Don and John Tyson sat at one end of the table, side by side. The meeting began after the men passed around a memo that laid out the day’s agenda. Jackson acted as the dutiful secretary for the meetings, taking notes on everything that was said.
Don Tyson typically drove the discussion. He liked to talk about the events of the week before. He asked each manager to go over any mistakes or obstacles they’d come across so they could chart a better course for the week ahead. Some of the matters were mundane. Each man would give an update on his division, so everyone knew what was going on throughout the company.
Although the topics changed from week to week, Don Tyson consistently hammered one point home: The company needed to grow. In a business with tiny profit margins, Don Tyson thought the only way they could prosper was to get bigger, and to do it as fast as possible.
— I don’t want to be the biggest or the best. I want to be the best of the biggest, he told his managers.
Wray noticed that Don Tyson was usually the voice of expansion. He wanted to push and push. He wanted more and he wanted it now. If a banker was willing to loan the company money, Don wanted to take them up on it. But John Tyson sat next to his son like a living reminder of the Depression and the hard lessons it wrought on the country. He was always skeptical of complicated financial arrangements. He never rushed to take on debt. As Don would get steamed up on a new idea, John would often pull back the reins.
— Now hold on a minute, John Tyson would say. Let’s be realistic here . . .
John Tyson had his own esoteric set of rules of thumb for the company’s finances. Tyson Feed and Hatchery could take on long-term debt only if the interest payments amounted to half the amount the company could deduct from its taxes each year for depreciation of its equipment. If the company could deduct $1 million for depreciation, for example, it could only take on debt with interest payments worth $500,000 or less.
This rule seemed arcane, but it was part of a philosophy that John Tyson drove home to his managers. Everybody could take on debt during good times. The banks practically threw money at you if they thought you would take it. But the real survivors thought about their debt in terms of the bad times that would inevitably come. Forty years later, when Don Tyson was running a company worth several billion dollars in annual sales, he would stick tightly to his father’s rule of thumb about debt payments and depreciation.
As the meeting wrapped up, each man at the table had a fresh list of responsibilities for the week ahead. Don and John Tyson never looked over their managers’ shoulders, and they never tried to do their work for them. But all the men knew they would be back in the smoky meeting room in one short week, and they’d be called upon to answer for everything they’d done.
The managers kept in mind the words on a plaque that hung in Don’s office: “If there’s any question about responsibility . . .”
They all knew how the statement was supposed to end.
Don was quick to tell them:
— The responsibility lies with you.
* * *
Just a year after he joined the company, Haskell Jackson began to see clearly that it was headed toward ruin.
By the summer of 1961, Jackson had gotten Tyson’s books into relatively good order. And the financial picture that started to emerge was bleak. While Tyson had grown enormously since 1930, the underlying nature of the chicken business had not changed from the earliest days of tarpaper houses. It was still like a casino.
Starting in the spring, chicken prices began dropping sharply. Too many companies had seen the good profits to be made in the business, and they were flooding the market with too much product. Big meatpackers like Armour, Swift, and Wilson built poultry plants in the South, and they were joined by a crop of smaller upstarts like Tyson, Garrett Poultry, and Simmons. New farms were being built, slaughterhouses were being run at full capacity, and supply started to outstrip demand. Tyson was like a machine built to pump out huge volumes of meat, and it couldn’t be ratcheted back easily. The company was shipping truckloads of ice-packed chickens, whether grocery stores wanted them or not, and its competitors were doing the same thing. Tyson salesmen haggled with grocers and restaurant owners to pay for loads of iced meat that nobody wanted, but their bargaining power was almost nil. Everyone knew that Tyson’s truckloads of chicken would start spoiling in a matter of days. The salesmen dumped product at whatever price they could get.
At the beginning of 1961, chicken was selling for 25 cents to 30 cents a pound. By that summer, Tyson Feed and Hatchery was lucky to get 10 cents a pound. Some shipments were dumped on the market for 5 cents a pound. The slow bleed was undeniable as Jackson tallied it all up. For more than thirty weeks, the market price for chicken fell below the cost of production. Tyson was paying for factories, workers, and trucks that only dug it deeper into a loss with each shipment of chicken it produced. For all its intricate coordination of farms, feed mills, and hatchery, Tyson was being undone by the marketplace, the one sector of the business that remained entirely outside its control.
