Biotech Backlash Is Battering Plan Shapiro Thought Was Enlightened

By Scott Kilman and Thomas M. Burton, Staff Reporters of The Wall Street Journal
Copyright 1999 Wall Street Journal
December 21, 1999

Monsanto Co. Chief Executive Robert B. Shapiro gazed into the future four years ago and envisioned his company as a biotechnology factory on the cutting edge, churning out novel foods and medicines.

Monsanto could invent crops to lower people's cholesterol and prevent nightblindness in India. It could alter food crops' characteristics based on science's growing understanding of human nutritional needs. It could help nourish the poor in developing nations. And it could modify plants to produce medicines such as blood substitutes, promising disease-free supplies.

He saw this project as environmentally enlightened, using terms like "sustainable agriculture" and "holistic solutions." Also, not incidentally, as one that would serve shareholders well in the age of technology.

Billions of dollars later, that concept of a unified "life sciences" company -- using technology to improve both medicines and foods -- has become an affliction itself for Monsanto. The crop-biotechnology half of the program has grown so controversial that Monsanto has agreed to a deal that is likely not only to push biotech to the back burner, but also to cost Monsanto its independence. And investors are reacting harshly.

Monsanto's agreement to combine with Pharmacia & Upjohn Inc. is billed as a merger of equals, but it leaves the Pharmacia side with the upper hand. Pharmacia's 54-year-old chief executive, Fred Hassan, is to run the combined company. He plans to operate from Pharmacia's headquarters in Peapack, N.J., not from Monsanto's base in St. Louis. Mr. Shapiro, 61, is expected to become nonexecutive chairman and retire after 18 months.

That agricultural business that Mr. Shapiro has championed will become a separate business, and as much as 19.9% of it will be sold off. While many projects will continue, and Mr. Hassan has expressed support for the business, it isn't likely to have anywhere near the priority it had. Mr. Hassan's chief focus is Monsanto's drug business, G.D. Searle, whose Celebrex arthritis medicine is the hottest-selling new drug in the U.S. this year.

In retrospect, some former colleagues say Mr. Shapiro was so taken with his vision of a biological revolution that he ignored the paramount issue of consumer attitudes. Surrounded by a handful of like-minded biotechnology enthusiasts within the company, known as Friends of Bob, he had few voices in his inner circle providing a reality check.

Mr. Shapiro had huddled with environmentalists to plan his program, and he saw the results it would produce as an environmental good: less need for pesticides, weed control without disturbing the soil so much, and greater food production from less land. Yet it is environmentalists, fearful of unintended ecological consequences, who have organized this year's fierce opposition to genetically modified food.

And for all of Mr. Shapiro's futuristic thinking about genetic engineering of plants, he overlooked a vital issue: Crop biotechnology would trust Monsanto's fortunes to customers the company knew little about: grocery shoppers.

"We did proceed on the basis of our confidence in the technology," Mr. Shapiro says. "And we saw our products as great boons both to farmers and to the environment. I guess we naively thought that the rest of the world would look at the information and come to the same conclusion."

Monsanto initially had much success with biotechnology. American farmers embraced its new seeds, sowing vast reaches of the Midwest to crops made hardier through genetics. But another Monsanto invention almost ready for marketing -- soybean and canola modified to make healthier cooking oil -- isn't generating as much excitement from food companies.

And recently two Monsanto competitors in Europe decided they are getting out. Swiss pharmaceutical giant Novartis AG and Anglo-Swiss drug maker AstraZeneca PLC plan to combine their agricultural units into one business and spin it off, effectively washing their hands of crop biotechnology.

They say farms and pharma turn out to have less in common than hoped. The lab equipment for reading genes of humans and crops is largely the same, but the marketing issues are far different.

The public accepts biotechnology in medicine because it sees a clear benefit: saving lives. But about all crop biotechnology can do for now is make plants that are easier and cheaper for farmers to grow. While that's great for farmers, it's hardly an appeal to middle-class consumers, particularly when they are being cautioned by opponents that the foods' safety hasn't been proved.

