World Grain book review
April 01, 1998
by Teresa Acklin
New book traces 1960-1977 history of one of the world's largest grain companies.
By Morton I. Sosland, Editor-in-Chief
In this second volume of his history of Cargill, Inc., Wayne G. Broehl, Jr. brings the impressive story of the largest company in the grain-based food business to near the present day. He provides new insights into how the group became global, while focusing on the absolute importance of integrity in everything it does. Professional management, being an “innovative and aggressive competitor,” and massive capital spending to maintain what is by most measures a heady rate of growth are also important parts of the company's history.
The newly-published book covers the 17 years from 1960 through 1977 when Erwin E. Kelm, as the first non-owning family chief executive officer, led the company. Mr. Broehl underscores the company's fundamental underpinnings as a “grain trader,” with all the privacy and secrecy ascribed to that business, while also noting that management “had deliberately, self-consciously moved the company to a more multinational, more varied, more publicly attuned business corporation.”
In the first volume of this history, “Cargill: Trading the World's Grain,” published in 1992, Mr. Broehl told a story centering primarily on the company's founding in 1865 by W.W. Cargill and its subsequent leadership by Mr. Cargill's son, Austen, and then by two MacMillans, John and John Jr., along with the latter's brother, Cargill MacMillan. It was the sudden death of that amazing grain leader, John MacMillan Jr., in 1960 that ended the first volume and provided the start for the second when Mr. Kelm is elected c.e.o.
Mr. Broehl is a highly regarded business historian and biographer. He is Benjamin Ames Kimball professor of the science of administration emeritus in the Amos Tuck School of Business Administration at Dartmouth College. As with the first volume, Cargill provided funding to Dartmouth to cover Mr. Broehl's regular salary, but he had “full scholarly independence,” a condition that is evident in the frankness in approaching the company's mistakes as well as its successes.
It is quite easy, though, to distinguish the first volume, which is a history dependent largely on company records and a very few firsthand personal reminiscences, and the second volume that relates the activities of many people who are still living. Yet, the first volume is more appealing to the casual reader for its stories of the building of such a massive enterprise from such humble and often contentious beginnings.
Indeed, the first volume is given life by the availability of archives, correspondence and notes and memoranda going back 100 or more years. Mr. Broehl also was able to bring historical imagination to bear on events that occurred in the 19th and very early 20th century, whereas in the second volume, covering a much more recent period, the approach is much more factual and the memories of participants in many of these events has had to be accepted at face value.
In some ways, the enjoyment of this second volume in Cargill's history is diminished by the absence of correspondence, which in turn resulted from a company edict directing personnel not to retain papers any longer than absolutely necessary. Even though there was unlimited access to archives, the result is a history where the prime sources appear to be, from an internal point of view, such unrevealing records as annual reports to shareholders, and from an external perspective, newspapers and trade magazines commenting on the company's activities, as well as government documents relating to various matters where the company has been concerned from a regulatory or legislative point of view. Other than minutes of board meetings, there's little in the way of internal documentation of some of these highly exciting and exceptionally important times in Cargill's history.
As with the earlier volume, the availability of annual reports means that the financial results of the company in each year are recounted, in both the text as well as in an interesting table. Much is made of the company's gradual move toward disclosing its results.
Mr. Kelm emerges in the Broehl history as an introverted man with an “inarticulate, gruff and uncommunicative” style of management. Yet, he was held in great admiration and even awe by company executives.
Fostering the “Cargill culture,” which at times was characterized by excessive hubris, he led in codifying what is important to Cargill's operations, often setting out specific goals having to do with profits and investments. For instance, he declared that “we must foresee becoming as competitive as the best in the field.” He acknowledged that “we are no longer solely agriculture-oriented and will seek opportunities outside of our traditional businesses so long as certain requirements are met.” He devoted great attention to reinvigorating the company's training program, which had its birth under the guidance of Julius Hendel.
In a closing tribute to Mr. Kelm, the book quotes an executive of the company as calling him the “Leonardo da Vinci” of Cargill, in that “he exuded confidence and was a visionary.”
The latter is particularly evident, Mr. Broehl says, in how Cargill was well prepared to move record quantities of grain for export at the time of the former Soviet Union purchases. He credits Mr. Kelm with making sure that every investment in grain movement in the United States also recognized the potential for expanding global demand.
If there's any complaint to be made about this second volume it is that too much attention is given to incidents involving Cargill and various parts of the U.S. government and too little to very important and long-running business initiatives. The matters with government, while obviously important at the time to the company, mainly provide minimally interesting lessons in how a company dedicated to privacy best responds under such circumstances.
To focus on these matters means, it would appear, neglect for events that appear in the long run to be much more important. High among these is how the decision was made to enter flour milling in 1972, which was quite late in the company's history. Decisions like that hardly occupy more than a sentence or two. The same goes for something like entering and growing in maize refining.
In contrast, entire chapters are devoted to the problems Cargill and the grain industry had in responding to the huge grain sales abroad in the wake of the F.S.U.'s buying in the early 1970s. The emphasis in recounting what is called the “grain scandal” is on how Cargill avoided problems in grading or weighing, in contrast with other companies.
