The name was his childhood name, and it stuck, seeming to imply that he would always be Johnny Tyson, Don’s son. This was curious in a way, because Johnny Tyson was clearly his own man. He was better-looking than his father. He was not so short, and his face was not so round as a bulldog’s. Johnny inherited the square jawline of his grandfather, whom Johnny knew only when he was a child.
But the good looks never really translated for Johnny. The good looks only went so deep, and beneath them there wasn’t the magnetic charisma that defined Don Tyson. When Don Tyson met a person, that person wanted to be near Don Tyson and wanted to impress Don Tyson. Don often visited the slaughterhouses he owned, and he walked down the long line of workers in their white hairnets as they cut apart chicken carcasses on a conveyor belt. And when the workers turned and saw him, he put out his hand and said: I’m Don. And those workers lit up. They shined. They smiled and shook his hand and told the story later.
People didn’t light up when they met Johnny. Johnny seemed to inherit the brittle, explosive temper of his grandfather without inheriting the warm attraction of his father.
This wasn’t helped by the fact that some of the men around Don Tyson never respected Johnny, even decades later, when they had left the company and retired. While Don Tyson fostered competition among the executives who worked below him, he also forged strong personal bonds with them. When the former chief financial officer Gerald Johnston was still a young accountant at the company, he was asked to go along with Don Tyson and other executives on a trip to Chicago. The men arrived early at the airport and waited for their afternoon flight in a lounge. The executives all ordered drinks, but Johnston said he didn’t want anything. He didn’t drink alcohol, and he felt awkward about ordering a soda. As the men drank and talked business, Don Tyson noticed that his young new hire wasn’t drinking. Don got up, went to the bar, and ordered a Coke, bringing it back to the table and setting it in front of Johnston. Johnston never forgot that moment, even years after he became Tyson’s chief financial officer. It was the kind of small thing Don Tyson did that cemented an unbreakable loyalty in the men below him.
Some of the old-guard executives didn’t think Johnny held a candle to his father when it came to thinking like a businessman or being a leader. They scoffed at the mention of Johnny’s name and dismissed him with a wave of their hand and a half smile. Johnny was tolerated by the men around Don Tyson.
It was clear Johnny wanted to be part of the company, and Don tried to show him the ropes. As a boy, Don Tyson had shoveled feed in a warehouse and looked over the company’s ledgers in the kitchen at night. Johnny came of age when Tyson Foods had its own corporate suites, private jets, and a constellation of multimillion-dollar poultry complexes that dominated towns like Waldron. Don tried to tutor his son in the basics. He sent Johnny to North Carolina, to take the helm of a series of contract hog operations Tyson bought there. In Springdale, whispers spread among the executives that Johnny had abandoned his post in North Carolina. His underlings were doing the work for him. This didn’t seem to surprise anyone, nor annoy them. Johnny was Don’s problem.
Johnny Tyson later admitted to heavy drug and alcohol abuse as a young man. At work, he bounced from job to job. But even when he was in North Carolina, about a thousand miles away from Springdale, no one in the executive suite had any illusions that Johnny was going to stay gone for too long. They all knew he would be back.
* * *
By 1991, Johnny Tyson wasn’t ready for the top job at Tyson Foods. Don Tyson decided that the first CEO to succeed him would be Leland Tollett, the University of Arkansas graduate who joined the company in 1959. But Tollett’s tenure would be relatively brief, and it would set the stage for Johnny’s ascendance.
Even when Don gave Leland the title of CEO in 1991, Don didn’t surrender his control over the company. Don stayed on as chairman of Tyson Foods, and he used a special legal maneuver to ensure his power over the company could never be diluted. Don created his own special class of stock, called “Class B” shares. Each share of Class B stock gave Don ten votes on any shareholder resolution. When taken together, his special class of stock would give him roughly 80 percent of all the votes available to Tyson’s shareholders. The voting power gave him extraordinary control over a corporation that was publicly traded, and at least in theory owned and controlled by its outside shareholders. Don’s special stock ownership gave him veto power over any decisions at Tyson Foods, an arrangement he never relinquished. Don Tyson could fire the entire board of directors and the CEO if he felt like it. Any and all shareholder proposals had to pass muster with one person, and one person only.
