Risk Averse: How Dwayne Andreas Rules Archer-Daniels By Hedging His Bets
Oct. 27, 1995
When Archer-Daniels-Midland Co. Chairman Shreve Archer died after choking on a chicken bone in 1947, Dwayne O. Andreas was a 29-year-old vice president at a rival firm.
For the next 18 years, Mr. Andreas _ the energetic, diminutive son of a Mennonite farmer _ built a name for himself in the grain industry and became a millionaire in the process. Archer-Daniels, though, never quite recovered from the loss of its leader. By 1965, with the company floundering, the founding families were ready to sell a sizable stake to Mr. Andreas, make him a director and groom him for the top job.
Assisted once by happenstance, Mr. Andreas has spent the rest of his career leaving as little as possible to chance.
Now 77 years old, the chairman and chief executive officer runs the giant publicly traded grain-processing company much like a private family concern. Secrecy is so tight that ADM doesn't even release quarterly revenues. Mr. Andreas once proudly told analysts, ``Getting information from me is like frisking a seal.''
Although he personally owns less than 1 percent of the company's stock, Mr. Andreas has gained near-total control with the help of family members, loyal executives and directors whose combined stake is nearly 15 percent. Over the years, he has moved aggressively to neutralize any obstacles to his dominance _ from government officials and the media to his own board of directors, business competitors and even the markets themselves.
Mr. Andreas's own industry has a word that describes many of his activities: hedging. This is a highly developed skill in the grain business, where companies are forever at the mercy of events outside their control. One day it may be the weather in Kansas or China, the next day politics in Russia. Grain companies try to lock in prices by playing both sides of the market; they buy and sell futures contracts to offset grain deals.
Mr. Andreas, though, takes hedging into daring new directions. He collaborates with his biggest competitors, spends prodigiously to influence the media and public opinion and spreads large sums among politicians of all stripes. He is, says Ellen Miller of the Center for Responsive Politics, ``the ultimate pragmatic giver.''
Now his myriad safeguards against risk are being put to their greatest test, as federal antitrust regulators look into possible price fixing involving three ADM products and as some institutional shareholders protest his close lock on the company's board. But if there was ever any thought that the tenacious, 5-foot-4-inch chairman might loosen his grip, it was squelched at the annual shareholder meeting last week.
Presiding with undiminished vitality, Mr. Andreas sidestepped the issue of the antitrust probe and let a subordinate brand the company's chief accuser a crook. At one point, he summarily cut off a critic by turning off his microphone: ``I'm chairman. I'll make the rules as I go along,'' Mr. Andreas said.
Despite the rough tactics, it is hard to bet against a man so widely identified with an organization's superb performance. After 25 years with Mr. Andreas at the helm, ADM is now the nation's biggest farm-commodity processor, with $12.7 billion in annual revenue. Each day, the company turns 11 million bushels of grain into enough flour to bake 57 million loaves of bread and enough corn syrup to sweeten 200 million soft drinks. ADM also makes pasta, raises fish, gins cotton, crushes oil seeds and grows hydroponic vegetables.
Including stock dividends, Archer-Daniels's stock value has climbed at an average annual rate of 17 percent over the past decade _ outpacing the stock markets' annual return of roughly 15 percent, as measured by the Wilshire 5000 Equity Index. ADM earnings soared 64 percent during the fiscal year ended June 30, to a record $795.9 million.
Notwithstanding criticism that the board is dominated by Mr. Andreas's family and friends, Wall Street sees no possibility of a serious battle for corporate control _ and thus analysts don't even bother to assign Archer-Daniels a breakup value. Noting the company's market capitalization of $8.7 billion, one banker says, ``There's nobody really obvious in the world who would buy them.''
Though Mr. Andreas spends much of his time at corporate headquarters in Decatur, Ill., his extraordinary methods are often most visible in Washington. There, Archer-Daniels is a major beneficiary of federal price supports for sugar. By making sugar artificially expensive, this program has rendered ADM's alternative sweetener _ high-fructose corn syrup _ an economical buy for giant customers like Coca-Cola Co. The program helps fructose generate roughly 40 percent of ADM's earnings, one analyst estimates.
Archer-Daniels also is richly rewarded by the 54-cent-a-gallon excise-tax break on ethanol; the company is the dominant producer of this corn-based fuel additive. Without the tax exemption to create demand, says NatWest Securities Corp. analyst David Nelson, ``the ethanol industry wouldn't exist.''
How does Mr. Andreas help preserve these twin towers of legislative largess, one administration after another? In a word, hedging.
ADM leads corporate America when it comes to contributing to both political parties. Since 1991, the company has given more than $800,000 to the Democratic Party and more than $1.5 million to the GOP. Fred Wertheimer, an advocate of campaign-finance revisions, calls Mr. Andreas ``the Forrest Gump of the political-influence money game. Every time you turn around he pops up.''