Building a Bigger Tyson Foods

Photography by Vito Palmisano
As chief executive officer of Tyson Foods, Donnie Smith is out to do the right thing for consumers, employees, the environment and the animals at the company's core.

His goal is to deliver more than they expect and to do it responsibly.

Faced with higher input costs, Smith has been driving out inefficiencies while bolstering product quality, food safety and innovation. "In this environment, your customer simply cannot afford to pay for your inefficiencies, so we have to drive those inefficiencies completely out of our business," he says.

At the same time, Smith is committed to making Tyson's products better than ever. The company's FarmCheck program, launched in October, involves in-person audits at the farms supplying Tyson and is indicative of Smith's genuine concern for the way animals are treated as well as his commitment to transparency. "Number one is we care enough to check," Smith says. Through an advisory committee of experts, Tyson also aims to learn about better ways of raising animals.

The FarmCheck program is just one of a string of improvements and innovations at Tyson since Smith took the helm in November 2009, becoming the company's fourth nonfamilial CEO. The Springdale, Ark.-based company was founded in 1935 by chicken farmer John Tyson, and the founder's grandson of the same name is currently chairman of the board. Tyson Limited Partnership controls about 72 percent of the total voting power of Tyson's stock, which trades on the New York Stock Exchange under the symbol TSN and is a member of the S&P 500.

Perhaps still best known as a center-of-the-plate protein processor, Tyson Foods has branched out far beyond chicken, pork and beef to market a variety of products to retailers and food service providers. Ethnic foods are becoming a specialty, and the company now produces 15 million to 20 million corn and flour tortillas per day.

The 53-year-old Smith, who started at Tyson more than 32 years ago after graduating in December 1980 with a degree in animal science from the University of Tennessee, says he once wanted to be a veterinarian but didn't have the grades. "There is nothing special about Donnie Smith," he says candidly, and he recounts that as a boy, he was "the skinny little kid who lived in the little bitty house" in Arrington, Tenn. Yet he recalls that his father inspired his work ethic by telling him if he worked harder than everyone else, eventually he would be everybody else's boss.

Smith's servant leadership style has helped to motivate workers, spur innovation and improve the company's financials. Tyson reported revenue of $33.28 billion in fiscal 2012, up from $32.27 billion the prior year and from $26.70 billion in fiscal 2009, ended Oct. 3, 2009. Net income attributable to Tyson was $583 million in fiscal 2012, down from $750 million in fiscal 2011, but considerably rosier than the $537 million loss the company reported in fiscal 2009, just before Smith was named CEO.

In the first half of 2013, ended March 30, the company reported net income attributable to Tyson of $268 million, down from $322 million a year ago, while sales rose 1.3 percent to $16.82 billion. While the company's second-quarter results fell short of expectations, analysts at Little Rock, Ark.-based Stephens Inc. are maintaining their $26 stock price and $2 earnings-per-share targets for fiscal 2013, while boosting the earnings forecast for fiscal 2014 due to strong fundamentals in the chicken industry. Continued demand for chicken, coupled with limited supplies and declining grain costs, are expected to bolster results in 2014, while Tyson's prepared foods profits also are expected to improve as the company finishes renovating a lunchmeat plant in Houston and costs moderate, Stephens analyst Farha Aslam said in a May 7 research bulletin. Smith says he is confident the company's full-year fiscal 2013 results will increase from 2012.

Adding Value

Tyson Foods has hardly abandoned proteins, but it has shined up its image as the second-largest food production company in the Fortune 500. With a growing food service unit, Tyson strives to be known as a global provider of value-added foods, such as appetizers, soups, sauces, prepared meals, ethnic foods, side dishes, meat dishes and processed meats. It also has introduced gluten-free products and antibiotic-free chicken.

Tyson Foods invested $43 million in R&D in fiscal 2012, up from $38 million in fiscal 2010.

"With a unique product portfolio and visibility around the entire store, we think we have potential to create an aisle's worth of value, but that doesn't come cheap," Smith says, referring to the company's investment in its Discovery Center innovation lab. Tyson spent $43 million on research and development in fiscal 2012, about the same as in 2011, but up 13 percent from $38 million in 2010, according to the company's annual report. "If we can take the insights and the shopper data and create a solution, that is money well spent that can grow a category," Smith says, noting that many of the newest products involve added convenience, taste or health attributes.

"It's not just about a few really smart people thinking up new products and throwing them against the wall and seeing if they stick. It's about having meaningful innovation that is driven by a consumer need that we have uncovered in our consumer insights," Smith says.

Tyson's Discovery Center boasts 19 research kitchens and a USDA-inspected short-run plant.

The company conducts focus groups within the Discovery Center, which contains 19 research kitchens and a U.S. Department of Agriculture-approved short-run pilot production facility that can send new products straight to grocery stores.

