CEO Stories: Beyond Fair Trade

This is Capitalism: Scott Ford

RH: This is Capitalism. I’m Ray Hoffman. When it comes to turning great businesses into philanthropic legacies, there are two Ford families of note–the one from Detroit and the one from Little Rock. It was Joe Ford and later his son Scott who built a little telephone company in Sheridan, Arkansas, population thirteen-hundred, thirty-eight in the 1940 census, into a $30 billion player in wireless, Alltel.

After selling Alltel to Verizon, Scott Ford started Westrock Coffee and the Rwanda Trading Company as an exercise in capitalism. By paying Rwandan farmers fair value, by creating a two-year training program for those farmers in agribusiness and by launching a new U.S. market for that coffee, Westrock already has put over a $100 million into the pockets of Rwandan coffee farmers and Westrock is just getting up to speed.

Scott Ford, of the other Ford family.

SF: [Laughter.] It’s funny that you mention this. So many times as I travel, and I have had the good fortune to travel all over the world and it is amazing to me the number of times that when people hear my last name they go, “Ford? The car people?” And I say, “no, we’re the poor Fords from Arkansas.” And inevitably the conversation ends, which of course is what that line was designed to do.

But to really get the picture of that, my grandfather was a schoolteacher and administrator and then my father, when he came out of school, had the good fortune of two things. He got some advice from a guy named Jack Stephens about what he ought to at least think about doing in life other than the military, which is what he was doing right after school.

And then my grandfather, my mother’s father, Hugh Wilburn, had started a business that he was really just a contract lineman fixing and repairing an old wire-line telephone plant in Sheridan, Arkansas. And when he finished that project for the family that owned it–which was the Stephens family, in fact, Stephens’ mother lived in that community–when he was finished with that project it was neither a big enough business for the Stephens family to make any money out of it.

It wasn’t a project that any longer required the full labor of a contractor–this is right after World War II–and so he bought that business from the Stephens brothers on credit, I think for $42,000 on a monthly pay note. Literally my mother and her sisters became the operators and he was the technician. What became Alltel, which was the fifth-largest wireless business in the country when we sold it in 2009, was started in that dynamic.

But they had run on for 15 years really and not made any money out of it. And then my dad joined them out of college and the military in 1959 or ’60 and the two of them kind of paired off with a good team and they turned that little business into a $30 billion business before it was all over.

RH: And this was the little telephone line that Witt Stephens wanted to connect into Sheridan so that he could speak to his mother?
SF: Yes. Yeah, he bought the local telephone business and had it expanded out so his mother could get service. [Laughter.]

RH: Right. And that is the seed of everything that happened here.
SF: It’s kind of ultimately ironic the way that the families had worked together back and forth through the years. But if Witt and Jack Stephens hadn’t been willing to take a risk on this guy, my grandfather, who had been…he was a contractor, he was literally hand- digging post holes and then planting a telephone pole in it and running the wire down. He was physically doing the work.

And so what were his qualifications to be a debtor? His qualifications were nothing, right? So at least in that point in time people could say, “I like what I see, I trust him, he has done a good job, and I’m going to take a risk on him” and financed him, 100 percent financed his purchase. He didn’t have a dime to put down on the purchase.

People say, “well why did you…why Africa, why the coffee business? After Alltel you could have gone and done any number of things.” I had other opportunities to be CEO of other Fortune 100 companies. But they don’t know the story that my grandparents told me and that my great-grandparents told me.

My father was the only child to live through childhood. Three children that my grandparents had, the first two didn’t survive the Depression. Rural Arkansas, no running water, no electricity, outdoor restroom facilities, and no basic healthcare available. Both of his brothers passed away as children. And then when he came along, my grandmother raised him. I knew the story and when I was in Rwanda and I saw that mothers are still in the world just on the edge, trying to keep their children alive…

And then I figured out that two guys that were buying coffee out of Switzerland were keeping the price as low as they could keep it–it was actually in a moment of rage that I decided to get into the coffee business. I had made a commitment to build a coffee plant, to go into economic warfare with these two guys where we were going to use the model, “how much can we pay the farmer and still make a profit?” not “how little can we pay the farmer?” And I didn’t even know if coffee grew on a tree or was planted like soybeans. I didn’t know any of that and I had already made a commitment to start the business. [Laughter.]

