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Feb 10, 2005
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Execs Say Disunity In Beef
Industry Continues To Worsen

By Colleen Schreiber

NEW BRAUNFELS — The dissonance and infighting in the beef industry are apparently getting worse, certainly not better. In fact, industry observers say the infighting is now much worse than it was prior to the merger and the formation of the National Cattlemen's Beef Association.

During the recent marketing committee meeting of the Texas and Southwestern Cattle Raisers Association summer board meeting here, Dee Likes, executive vice president of the Kansas Livestock Association, and TSCRA executive vice president and CEO Eldon White, tag-teamed to offer a brief overview of some industry history prior to and after the merger.

Likes started the discussion, prefacing his remarks by telling listeners that what he intended to share were his opinions about the truth as best he understood it, but that there were certainly different opinions from a whole host of other individuals and organizations. With that, he first focused briefly on the two failed attempts to pass a beef checkoff in 1977 and in 1980.

After the second failed attempt, the industry took a step back and reassessed the proposed program. One of the reasons beef producers did not like the original referendum, Likes said, was because a complicated formula based on the value added during the time a producer owned the animal was to be used for calculating the checkoff. The formula was not well understood.

The second reason producers didn't like the proposed program was because it was designed as a top-down program that did not respect the existence of the state beef councils which had always done the promotion work and had been on the front lines collecting the money.

After the two failed attempts that program was scrapped and redesigned, and the new program was inserted into the 1985 Farm Bill. The new program stated that the state beef councils would retain half the dollars collected and the other half was to go to the Cattlemen's Beef Board — which the Act created. Everyone who owned a beef animal for more than 10 days would also pay the same amount, $1 per head.

The Act called for collections to begin in 1986 with the stipulation that in two years, after the program had a chance to show its efficacy, the industry would vote on the program. This time the checkoff passed overwhelmingly and the Cattlemen's Beef Board has been in place since.

The Act clearly defined how spending decisions were to be made. The operating committee, a 20-member committee of producers, 10 of whom were to be appointed or elected by CBB and 10 of whom came from the Beef Industry Council of the National Livestock & Meat Board, served that role. However, according to Likes, by the late 1980s the leaders of the CBB began to feel that they were not receiving the recognition they deserved, and they were continually critical of the Beef Industry Council.

"The CBB did not believe that it was fair that the Beef Industry Council, the major contractor for the checkoff, should be making spending decisions," Likes commented. "They were of the opinion that it was a conflict of interest."

By 1991 the KLA and others had had enough, and together they began calling for a merger of the four organizations, CBB, NCA, Meat Export Federation, and the Beef Industry Council, into one. A long range plan was created and representatives from each of the four organizations came together to form a merger committee.

MEF, however, successfully maneuvered politically to avoid participating in the merger. The CBB also said it couldn't really merge because of its compliance responsibility outlined in the Act.

"Instead, CBB leadership said, 'If you merge, we will partner with you under the same umbrella with a formal operating partnership agreement, and we will operate almost like a joint venture,'" Likes told listeners. "So that is what happened."

Thus the Beef Industry Council and NCA merged to become the National Cattlemen's Beef Association, approved in 1996.

Unfortunately, the merger did little to stop the infighting, and the checkoff was challenged by the Livestock Marketing Association with support from other industry groups.

NCBA and its affiliates contributed money to defend the constitutionality of the beef checkoff. It was an expensive, difficult and long process. NCBA's counsel was John Roberts, today the Chief Justice of the Supreme Court. Roberts made the argument that the checkoff was constitutional because it was overseen by USDA, collected under federal law, and therefore it was government freedom of speech.

"Looking back on it today, with all due respect to the people who made these decisions, and I guess we were all part of it because we authorized our counsel to make that argument, but looking back I think we may have erred because we now have more government involvement in the checkoff than we really want," Likes opined.

Today there are 45 state beef councils that collect the checkoff. By law they have to send half of the money collected to CBB and the other half is used to run state beef councils.

