It was a stunning moment when Dwayne O. Andreas, chairman of Archer Daniels Midland Co., stood before the annual meeting on Oct. 17 and apologized to shareholders for the scandal that has embroiled the company. Only two days earlier, ADM had pleaded guilty to two criminal counts of price-fixing, agreeing to pay a $100 million fine and to help the government build a case against two executives, one of them Andreas' only son and heir apparent, Michael D. "Mick" Andreas.
A mea culpa from Dwayne Andreas, an executive accustomed to running his company like a fief? Dwayne Andreas, who at 1995's annual meeting had shouted down restive shareholders and insisted the meeting would run by "my rules"? The very idea shows how the world is changing for the 78-year-old soybean king. And as Andreas' influence wanes, so does a corporate culture profoundly shaped by his personality.
BITTER. Both Andreas and ADM have thrived on the freedom to make their own rules with little outside scrutiny. But the secrecy that doing business in remote Decatur, Ill., affords has been cracked. And the scandal has spurred action beyond what most observers expected from the insular company. A committee of directors drawn from a board long criticized for its unwavering support of Andreas has proved surprisingly willing to impose new governance standards. At the same time, another committee put aside personal loyalty to Andreas, and concern for his son, to cooperate with the government.
The deal means that ADM managers--Dwayne Andreas perhaps included--could end up providing evidence against Michael Andreas and Terrance S. Wilson, who have been told they are likely to face criminal charges. Andreas' plans to create a dynasty, nurtured since the 1970s, have been derailed. After the annual meeting, Director Brian Mulroney revealed that Mick, 47, had taken a "temporary administrative leave" and Wilson, a 59-year-old vice-president, had retired. ADM refuses to say whether it is still paying Mick's $1.3 million salary.
Outwardly, the tough son of Mennonite farmers is showing his trademark resilience. Hours after the Oct. 17 meeting, at dinner in his home overlooking Lake Decatur, Andreas was "in a very up mood," buoyed by the standing ovation with which shareholders had greeted his apology, recalls John R. Block, a former Agriculture Secretary and new board member. They were joined by Democratic power broker and fellow board member Robert S. Strauss, one of Andreas' closest friends.
Before the meeting, Strauss says, he advised the CEO, who rarely minces words, that everything he was going to say "ought to be written down." Andreas complied, and he betrayed no emotion, even as he told shareholders: "It has been a difficult time for my family and me." In fact, the investigation and settlement have been a "terrible ordeal," says Strauss. "While he's pretty self-contained, I'm sure he's had many a sleepless night." Indeed, one source says that in recent months Andreas has taken to calling friends at all hours to talk.
Strauss and other longtime friends say Andreas feels angry and betrayed. He's especially bitter that the government had ADM executive-turned-mole Mark Whitacre tape hundreds of hours of executive-office conversations. In August, 1995, soon after Whitacre's role was revealed, ADM fired him, alleging he had embezzled $9 million while collecting price-fixing evidence against it, a charge Whitacre denies. While Andreas declined to speak with BUSINESS WEEK for this story, citing "pending legal proceedings," he did fax the magazine three legal documents to support the company's charges against Whitacre.
Andreas' pique extends to the press--he has accused reporters of printing "fairy tales" about him and ADM--and he is said to believe that activist shareholders obsessed with board independence haven't a clue about the demands of running an agribusiness conglomerate. But seeing Mick's future in jeopardy is the worst part, says Sister Jeanne O'Laughlin, president of Miami's Barry University, a longtime recipient of Andreas family largesse. "To hurt the son is to wound the father," says O'Laughlin. "He's in some pain."
Before the investigation, ADM was best known for its record of steady expansion under Andreas, chairman and CEO since 1970. Brought in as a troubleshooter in 1966, he pushed the company into international markets, relentlessly focused on wringing out costs, and created oodles of new products from corn and soybeans. Under Andreas, sales rocketed from $320 million to $13.3 billion, while ADM's market value soared from $78 million to $11.8 billion.
Even as Andreas cultivated political friends from Mikhail Gorbachev to Bob Dole, outsiders could never penetrate the company's veil. ADM disclosed only minimal information to investors, arguing that it couldn't afford to be more open than privately held competitors such as Cargill. Board membership was kept largely among family and friends. As ADM barged into new markets, rivals and regulators accused it of everything from fixing prices to stealing technology. Dwayne took it in stride, and the board followed suit. "He pushed things awfully close to the edge, but it was absolutely legal," says a former senior insider. "The fact that he spent his whole life running yellow lights didn't bother us."
WINNING RESPECT. No one doubted that Mick would succeed his father. But the elder Andreas didn't make things easy for him. Dwayne was a difficult taskmaster who demanded that Mick, who joined ADM in the early 1970s, learn agribusiness from the topsoil up. By the early 1980s, Mick was winning respect within the company for his skilled handling of complex trading operations at the Chicago Board of Trade. He later oversaw much of management, sales, and trading, working side by side with President James R. Randall. Even as he climbed to vice-chairman in 1985, however, he remained all but unknown to investors. But board members were comfortable with his pending ascension.
All that went awry in the summer of 1995, when the news broke that Whitacre had been an FBI informant for the previous three years. By July, the board established an eight-member committee, with separate counsel, to handle talks with the government. Since press reports indicated that Whitacre was implicating Mick, the group was instructed not to discuss its negotiations with other directors or management. By January, the group began settling a raft of civil suits that have so far cost ADM $90 million. But the group thought the government's criminal case, dependent as it was on Whitacre, might be weak. Sources say the committee considered fighting the charges until August, when three foreign companies that conspired with ADM pleaded guilty.
Committee members were well aware of the elder Andreas' concern about how their actions would affect the fate of his son. In fact, sources say that several members' worries about Mick and Wilson led to delays in cutting a deal. The committee resolved, however, to negotiate only on behalf of shareholders. In the end, the key stumbling block was the size of ADM's fine. The government's initial proposal--$120 million--sent committee members into "sticker shock," say several sources. When the two sides settled on $100 million, investors--relieved that the uncertainty was over--sent ADM stock up to a record 22.
PRESSURE. Yet shareholder activists remain frustrated. True, ADM followed through on a January, 1996, report by the new governance committee, reducing its board from 17 to 12 and cutting insider representation. But efforts to build goodwill were undermined when Andreas sent shareholders a letter questioning the value of independent directors. At the annual meeting, shareholders signaled that changes haven't gone far enough, mustering a surprisingly strong 42% vote for a stricter definition of outside director. On Nov. 13, Andreas, after years of ignoring activists, will meet with the California Public Employees' Retirement System.
Now, an uncertain succession looms, and an executive revamp announced on Oct. 31 does nothing to resolve it, directors say. To share some of his duties, Andreas has created an "office of the chief executive" consisting of Randall; Charles T. Bayless, head of the processing division; and G. Allen Andreas Jr., a 53-year-old vice-president and Dwayne's nephew. But those moves merely fill the gaps left by Mick's absence. ADM could still turn to an outsider or acquire another agribusiness company with management talent.
How long will Andreas remain at the helm? Directors say ADM needs him to stay on--perhaps for a few years--to ensure a smooth transition. But even if his epochal career hasn't yet drawn to a close, the world as Dwayne Andreas has known it will never be the same.