Under these circumstances, Leland Tollett exercised what authority he could. Tollett was meticulous, and he executed his business plans with attention to the finest details. Tollett made the galaxy of moving parts mesh smoothly at Tyson, but he was never a visionary. There was no new chicken McNugget. Don Tyson had driven the company from a regional firm to one of the world’s biggest corporations by seeing things that other people couldn’t see. He exploited new opportunities that had not existed before. Tollett was brilliant at keeping Don’s creation moving, and even growing, but Tyson Foods never reinvented itself as it did during the 1970s and 1980s.
Investors weren’t impressed. The market measured Leland Tollett’s tenure as a kind of stewardship, a safekeeping of everything that Don Tyson had built. Tyson’s stock price plateaued during the 1990s, ending a steep climb in value that had continued almost uninterrupted for decades. While Tollett tinkered with the company and tried expanding into different kinds of meat production, Tyson’s stock wiggled back and forth in a narrow band. The shares were worth about $14 in 1991, when Tollett was named CEO. They hovered around $15 a share until 1995, when Don Tyson finally let go of his role as chairman and gave Tollett full control of the company. By the middle of 1996, the stock was worth about $14.
Leland Tollett quit in 1998. In the public announcement of his departure, he blamed his poor eyesight, claiming that a chronic ocular disease made his job harder to do every year. Tyson needed someone who could see into the future. The company needed its next visionary.
* * *
In September 1998, Tyson’s senior managers were called to the company’s auditorium on the Springdale campus. This was just before Leland Tollett announced his resignation, and the managers didn’t know what to expect when they filed in and took their seats.
Then Johnny got up onstage. He had an announcement. Johnny was to become the chairman of the company, the role his father had filled when Tollett became CEO in 1991. In one swift move, Johnny had swooped past the CEO’s office. The managers learned that Leland Tollett was leaving, and the CEO’s job would be filled by Wayne Britt, the company’s chief financial officer. It wasn’t clear to anyone how Johnny Tyson and Wayne Britt would divvy up their authority.
“It’s hard to run a football team when you have two quarterbacks,” one board member said.
Many people questioned what qualified John Tyson for his new job, other than his last name. But Johnny Tyson had made at least one change since his early days in the company: He had gotten sober. He quit drinking in 1990, and his free time seemed to be largely occupied by church services.
Just as Johnny took the helm, however, the mid-1990s executive culture of arrogance began to exact its costs. In its effort to take over the world of meat production, Tyson had overreached. The company’s Seafood Group showed nothing but losses, quarter after quarter. Tyson Foods eventually dumped the division at a $20 million loss. The hog business, which John Tyson had overseen directly, also began to languish. Tyson was being quickly outpaced by its competitor Smithfield Foods, which snapped up smaller companies and crowded Tyson out of the marketplace.
Tyson’s stock price sank steeply after John Tyson and Wayne Britt took the helm. The shares were worth $19.15 when John Tyson became chairman. A year later they were worth $15.41. A year after that they were worth $9.44.
Wayne Britt left the company in April 2000, leaving Johnny alone at the top. Johnny set to work restructuring the company and replacing top executives. The company was his to run now, and he wasn’t going to be shy. While none of these efforts did a thing to lift the stock price, Johnny Tyson had one thing going for him. The U.S. taxpayer was about to give Tyson a gift worth billions of dollars. It was a one-time bonus from Washington, D.C., that would underpin the profits of every major corporate meat producer for more than a decade.
* * *
The farm subsidy programs of 1938 had transformed over decades, growing from a series of emergency bailout programs into a permanent agricultural bureaucracy.
The original laws were amended and re-amended by a revolving door of Democratic and Republican administrations, each of which added new layers of provisions, forging ever-deeper links between government bureaucracy and the food business. By 1994, taxpayers were spending $7.9 billion every year in direct payments to farmers. The money kept the price of food low and helped big farms prosper regardless of market prices for their crops.