The Federation, Likes reiterated, is the group that the CBB leadership believes should be split off.

"Keep in mind that division is the one that employs the staff who provides the marketing and scientific nutritional expertise to promote new beef products. Where would they go? What would that do to the industry if the split really happened? I think it's fair to say it would devastate the effort."

Eldon White picked up where Likes left off with a more recent history of the relationship between NCBA and CBB. He first identified three groups of cattlemen within the CBB organization, which he termed the loyalists, the purists, and the destructionists.

The loyalists, he said, are those who support the structure that's currently in place; they support the program and activities associated with the checkoff, and they're in favor of keeping the separation of program execution, funding approval and compliance and resist the domination of a bureaucratic structure of government-appointed representatives making decisions on behalf of the industry.

The purists, he said, recognize the checkoff program as having value. They want to protect it and they want to foster its existence, he said, and they're going to be against anything that causes any negative mark against the checkoff or the future of the checkoff.

He defined the destructionists as those who really want to weaken NCBA.

"They believe that NCBA's ability to be a contractor and receive checkoff funds somehow enhances their ability or image in Washington on government and regulatory matters," White stated. "Thus their policy on certain matters is in conflict with NCBA. They feel that by weakening NCBA they can enhance their political power in Washington."

One of the first things that happened is that CBB recommended that the joint nominating committee structure be modified. Before that time the nominating committee consisted of representatives from the CBB, the Federation of State Beef Councils, and representatives from NCBA. All members of the committee had an opportunity to hear about and discuss each nominee, but only the representatives from the respective groups actually voted on their nominees.

The CBB executive committee, White said, didn't like that procedure, so they decided to meet and discuss their nominees behind closed doors. Thus their slate of nominees then went to the board of directors without anyone else on the committee hearing anything about these nominees. There was some pushback by other CBB members and the federation of state beef councils, White said, so the compromise position was that the CBB allowed the federation of state beef council representatives to be present when they talked about their nominees. However, voting was still to be done behind closed doors, and that is how it's being done today.

The next development came in the spring of 2010 when CBB officers initiated an audit of NCBA. CBB's own auditor was used and the CBB officers and staff directed the auditor to look at specific activities.

"That is a bit unique when you direct an auditor who is supposed to offer an outsider's opinion to look at certain aspects," White told listeners.

The executive committee also released the findings of that audit to the media before the rest of the CBB members even knew about the results. As a result of the audit, the CBB leadership and the staff began to voice concerns about NCBA's alleged misuse of funds.

The CBB executive committee then took action to favor the separation of the federation of state beef councils from NCBA and to discontinue the joint operating agreement between CBB and NCBA. Additionally, they voted not to hold the 2011 summer meeting in conjunction with NCBA. However, during the 2010 summer meeting the full CBB membership did not approve the actions of the executive committee and instead took separate action to support the federation remaining within NCBA with the stipulation that it was to be more autonomous within that structure.

White pointed out that the order guiding the beef checkoff program states that formal notice must be given six months in advance for a joint operating agreement to be discontinued. The executive committee intended to give formal notice at the 2010 summer meeting, which meant that by the annual meeting in February 2011 the operating agreement would expire. CBB's membership directed the leadership of CBB to immediately begin work on the new joint operating agreement with NCBA to replace the old agreement when it expired. CBB also overturned the executive committee's action to hold a separate meeting and directed instead that the 2011 summer meeting be held in conjunction with NCBA.

In the fall of 2010 the leadership of NCBA and CBB met to work through what needed to be done to resolve the compliance issues outlined in the audit. That process was initiated with USDA approval. However, according to White, sometime later that fall CBB staff began to modify those compliance procedures which, he said, "caused some pretty onerous accounting procedures, time requirements and accounting by NCBA, which resulted in additional staff time and expense."

During this same time period the South Dakota Beef Council chief executive officer was dismissed due to questionable activities.

