from the DeMarco lawsuit:

d) Should Ocean Spray later be sold or merged,
or enter into some other transaction outside the
ordinary course of business, the surviving share-
holders of Ocean Spray will stand to reap the
entire benefit of the transaction for themselves.

44. Hawthorne has acknowledged at regional
grower's meetings that those shareholders who
do not have the private resources to withstand
the expected years of losses are going to go
bankrupt. Thus, Hawthorne has admitted the
adopted "turnaround" strategy will drive out the
less affluent growers for the benefit of the more
affluent growers -- a policy that he apparently
endorses. For those shareholders facing present
financial ruin, there will be no opportunity to
share in the benefit of any future turnaround
in the cranberry market -- a turnaround which
is hardly assured.

http://www.geocities.com/cranberrybogs/demarco_01.html

Re: The Power of Pepsi Posted by demonjd on July 4, 2002, 11:23 am , in reply to "Re: The Power of Pepsi"

Re: The Power of Pepsi

Posted by foreigner on July 4, 2002, 12:45 pm , in reply to "Re: The Power of Pepsi"

If business considerations backed up by "worded reason" were the priority, Ocean Spray would have merged with one of the majors many years ago and growth in consumption would be robust. The goodness of cranberries, instead of being limited to a few English-speaking countries and limping along at three-quarters the rate of current production, could be advertised and sold all over the world with the kinds of displays Mr. Numbers describes in the post above. But the current impasse is more a political problem than a business problem.

Mr. Numbers, the real problem with Ocean Spray is that there are still decisive voices on the board who are not receptive to "worded reason," numerical arguments about capital requirements or any other form of rational proof. They still have substantial support among the grower base. As Thomas Jefferson observed, "Mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed." The old guard is organized and they know what they want. They seem to believe that the revival of Ocean Spray is a question of "loyalty" -- in the sense of defending the current "forms" no matter what the cost. Loyalty among the growers -- in the cooperative sense of adapting the business so we can survive financially -- doesn't seem to enter the equation. When you believe that structural change is literally unthinkable and anyone who would consider such a thing is disloyal, you don't need rational arguments to support your position. Like a lot of political conflicts, people sometimes rely more on emotions and harden their positions, even as those positions become less tenable. For the old guard, the collapse of Ocean Spray will be "sufferable" until the wealthiest growers run of money.

There is evidence that a decisive majority of growers realize the turnaround is not working and are now receptive to a proposal from a major company. More and more growers realize that the key deficiency in Ocean Spray does not hinge on the emotions that growers feel, or the earnestness of their leaders, but on the simple fact that the company does not have the money to do what it needs to do. Good product ideas don't amount to much without the resources to develop them. There is no longer any purpose in pretending that this isn't so, any more than we can pretend that those "walls" of Pepsi products are going to disappear. Those walls are not being put up to harm us; those are the walls of much larger players on a much larger field. We can choose to join the game or be left behind.

As Ben Franklin has correctly pointed out, many of the growers who have advocated structural change for the past several years have been so reviled that they are regarded as pariahs, not as carriers of a credible message. What is needed now is a credible intermediary, or better yet, a prominent, respected contingent of the old guard who can recognize the need for structural change and address it in a way that brings people together. It doesn't matter who gets the credit for this as long as it gets done. If it doesn't get done, we are facing a grim scenario like the original Franklin's, who said, "We must all hang together, or assuredly we shall all hang separately."

The positive responses confirmed there is growing support by Growers, both large and small, who are distressed by the current state of the business and believe new initiatives are needed for survival.

Some feel that the situation of we, the Growers, is not being adequately addressed by the Board and that only a clear statement of the opinion of a majority of the Growers is going to motivate the Board to consider more aggressive strategies for meeting the needs of the Growers.

They may be wrong. They may be right.

The only way we can know is with a fair polling of all the Growers, perhaps through a private and confidential plebiscite where Ocean Spray members have a chance to express themselves freely without worrying about what their neighbors might think; without fear of personal reprisals.

What happened in the past?

A few years ago the voting structure was changed. In place of one Grower one Vote it became one share one vote. As DeMarco so capably expressed it, a few powerful voters seem to control the whole cooperative for their own long range objectives, whatever they may be.

Is this democracy?

One of the objections to a strategic partnership with one of the major beverage companies I have often heard is, "What happens when the major beverage company forces the price of cranberries below the cost of production?" From the point of a major beverage company, that would be self destructive. Why acquire the use of the Ocean Spray brand unless they plan to grow both a domestic and international juice business? Eventually prices below the cost of production mean less and less cranberries, and they can't realize the potential of their business. It is manifestly obvious that a major beverage company would need the supply of fruit as much as we need their marketing clout to accomplish a job Ocean Spray is too small and too disadvantaged to accomplish.

