Amock French chateau in Minnetonka, a wealthy Minnesota suburb, seems an unlikely place for the headquarters of a business empire built on agriculture. Yet, from here, a group of little-known executives controls a business regarded as not only one of the most secretive but also one of the most powerful in the world.
Few people know much about Cargill. It has often tried to keep it that way. Even its chief executive admits that when he joined he could not tell his own father how much money it made. Yet Cargill's reputation for secrecy has masked a compelling story: how a business founded in 1865 has been able to grow into one of the 20 biggest in the US by revenue. More significantly, it has been able do so by remaining in private hands, relying chiefly on reinvesting its own cash.
Cargill is easily the largest private company in the US. Last year it generated revenue of Dollars 60bn (Pounds 32bn), putting it ahead of Boeing, Merrill Lynch and Procter & Gamble. The commodities it trades in and processes feed billions of consumers round the world every day and include all the eggs used in McDonald's stores in the US and much of the sugar in Coca-Cola and the malt used in beer.
The company, which started with a single grain-elevator in Conovor, Iowa, now controls 25 per cent of all US grain exports. It has consolidated its position in the meat industry, controlling about 22 per cent of the US market, equivalent to processing 22,500 cattle a day. It has 21 per cent of the US turkey industry and 9 per cent of its pork.
It is also a true global conglomerate, with 101,000 employees in 60 countries, including chocolate oper-ations in France, beef processing in Argentina and malting plants in Canada. Cargill is the largest exporter from Argentina and the biggest poultry processor in Thailand. It ships more than 6.5m metric tonnes of sugar a year and has a huge trading arm, dealing in price hedging and financial risk management.
Yet it is not satisfied. Cargill wants to be "global leader in nourishing people".
For a company so keen to protect its privacy, it is not a good sign - although perhaps not surprising - that as I walk up the wooden staircase in its headquarters, the first question someone drily stops to ask is: "What are we doing letting the FT into our hallowed halls?"
In interviews in Minnetonka, Iowa and Wichita, however, senior executives offer some unusual - and candid - insights. They tell how Cargill has fended off the vituperative personal politics that have destroyed many family empires. They also reveal how Cargill has sought to reinvent its strategy after a turbulent few years in the commodity markets in the late 1990s. The company has tried to move away from being a pure commodity business to offering higher-margin products and greater service to its customers. It has also embraced acquisitions, recruited outsiders to senior roles and overhauled the way it is organised.
Warren Staley, Cargill's chief executive, a spry man of 61 with an amused manner and a commanding, agreeable voice, has spear-headed the changes since 1999. He is the third non-Cargill family member to head the company since its creation 139 years ago by William and Samuel Cargill, sons of a Scottish sea captain. Two branches of Cargills, and the MacMillan family, still hold about 90 per cent of the equity.
Growing up in a blue-collar family in Illinois and Kansas, Mr Staley says, he had not even known what a chief executive was. Instead, inspired by Sputnik, he studied engineering, before escaping to South America. Marriage brought him back to the US. He then joined Cargill and never left.
He has been there for 34 years. In fact, all seven of Cargill's top executives have worked at the company for 30 years or more. For Gregory Page, the 53-year-old president and chief operating officer, who joined from college, this is a reflection of Cargill's scope.
"Because of its decentralisation and management it seemed the kind of place where generalist skills were most likely to be valued . . . We have over 1,100 locations where people have the authority to take risks, set price, extend credit and take commercial decisions."
Yet joining Cargill was also like joining the Roman Catholic Church, a conservative institution teamed with a Midwestern, paternalistic ethic. "(It was) historically run more like the Catholic Church. It was very hierarchical; you understood who the cardinals were."
If managers are cardinals, that makes the chief executive the papal authority. If not exactly papal, Mr Staley has the air of someone able to focus on the long term. He is, after all, only the seventh person to run the company. As head of a private company, Mr Staley is free from talking to analysts, "explaining why you are off by three-tenths of a cent a share this quarter. We can take a medium to longer-term view and don't worry about the fact we are in cyclical businesses that have volatility."
