Commentary: Oh, Mr. Andreas. Time Is Just About Up

This was not the legacy that Dwayne O. Andreas likely imagined 25 years ago, when he became chairman of Archer Daniels Midland Co. and began building it into a $13.3 billion agribusiness giant. On Oct. 15, in a Chicago federal courtroom, Controller Stephen R. Mills stood before Judge Ruben Castillo to enter guilty pleas on behalf of ADM: It agreed to pay $100 million for fixing the price of two commodities--the largest such penalty ever. Growled Castillo: "This is not a good day for Corporate America."

Other difficulties loom for ADM. As part of its deal, company executives agreed to cooperate in the investigation of two senior executives, including Andreas' son and onetime heir apparent, Vice-Chairman Michael D. Andreas. Its key businesses, moreover, are grappling with overcapacity and wildly fluctuating prices. The obvious question now: Should Dwayne Andreas, 78, still be in charge?

MORE TO COME. As a corporate-governance case, however, ADM is odd. At companies such as IBM and Westinghouse, activist shareholders ousted CEOs largely for a single transgression--languishing share prices. ADM's stock price was sluggish, too, at least until the settlement gave it a pop. But few investors are calling for Andreas' head. "Dwayne is the company," says Sarah Teslik, executive director of the Council of Institutional Investors, which represents large shareholders. Investors fear that chopping Andreas now might worsen the turmoil at a time when a succession crisis looms. Michael Andreas and Terrance S. Wilson, head of the big corn-processing unit, who also is a target of the feds, are expected to exit. And many outsiders expect President James R. Randall, 71, to retire soon.

But Andreas shouldn't be allowed to remain CEO indefinitely. ADM needs a formal succession plan that investors can evaluate, including a timetable for his departure. A more thorough board overhaul is also needed. Andreas has fostered a regime built on strong rule, political connections, and, until recently, a board dominated by family and friends. That system paved the way for the price-fixing scandal: ADM, for instance, only recently adopted a formal, written ethics policy. Key shareholders and at least two outgoing directors are right when they say the board must quickly develop a new management team that can begin to open up ADM's clubby culture.

The board, newly reconstituted and shrunk from 17 to 12 under shareholder pressure, was scheduled to be seated on Oct. 17 at the ADM annual meeting--but further changes are needed. By the Council of Institutional Investors' definition of independent directors (no family or business ties), ADM has improved a bit from a year ago: Four of 12 board members are independent, up from just two of 17. But state pension funds from California and Florida are rightly demanding a majority of independent directors.

It's far from certain the crusty Andreas will go that far without major shareholder pressure. He recently authorized inclusion in a preliminary proxy of a note disputing the usefulness of outside directors--and only retracted it in the face of outraged investors. And the day of the plea agreement, in a conference call with analysts, Andreas bristled at suggestions that ADM might take a softer approach in setting prices.

Other ADM insiders show signs of similar recalcitrance. In early October, several institutional investors met with G. Allen Andreas Jr., Dwayne's nephew and an ADM vice-president, and new board member Mollie Hale Carter. The outcome wasn't encouraging. One participant says ADM officials still feel they need a preponderance of agribusiness execs on the board and have not embraced truly independent outsiders. "We're talking a different language, as if men are from Mars and women from Venus," complains Kayla Gillan, general counsel of the California Public Employees' Retirement System. "There is something terribly wrong with the company and the way it's managed."

What ADM really needs is a strong outside CEO. Andreas should understand that: He was originally brought in by the Archer and Daniels families to buck up the company. Shareholders may be right that the change should not happen until ADM can regain its equilibrium, but it should happen soon. Surely, Andreas would rather be remembered as someone who helped chart ADM's new path than the custodian of a company Justice Dept. official Joel I. Klein blasts as a place where "greed replaced any sense of corporate decency and integrity."

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