth. Independent directors press for higher and more predictable returns. Family owner directors speak for diversifying risk and building long-term wealth. One result, he notes, is the rising dividend payout, from 10% of earnings in the early 1990s to 20% currently. Calling this still an impressive reinvestment commitment, the author reminds, "It also is a necessary one for preserving growth with private ownership."

Yet, Professor Broehl observes that while corporate governance has changed, the company’s operating philosophy has largely been "preserved, nurtured and enforced informally for many years." Trust, integrity and excellence are the cores that Whitney MacMillan made clear as being much greater and much stronger than a trader’s "our word is our bond." He capped this by underscoring a basic belief as essential to the company, "We will be the best."

Professor Broehl, who taught business management and history at Dartmouth, began writing his three-volume history in 1990. He obviously had open access to the company’s archives. He died in 2006 before completing this third volume. Rob Johnson, a long-time member of the company’s staff, accepted the assignment of finishing the "virtually complete" manuscript, an arrangement happily endorsed by Professor Broehl just prior to his death.

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