Without the tyranny of quarterly disclosures, Cargill executives answer questions directly, with an intellectual engagement beyond the re- gurgitated answers of some executives. They can also focus on subtler features of the global economy, such as trends in protein consumption, not just the short-term turbulence of oil prices or currency movements.
Mr Staley says: "We are constantly debating what do we think the consumption of food will be . . . we have to think about what is changing, like GDP per capita - will it be (spent on) wheat or cereal or rice? How much arable land does China have, or Indonesia? And what do we feel, in 10 or 20 years, is going to be the bias and approach of the government; and are the people there today going to be there in 20 years; and, if not, will there be a real shift?
"Are we going to invest because we think people will grow and process the food there, or are we going to invest somewhere else, like a Brazil or Argentina or Australia? These are big decisions and the sizes of these plants are in the hundreds of millions of dollars, so we can't make many of those mistakes . . . We have to start ahead of time to have a competitive advantage down the road."
This long perspective does not ensure success. In the 1990s youthful family members demanded more cash than the dividends generated by Whitney MacMillan, the last family member to run Cargill. Family members sold 17 per cent of their stake to the company in return for about Dollars 750m in cash. The board was reduced to 17 members: six family, six independents and five management appointees.
Managing the cultural transition after Mr MacMillan's exit proved challenging for Mr Staley's predecessor, Ernest Micek, admits Mr Staley.
"Whitney was a more intuitive person. He wasn't a person who particularly liked processes and detail, and had the luxury of growing up on his father's knee and his grandfather's knee."
Cargill was then hit by the Russian and Asian financial crises in 1998, and tumbling commodity prices. Revenues fell from Dollars 55.7bn in 1997 to Dollars 51.4bn in 1998 and Dollars 45.7bn in 1999, while net income fell from Dollars 814m in 1997 to Dollars 468m in 1998, and Dollars 220m in 1999.
"It was clear in the late 1990s that the business model of the company to be effective in trade and processing was breaking down," says Bob Lumpkins, finance director. "There was consolidation of our customers. Our offering wasn't very differentiated. We were up against focused competitors and our cost structure was too high."
In mid-1998 a team was created to set the direction until 2010. The review - dubbed Strategic Intent - involved considering four strategies, from reinvention as a volume supplier to focusing on speciality ingredients and consumer branding.
They brainstormed around core competences," says Ray Goldberg, professor at the Harvard Business School, who has written a case study of Cargill, after taking 10 years persuading the company to co-operate. "The exercise they went through has put them ahead of their competitors. They have been more thorough in thinking about the future."
The foundation was the families' desire to keep Cargill private. Yet they recognised the need for innovative ownership structures for businesses it could not fund internally. In January, Cargill said it would merge its fertiliser operations with IMC Global, a publicly listed group, the first time part of Cargill has gone public. The company is also carving out some of its riskier capital markets operations, about Dollars 10bn of its assets and liabilities, into a hedge fund: Black River Asset Management.
The second step was to focus purely on agriculture and food and to move into higher margin-activities, such as bio-sciences and expanding the processing of raw materials. About half of Cargill's revenues come from trading, which is volatile and low-margin.
Cargill has therefore sold about Dollars 2bn of assets. Although as a cash buyer it has limits on acquisitions (it must retain a strong balance sheet to support its debt ratings and it borrows Dollars 10bn to cover its trading activities), it has pursued deals more aggressively. It paid Dollars 1bn for Cerestar, a European maker of starches and sweeteners. It plans further global expansion, especially in China and Latin America. "Since Strategic Intent we went from 80 per cent (growth through) green-field sites to less than 50 per cent," says Mr Staley.
But the biggest changes have been internal. "We said we were not getting out of commodities but we needed to change the commodity mindset," he says.
"We had to change our self-image," adds Mr Page, "instead of saying: 'I'm a flour miller' people had to say:,'No, I'm a solution provider to bakers.'"
To be credible in persuading customers, such as McDonald's, that Cargill is part of their "solution" rather than a rapacious supplier, it has recruited from outside. Ten years ago, only 20 per cent of managers above a certain salary came from outside. Now about half do.