I believe in the cooperative. I always have. It is the next thing to a marketing board that controls prices and volumes of fruit. This is how we did it in the Halcyon days of Hal Thorkilsen, but we grew sales too slow and production too fast, so we are no longer in a position to use supply-demand to drive better prices to the Grower as we once did.

There is too much suffering, not just for small Growers, but for all Growers. Just as "A rising tide floats all ships," "A falling tide grounds all ships."

So, let's find out what the Growers really want . . . not in the high pressure atmosphere of an annual meeting, but in the quietness of the farms and in the honest and true feelings of each person's heart.

Through the egregious errors of the former CEO and the Board of Directors that tolerated him for far too long, this fabulous company was terribly damaged before we brought in a new CEO.

Because of the tremendous reduction in market share and because Bullock drove Ocean Spray bereft of the funds necessary to carry on, it was a hopeless task for Rob Hawthorne. Despite his efforts to turn the cooperative around, after two and a half years we are unfortunately still not being paid enough for our crops to pay the cost of running our farms.

We need help and a major international beverage company is the only source that is willing and able to provide the resources Ocean Spray needs to drive its business and to deliver the cash to the Growers we need for survival. Why are we waiting as our personal financial situations worsen and Ocean Spray's sales and margins improve too slowly to return profitability in time to save most Grower's farms?

Let us encourage a plebiscite that will be carefully written so we can express our true feelings without be pressured one way or the other, a plebiscite to be handled by a prominent accounting firm so absolute confidentiality and credibility is assured. Hopefully the Board will see this as the best way for them to learn what the Growers truly want. If the Board feels an "official" plebiscite might be undesirable for fear that it would suggest Ocean Spray was up for sale, with an adverse impact on employees and customers, then we must bring together a Grower group to get the job done. Perhaps "Ben Franklin" can bring together the Growers to get this done. If you want to help you can email him at [email protected].

Re: Follow-up POWER OF PEPSI

Posted by L. Rinta on July 14, 2002, 9:31 am , in reply to "Follow-up POWER OF PEPSI"

Re: Follow-up POWER OF PEPSI

Posted by Mr. Numbers on July 14, 2002, 2:11 pm , in reply to "Follow-up POWER OF PEPSI"

Lack of action also speaks loudly. If the Board were to ignore the continuing plight of the Grower and were to ignore an opportunity to ascertain Grower wishes, that would show a disappointing lack of respect for the Growers. I can't believe the members of the Board would ignore their legal and moral fiduciary obligations to the Shareholders.

For the Shareholders to take the initiative in sending a consensus message to the Board before giving the Board a chance to fulfill its duty would be a lack of respect for the Board. However, if the Board does not fulfill its duty, the time will have come for the Shareholders to send a clear message of their needs and of their expectation that the Board will act to meet those needs. I need not belabor the ultimate power the Shareholders have to enforce their legitimate expectations that the Board fulfill its duty.

This message may disappoint those who love chest pounding and angry accusations, but chest pounding and accusations have deepened anger and divisions that leave Ocean Spray more divided and weaker than ever. Those who prefer actions to words are quietly talking with one another, considering alternatives, and consolidating support to send the Board a clear message when polled. If the Board fails to act, this will force this quiet majority to act. Action, not words, is what will bring salvation to the Grower. The majority's voice may not be loud, but its actions will determine Ocean Spray's future and will decide whether the individual Grower goes bankrupt or enjoys financial security.

Ocean Spray has chronically misrepresented the option of sale or merger, apparently to preserve the present structure, no matter what the cost. Specifically, management said the required majority to sell the branded business was 75%, when in fact only a simple majority is needed. Management also told growers that proceeds from an asset sale might be subject to double or even triple taxation, when only single taxation would be incurred. Management presentations implied that another company would acquire the brand in order to reduce cranberry usage and prices. They also included vague, unverifiable statements such as, "Nobody cares about cranberries like Ocean Spray," which blur business considerations under a veil of sentimentality. The worst instance of "chest-pounding" -- which I agree is counterproductive -- came from the new CEO when he vowed to "clobber the competition." This created animosity within the industry that had never existed before and it perpetuated two mistaken notions: 1. The greatest threat to prosperity was a small company with a new product line. 2. Annihilating that company would return the industry to health.

The most counterproductive accusation came from the same school -- the notion that growers seeking to modernize the business structure are "disloyal."

After the board vote to explore a sale or merger was narrowly defeated in November 1999, the present chairman and another director reversed their positions on sale or merger, helped to expel two duly nominated but pro-sale directors in a clandestine proxy fight, and got back on the board in a way that cost them local support. The present chairman is now the second director in a row to attain the chairmanship by renouncing his former pro-sale position. Board nomination procedures have since been drastically altered to distance board power from grower input. "Outside" directors, intended as a check on management, were in practice former associates appointed by the new CEO. One of the CEO-selected directors was assigned the task of pre-approving any grower nominees for director -- further removing the board from direct accountability to the stockholders.