Regardless of the task at hand, Smith gives full credit to the 115,000 employees who he says are doing the "real work" at Tyson. His job as he sees it is to be the chief facilitator, and he puts himself at the bottom of an organizational structure that looks more like a peach tree than a pyramid. "My job is to provide the environment where all of us can thrive, and where it's OK to fail," Smith says.

Smith tries to teach employees to learn from mistakes, including one that led to a settlement with the Environmental Protection Agency. In April, Tyson Foods said it resolved EPA concerns about refrigeration systems at Tyson plants in four states. The EPA alleged the Clean Air Act compliance matter included the accidental release of anhydrous ammonia at certain Tyson locations that involved a fatality and multiple injuries. Tyson disputed many of the EPA's claims but acknowledged in a news release,"there was a period when some refrigeration improvement projects fell behind schedule at several locations." The company agreed to pay $3.95 million to settle the case with the EPA and also provide $300,000 for emergency response equipment to fire departments in eight communities where it operates plants. In addition, Tyson will conduct third-party audits at 23 facilities in Kansas, Iowa, Missouri and Nebraska."None of us are perfect. We're all going to make mistakes," Smith says.

Spreading the Word

Throughout Tyson, employees understand Smith's desire to broaden the company's focus to keep up with consumers' changing tastes, says Chief Information Officer Gary Cooper. "Donnie understands how to make a message. He's pretty good at crafting a little slogan or message that communicates, 'Here's what we're trying to do,'" Cooper says.

Smith's vision statement for the company is six words: "Making Great Food. Making a Difference." He intends it to be a reminder of the company's commitment to innovation as well as food safety.

"As we move forward, we want to be thought of as a solutions provider."

"As we move forward, we want to be thought of as a solutions provider," he says. To get there, Smith has set goals of driving value-added poultry and prepared-food growth at two times the rate of Tyson's expected 3 percent to 4 percent annual growth. International sales, which now represent about $5.5 billion or 16.5 percent of the company's total revenue, "need to be growing at 12 percent to 16 percent," Smith says.

In fiscal 2012, Tyson Foods sold products to about 130 countries, including Brazil, Canada, China, Japan, Mexico, Russia, South Korea, Taiwan, Ukraine and Vietnam as well as nations in Europe, the Middle East and Central America. Of the $5.5 billion in international sales, $4.0 billion were export sales from the United States, the company reports. In China, where food contamination has been an ongoing problem, Tyson is building its own chicken houses and processing plants so it can control the way the poultry is fed and treated.

Both domestically and internationally at Tyson Foods, Smith has been focusing on fundamentals, such as quality, food safety, capacity utilization, order fill and on-time delivery. "We created this foundation of an excellent cost structure and excellent capital structure," he says. "If you don't get the basics right, and you're just growing a business, you're just growing a problem faster," he says.

When a problem needs attention, Smith asks employees to figure it out. "He always says the answer is in the room," says Cooper, who recalls Smith did an 18-month stint as CIO despite knowing little about information technology. Smith asked Cooper to move into the building where Smith was working so that Cooper could work with him to solve the problem. "He wanted to take the IT organization back to being business-led," Cooper says.

Listen and Learn

Long before becoming CEO, Smith's mentor at the University of Tennessee spotted his keen interpersonal skills. "Donnie never met a stranger. He's that type of person. But he was willing to listen before he expresses himself–no matter who is talking," says Charlie Goan, a retired professor at the University of Tennessee's School of Agriculture.

Smith worked in poultry operations for seven years in Tennessee before being promoted to headquarters to be a commodity buyer. He became director of commodity purchasing in 1991 and did stints in a variety of departments before being named group vice president of poultry and prepared foods in 2009, shortly before being appointed president and CEO.

"When I came out here [to headquarters] and was buying grain, I had a wonderful grain broker who taught me the lesson: Not every hill is worth dying on. Not every battle needs to be won. You need to win the war, not the battle," Smith says. He learned how to treat feedmill vendors after he turned off some of them. "I was ripping their heads off.... People didn't want to trade with us because I was being too tough on them," he recalls.

From Goan, Smith says he learned "that encouragement is the fuel of success." At Tyson, Smith says,"If you let people know what it is you want them to do and what it looks like done well, they'll knock themselves out trying to get you there."

"If you let people know what it is you want them to do and what it looks like done well, they'll knock themselves out trying to get you there."

Smith presents a list of 10 leadership characteristics that he calls a formula for success: integrity, intelligence, innovation, interpersonal skills, inspiration, relationships, resiliency, results, decision quality and servant leadership.

Smith doesn't just preach the 10 characteristics, he abides by them. "He's more transparent than anyone I have ever met. Transparency and honesty lead to high trust," Cooper says. "People know there's no agenda. There's nothing behind the curtain" with Smith.