The mood at the Monday morning management meetings began to change. For Jackson and Buddy Wray, it was increasingly apparent they’d made a mistake in joining the company. Wray had walked away from the chance to get a master’s degree from the University of Arkansas. Jackson had left a good job at an oil company. Both of them were regretting the gamble they made on entering the chicken business. On Monday mornings, the men filed into the meeting room as usual. They lit cigarettes and passed around their meeting memos for the morning. Jackson dutifully recorded the conversation. But in their hearts, Jackson and Wray thought this was the company’s final act.
One person in the room never seemed to consider the possibility that the company would go under. Don Tyson went around the room and made each of his lieutenants report his week’s performance and plan for the week to come. Don wasn’t in denial. He made them recount the losses each unit had suffered, and he asked them for an unvarnished prediction of how bad things might be in the future. But against all available evidence, he was making plans for the future and laying out the company’s strategy for a market recovery that he was convinced would eventually come.
— We will weather this storm, Don said.
He stood there and talked to them as if it was the high point of the market. He wanted their ideas, and he brainstormed along with them.
Don’s confidence somehow fooled the men around him into being confident too. They began to buy into his idea that there might be a tomorrow for which to plan. The company began slowing its factory lines. It placed fewer birds in its network of farms. It tried to deliver just enough meat to stay in the good graces of its customers and keep a spot on their shelves without selling too much product at a loss. Don lined up a loan of $500,000 from Mercantile Bank in St. Louis to keep operations afloat.
What unfolded that summer was the first cycle in a long pattern that would define business for Tyson Foods. Don Tyson saw that the chicken business would never change. It clung stubbornly to cycles of growth and collapse. Good times induced more production, and then suddenly demand couldn’t soak up all the meat on the market, and prices would plummet.
Don Tyson learned a critical lesson: The company’s survival depended on how it weathered the downturns. The downturns became a death match between chicken producers. When the tide of profitability fell, it slowly exposed the weaknesses of each company. Week after week they lost money. Then the inefficient began to fall. In 1961 the poultry companies that hadn’t followed Tyson’s model of integration fell first. They had to buy feed and eggs on the open market, then sell birds for a loss. They didn’t have Tyson’s advantage of producing feed for itself. The smaller operators went under rather quickly. But the big meatpackers and the integrated producers remained.
Don Tyson talked with Haskell constantly. While Tyson couldn’t control the market price for chicken, he became more obsessed than ever with the company’s costs. The reason was simple: The cheaper he
could produce a pound of meat, the lower Tyson’s loss on each pound compared with its competitors. Companies that spent 10 cents to raise a pound of chicken went out of business before a company that spent 7 cents. The company that spent 5 cents would be standing after the other two were long gone. Don Tyson was resolved to be the 5-cent producer.
Jackson watched as Tyson Feed and Hatchery scaled back production and cut the number of new chicks it placed on farms. But Jackson noticed something strange. Don Tyson refused to trim his flocks of egg-laying hens. Those birds laid the eggs that filled Tyson’s hatcheries and were later shipped to farms to be raised. But those farms were sitting empty. Still, Don Tyson insisted on paying to maintain the flocks of hens. Rather than place the eggs in the hatchery, Tyson sold them at a loss to a local factory that crushed them for food products. The hen operations lost money every week. But Don insisted on keeping them. Jackson wasn’t about to challenge him.
* * *
Tyson’s contract farmers were largely shielded from the downturn in 1961. But after the crash, companies like Tyson, Garrett Poultry, and Ralston Purina became miserly in what they would pay, citing the market crash that had almost put them out of business. What really worried farmers was the declining number of companies with which they could do business. The smaller firms had gone under, and others, like Garrett Poultry, were bought by competitors. It left farmers with little room to negotiate.
A group of farmers thought they would be better off if they banded together, so they formed the Northwest Poultry Growers Association. They figured it would be easier to bargain as a group for higher prices with the chicken companies that were becoming fewer and larger.
