Farmers National Company

An Interview with Jim Farrell (President & CEO) and Randy Dickhut (VP of Client Relations) of Farmers National Company
By Jeremy Christensen and Ajit Chawla, Creighton University MBA students

Reputation.

That was the word that reverberated most prominently throughout our interview with Farmers National Company’s (“FNC”) Jim Farrell and Randy Dickhut. Mr. Farrell, FNC’s President and Chief Executive Officer, and Mr. Dickhut, the company’s Vice President of Client Relations and chairman of the FNC Ethics Committee, understand the value of a solid business reputation and how a sound understanding and consistent implementation of ethical practices within the company contribute to the development and maintenance of FNC’s own reputation.

Founded in the midst of the Great Depression with the primary purpose of providing farm management services for non-resident landowners, FNC has grown rapidly ever since. Today, the Omaha-based company is the largest farm management company in the United States, managing over 5,000 farms, ranches, and specialty operations across the country and managing an estimated $6.48 billion in total assets. The list of services provided by FNC has also expanded to include farm and ranch real estate sales and appraisals, oil and gas management, commodity marketing, hunting and fishing leases, and insurance. In 2000, the employees of FNC bought the company from MetLife and have since continued successfully under an employee stock ownership plan (“ESOP”). Displayed proudly on the 2009 Better Business Bureau Integrity Award Winner’s website are FNC’s “Core Values”: Integrity and Honesty, Trustworthy, Outstanding Service, Work Ethic, and Excellence, all of which Mr. Farrell, Mr. Dickhut, and the rest of FNC adamantly adhere to.

Mr. Farrell and Mr. Dickhut took remarkably similar paths toward where they are today. Both leaders are products of farm families (from Iowa and Illinois, respectively) and have extensive agricultural backgrounds. Mr. Farrell attributes his solid work ethic and his ability to discern right from wrong to growing up on a farm and to being educated in a Catholic school system. After graduating from Iowa State University, Mr. Farrell farmed for ten years during a particularly tough time for farmers due to substantial foreclosures on farming properties. It was this experience (when Mr. Farrell saw “normally ethical people doing unethical things,” such as walking away from their loans) that Mr. Farrell cites as an important ethical learning experience. Mr. Farrell paid his debts by selling livestock and machinery and joined FNC in 1986 as a farm manager, where he has steadily honed both his own and FNC’s respective reputations.

Mr. Dickhut likewise stresses the importance of school and church in the development of his own ethical principles. A graduate of Quincy College (Ill.), Mr. Dickhut also joined FNC as a farm manager where he has practiced the art of “taking care of the needs” of the company’s clients, which he sees as the most important factor in the quality of service as a farm management company. Mr. Dickhut advocates what he calls the “Golden Rule of Business”; that is, utilizing business practices with others as you would have them utilize the same practices with you. This includes never dismissing a competitor, putting ethics before money, and the realization that businesses aren’t just businesses and that they are run by people like us.

The following sections contain elements of our interview with Mr. Farrell and Mr. Dickhut as they pertain to business ethics at FNC. It is safe to say that if every local institution practiced ethics in their business with the amount of care that FNC does, the Omaha business community would be a much nobler place.

A Policy that Spotlights Ethics

Before FNC became employee-owned, the company was a subsidiary of MetLife. According to Mr. Farrell, MetLife was “instrumental in setting up business policies that ensured ethical treatment of their clients.” It was during this time, as a subsidiary of MetLife, that the ancestor of FNC’s current employee ethics program was developed. Mr. Farrell served on the committee that created the original ethics policy and, according to Mr. Dickhut, the ethics policy took the company to another level by putting business ethics under a spotlight at FNC. Since the origination of the policy, it has been refined and updated as the need arose.

Since the ethics program was implemented at FNC, the company has a taken a proactive approach towards business ethics and there has been 100% employee participation, a statistic that Mr. Dickhut stated with pride. The program requires employees to disclose any and all conflicts of interest and to sign a disclosure document on an annual basis. Furthermore, FNC created a business favor form that must be filled out any time such a favor is received, a policy that promotes disclosure of all such favors. FNC maintains an ethics committee that meets quarterly and that is responsible for maintaining and enforcing the program and for making sure that all employees have received a copy of the ethics policy. FNC utilizes a whistleblower policy with regards to ethics violations and keeps a form readily available for employees who wish to use it, but Mr. Dickhut stated that there have been very few issues, a testament to the ethical core of the company.

