Bad News, Baird’s
In 1995 Texas’ premier white-bread maker turned a profit and took in a lot of dough. So how did the company end up in bankruptcy court?
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LATE IN APRIL ALLEN BAIRD was sitting in the utilitarian office in Fort Worth from which he oversees Mrs Baird’s bakeries planning his company’s Chapter 11 reorganization. “I can think of five hundred things I’d rather be doing,” he said tersely. Baird, who is 73 and has iron-gray hair, is the seventh member of his family to hold the title of chairman. His grandmother Ninnie founded Mrs Baird’s in 1908 to support her eight children, and for decades it has been synonymous with family values. It pained Baird to think of staining that clean-cut image. “I don’t think anything has ever gnawed at me more than this,” he said. “It’s the worst decision I’ve ever had to make. If someone had told me six months ago that we should do it, I’d have said no.”
Most companies file for bankruptcy because they have run out of cash, but that wasn’t the case here. During the fiscal year ending September 30, 1995, the company recorded sales of more than $263 million. What drove Mrs Baird’s to seek the protection of bankruptcy court, despite the stigma involved, was a catas-trophe even more scandalous than going broke. To the shock of Texans who grew up eating its squishy loaves and sticky fruit-filled pies, the company was convicted earlier this year of conspiring to fix the price of white bread. Mrs Baird’s would soon be ordered to pay a criminal fine, and it might even face civil penalties too: After the trial, a handful of plaintiffs (including grocery stores and school districts) argued that they had been hurt by the price-fixing and sued the bakery in state and federal civil courts. That’s why Allen Baird ducked into bankruptcy court—to temporarily freeze the pending litigation.
It was the sort of move you’d expect from a devious corporate raider, which is not how most people would think of one of Ninnie L. Baird’s grandsons. In a somber painting that hangs just inside the entrance of the Mrs Baird’s bakery in Fort Worth, Ninnie is wearing a white blouse and a dark velvet choker, and her gray curls are pulled back from her face. Farther inside is a life-size replica of the kitchen at 512 Hemphill, where Ninnie baked bread. “This is where it all began,” Allen said. The house is always described as Mrs Baird’s first bakery, which is true in the sense that it was the site of the company’s initial operations, although Ninnie had run other bakeries before.
Ninnie was born in Tennessee in 1869 and was reared by an aunt who taught her how to bake. Together with her husband, William Allen Baird, Ninnie ran a restaurant and bakery in Trenton and a small bakery in Covington. In 1901 William moved to Texas in search of a business opportunity and decided he wanted to introduce the first steam popcorn machine to Fort Worth. Ninnie followed with their four children and the machine, which was red with brass fittings and had a whistle on top. Eight months later, William bought a second machine; later still, he sold both of them and ran a series of restaurants as well as a bakery with Ninnie. In 1908 he fell sick, and Ninnie began selling bread she made at home to support their children—which by then numbered eight. After William died in 1911, she went into the bread business full swing.
Over the next eighty-plus years, the Bairds built or acquired twelve plants in Texas, put as many as 3,200 people on their payroll at one time, and grew their business into the largest independent baking operation in the United States. For a long time, many of the bakeries were run by a son or a grandson of Ninnie’s, in keeping with her belief that Texans trusted the company’s product because they trusted her family. Certainly Mrs Baird’s did things the old-fashioned way. Though other bread companies adopted the continuous-mixing process—whereby bread is induced to rise chemically, saving time and money—the Bairds continued to let their dough rise naturally with yeast. Mrs Baird’s also stuck to selling bread with antiquated commercials, typically starring a Baird family member recounting the legend of 512 Hemphill.
In 1992 the Bairds became the first family to be inducted into the Texas Business Hall of Fame. By then, of course, the company had accomplished something greater than financial success: It had become part of the cultural landscape. People drove past Mrs Baird’s bakeries and reveled in the smell of fresh bread; schoolchildren took tours of the plants on class trips. It was hospitable of the Bairds to let so many people traipse through their bakeries, and it was also astute. Back in 1955, a Bakers Weekly article about the tours noted, “They are proving to be the most effective low-cost advertising media for selling the plant to the community that money can buy.” Through the tours and the ads and years of providing fresh bread, the family in general and Ninnie in particular attained a near-saintly status in Texas. When Ninnie died in 1961, the Reverend James G. Harris proclaimed at her funeral that her business success was “in harmony with the moral universe.” The Texas Legislature passed a resolution honoring Ninnie that declared, “Mrs. Baird was a living example for mothers, wives, business executives, Christians, and people the world over.”