RH: All this was made possible by the sale of the Ford’s all-grown-up family business, Alltel. Scott Ford succeeded Joe Ford as CEO in 2002 and in 2005, he announced the spin off of the wire-line business to concentrate on mobile.
SF: So I had worked for the Stephens family until January of ’96 when I was sent out to Alltel and I became Joe’s No. 2 for several years before I then succeeded him as CEO. And Alltel at that point in time was a combination of several different businesses. It had a wire-line business, it had a mortgage data processing business, it had a bank software business, it had a cable and supply, a telecom cable and supply business, and it had a specialty wire and cable business. So it was really one of the last of the old conglomerates that generated cash flow and paid a dividend.

But they had recently, within just the last couple of years of that, really gotten the wireless business up and running. And they were convinced that the wireless business had legs but they just didn’t know how to play that out and how long that would run. And it was somewhere in conversations of that nature between the man I worked for, Mr. Stephens, and Joe, my father, that I was sent from my employer to work for my father as my next assignment.

So we knew early on that wireless was probably the only real growth path that we could capitalize on to generate returns for our shareholders but the chess game we had to play with all the various pieces to fund that–both buying wireless and spinning and selling some of the other assets–was really what ate most of my time during that whole tenure. I think we did a hundred different transactions in that first eleven years just to try to reposition the business of what we thought it could be, which was a nationally competitive wireless business.

RH: I want to ask a speculative question. Had you not been able to take that risk, had there been too much regulatory red tape, I’d like you speculate about where that company, Alltel, would be today, and where would mobile communications be today?
SF: Well fortunately at that point in time the FCC had a fairly light-touch regulatory approach to wireless. If they had the approach at that point in time that later administrations brought to bear on telecom in general, and if they had extended all of the wire-line regulatory apparatus onto wireless…

You know, what we basically did was we went to the communities that were 500,000 people and smaller and built wireless networks and then bought companies that had built wireless networks all across really the interior part of the United States. Because the large major companies had to go to the major urban centers–Verizon, AT&T, etc. We figure, “well we’ll go where they’re not going now.” If we had to carry the regulatory burden on wireless that we were saddled with wire line I don’t know that we’d have ever even started it.

RH: You might well still be at Alltel.
SF: Yeah. [Laughter.] Trying to generate enough cash from a disparate set of operating businesses to pay the dividend.

RH: And that would suggest, and this is my whole scenario here, that in turn, in 2009, you never would have bought an abandoned coffee mill in Kigali, Rwanda?
SF: Well, yeah. You could probably draw a line between those two things.

RH: So now that we know you were able to use capital as an intelligent lever, can you take me back to your first visit to East Africa?
SF: We went with another family in maybe 2004 or 2005. We were doing some work in an orphanage up near the Congo and Uganda border that my wife and I had been supporting for some period of time. And while I was there the President of the country… It’s very different today. It’s a very urbane, sophisticated town today but in 2005, let’s say, we were only 11 years out of the genocide in Rwanda and it was a very small town.

And the President of the country heard that there was an American wireless company CEO in town and wanted to have dinner. And he was trying to figure out how to get wireless players to come build networks in his country. That’s where we initially met. We had dinner, I had my kids, and we ended up having dinner with my kids, his kids, and we talked about the three freedoms of western civilization that allow for people to get out of poverty. And they are religious freedom, political freedom, and economic freedom. I guess it used to be called the tenets of Western civilization.

He was really trying to figure out how to change the trajectory of the economy and the mindsets of what people would settle for in his country. And then I think he had aspirations that if they did it well in Rwanda it would pick up in other parts of East Africa.

At that point, it was kind of at a theoretical level. He said, “if we were to create an economy based on the rule of law, zero tolerance for corruption, a respect for the capital that was invested and the right for the people that had invested it to make a profit and keep that profit,” if he did that, the way he summed it up was this, that he could actually change the nation.

And the way he summed it up was, “when the poorest of the poor taste the benefit of the free market system they will never settle for a government that won’t let them have access to that system.” It was one of the great distillations of truth I had ever heard.

And he said to me, he said, “if you ever get a chance to help someone learn how to make money, that’s what we would ask. We don’t ask for your charity. Charity is someone’s excess profit being given to someone who does not yet know to make a profit.” He said, “I want to ask you to find someone in Rwanda, if you ever get the chance in life, to teach them how to manage capital and make a profit. Because if you can do that, when the poorest of the poor taste that benefit, we will change this part of the world.”

And I was just…I thought, “wow, that is an audacious statement for the time and place that it was made.” But fast-forward five years later we ended up selling Alltel. And I said, “hmm, well I’m at least going to go see if there is one person over there that I can find that I can help them build their business,” and that’s…It was out of that trip, five years after the initial trip, that the coffee business was created.