"We don't know a whole lot about that," White told listeners, "but what we do know is that as a result of the South Dakota Beef Council board investigating those activities, they noticed that there was some e-mail traffic between this executive and the CEO of CBB that implicated the CEO of CBB and other CBB leadership in unethical behavior."

The investigation also documented that the CBB leadership had in fact continued to work toward the separation of the federation of the state beef councils, contrary to the board action earlier that summer.

During this same time period the Office of Inspector General announced it would conduct an audit on the Beef Promotion and Research Programs at all levels. Furthermore, despite the fact that CBB directed their leadership to pursue the renewal of the joint operating agreement with NCBA, that agreement in fact expired in December 2010 without a replacement.

Jump forward to the February 2011 annual convention. The issues raised in the South Dakota investigation were brought before the CBB board by the CBB director from South Dakota. Because these issues involved the CBB staff, an executive session was called and only the CBB board members at that time were allowed to stay. During the executive session, CBB's CEO and other leaders who were involved apologized to other CBB directors and essentially were forgiven.

During the winter of 2011 the CBB officers e-mailed a document to the CBB board of directors called the Roles and Responsibilities of the CBB. The officers also requested rapid approval by return e-mail.

"Remember, we don't have a joint operating agreement now," White reminded. "In place of the joint operating agreement with NCBA they were going to create a new procedure through this roles and responsibilities document that would dictate how they were going to operate as an entity."

That R&R document, White told listeners, would essentially eliminate much of the cooperative relationship that had been in place between NCBA and the CBB. It would eliminate the joint committees; it would give the CBB board the ultimate budget authority even over the operating committee and over the state beef councils, and it would prevent CBB board members from participating in any leadership and/or policy involvement in state affiliate organizations.

"That means that our TSCRA representatives to the CBB would have to resign their positions as directors of TSCRA; they couldn't even be committee members," White said.

The fact that these "sweeping" changes were sent out via e-mail, he added, was also more than a bit unusual. CBB bylaws allow for e-mail ballots only in an emergency.

"There was no emergency," he insisted.

Again the directors of CBB began to push back, saying that because these changes were so sweeping, more time was needed to discuss this new document as a group. The CBB leadership conceded and agreed to place the issue of the R&R document on the 2011 summer meeting agenda.

This spring NCBA and CBB leadership met without staff in a mediated session to attempt to work out their differences. Several action items were identified from that session, which included the need for both CEOs to develop a better working relationship. NCBA also had an opportunity to comment on the R&R document, which they had not been asked to do previously.

Subsequently, NCBA shared with CBB leaders a document prepared for the OIG audit that explained and documented in detail some of the unethical actions of the CBB staff and leadership relating to the South Dakota incident. CBB's executive committee met two and a half weeks ago to review that document, and the action taken was to place the CEO of CBB on probation for six months. Additionally, the executive committee required that he send a letter to the CBB board apologizing for his unethical behavior. Because two of the officers at that time knew of the unethical actions of the CEO but did nothing, they, too, were required to write a letter of apology to the board.

Following the update from Likes and White, there was more open discussion from those attending the committee meeting. Austin Brown III, Beeville, vice chairman of TSCRA's marketing committee, asked, "What does the CBB leadership and staff want?"

"The malcontents in the other organizations believe if they can somehow force NCBA to give up their contract work and split the division of that whole network of all the state beef councils it will weaken NCBA and so then they can better compete with NCBA on policy questions that they disagree with," Likes responded.

"What they're really hurting is the research and promotion of this industry. It would ruin the infrastructure that's doing all the work to add value to our product," insisted TSCRA past president Dick Sherron.

Likes agreed.

"It would weaken our promotion and it would put in jeopardy the expertise that's been built up within that division of professional staff. The only new money we're going to get is from the pockets of consumers, and right now we need to be focusing on increasing acceptance of our product, but instead we're fighting in the foxhole."

There has been talk for some time about the need to raise the checkoff from $1 to $2 per head. However, Likes commented that the support is no longer there.