For many of the new members of the poultry organization, joining the group would be the worst business decision they ever made as chicken farmers.
* * *
As Don Tyson had predicted, the poultry business began to slowly pull out of its abysmal crisis of low prices after 1961. The market corrected itself, and it did so in a Darwinian way that came to define life in the chicken business. Everyone who couldn’t hang on started to die. And when companies went out of business, the supply of chicken started to gradually decline. Soon the grocery stores and restaurants had a harder time finding the poultry they needed, and prices started to climb again.
When that happened, Don Tyson was ready. While other companies focused on cutting costs just to stay afloat, Tyson laid a plan in anticipation of good times returning. His plan relied on the chicken houses full of egg-laying hens, which Tyson quietly hung on to during the downturn, selling their eggs at a loss. As soon as he saw prices start to recover, Don Tyson diverted the supply of eggs into the company’s hatcheries, which were running with just a skeleton crew. The hatcheries filled up quickly, and Tyson signed a fresh round of contracts with farmers, sending them new chicks the moment they were available.
As other chicken companies faltered and failed, Tyson ramped up production. The company’s salesmen assured their customers that Tyson’s production would be bountiful, predictable, and cheap. The company hardly seemed to be affected by a crisis that had plowed under its competitors. Where there was an opening, Tyson jumped in and filled it.
Jackson watched in amazement as the financial numbers rolled in. The column of losses from the egg-laying farms quickly transformed into profits. Sales started to climb. Profit margins returned.
But the crisis had left its wounds. The company had burned through all its operating capital just to stay in business, and it had taken on new debt. The company’s balance sheet was getting dangerously close to looking like those for the farms that John had watched go upside down with debt in the 1930s.
Don had a solution: He wanted to take the company public. Tyson had proved to investors that it could survive bad times and turn a profit when times were good. It had a steady stable of customers and a team of salesmen winning more business every day. There would never be a better time to sell off an ownership stake to shareholders through a public offering. The bankers with whom Don met were eager to help him do it. Eventually, John agreed to go along with it. They called the new, publicly traded company Tyson’s Foods, Inc.2
A photograph from 1963 shows a young Don Tyson standing in a banker’s office in New York City. He is wearing an uncharacteristically dapper suit, with a dark jacket and skinny dark tie. With his broad forehead and thick, horn-rimmed glasses, he looks like a bookish accountant or civil engineer, rather than the newly minted owner of a publicly traded company. Standing around him is a group of investment bankers, big-city guys with well-coiffed hair and perfectly tailored suits. One of them is holding a series of cashier’s checks, arrayed in a fan. It was the kind of occasion for a young entrepreneur to exult for a while. But Don Tyson looks eager to get back home. He had just raised $1 million by selling 100,000 shares in the firm. And Don had already figured out how to spend the money.
* * *
Different people in the poultry business took different lessons from the crisis of 1961. For Charles Garrett, the lesson was clear: It was time to get the hell out of the chicken business.
Garrett owned Garrett Poultry in Rogers, Arkansas, near Tyson’s headquarters in Springdale. He had survived the storm of 1961 in large part because he had imitated Tyson’s model. Garrett Poultry was a wholly integrated company, with a slaughterhouse, feed mill, and hatchery bundled into the business. But Garrett didn’t share Don Tyson’s stomach for risk. The poultry crisis showed that for all the money Garrett invested in his infrastructure and equipment, his livelihood was as risky as a stock market speculator’s. He wanted to sell his assets, take the cash, and use the money for something more stable.
It wasn’t obvious to Tyson’s managers why the company should buy Garrett in the wake of 1961’s financial catastrophe. Having survived near bankruptcy, it made sense to save the cash from Tyson’s public offering and build up a capital reserve for the inevitable bad times to come.
Don Tyson patiently explained his strategy. Getting bigger would help Tyson survive. The bigger a company was, the more it could drive down its costs. It gained efficiency through its size, using fewer managers to operate bigger slaughterhouses, for example, or buying feed in bulk. It was easier to be more efficient than the next guy if you were bigger than they were. That meant you could outlast them when the poultry business inevitably went underwater.