Before crop biotech became so controversial, Mr. Shapiro could make a better deal for Monsanto in the merger game. American Home Products Corp., though roughly twice Monsanto's size in revenue and market value, offered 18 months ago to make Mr. Shapiro co-CEO in a merger. The deal, finally doomed by personality conflicts, would have valued the company at $35.1 billion, far more than the deal with Pharmacia does.

Mr. Shapiro took over at Monsanto four years ago, and few chief executives have changed an old industrial company more quickly, on the force of an idea, than he did. Arriving via Monsanto's 1985 acquisition of Searle, where he headed the NutraSweet artificial-sweetener business, he became head of the agricultural unit and then CEO in 1995.

Mr. Shapiro represented a major change -- from old school to New Age. He succeeded Richard J. Mahoney, who had run the 95-year-old commodity-chemicals company almost as if it were reform school. When senior staffers made presentations before Mr. Mahoney, they were sometimes timed by green, yellow and red lights, and expected to stop in mid-sentence when the red light flashed.

Mr. Shapiro (who is trained as a lawyer, not a scientist) was professorial and informal, wearing vivid sweaters and baggy corduroys to work, and often no tie. "I'm Bob Shapiro, and I'm in charge of the dress code," he joked at an early meeting with employees. Initially he turned down the offer of a company chauffeur, saying, "I learned how to drive a long time ago."

The new CEO convened a forum of 500 Monsanto people from around the world, where, clad in a sweater-vest decorated with little quilted cats, he laid out his vision of the future. He had assembled not just senior managers but also representatives from production plants, clerks and bosses alike. Environmentalists such as Peter Raven, director of the Missouri Botanical Garden, spoke. So did Ken Dychtwald, a guru of the "Age Wave" movement who focuses on how the growing size of the elderly population affects society.

Copies of Mr. Shapiro's remarks aren't available, but he retraced them in a later interview in the Harvard Business Review. "Without radical change," he said, the impending doubling of global population would someday mean an "unthinkable" world of "mass migrations and environmental degradation on an unimaginable scale." His remedy: designer crops that need less land and yield more -- and more-nutritious -- food. "The market is going to want sustainable systems," he said, "and if Monsanto provides them, we will do quite well for ourselves and our shareowners."

By all accounts, he riveted the crowd at his forum. A loyal following ensued, one that some have called almost a personality cult. At a dinner in Chicago's Field Museum after the conference, one enamored employee hung her name tag around Mr. Shapiro's neck. Soon, others were doing likewise.

Within months, project teams on "sustainability" -- focusing on topics like world hunger and global water supplies -- started up within Monsanto. Preaching that Monsanto needed to become an "ecosystem" capable of making decisions quickly, Mr. Shapiro ordered executives out of big offices and into cubicles. They were linked in a novel organizational structure called "two in a box" that forced managers from different departments to work together.

The business Monsanto had pursued for close to a century, commodity chemicals, was spun off. Instead, the company invested heavily in the pharmaceutical half of the life-sciences equation Mr. Shapiro envisioned. And in the agricultural half, it went all-out: buying seed companies and gene technology and ultimately spending several billion dollars to build a crop-biotech empire.

Mr. Shapiro approved paying huge premiums to buy seed producers, figuring Monsanto needed them to get its genes into the hands of farmers. Two years ago, the company paid $1 billion for a family-owned seed company in Iowa that had roughly $50 million in yearly revenue.

As a marketer, Monsanto, when it made commodity chemicals such as carpet fiber, was accustomed to staying in the background. Mr. Shapiro evidently didn't have a clear plan to get public acceptance of bio-engineered food. "He didn't realize that he had to start thinking like a food executive," says Bill Jorgenson, managing principal of SJH & Co., a food consultant in Danvers, Mass.