Yet even Ninnie’s wholesome image was no protection against the events of 1993. That year, agents working for the Antitrust Division of the United States Department of Justice began investigating whether Texas breadmakers had engaged in price-fixing. They sent subpoenas to the four major bakeries doing business in the state, including subsidiaries of Georgia-based Flowers Industries, the billion-dollar-a-year conglomerate that makes Sunbeam bread. Flowers had moved into the East Texas market in the early eighties after buying Ideal Baking, a small family-owned operation in Tyler, and had moved into West Texas in the early nineties after acquiring Mrs. Boehme’s, a family bakery in San Angelo. After Flowers cut a deal to cooperate with the government in exchange for immunity, federal agents discovered that salesmen for Mrs Baird’s had had regular conversations with executives at rival companies. Subsequently, the feds charged Mrs Baird’s and the company’s former president, Carroll Baird (Allen’s brother), with conspiring to fix prices.
During the trial, which took place in February in federal court in Dallas, lawyers for Mrs Baird’s made much of Flowers’ decision to snitch. Tim Evans, Carroll Baird’s personal attorney, noted that Flowers made bread by the dreaded continuous-mixing process, then said, “If Mrs Baird’s is convicted, maybe then [Flowers] can sell the kind of bread they sell in Texas and get away with it.” But federal prosecutor Gary Rosenberg surprised the defense team by not putting anybody from Flowers on the witness stand, thus depriving the attorneys of the chance to distract the jury. Instead, Rosenberg based his case primarily on the testimony of two witnesses: Stanley Oler and Johnny Greenwood, both of whom had worked for Mrs Baird’s for more than forty years.
While Oler was the director of sales in East Texas, he had regular conversations with Steve Green, the president of Flowers’ bakery in Tyler. Usually the conversations took place after Flowers issued a price letter, which is how a bakery alerts grocery stores of an impending change. Apparently Flowers liked to check with Mrs Baird’s to see whether the company intended to match its announced increases. Sometimes Oler and Green met and exchanged price letters, but mostly they talked on the phone. Explaining why Green called, Oler told the jurors, “He would be inquiring about what our response would be to the price letter.”
“I would imagine,” said Rosenberg, “being a competitor of Flowers’, you’d tell Mr. Green, ‘I’m not telling you what we’re going to do; we’re in competition with you.’ Is that what you told him?”
“No,” said Oler, who noted that he typically told Green that he would check with Carroll Baird, then call Green back and tell him what Mrs Baird’s was going to do. When Mrs Baird’s decided not to match Flowers’ price, Flowers often rescinded its proposed increase. On a few occasions, however, Mrs Baird’s did increase its price after Flowers proposed a hike.
Rosenberg asked Oler, “Were there times that Carroll Baird told you to contact Flowers and tell them that we are going to increase our prices along with them?”
“Yes,” Oler replied.
“. . . And when Carroll Baird relayed that information to you, Mr. Oler, then Mrs Baird’s would put out a price letter?”
“Having the same net wholesale per unit that Flowers did?”
“Not exactly,” Oler said. “Most products would be the same, but not necessarily the variety breads and such . . .”
Attorneys for Mrs Baird’s argued that Oler’s conduct might be ethically questionable, but it wasn’t illegal. “The Sherman Anti-Trust Act does not say you can’t exchange price lists with competitors,” Evans argued. “It says you can’t have an agreement in restraint of trade.” He described Oler’s actions as part of an extensive information-gathering operation in which salesmen were expected to keep their supervisors apprised of what the competition was doing. Rosenberg countered that swapping price letters was a sneaky way of permitting the two companies to determine prices together.
Across the state, in West Texas, Johnny Greenwood had taken over the Mrs Baird’s bakery in Abilene in 1984, when an old-timer named Hart Shoemaker took ill. One of its rivals was Mrs. Boehme’s, in San Angelo, the maker of Holsum bread. Shortly after Greenwood got to Abilene, he received a phone call from Allen Baird. “As far as I was concerned, Holsum was a competitor, and we could outsell them,” Greenwood told the jury. “. . . Then I received this call . . . and it changed my mind a little bit about what the situation was . . . Mr. Allen explained that they had been out there for years, they were independent bakers, just like Mrs Baird’s. There seemed to be some kind of mutual respect for each other, and as I recall, he said, ‘You know, we don’t mind them having some business—we don’t want them to have too much, but we don’t mind them having some business.’” The unorthodox coziness between Mrs Baird’s and its rivals, Greenwood implied, was born of the company’s small-town, old-time character.