Tyson couldn’t get bigger just by adding more farms or slaughterhouses. If the company expanded its own operations, it would put more chickens on the market, inevitably leading to oversupply. But buying a competitor neatly solved two problems with one move. Tyson could expand, and it could expand without boosting the overall supply of chicken. Tyson simply bought out its competitor’s market share, without adding one bird to the market.
It was part of Don Tyson’s new strategy, called “Expand or Expire.”
Tyson’s little-noticed purchase of Garrett Poultry Co. didn’t make much of a ripple in the chicken business. But across the country, the fate of several dozen companies had just been sealed. Don Tyson had made his first acquisition. And he liked the feeling.
* * *
Nobody in the courtroom ever expected mercy from Jim Blair, which was good, because no one ever received it. A tall and athletic man, with a baritone voice and thick eyebrows that he let flare up in a violent arch above his blue eyes like prickly horns, Blair had intelligence that wasn’t just impressive; it was weaponlike. It hurt people.
In northwestern Arkansas, a kind of awestruck lore had sprung up around Blair from his earliest days as a law student. He was rumored to have started reading books at the age of three. He graduated from college before his peers graduated from high school, and he finished his law degree before the age of twenty-one. He was known to be a brilliant investor who could make millions off the stock market with a shrug. He could have easily been a wealthy attorney in New York but decided to stay in Arkansas to be near the grandmother who had raised him in nearby Fayetteville. Circumspect about h
is childhood, Blair only acknowledges that it was harsh, his parents weren’t around, and he was never handed anything in life.
Blair failed when he tried to start his own law firm in Fayetteville, running out of cash just a few months after he hung his shingle. He joined the law firm of Crouch and Jones, which counted John Tyson among its small roster of clients. From the late 1950s on, Blair handled more and more of the work for the Tysons and their burgeoning company. This provided him a deeper education in the chicken business than he ever dreamed of receiving. Don Tyson didn’t think much of Blair at first, considering him a young pup of a lawyer, still wet behind the ears. But over time, Don began to respect the young attorney’s intellect and aggressiveness. Decades later, Blair would tell a young lawyer his secret for success. When a client asks if they can legally do something, Blair didn’t tell them: “No.” He said: “Yes, and here is how we do it.” The law wasn’t a black-and-white series of prohibitions to Blair. It was more like a choppy sea that could be navigated by only the most accomplished mariners. And Blair was determined to help his clients chart new waters.
During the 1960s, many of the legal issues Tyson wrangled with revolved around labor disputes. Employees inside the company’s hatchery, for example, demanded minimum wage, claiming they were entitled to it because they were basically factory workers. Tyson disagreed. The company considered itself a farm, so it was exempt from paying minimum wage or recognizing other workers’ rights. When the U.S. secretary of labor sued Tyson over the dispute, Blair’s boss and mentor Courtney Crouch fought the U.S. government and won.
Inside Tyson, there was a growing effort to make sure that unions didn’t infiltrate the company’s slaughterhouses, hatcheries, and feed mills. The company enlisted attorneys from Chicago and Little Rock to keep unions out, a practice that was common in Arkansas. But Tyson realized it faced another threat with which companies like Wal-Mart didn’t have to contend. Tyson also risked organization among its chicken farmers. Although the farmers were heavily indebted, relatively uneducated, and dependent on Tyson for their livelihood, they had tremendous power over the company. If farmers organized, they could decide simply to shut down their farms and go on strike. If that happened, it would derail Tyson’s entire business, possibly putting it into bankruptcy court within months. Tyson would have nowhere to place the tens of thousands of chicks coming out of its hatcheries. It would almost instantly lose its supply of chickens for its slaughterhouses, idling the plants and cutting millions of dollars in production overnight. Perhaps most significant, Tyson would have to tell its customers it couldn’t deliver. That would leave the stores and restaurants empty-handed, giving them no choice but to switch to one of Tyson’s competitors for supply. It was clear to Tyson and its lawyers that even though production was shifted to the farmers, Tyson needed to maintain complete control over them. If it didn’t, the company would operate under the perpetual threat of a shutdown by unhappy contract growers every time they felt slighted or failed to make a profit.
The Meat Racket: The Secret Takeover of America's Food Business Page 9