Much of this, of course, relates to the massive grain buying by the F.S.U. in the 1970s and its tremendous impact on the company, on the grain industry and on the American economy. Mr. Broehl goes into complete detail concerning Cargill's negotiations with the Soviet buying authorities, giving an hour-by-hour and day-by-day accounting of these transactions that still reverberate throughout the world of grain. He gives these transactions credit for revitalizing Cargill's grain business, contrasting this with the situation in the late 1960s when some executives wanted the company to get out of the grain business and Mr. Kelm, in typically direct and forthright fashion, dismissed this suggestion by declaring, “You don't kill your grandmother.”
It was the escalation of company profits prompted by the Soviet Union purchases, accompanied by a very modest, even minimal, dividend policy, that fired the company's major expansion and diversification. Plowing profits back into the business had been a precept from the first profitable years, and it was continued even as Mr. Kelm headed the company and young members of the Cargill and MacMillan families were lower-level staff members.
Putting the soaring profits “to good use” became the preoccupation of management, especially when the board of directors recognized that “there should be no dabbling in small ventures.” M.D. (Pete) McVay, then executive vice-president, was especially vocal in warning that small projects dissipate energies, while large projects “can provide true critical mass.”
The result was the rapid expansion into fields like flour milling and maize refining, commercial feedlots, cotton trading, as well as financial services. Similarly, steps were taken to enter into metals trading as well as into steel manufacture. One of the “mistakes” recounted in the history was the move by Tradax, the Geneva-based affiliate, to enter into the hotel business by building and managing a Holiday Inn in Ghent, Belgium, a project later abandoned.
Yet, even long before this period, Mr. Kelm and his president, Fred Seed, observed in the 1969 annual report that Cargill up to then had primarily been concerned with bulk commodities, but that a “subtle change” was under way toward the food business. “There are almost unlimited opportunities for us to build new businesses and margins in the exciting field of food as we bring our products closer to the dining table,” they wrote.
Mr. Broehl acknowledges the tension that arose periodically between the management at Tradax in Geneva and the Minneapolis headquarters, leading early in Mr. Kelm's leadership to his deciding that the company's global growth should mainly be along functional rather than geographic lines. “Organization will be product oriented,” he wrote in 1966, adding that Tradax will have responsibility for foreign trading. In the latter, the book notes the feelings in Minneapolis that Tradax trading, often taking positions in contrast with the conservative thrust at headquarters, sometimes created friction in what was fast becoming a truly multinational company.
Mr. Broehl, in summarizing the company's growth and investing in this period, relates that in the years between 1965-66 and 1971-72, Cargill's capital spending averaged U.S.$32.9 million per year; in the period from 1972-73 through 1976-77, the annual average was U.S.$150.4 million. He is correct in observing that these outlays were “stupefying to the industry.”
He emphasizes how the investments went into “new, often very different activities,” repeating a trenchant warning by Mr. McVay to the effect, “We have the capacity to destroy ourselves if we put all the money earned back into the businesses that produced it. Businesses are cyclical and expansion in good years would generate plants far beyond the economic need.”
One of the most interesting points in Mr. Broehl's new book is recounting the relationship between the Cargill and MacMillan families, as the owners of the business, and Mr. Kelm and his professional management. Five family members were in the company when Mr. Kelm took over, and they had all agreed, in the wake of John MacMillan Jr.'s death in 1960, on the absolute importance of “best management to the top.”
Even at this early stage, they argued against family members being elected to the board of directors before they had proved their capabilities. “That served notice on the world,” Mr. Broehl writes, “that these top positions were not preempted for family occupancy; that the family was not going to allow itself to take positions in the hierarchy for which it was not fully trained.”
The author gives considerable attention to delineating what makes for the highly regarded “Cargill culture.” He ranks as the number one value one that might surprise contemporary observers of the current company that Cargill is a grain trading company, with emphasis on trading as an important attribute.
As a “second bedrock value,” he puts integrity, which he says has been a mark of distinction for the company all through the years. Other values include a high degree of self-confidence that Mr. Broehl says can breed “an overweening hubris.” Another value is the continued high degree of secrecy about the business, even though in the Kelm years the company became relatively more open. Another piece of the culture, he writes, is the assumption that everyone in the company is doing their very best.
The book ends with Whitney MacMillan, son of Cargill MacMillan, taking over from Mr. Kelm as c.e.o. at the end of 1977, thus restoring to family direction the company in its fifth generation. Mr. Broehl hints that additional volumes on Cargill's history will be forthcoming. The first two volumes certainly heighten the appetite of all those, both within and outside this great enterprise, to learn in such amazing details the issues and the decisions that led to its present eminence.
Cargill: Going Global, by Wayne G. Broehl Jr., University Press of New England at Dartmouth College, Hanover, N.H., 435 pages; 85 illus., U.S.$26.00 Cloth. To order this book, please contact the University Press of New England, Order Department, 23 South Main Street, Hanover, New Hampshire 03755-2048, U.S. Toll-free in North America: 1-800-421-1561. Tel: 603-643-7110. Fax: 603-643-1540. Ordering information and forms also are available on the World Wide Web at http://www.dartmouth.edu/acad-inst/upne/indivorders.html.