Around the same time, Greenwood received a call from Carroll Baird instructing him to contact Graham DeLaney, who was about to take over Mrs. Boehme’s from DeLaney’s father. Carroll told him to talk to DeLaney about how both companies could remain profitable. When Greenwood blithely noted in a memo that he intended to “contact Graham DeLaney,” he received another call from Carroll Baird. “He said I should not have listed that on my weekly check sheet,” Greenwood testified. Nevertheless, when Mrs Baird’s wanted to increase the price of bread and didn’t want to be undersold, Greenwood would call DeLaney. “[Carroll] informed me that we were going to increase the price on bread on a particular date, [and asked] did I think that Holsum would go along at that time, and I would inform him that I would find out,” he explained to the jury.
When Shoemaker returned to work, Greenwood learned that Mrs Baird’s and Mrs. Boehme’s regularly divvied up bids to Air Force bases and school districts. For several years after, Greenwood and DeLaney decided together what their bids would be, so that Mrs Baird’s always won the contracts for Dyess Air Force Base and the Abilene school district, while Mrs. Boehme’s won the contracts for Goodfellow Air Force Base and the San Angelo and Brownwood school districts. However, Greenwood testified that he rigged bids on his own and didn’t tell his superiors of the practice, and by the late eighties the scheme started to fizzle anyway, as other bakeries began bidding on the contracts. Then, in April 1990, Greenwood and other general managers received a memo from Vernon Baird (Allen and Carroll’s brother), who was the chairman of the company. The memo stated that market conditions, pricing, and other aspects of operating in a market were not to be discussed with competitors. Greenwood testified that as soon as he got the memo, he stopped discussing prices with DeLaney.
This was good news for Mrs Baird’s: The statute of limitations on conspiring to fix prices is five years, and by the time of the trial, it had been six years since the memo was written. It had been even longer since Greenwood had rigged a bid. So even if his actions had been criminal, they were arguably outside the scope of the prosecution. The trouble was, Stanley Oler testified that he didn’t remember getting the memo and that he kept doing business the old-fashioned way until he retired in 1992. On the strength of that information, the jurors took three and a half days to convict Mrs Baird’s of price-fixing in East Texas (Mrs Baird’s is appealing the conviction). They acquitted the company in West Texas and acquitted Carroll Baird entirely.
The ordeal wasn’t over, though. While the criminal trial unfolded, plaintiff’s lawyers were converging on Mrs Baird’s like ants heading for a picnic hamper. They represented clients, including corner stores, supermarkets, and school districts, who could claim to have been financially damaged by the alleged price-fixing. One class-action lawsuit—known as the Piggly Wiggly litigation after the grocery store in Clarksville—was created after three separate civil suits were filed in federal court in East Texas. Then two grocery stores and half a dozen school districts filed a class-action suit in Johnson County. The suits threatened to cost Mrs Baird’s a lot of money—probably more than the criminal fine. They also kept the controversy in the newspapers, and that kind of publicity was bad for business.
To move beyond the scandal, company officials steeled themselves and put Mrs Baird’s into Chapter 11. “I didn’t know you could file for bankruptcy unless you were bankrupt,” Allen Baird said shortly afterward, “but the bankruptcy laws are such that you can anticipate what will happen to you.” Within a month’s time, the plaintiffs accepted a negotiated settlement from Mrs Baird’s of $18 million—far less, everyone agrees, than the company might have paid if the suits had gone through. That just about put the whole mess to rest.
Now Mrs Baird’s is spending the next few months putting together a reorganization plan. Allen Baird is not looking forward to the public scrutiny, but so far, Mrs Baird’s has raced through all of the required filings and will probably be out of bankruptcy court in something close to record time. The company that emerges will not be the same as the one Ninnie founded. The Mrs Baird’s board has hired the first top executive from outside the family’s ranks: Larry Wheeler, a longtime Pillsbury official who replaced Carroll Baird as president and CEO last May. Wheeler and the Bairds have been working to reposition the bakery to survive in a changed world. The company they are creating is leaner and more efficient—they have already closed their bakery in Austin and have switched employees to a cheaper health care plan—but will offer a broader range of products. Mrs Baird’s recently introduced its first line of tortillas.
Ninnie Baird would probably have done no differently. A lot of Texans must imagine her turning in her grave at the thought of her company facing charges of price-fixing and a stint in bankruptcy court, but the flesh-and-blood Ninnie surely possessed a lot more grit than the prim woman portrayed in the gilt-framed painting. If she were alive, she would probably congratulate Allen for pulling the bakeries out of trouble and suggest they get on with making more dough.