What are the consequences of this reduction of accountability?

The CEO and several directors have admitted that the turnaround would not save all growers. Recently the board has forbidden growers to ask "sale-related questions" at the quarterly meetings. The CEO initially said a turnaround would take 1.5 to 2 years. Yet here we are after 2.5 years of new management and hundreds of growers will receive less total cash than any year in the last ten. The turnaround was supposed to be completed by now but market share has scarcely budged, single serve has not recovered and the grapefruit division seems to be following it into oblivion, with potentially grave consequences for the balance sheet and for the brand's value. Net proceeds are falling again. Another bumper crop and surplus are looming.

Because of the collapse in berry prices, the value of marshes and bogs has collapsed also. Growers who have reached the limit of their financial reserves, who might need to sell, can't even get replacement value for their acreage. Distress sales or abandonment force growers to lose the entire value of generations of investment in property, equipment and in Ocean Spray. They can exit with little more than their hides. Depressed marsh values negatively impact remaining viable properties.

The CEO has told growers the brand is worth more than $1.5 billion. After single taxation, that is enough to restore growers to solvency, and could set the stage for real business growth. But this one option that might help the grower/owners is banned from discussion.

In this historical context, what is the likelihood that the board will conduct an impartial poll? What is the likelihood that a board-sponsored poll will not be loaded with leading questions, misleading suppositions and implied threats of reprisal against dissenting growers?

The most recent poll was conducted at his own expense by a respected grower. In that poll far fewer than 10% of the eligible shares said they were satisfied with the information they were receiving from Ocean Spray. Nearly six times more said they wanted to hear about business options from an outside source. A poll conducted in 1999 by another respected grower at his own expense had a bigger turnout and revealed a similar overwhelming preponderance of growers wanting to learn more about the sale or merger option.

Under the current regime growers are being wiped out financially. Allowing below-cost fruit prices to persist for years on end and forbidding consideration of any meaningful alternative signal to the world how reluctant the growers are to stick up for themselves and how little they are willing to accept. This weakens future prospects for grower profitability under any structure. Isn't it obvious that growers need somebody other than management to explain what their choices really are?

I wish it weren't so, but Ben Watcher might be correct to suggest that only the threat of a horrendous, Enron-like governance scandal or an "ugly confrontation" will prod the board into acting on the stockholders' behalf, instead of continuing to coddle management. The board is skating on thin ethical ice in at least four areas, with no apparent remorse: 1. Minority stockholder abuse, which is the basis of the DeMarco suit. 2. Excessive reliance on grower "loyalty" rather a realistic assessment of business prospects. 3. Defying the intent of the Capper Volstead law for cooperatives by shutting out grower inputs in company governance. 4. Ignoring the intent of Capper Volstead by using the brand to "clobber the competition" in preference to helping its own members.

Yet this financial carnage, fiduciary dereliction and suicidal procrastination could be brought to an end in a single stroke, if the right leader would act.

The Chairman of Ocean Spray is the most powerful individual in the cranberry business. His primary obligation is to his own stockholders. He could find out what his stockholders' options really are by picking up the phone, calling a few major executives and saying, "On behalf of the grower/owners of Ocean Spray, it's time to talk."

When will he do that?

Re: Assume the best, prepare for the worst

Posted by B. Franklin on July 18, 2002, 7:59 pm , in reply to "Re: Assume the best, prepare for the worst"

Thank you for your detailed analysis. Every member of the Board and of Management would benefit from greater awareness of your perspective, which is representative of a growing number of shareholders. With regard to Ben Gilmore, I know him well and am confident he is dedicated to his duty to the Grower. His personal business issues are probably similar to many Growers and he has confirmed directly to me that he is acutely aware of their plight. However he is one person and he can't do it by himself and he can't read every Grower's mind. Every Grower who wants the Board to be responsive to Grower needs should call as many of the Directors as possible for a one on one conversation to let them know exactly what you think. Each Director must balance many different interests and needs all the support they can get if they are to swim against the current. The group dynamics are powerful and it may yet develop that it will take a strong Grower statement to change that, but I am hopeful we will see an encouraging message from the July meeting.

I believe that members of the Ocean Spray board are good men and women with good intentions. Being a board member, however, is not as easy as it may seem. One rarely sees both sides of every story. It is like being on a jury with only one side allowed to 'present' its case. You become much more dependent than you might realize on management for information and numbers. They may say they are presenting both sides of a case, but their preferences are always clear.

If you want to get your boards attention, I would suggest you change your approach from director fiduciary responsibility or some thing comparable to something more specific, closer to the vest, like director liability. Not to punish the board, but to give them a wake up call. The board should be calling the strategic shots of the coop, not management. As members lose their investment in the coop and lose their farms and other assets, a line in the sand gets crossed that brings into focus the issue of director liability which heretofore was not an issue. Well, now it is a real issue and any director of a company who has been there knows exactly I mean.