"You couldn't load a very big bus today with representatives of state beef councils and state affiliates that are in favor of going to Washington to ask for another dollar, even though they know we need it," Likes said, "and it's because they don't want to give it to CBB."

Past NCBA president and TSCRA director Jim McAdams asked about the role of government in this whole process.

"It is my understanding that there is evidence that the leadership of CBB and those at USDA have actively participated in choosing CBB nominees," McAdams said. "I've also heard that USDA has made some rulings — for instance, some in the nutritional area — where when NCBA would write comments based on research funded by checkoff dollars they wouldn't let NCBA submit those comments because they were counter to what this USDA wants."

"I do not have firsthand knowledge of that," Likes responded, "but people whose opinions I trust have given me the same information."

As for the role of government, Likes opined that the beef industry is definitely getting more government than they bargained for.

"I have said in retrospect that it may have been a mistake to authorize John Roberts to present those legal arguments," said Likes. "The case did turn on that argument, and now what we have is CBB leadership saying out loud in front of NCBA to USDA, 'We work for you, USDA.'

"We all participated in the decisions that got us here, including me, but today I'd have to say the malcontented fringe of this industry is in charge of your checkoff," Likes continued. "It's that bad; its way worse than the conflict that forced the merger."

So is there a solution? Likes responded that some people think the checkoff program as it is needs to end and be replaced with a new structure.

"That's very difficult to do in the world of practical politics," Likes commented. "Others say that the producers need to reassume control over the checkoff. There will be a discussion at summer meeting on this to force a discussion about the actions of leadership and specifically about the roles and responsibilities document," Likes said.

"If they get that approved as currently written, there will be almost no stopping them. So we will either try to stop that roles and responsibilities document or change it substantially, or CBB might even go so far as to want removal of the CEO and chairman of CBB. That's being talked about openly as well. I don't know what combination of that might be best."

White added that there will also be some discussion at summer meeting about the nominating committee procedures and perhaps a discussion about changes to the bylaws.

"Currently the nominating committee is appointed by the chairman, and the chair of the nominating committee is the immediate past chairman," White pointed out, "so there is opportunity for a very inbred group. And now that they're meeting separately as a nominating committee, the chairman who wants to promote a certain agenda can appoint like-minded individuals who would support that agenda."

Austin Brown III, who recently completed a six-year term on the CBB, was asked for his thoughts.

"There are a lot of board members of the CBB who don't have much skin in the game," Brown opined.

Brown also mentioned that several of the current directors do not represent the mainstream of the beef production industry.

"The people who need to be on the beef board are the people who are making their living in the beef industry," he reiterated.

White confirmed that for the first time, when TSCRA submitted their nominations for CBB to the Secretary of Agriculture, they were required to submit a minority outreach plan.

"We had to document our communication efforts to try and entice minorities and disadvantaged ranchers to be a CBB nominee," White stated.

Currently 103 directors make up CBB. Texas gets "X" number of directors based on state cattle numbers. The qualifying organizations — TSCRA, TCFA, TFB, ICA, Cattlewomen, and the Farmer's Union, form the Texas caucus.

"We all submit to each organization the names we're recommending for nomination," White explained. "The Farmer's Union, however, has never participated in our caucus, and yet two years ago Secretary Vilsack out of the blue appointed someone from the Farmer's Union."

As it now stands, three of TSCRA's nominees were accepted to CBB, TFB has three and ICA has three. Prior to this latest round, TCFA had three appointments, but this time one appointment was given to the Farmer's Union. Cattlewomen also has one CBB appointment. It was also pointed out that the Secretary does not have to approve any of the names submitted by TSCRA, for example. The respective organizations nominate but the Secretary appoints.

After the discussion wrapped, a directive passed calling on TSCRA leadership to clearly communicate their concern about the unethical behavior of the CBB's CEO and certain officers and also the concern they have with the R&R document.


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