April 24, 2014

Adolphus Green, Founder of Nabisco

Oreo Cookie by Nabisco Founder Adolphus GreenAdolphus Green was the genius that founded the modern day Nabisco, which was known as the “biscuit trust” after J.P. Morgan combined much of the nation’s bakeries under a single entity that Green controlled. He is responsible for most of the snacks America has enjoyed for generations.

The thing that impressed me most about Adolphus Green, though, was his understanding of cost control by going direct-to-wholesaler and removing middle-men distribution systems, providing reasonable benefits for employees, and the greatest thing of all, giving them a chance to be a part owner in his company by using their own hard-earned cash to acquire shares and participate in the firm’s profits and losses.

The officer of every corporation should feel in his heart – in his very soul – that he is responsible, not merely to make dividends for the stockholders of his company, but to enhance the general prosperity and the moral sentiment of the United States.

- Adolphus Green, founder, Nabisco (or as it was known for most of its history, The National Biscuit Company)

According to Barbarians at the Gate: The Fall of RJR Nabisco, Adolphus Green was a really interesting guy.  The book says:

Green pioneered the idea of using a direct sales force in the food business rather than a middleman, dispatching salesmen to push Nabisco products across the country.  Beginning with the Uneeda Cadets, Nabisco mustered a huge, hardworking army of salesmen who made their appointed rounds in horse-drawn wagons with freshly painted Nabisco logos six days a week, twelve hours a day.

A man who referred to his workers as “a great family,” Green made Nabisco a benevolent employer.  Within three years of its founding, he installed a system for the company’s employees to buy stock on cut-rate terms, making them what he called “associate proprietors.”  He refused to employ child labor in an era when it was common.  And although he expected his workers to churn out America’s snacks from dawn to dusk, in brutally hot and often hazardous bakeries, he also felt responsible for providing them nutritious meals.  “In our New York plant,” he wrote in a report to shareholders, “an employee can obtain a dinner consisting of hot meat, potatoes, bread and butter, and coffee or tea for 11 cents.”

That would be about $2.80 today for dinner, by the way.  Everyone had the chance to become a part owner.  That is the type of system that I think is fairest.  Anyone who is willing to succeed can and those who don’t do what is necessary never advance.  It is just.

The good and bad news is that the guy who took over after Adolphus Green died focused on the bottom line and not innovation of creating great products with the exception of Ritz crackers, which became the world’s bestselling cracker almost instantly.  The book goes on to say that although profits quadrupled in the 1920-1930 decade, the company “rested on its laurels.”  In the decade thereafter:

Nabisco drifted, paying its dividends, keeping out of debt, and baking the same cookies and crackers it had for years.  Eventually profits dropped, its bakeries aged, and so did its management.  By the mid-1940s, the average age of Nabisco’s top executives was sixty-three; they were known as the “nine old men.”

Ultimately, it was the next Nabisco CEO that had to invest $200+ million to revitalize the factories and start innovating again to create products for the future.  The people at Nabisco had been living on the inheritance of Adolphus Green and, after half a century, it had begun to give out from old age.

  • Frat Man

    Quick question. In a nutshell, how do hostile takeovers work? Namely, if you own 51% or more of a company, or if it’s structured so that you control 51% of the voting rights, can your company ever be taken away from you unwillingly?

    • http://www.joshuakennon.com Joshua Kennon

      The whole 51% thing is a Hollywood sham. Once you have control of the Board of Directors it can be fairly easy from there but that can be impossible in some situations because companies can have so-called poison pills whereby if someone acquires more than, say, 15% of their stock without approval of the Board, a special class of preferred stock is issued that dilutes the new acquirer but no one else or all kinds of things. Or you could do the Washington Post move, where it has two classes of stock, one controlled by the Graham family that is entitled to elect a majority of the board of directors no matter how much stock they own. Or you could do a Martha Stewart thing where stock in her hands is worth – I forgot exactly but it’s something like 10x the votes as the shares if anyone else own them. So her owning 1% is like having 10% of the voting power.

      Hostile takeovers would mostly happen via a tender offer where one firm (the acquirer) made a public announcement that they were willing to buy any and all shares of another form (the acquiree) at price XYZ between now and a certain deadline. If enough shares were “tendered”, that is sold out to them, they can take control of the business. There are entire law practices devoted to mergers and acquisitions so it is incredibly complicated.

  • Juan Duque

    Kennon , 
    Any history of what happened to the family , Adolphus’s Family ?