The Ethics of Being Employee-Owned

In 2000, FNC instituted an employee stock ownership plan (“ESOP”) and has operated as an ESOP company ever since. As far as the stakeholder theory of ethics is concerned, the role of employees as stakeholders becomes even more prominent: employees in an ESOP company are both everyday employees as well as investor shareholders in the company. After becoming employee-owned, FNC eliminated its debt in five years’ time and has thrived as an ESOP company. During our interview, we asked Mr. Farrell and Mr. Dickhut to share with us the unique ethical considerations important in operating as an ESOP.

According to Mr. Farrell, one example of a semi-unique ethical issue to consider in the administration of an ESOP company is what to do with any excess cash. Should the cash be reinvested into company operations, paid out in bonuses, utilized to increase salaries, etc.? Ultimately, doing what is best for the employees is the same as doing what is best for the shareholders. Mr. Farrell stated that, because the ESOP acts essentially as a retirement mechanism for employee shareholders, utilizing the excess cash to maximum shareholder wealth is ethical in and of itself. Mr. Dickhut agrees. Because all excess funds are essentially the employees’ money, he said, there is not room for big, unethical perks for upper management that are so often criticized in today’s business environment. Operating as an ESOP ensures that all salaries and bonuses paid are fair and that the salary gap between the lowest and highest paid employees remains much smaller at FNC than that at most larger corporations. As far as FNC is concerned, choosing to operate as an ESOP wasn’t just a business decision, but an ethical decision as well.

Reputation: FNC’s Biggest Ethical Issue

When asked what FNC’s most valuable asset is, management will likely respond with one simple word: reputation. Mr. Farrell and Mr. Dickhut agreed wholeheartedly that the biggest ethical issue at FNC was maintaining, rather than losing, their stellar reputation. As a national company that serves both rural and urban clients, the maintenance of reputation itself entails numerous ethical issues. Mr. Farrell and Mr. Dickhut discussed many of these issues with us.

According to the interviewees, maintaining reputation is a simple matter of just “doing the right thing.” This includes readily paying a fair settlement to a client when FNC is likely at fault (instead of fighting it out in court), never dismissing or bad-mouthing a competitor, immediately refunding to clients any amount that was mistakenly overcharged, and knowing where to draw the ethical boundaries when it comes to business favors. Business favors were a common example cited by Mr. Farrell and Mr. Dickhut. The general rule at FNC is that if the company can’t afford to do it itself, they simply don’t do it. Instead of gifts, FNC will ask vendors for employee training instead, a perk that will benefit a number of employees within the company rather than just upper management. In the end, “perception is reality,” says Mr. Farrell, and if FNC is perceived to be unethical, it is its reputation (and its employees’ retirement accounts) that suffers.

Ethical Issues for Today’s Young Professionals

In today’s fast-paced technological environment, Mr. Dickhut sees opportunity as well as potential ethical issues for today’s young businesspeople. Mr. Dickhut discussed the need to overcome our “get-rich-quick” attitudes that potentially conflict with what is best for our businesses. According to Mr. Dickhut, when one has that sort of attitude, there is an unethical tendency to act too selfishly. We live in an instantaneous society which often puts sustainability on the backburner in favor of whatever benefits we can realize immediately, says Mr. Dickhut. To combat this, FNC attempts to instill in its employees a set of sustainable (rather than situational) values so as to ensure the success of the company in the long term.

FNC and How to Make Corporate Responsibility a Reality

Although it was clear that Mr. Dickhut had never thought about FNC’s role in the community in the specific terms of “corporate responsibility,” it was equally clear that FNC practiced a sort of corporate responsibility nonetheless. After stating that FNC was obviously in business to make a profit, Mr. Dickhut agreed that ideally, there is a way to both make a profit and practice corporate responsibility and that the two goals need not be independent of each other. Being an agricultural company, Mr. Dickhut gave several examples of business practices that he believes contribute to both profitability and to the betterment of the farming community. FNC recognizes farm managers who do conservation work, giving the managers an incentive to utilize conservation practices in their everyday jobs. FNC also practices soil stewardship, makes a conscious effort to conserve resources, utilizes terraces, waterways, idle lands, and uses buffer strips against pollution. FNC provides a good example of how profit and corporate responsibility really can go hand-in-hand.

“Ethics before money,” Mr. Farrell espoused very early on in the interview. At FNC, it isn’t just a warm and fuzzy saying. It’s a way of doing business.