Mr Page concedes the challenge will be keeping them. "They can't help but be asking themselves: can a person who came here mid-career aspire to the most senior jobs? - because that role model with the seven of us is not in place."
Cargill has also taken a knife to itself, "atomising" its businesses into 90 units, up from 40, grouped under 14 platforms. It took 25 senior managers and labelled them "platform leaders". Rather than judge them on a profit and loss account, they had to become team coaches. The plan was boiled down to a white binder of notes, dubbed "the White Bible".
"Everyone said: 'What? Are you nuts?' Because everyone grew up wanting to have a P&L . . . and tell people what to do," says Mr Page.
So far, at least, the changes - aided by improving commodity prices - appear to be paying off. In the second quarter Cargill's net income rose 39 per cent to Dollars 518m. In 2003, net earnings rose to Dollars 1.3bn, the first time it exceeded Dollars 1bn, while sales rose 19 per cent at Dollars 59.9bn. Cargill continues to plough back about 85 per cent of these earnings into the company, with the rest paid out in slowly increasing dividends to appease its family owners.
Perhaps it is a mark of confidence that at the end of last year the last family member left. "The family want to continue to keep this as a privately owned company and to allow it to grow by reinvesting earnings," says Mr Staley. "It has remained private for almost 140 years. We are told no one else has done this. The will of the family is to keep it private." If Mr Staley's "White Bible" continues to deliver the goods, Cargill's reinvented cardinals will be able to do just that. Tomorrow: Cargill's political clout
THE FORMER WHITE HOUSE CHEF WHO TURNED HIS HAND TO 'MEAT SOLUTIONS' Stephen Giunta, a former personal chef of Ronald Reagan, is one of Cargill's more unusual recent recruits. As culinary director of its Meat Solutions division, he is now bringing the catering skills enjoyed by Washington's elite to the masses that Cargill feeds daily. In an industrial-sized kitchen in Wichita, on the site of a former Cargill slaughterhouse, he is busy chopping asparagus and making barbecued applewood brisket sandwiches. He has decorated the strawberries with chocolate dinner jackets. Mr Giunta's move from cooking in the White House (Nancy Reagan liked nouvelle cuisine, her husband liked duck and hominy, a processed maize dish) to advising Cargill customers, such as McDonald's and Applebees, on how to cook Cargill meat products, is just one sign of its efforts to get closer to its customers and transform itself from being a commodity provider of beef, pork and turkeys. "We used to be totally reactive to what customers wanted and we delivered it. Now we have to build better relationships and be more aligned with their needs. Applebees, the food chain, may want a steak of a certain thickness, cost and cooking time. I need to make sure that the cut we provide hits their goal of 12 minutes cooking time." This emphasis on customers also includes spending more on research and development. The facility has cubicles to test the tenderness of meat and a room for shelf-life tests, with displays of meat, some looking glossily fresh, others unhealthily brown. Cargill has also looked to "the blue-collar side of R&D", its slaughter operations. It has automated parts of the meat-removal process to reduce industrial injuries. Since 2001 all its pigs have been rendered unconscious with carbon dioxide, rather than electricity. "We call this pork quality improvement. It is less stressful for hogs, which improves muscle tone and the quality and colour of the meat." A few miles away from the Wichita facility, Bill Rupp, executive vice-president of Excel, Cargill's meat subsidiary, and leader of the beef business unit, is dealing with similar issues of how to get closer to customers. After 20 years in the industry, he looks as if he would be as much at home on a ranch as in the office. "It used to be that we would just sell beef in a white Styrofoam tray with Saran wrap, and sold the three government grades. Now we talk to our customers about what they want in tenderness and consistency. There are more than 40 different grades, based on carcass attributes and what the customer wants." Yet Mr Rupp admits it will take time to undo Cargill's domineering habit of using its 22 per cent market share to dictate prices. "Some trust us easily but it can be frustrating when others don't want to trust you. . . The challenge is: how do we get closer when our past relationship used to be adversarial, to maximise profit at their expense?"Financial Times/Caroline Daniel
