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Autocratic style of coffee firm's CEO stirs unrest
By Jerry Hirsch
Tribune Newspapers: Los Angeles Times
Published November 17, 2002
At the conclusion of a recent annual meeting of
Farmer Bros. Co., a major stockholder made what he thought was a
perfectly innocuous request: Could he tour the coffee company's
sprawling complex in the industrial section of Torrance, Calif.?
Without looking up from the table, the company's chairman and chief
executive, Roy F. Farmer, 86, killed the idea. "No tours," he
snapped. "No tours for unhappy shareholders."
As it turns out, more and more Farmer Bros.
shareholders are unhappy these days.
It's not the financial performance of the company, which sells
coffee and other staples to restaurants and commercial food service
establishments in 29 states, that has people so upset, though its
results have faltered some of late. Nor is anyone accusing Roy
Farmer, who has made $4.8 million in salary, bonuses and other
benefits during the last three years, of mismanaging the business or
raiding company coffers for personal gain.
Rather, with Farmer's health declining from prostate cancer and
other ailments, critics have become increasingly restless with his
autocratic style--one that is strangely anachronistic in an age when
most corporate boards and executives are scrambling to show how
responsive they are to the concerns of outsiders.
Shareholders want Farmer Bros. to add independent directors, provide
more financial information, talk to Wall Street analysts and change
its bylaws to loosen the grip that Roy Farmer has had on the company
for more than half a century. They question whether there is a
coherent succession plan for a corporation in which the average age
of its closely knit board of directors and top management team is in
the mid-60s.
"His conduct is extraordinary," says Gary Lutin, an investment
banker and corporate governance activist working to force more
disclosure from Farmer Bros. "This is the only company I have come
across where they won't send you an annual report or return your
phone call. It is astonishing."
Relatives frustrated
Even Farmer's own kin are fuming. The chairman's 85-year-old sister,
Catherine Crowe, and her children have joined other major
shareholders to demand that the company divulge more information
about its operations and strategy and end Farmer's unofficial
corporate gag order.
"We are frustrated," says Steven Crowe, Farmer's nephew. "Our family
owns 440,000 shares. That's about $150 million, and it is controlled
by people who won't even talk to us."
Neither Farmer nor any of his executives would comment.
But interviews with employees, family members and business
associates portray Farmer as a conservative businessman passionately
committed to maintaining his immediate family's control over the
firm.
"Many years ago, I called the company and found out that no one gets
to talk to Roy Farmer," says Alan Kahn, a New York investor and
longtime shareholder. "Roy Farmer is somewhat of an enigma."
Over the last few years, the company's financial performance has
slipped. Sales peaked at $240 million in 1998 but have fallen to
$206 million in its most recent fiscal year. Profit hit a record
$37.6 million in fiscal 2000 but dropped to $30.6 million last year.
The company says increased competition and the slow economy are
responsible for the declines.
Nonetheless, Farmer Bros. shares have risen 16 percent since
January, impressive in a market where the major stock indexes have
fallen sharply in the same period.
Despite the stock's performance, Farmer Bros. is not a business many
outsiders buy into. It is a public company, but on average, fewer
than 1,000 of its nearly 2 million shares outstanding change hands
daily.
Roy Farmer owns less than 10 percent of the company, but through his
control of family trusts, which include much of the Crowe family's
holdings, and the employee stock plan, his voting power nears 50
percent.
Straightforward strategy
Farmer's strategy is simple: Buy low-cost beans, blend them into a
decidedly average cup of coffee, avoid debt and rapid growth, and
communicate as little as possible with outsiders.
Although manufacturing coffee-brewing equipment is a critical
portion of Farmer's business, it is rarely the innovator and waits
until competitors come up with new designs and improvements before
making changes, according to former employees.
Still, Farmer Bros. is not devoid of business know-how and
technology. It has a continuous coffee-roasting and packaging system
that is regarded as one of the most efficient in the industry.
People within the industry say the company probably will be sold
when Farmer dies, possibly to a giant such as Sara Lee Corp., which
has gobbled up similar family-run coffee companies and controls 25
percent of the splintered food service market. Farmer Bros. is
second or third, with about a 5 percent share, an observer says.
Farmer's fractious relationship with Wall Street goes back decades,
but the latest battle erupted over what the company should do with a
$293 million cash hoard it has accumulated.
Franklin Mutual Advisors is trying to use that pile of cash as a can
opener of sorts, forcing management to provide more information
about how the company is run. The mutual fund says the cash
represents a large enough portion of Farmer Bros.' assets that the
company should be classified as an investment firm and be forced to
comply with stricter disclosure regulations.
Farmer Bros. has told Franklin that it will open some of its
records--but has not set a date.
Although some shareholders would like to see Farmer Bros. pay out
its cash in the form of a giant dividend, others would like to see
the money put to use by growing the business.
"There are some legitimate questions to ask about Farmer, but the
answers won't all be that the management has done a poor job," says
James Lingle, president of Lingle Bros. Coffee, a competitor based
in Bell Gardens, Calif. "Like all family businesses, it is a whole
lot easier from the outside looking in rather than actually being
there."
Copyright ©
2002, Chicago Tribune
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