The free market had very little to do with the U.S. food market anymore. The USDA, for example, centrally controlled how many acres of corn were planted each year. This wasn’t as completely Sovietesque as it sounds: The production controls weren’t mandatory. Farmers could plant as many acres of corn or wheat as they wanted. But if they didn’t comply with the USDA’s state production levels, the farmers got cut out of government subsidies. In essence, the USDA bribed farmers to go along with its central planning regime. And it worked remarkably well.
But there was always something about the farm programs that didn’t sit right with Americans. Central controls and subsidies didn’t seem to fit with the ideal of the American farmer as a small-business owner and anchor of the rural economy. When Republicans took over Congress in 1994, farm subsidies were on their list of government programs to scale back or end.
In 1996, Congress ended the farm subsidy program with a new farm bill called the Freedom to Farm Act. Strangely enough, Freedom to Farm only enlarged the farm subsidy program and made it much more expensive. Farmers had their direct subsidies cut, but the government wasn’t willing to throw them to the wolves of a free market when times got tough. So the normal subsidies were replaced with “disaster” payments. The food business is always in a state of disaster in one way or another—if it rains it’s too wet, if it doesn’t rain it’s a drought—so the disaster payments became another semipermanent cost to taxpayers. In 1998 taxpayers handed over $12.4 billion to farmers, and in 1999 they paid $21.5 billion, nearly triple what they paid before Freedom to Farm was passed.
While it didn’t end subsidies, Freedom to Farm made one critical change that benefitted Tyson Foods. The law disbanded production controls. Farmers got their government checks, and they could grow whatever they wanted. When the production controls went away, farmers did what they do best: They massively overproduced. The world was glutted with corn, wheat, and soybeans. Prices plummeted, farmers bemoaned the low prices, and taxpayer subsidies grew rapidly to cover farmers’ losses.
This cycle led to a remarkable gift for meat producers. Feed grains were the biggest cost that Tyson Foods had to pay to raise animals. If feed grains got too expensive, the company’s profits could quickly vanish. Freedom to Farm didn’t just make grains cheaper for Tyson. The federal program went so far as to produce an upside-down food economy, where corn was actually cheaper to buy than it was to grow.
This inverted market had a strange effect. It made it economically irrational to be a diversified farm, the once-traditional kind of operation where farmers raised hogs, cattle, soybeans, and corn. A farmer lost money if he or she grew corn and fed it to animals that he or she owned under Freedom to Farm.
This was financial jet fuel for the new breed of industrial meat producers. The companies weren’t diversified farms, after all. They bought corn; they didn’t grow it. For industrial hog producers alone, Freedom to Farm delivered about $947 million a year in savings, according to one study.
Freedom to Farm let corporate meat producers reap huge profits just by virtue of their business model. A company like Tyson made millions of dollars in profit every year even if its business strategy was marred by errors, bad investments, and questionable leadership.
* * *
As Don Tyson pulled away from daily operations at Tyson Foods, so too did his friend and lawyer Jim Blair. But the two often spent time together, and Jim Blair helped Don Tyson with a number of legal jobs, such as doing his estate planning. For Don Tyson, estate planning involved a lot more than simply figuring out to whom he was going to leave his money. It involved the sticky questions of how Don Tyson would bequeath his company stock, and therefore his power, to certain heirs and not to others. Along with his son, Johnny, Don had three daughters. And his sister-in-law, Barbara, had a major stake in the firm.
As they talked over the estate, Don suddenly mused out loud to Blair:
— You know, you’re not very kin to your grandchildren.
Blair didn’t understand.
— You forget. I used to be the company geneticist, Don explained.
As head of Tyson’s breeding program, Don had selected the “grandparent” line of breeder hens. Those grandparents were the best-of-the-best breed. But the next generation carried only about half their parents’ genes. And the generation after that only carried a quarter. By the time the great-grandchildren rolled around, their genetics were just an eighth of their grandparents’.