The first genetically modified seeds Monsanto brought to the world didn't have anything to do with healthier food or cheaper drugs, the vision that inspired Mr. Shapiro's followers. Instead, they were products created in the laboratory to sell more of a Monsanto weed-killer called Roundup.

The potent herbicide will kill almost anything green. In 1996, Monsanto began selling seeds for soybean plants it had genetically altered so they could survive a dousing with Roundup. This made it far easier for farmers to get rid of weeds. No longer would they have to drive their tractors across soybean fields several times every year rooting out the weeds mechanically. They lined up to plant Monsanto's "Roundup -- ready soybeans" -- and buy more Roundup.

As it turned out, tinkering first with soybeans, of all crops, was a bad idea from a consumer standpoint. A lot of American soybeans go to Britain, where food calamities such as mad-cow disease had made consumers extremely wary of any food seen as unnatural. Some consumers felt trapped, because soybeans are ubiquitous in British grocery stores as an ingredient in foods ranging from cooking oil to candy.

Europeans began claiming a right to know whether food contained ingredients from genetically modified plants. It became such a torrid issue that the European Union imposed mandatory labels on some foods with such ingredients. And soon, British grocery chains were racing to advertise house brands as "GMO-free" -- no genetically modified organisms.

Mr. Shapiro wishes now that, instead of herbicide-resistant soybeans, he had entered the marketplace first with a crop genetically modified to make healthier cooking oil or vitamin-enriched food. "Certainly if our first products had been something that had health benefits, it would have been easier to make our case. Then many consumers would have seen benefits, like has happened in the pharmaceutical world," where biotechnology isn't such a cause of opposition.

Early this summer, the efforts of European environmental groups fervently opposed to genetically modified foods began to raise awareness of them in the U.S. The activists argued that the crops risked inadvertently unleashing genes in the environment, with unpredictable effects.

Regulators such as the U.S. Food and Drug Administration hadn't interfered with genetically modified crops, seeing no reason to think they weren't safe to eat. But surveys now show that the vast majority of Americans want such foods labeled. A labeling bill has been introduced in Congress, and the FDA has held hearings on the matter.

So now, after three years of surging sales of modified seeds by Monsanto, Novartis and others, the business has hit a hitch. The industry now expects sales to farmers to flatten or drop next year. While few Midwestern farmers share the environmentalists' concerns, they fret that the crops won't be exportable to Europe or that food companies will stop buying them to avoid the issue.

Mr. Shapiro's dream goes far beyond soybeans and corn (which is made resistant to insects so it doesn't need to be sprayed with pesticide). Monsanto has also been trying to genetically engineer colored cotton that would reduce the need for synthetic dyes. For the developing world, it is rigging canola and mustard plants to make nutrients such as beta-carotene, a vitamin A source; the plants' oil could be cheaply added to spreads and other foods. Monsanto is also trying to engineer soybeans whose texture and flavor mimic meat, making soy a more pleasing source of protein.

Impressive, some say, but will it sell? "You don't build a business around research -- you build it around consumers," says Charles Arntzen, president of Boyce Thompson Institute for Plant Research at Cornell University. To him, "Shapiro is brilliant, but he is wrong."

And how does Mr. Shapiro feel, seeing a vision he figured could serve both humanity and shareholders come under such attack -- its products labeled "Frankenfoods" and the company demonized as "Monsatan"?

He leaves no doubt of how misguided he thinks the environmental activists opposing genetically modified food are, and he even suspects short-seller investors, those who profit when a stock declines, might have some role in the horrible press Monsanto has been getting. As for himself, though, he simply says, "Everybody likes to see themselves as Jimmy Stewart: In the end everyone picks you on their shoulders and carries you around the room and sings he's a jolly good fellow. But this is the real world. There are people who have concerns about the technology and are expressing them."

Mr. Shapiro says he is sure that farm biotech will eventually be recognized as "a very important tool in feeding people and moving toward sustainable agriculture." But in the meantime, he adds, "Democracy is a pretty robust process."

Write to Scott Kilman at and Thomas M. Burton at

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