RH: I think we are all familiar with the concept of Fair Trade, especially those of us who walk into coffee shops. But Westrock speaks of beyond Fair Trade. What does that mean?
SF: Yeah, well Fair Trade is one of the certifications that attempts to let people gain some form of visibility into the supply chain. Fair Trade, Rain Forest Alliance, (Unintelligible)… they have a place and they really do attempt to try to help the ultimate buyer look back down the supply chain. We weren’t really thinking about all that when we started it. We were just trying to figure out how do we pay the most we can to these farmers?

Well the answer to that is we have to be able to get the most for the coffee as it goes into the commercial marketplace. But then we figured out, well people would pay you a little bit extra if you had three things–if you had traceability; which means they could see the ownership chain all the way back down to the individual farmer; if you had transparency so that they could see the price that it was exchanged at at each step through that traceable chain. And then you had sustainability. And sustainability is two-fold. It’s yes, it’s sustainable agriculturally and environmentally but also that it’s a living wage where… and it’s mostly women that are small holder farmers in that part of the world, about 70 percent of our clients are women. And so she has to be able to earn a living wage as well.

So with those three elements, we said, “well the way we can pay the most is if we track all of that and we build our business from the ground up.” We are actually on every farm, with every farmer at some point every year and it’s a much more intensive training: agronomy training, how do you keep your financials, when do you prune, how do you fertilize. So rather than just a certificate that there is no child labor and they get a fair price, we are actually on the ground, teaching them.

That has taken the Rwandan farmer from the bottom of the farm gate price economic ladder, if you will, to they were the fastest-growing income stream at a farm gate price of any commodity in the world, anywhere in the world over that first five-year time frame.

And I tell folks this all the time and I know this isn’t the sweetest thing I have ever said but sustainability equals profitability. If you don’t make a profit, you can’t stay in business. All of this good, all of this training, all of the agronomy training program, all of the partnering with NGOs to develop a curriculum and to deploy it and to help the communities become profitable by making the individuals profitable and let them reinvest in their community in infrastructure–school buildings, water wells, etc.–all that comes because this operating trading business at least makes a profit and can show up year after year with working capital lines to actually bid on the crop and keep that price at a level where they can make a living.

Everybody likes to talk about the soft side of it, but the reality of it is if we are not profitable at the core trading business, all of those benefits wash away. And now this, I’ll bring you back full circle, what are the people’s names that built the businesses, that built the economy in rural Arkansas that allowed my father by the time he was born to actually live in an environment where he could be brought all the way to maturation? You can’t name them, I can’t name them. I mean we know some of the family names, etc.

Well that’s the nature of capitalism. There is no glory in it but it is where communities capture the benefit of the local merchants and the traders, farmers, who then collectively take the economic power of what they do individually and invest it back in their communities so that you get running water, infrastructure, power, and education. So what we are trying to do in Rwanda is be the engine that helps them create their own ecosystem just like that ecosystem was generated here 60, 70 years ago.

This is not unlike when Jack Stephens…When I went over to Alltel in 1996, it was on a Monday after lunch and I was talking to him about going over there later that week and I said, “but Mr. Stephens, I don’t know anything about the telecommunications business. I mean I grew up in Joe Ford’s house, but I don’t personally know anything about it.” I was 33 years old at the time. And he said, “well the nouns are different but the verbs are all the same. You’ll do fine.” And off I went to Alltel.

Well, I didn’t know any of the nouns around coffee, but running a wireless business, running a systems business, running a coffee business…We were trying to reach a goal of making an impact, and learning the coffee business was just a requirement to make the impact and I was passionate about that.

RH: And you’re only nine years into this.
SF: And frankly I think we’ll double the business again in the next three to five years. I think really at that point we’ll just be getting up to our fighting weight.

RH: And I’m wondering now if you could have lunch with Jack Stephens again tomorrow afternoon and he had been unaware of all of these things, what would you have told him?
SF: He was a man of few words but great curiosity. I had never thought of that. You caught me a little off guard. I would love to do that. He’d be thrilled. He would start with, “what is it that you saw?” And then he would be convinced that the nouns were different but the verbs were all the same and he would’ve never doubted that we’d been successful at it.

RH: He would have quite a smile on his face.
SF: Yes, he would have.

RH: Scott Ford, as in the Fords of Arkansas.

This is Capitalism. I am Ray Hoffman.