What began in 2004 as a history of United Grain Growers (UGG) founded in 1906, morphed into a chronicling of the birth and death of the West’s farmer-owned, co-operative grain companies and an investigation and challenging of the notion of shareholder primacy, which delivered the final blow to farmer dominance in the grain business and policy for much of the 20th century.
“It was as much a story of ideas as it was about events,” Paul Earl, who has worked in the grain sector for almost 50 years, including with UGG, the federal government, the Western Canadian Wheat Growers Association and in academia, told about 35 attending the event.
Those “ideas” divided farmers ideologically with some advocating free enterprise and deregulation and others pushing co-operative marketing and more regulation. According to Earl, UGG, at least earlier in its history, came down the middle.
“So it was a complex story.”
Adding to the complexity was Earl’s suspicion, and then belief, that Agricore United (AU), which UGG became in 2001, could’ve fought off Saskatchewan Wheat Pool’s takeover in 2007.
AU was formed when UGG took over Agricore, which was created in 1998 when Alberta Wheat Pool and Manitoba Pool Elevators merged. It was Canada’s biggest grain company. And the last grain co-op standing. Even though AU sold shares to the public, its governance was largely controlled by farmer-members.
At the time Saskatchewan Wheat Pool took over AU, winning a bidding war against James Richardson International, the Pool was a publicly traded company and no longer a co-op.
Sask Pool, now known as Viterra, is currently owned by multinational Glencore.
Why it matters: Farmer-controlled grain companies set the shape of the Prairie grain industry for most of the 20th century, combining economic power with political influence. But that legacy ended with a whimper, not a bang, when Viterra was formed out of the remains of the Prairie Pools and United Grain Growers in 2007.
“The position advanced in the book is that the demise of Agricore United is regrettable,” Earl said reading aloud from his book. “The book posits that is regrettable specifically because a 100-year-old legacy of finding middle ground in an ideologically charged environment was lost. It is also regrettable because a bold experiment in governance and finance melding farmer control with access to equity capital — an experiment that worked successfully for close to a decade and a half — was brought to an end. It is both ironic and regrettable that because after a century of straddling the ideological divide within the grain industry it was brought to an end because the company adopted a stance that represented one extreme of the ideological divide. And it is finally regrettable because as the legal analysis of Chapter 12 shows, the company had reasonable grounds on which to at least attempt a defence of itself against the takeover, even if such a defence had not succeeded.”
While Earl spent much of his career in the grain industry “trying to drag it into a free enterprise model,” he also knew UGG represented more than returns to shareholders. It had other goals, including bettering the lot of farmers. Some of AU’s farmer-directors, including Alanna Koch, knew that too.
“‘I see how effective we are on the transportation side, the trade side and the marketing side,’” Earl said quoting Koch. “‘The role that Agricore United played in that was very valuable and I think all of that is lost.’”
When Earl asked former AU directors and senior managers why they succumbed, the reply was: “We have to maximize shareholder value, and only by selling the company can we maximize shareholder value, so we had no choice.”
In contrast UGG successfully rebuffed a takeover bid by Alberta Wheat Pool and Manitoba Pool Elevators in 1997 by creating a “poison pill” allowing shareholders, other than the Pools, to buy additional shares at a reduced price.
Earl was familiar with the argument behind maximizing shareholder returns. But an extensive search failed to document that it’s a legal requirement, he said. In fact, Earl said the Canada Business Corporations Act says: “Every director shall act with a view to the best interests of the corporation — the corporation, not the shareholders.”
One Canadian law journal has rejected shareholder primacy too, Earl added.
“‘Directors have a right as well as a duty to oppose takeovers that they know are not in the best interest of the corporation,’” he said, quoting from the paper.
Quoting from a Supreme Court of Canada ruling Earl said: “‘Directors owe their duty to the corporation, not stakeholders,’ — stakeholders meaning shareholders and others.”
“‘There is no principle that one set of interests, for example the interests of shareholders, should prevail over another set of interests.’”
Earl said his findings dispute the conventional view.
“The point is shareholders did not control the company,” Earl said in an interview. “The argument for shareholder primacy is shareholders are owners. But they’re not. If you own something you can do something with it. You can sell it or expand it. Shareholders can’t do that. All they can do is elect directors.”
Earl told his audience based on his research AU “could have resisted the takeover more vigorously. It might not have succeeded. They might have eventually had to sell the company, but if they had (succeeded), it might have still been here today.”
During a question period someone asked if those within AU who supported the takeover bid might have been motivated by profit-taking on their AU shares, which had gained value.
“I know those people and I think all of them acted honourably and did not push that because of their own interests,” Earl replied. “That’s all I can say.”
AU was struggling with debt from the purchase of Agricore, and internal divisions that came from bringing two very different companies together, he added in an interview. But AU was starting to address those issues.
“There are no villains in this piece,” Earl said.
“There are 14 places in the book where I say this was not anybody’s fault. People did what they thought was right, and I firmly believe that. Even (AU CEO) Brian Hayward — and I disagree with him — but he honestly thought it was the right thing to do.”
While UGG promoted the ‘middle way’ during much of its history, by the time it was AU the company was solidly in the deregulation camp, Earl said. And that, as demonstrated by its adherence to shareholder profitability, was its final undoing.
Earl doesn’t know how much different Canada’s grain industry would be today had AU survived.
“But it would’ve preserved something, which I think was worth preserving, and that was that voice for farmers,” he said. “I think it is important to have that voice.”