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A Different Kind of Andreas at ADM

When Dwayne O. Andreas, the chairman who turned Archer Daniels Midland Co. (ADM) into one of the world's most powerful corporations, retired in 1999 at age 80, he gave his successor a modest present. The new chairman was G. Allen Andreas, his 55-year-old nephew, an unassuming bean counter and lawyer who had taken over as chief executive two years earlier. The gift was a small pillow. On one side were the words: "Some days it's great to be king"; on the other it said: "Some days it's not so great."

For Allen Andreas, it mostly hasn't been so great. He was appointed to a position he wasn't groomed for at a time no one would have chosen to take the helm. The giant agribusiness company had just pleaded guilty to price-fixing and paid a $100 million fine to the U.S. government. The man who was expected to be CEO, Dwayne's son Michael Andreas, was awaiting sentencing for his participation in the scheme. Today, the scandal still lingers; ADM faces many civil lawsuits. But even more pressing are the slumping demand, oversupply, and low prices for ADM's main commodities, soybeans and corn products. Says Andreas with typical understatement: "Problems are what make life interesting and make you motivated to build on the successes of prior people."

Besides his pedigree and 24 years at the company, Andreas offered ADM much needed integrity, says Robert S. Strauss, the former head of the Democratic National Committee and an ADM director. Andreas does seem to have opened up the company. Major decisions are no longer made by only the top three executives, as they were in Dwayne and Michael's day. And he has set up ADM's first department of corporate compliance and regulatory affairs.

HEALTH PLAN. Andreas is also trying to get ADM into businesses that don't have as frequent or as dramatic price shifts as commodities do. He is committed to developing new health and nutritional products, ranging from veggie burgers to natural vitamin E. Trouble is, a company ADM's size would have to sell an awful lot of veggie burgers to feel any real impact. ADM hopes that in five years, these products could bring in 25% of profits; right now, they account for less than 10%.

While Andreas was focusing on rehabilitation, ADM's core business deteriorated sharply. Sales in the bulk commodity-processing business, which accounts for 70% of the company's $20 billion annual revenues, have dropped in each of the past six years. The Bush Administration's decision to continue backing ethanol fuel additives will help; in fact, growing demand for ethanol is one reason analysts project that ADM's net income will rise 22% in the year ending June 30, to about $367 million. ADM's increasing ability to squeeze more money out of soybean processing is another. But profits are still way down from $795 million in 1995. And the company's shares are trading near $13, compared with a high of a split-adjusted $21 in September, 1997.

Andreas has promised to boost ADM's return on shareholders' equity from 5% to its historic high of 12%. Analysts say that's too ambitious, since the bulk of ADM's profits are still tied to a depressed farm economy. Andreas has taken only "baby steps" to improve ADM's growth prospects, says John M. McMillin, a food-industry analyst at Prudential Securities Inc. "Whether it's his fault or not, Andreas hasn't yet moved the needle," he says.

In addition, Andreas has something of an image problem of his own. When he was promoted to CEO from vice-president and counsel to the executive committee, some stockholders weren't thrilled to see another Andreas in charge. "I thought it was classic nepotism," says Timothy E. McKinney, a New Hampshire investor whose family owns tens of thousands of shares.

POLITICALLY LOW KEY. For others, though, the problem is that Allen isn't enough of an Andreas--that is, he does not have the political clout or the forceful personality of his uncle. Dwayne, who was granted immunity from prosecution in the price-fixing case, was so well-connected that he helped broker a meeting between Ronald Reagan and Mikhail Gorbachev in 1985. Throughout that decade and into the 1990s, Dwayne was one of Washington's biggest political contributors, giving money to both Democrats and Republicans in the hope that they would defend government price supports for ADM products such as high-fructose corn syrup and ethanol. ADM and its executives are still regular contributors--they gave some $935,000 during the last election cycle. But Allen doesn't cultivate relationships the way his uncle did. "I have friends in Washington, but I meet with them only occasionally," he says.

Allen is the anti-Andreas. Even when he was the company's treasurer and chief financial officer in Europe, he went about his work quietly. He is still uneasy promoting himself, and certainly more comfortable talking to small groups than large. In Decatur, Ill., a company town if there ever was one, Andreas can walk around unrecognized. He grew up not too far away, in rural Iowa, and was educated at Christian schools. His father was president of the local bank; Allen worked as a teller on weekends and during the summers. The way his mother tells it, Allen was a scrawny kid who the high school football players used to carry to class on their shoulders.

Today, he's as disciplined as his uncle was flamboyant. When in the office, seldom does he vary his lunch of an ADM veggie burger and a salad. And when he and his wife, Toni, go boating with friends, Andreas sticks to his dress code. "Casual to Al is a nice, crisply ironed pair of khakis with a sports shirt and a blue blazer," says attorney A. James Shafter. Even family friends say Allen doesn't quite measure up to his uncle. "The truth of the matter is, you don't replace a Dwayne Andreas, who was the icon of the industry for years and years and years," says Strauss.

Dwayne remains involved with ADM. He is chairman emeritus, but more important, he is ADM's largest single shareholder. Dwayne owns 4.2% of the company stock; the family owns about 8% altogether. Allen remains loyal to the clan and deeply respectful of his uncle. "I speak with him frequently and have lunch with him almost every day when I'm in the office," he says. Allen also occasionally calls to see how his cousin Michael is faring in a Duluth (Minn.) federal prison, where he is serving a three-year sentence that should end in May, 2002.

Every Andreas at ADM has had to contend with the vagaries of the commodities business. ADM lost at least a third of its export business in the Soviet Union after the empire disintegrated in the early 1990s. As luck would have it, Allen took over just as the agricultural economy took a turn for the worse in 1997. ADM was caught unprepared and distracted. It had opened several new grain-processing plants in North America to handle orders from the Asia-Pacific region just as markets there collapsed. Now, analysts expect much of ADM's earnings growth over the next five years to come from the region.

On top of that, repercussions from the price-fixing scandal continue. One class action, brought by food-and-beverage makers involving the fixing of prices of corn syrup in the 1980s and '90s, is set to go to trial in September. "To manage all that and take over the reins of a company is a remarkable thing," says Ray A. Goldberg, a professor at Harvard Business School and an ex-ADM board member.

But as Andreas is well aware, investors still want the returns they had in the good old days. His answer is patience. While that's an admirable quality if you're watching corn grow, it may not be what investors want to hear from the CEO. By Julie Forster in Decatur, Ill.

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