The rolling wheel of genetic change slowly diluted the character of a family. It was inevitable.
Jim Blair took the point.
* * *
Johnny’s early tenure as CEO was rocky. Media accounts of his rise to the top almost inevitably began with the fact that he was once addicted to cocaine and alcohol. He got divorced and had to juggle single fatherhood with work. He presided over a company in turmoil as Tyson Foods began to unravel the big bets it had made to expand beyond the chicken business.
The loss Tyson Foods suffered by unloading its Seafood Group was bad enough. But more worrisome for Johnny Tyson was the struggling swine division, which he had overseen.
By entering the pork business, Tyson’s success had started to create its own problems. And the biggest of those problems was Smithfield Foods. The birth of the factory hog farm sent a clear message to the industry: Adopt Tyson’s model or go out of business. Smithfield had chosen the former option and spent millions pursuing it.
It became clear that Tyson was losing at its own game. Smithfield Foods had copied Tyson’s playbook, almost to the letter, and had now taken the dominant position in the hog business. After building its own network of tightly controlled farms based on Tyson’s chicken-farming model, Smithfield had gone on a buying spree just as Don Tyson had, snapping up smaller competitors until the company controlled a majority of the market.
When Smithfield’s growth left Tyson behind, it put the company exactly where Don Tyson never wanted to be: following the leader.
None of this seemed to deter Bill Moeller, who had built Tyson’s swine division from scratch. Moeller was impressive during the senior leadership meeting at Tyson Foods headquarters in Springdale. Those around him could count on Moeller to boast about the swine division’s profits and growth prospects. There were plans to expand with new hog farms in states like South Dakota. Every month seemed to deliver better profits from hogs.
But Jim Blair was unimpressed. Moeller seemed a little too eager to make his unit look good at the meetings, Blair thought. The facts on the ground seemed to say otherwise.
Blair got the impression that Tyson’s swine division was juicing its profit figures in part by taking money out of the pockets of the hog farmers. The hog contracts had a number of provisions that docked farmers’ pay and dinged them for any losses in production. Even Tyson’s massive hog plant in Marshall, Missouri, didn’t give the company the scale it needed to compete against Smithf
ield.
There was only one path to take: Tyson Foods was getting out of the hog business. The company sold its plant in Marshall and even tried to sell its farms in Holdenville to Smithfield Foods. The deal fell through because Smithfield liked to operate bigger hog barns than the ones Tyson had built. Tyson wanted to keep its hog barns small enough that a contract farmer could still feasibly borrow the money to build them. Smithfield, on the other hand, often owned its own barns and liked to make them much bigger.
Tyson kept its Holdenville complex, which continued pumping out hundreds of thousands of piglets to supply contract farms.
In 1999, Bill Moeller retired. The experiment he had begun was largely cast off by Tyson Foods. The one division Johnny Tyson had overseen had ended in failure.
Tyson’s stock price continued to fall under Johnny Tyson’s leadership, in spite of the company’s dominance in the poultry industry. Investors didn’t see a future of explosive growth now that Tyson had locked up its control of the fast-food market and big grocery chains.
And Tyson was getting overshadowed by other companies. Just as Tyson’s hog farms helped create Smithfield Foods, the rise of factory chicken created a grinding pressure on the cattle industry. Beef was the most expensive meat, and the old-line meatpackers like Armour and Swift were desperate to find ways to compete with cheap chicken. This pressure helped create Tyson’s twin in the beef industry, a corporate giant of unprecedented scale, called Iowa Beef Processors.
* * *
Just about everybody hated Iowa Beef Processors1 from the first day the company opened its doors. The unionized slaughterhouse workers hated it. The grocery store butchers hated it. Ranchers came to hate it. Even the other big meatpackers hated it. The company’s first thirty years were one long trail of antipathy as IBP fought these forces and overcame them, making billions of dollars in profit as it dominated the American beef business.
The Meat Racket: The Secret Takeover of America's Food Business Page 18
