Commentary: Archer Daniels' Cleanup: Don't Stop Now

Only at Archer Daniels Midland Co. could a corporate-governance revolution occur in the chairman's basement. On Jan. 14, ADM directors filed down the steps at Dwayne O. Andreas' Decatur (Ill.) home to discuss Agenda Item No.1: whether to enact sweeping changes that could turn the insider-dominated group into a model of independent oversight. At the next day's regularly scheduled board meeting, the group O.K.'d the plan without dissent.

If the board actually puts into practice what it has approved on paper, ADM could catapult from a company regularly shellacked by investor activists to one of exemplary corporate openness. At the very least, a half-dozen of ADM's 17 directors will likely step down by October's annual meeting, paving the way for more outsiders.

FBI MOLE. ADM's board upheaval stems from investor concern that its cloistered leaders fostered a culture of hubris that may have encouraged executives to stray into illegal activities. Until last summer's news of a federal investigation into alleged price-fixing of three important ADM products, corporate-governance issues were as unwelcome at the agribusiness giant as corn blight. After a former executive admitted to being an FBI mole, restless shareholders loudly proclaimed their dissatisfaction with a board controlled by Andreas family members, former executives, and relatives of senior management. Often, misguided strategies prompt shareholder revolts. "Something usually triggers it," says Ray A. Goldberg, a Harvard business school professor and ADM director who co-chaired the board committee that wrote the company's governance report. "Unfortunately, for this company, it was an antitrust investigation."

The document, produced after three months of study, addresses most key shareholder concerns. During the process, the committee held discussions with such influential activists as Sarah Teslik, executive director of the Council of Institutional Investors, a body representing big pension funds.

Among the main recommendations in the report:

-- The board should be cut to as few as nine members, the majority being outsiders.

-- Management should be limited to three seats, down from five.

-- Committees should be entirely composed of outsiders, except for the executive committee.

-- Outside directors should step down at age 70.

A new nominating committee headed by an outsider--for now, Democratic Party heavyweight Robert S. Strauss--could break the Andreas family's lock on many key executive positions. Since Andreas is turning 78, the board needs to establish a succession plan--and they might logically extend their search beyond the present heir apparent, Dwayne's son, Vice-Chairman Michael D. Andreas.

For true reform to take place, Archer Daniels must really dig in and clear out. Even former Chairman John H. Daniels, 74, favors paring the board by the maximum recommended. Daniels plans to step down, as do Goldberg and Happy Rockefeller. Other directors who may be heading for the boardroom exits: former ADM executives Lowell W. Andreas (Dwayne's brother) and Ralph Bruce, and investor Shreve M. Archer Jr. (father of ADM treasurer Charles P. Archer).

Once the board has been revamped, it should reward long-suffering shareholders. The company should boost its dividend from the present measly 1.1% and extend its recent share-buyback initiative. With nearly $1 billion of free cash, ADM can well afford to spread the wealth among its investors without limiting the company's financial flexibility.

The company should also resolve several open-ended issues. It needs to adopt a rigid definition of outside directors, taking a hard line on any personal or business connections that could even give the appearance of conflicts. Strauss, for instance, whose Washington law firm does business with Archer Daniels, should not be allowed to pass himself off as an "independent" director.

ENDLESS REIGN. Plus, ADM needs to establish a strong "lead" director as a counterweight to Andreas and to help attract a diverse new set of directors to face stepped-up global competition. Says ex-Chairman Daniels: "We're no longer just a little flour-milling company." For now, forget about splitting the CEO and chairman posts, another suggestion the directors include in the report. The company could never attract a strong chief executive to serve under the strong-willed Andreas--who shows no sign of retiring as chairman.

Archer Daniels Midland should be commended for its latest move. But it still has to convince investors that it is finally playing by the rules that govern most of Corporate America rather than the Andreas rules that have prevailed for years.

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