PepsiCo CEO: Redefine profit and loss

Indra Nooyi, chairman and chief executive officer of PepsiCo, speaks during a panel discussion at the World Economic Forum in Davos, Switzerland, Jan. 29, 2010.


Kai Ryssdal: Heidi Moore made a good point a couple of minutes ago. Say what you will about the World Economic Forum being an out-of-touch gathering of the global elite -- and many people have said exactly that -- but there is this to consider: A couple of days in Davos can be a pretty good break from the regular grind. That's true for the journalists covering it. It's true for the politicians who're there. And it's true for the CEOs who get to spend some time thinking about where their companies and the global economy go from here.

I asked Indra Nooyi that question the other day. She's the CEO of Pepsi. She's in Davos. Her answer was a redefinition of a fundamental measurement of how companies work, profit and loss, or P & L.

Indra Nooyi: I think the first thing that every CEO has to accept that we're in business to serve the stakeholder. And the stakeholder is, in fact, multifaceted, has different interests, represents different constituencies. And we have to make sure our new P & L actually says revenue, less costs of good sold, less costs to society -- and that's your real profit. And if we start with that as the P & L, and we start with the notion of the stakeholder, and not the shareholder, the way in which corporations act and the way they're perceived will all change.

Ryssdal: That's no small job, given that the attitude in the broader public toward corporations these days are not all that positive.

Nooyi: You know, that's unfortunate, because I think the public perception of corporations and CEOs is worse than reality. Because I interface with a lot of CEOs and I tell you, a lot of the CEOs I interface with have real desire to do good for society, have a real desire to make change that's positive, want to help governments address issues. I think what we do is we start with this distrust, and therefore, we don't bring out the best in people. My dad would always say, "Assume positive intent." I think the time has come to assume positive intent on both sides and let's see what happens going forward.

Ryssdal: That's tough though, because corporations are obliged to do the best for their shareholders, they're obliged to maximize their profits. The public sees that and they say, "Ah, they're just out for themselves and to make money. And what about the little guy?"

Nooyi: I think that's the old definition of the corporation. I think the new corporation is, in fact, thinking stakeholders, and not just shareholders, because they all look at the financial crisis. And I think the financial crisis came about because there was a maniacal focus on the shareholders. And everybody's now got a dose of religion adn realizes that a maniacal focus on the shareholder will hit you up against the wall. So people are now beginning to embrace, faster than you'd ever imagine, that the stakeholder is the right person to focus on, because companies can do well, long term, only if the societies in which they operate also do well.

Ryssdal: Do you feel maligned at all by the financial crisis, you as a CEO of a big corporation?

Nooyi: Not really. I think people have recognized that many of the Main Street companies, in fact, kept operating through the financial crisis and performed very well through the crisis and they really were not part of the crisis. But at the end of the day, we need a successful, thriving Wall Street to access financing and for companies to grow and function. And so it's critically important Wall Street comes back as quickly as possible, provides the capital for companies to keep growing, but let's get on with life, because we cannot afford to stay in this state of suspended animation much too long.

Ryssdal: Do me a favor and give me, would you, the mood of Davos this year, as compared to the other times you've been there?

Nooyi: Well, I tell you, the mood in Davos, prior to last year, was quite optimistic. Last year, I think was a turning point; everybody came here to talk about the recession, the downturn, the meltdown of the financial system. This time around, the conversation's centered exclusively on the future -- creating jobs, capitalism 2.0, the role of global cooperation, the role of CEOs, executive compensation, values behind capitalism. I think the mood is more forward looking, but clearly, one where people are confused as to who's actually going to take the action.

Ryssdal: Indra Nooyi, she's the CEO of PepsiCo. We reached her at the World Economic Forum at Davos. Mrs. Nooyi, thank you so much for your time.

Nooyi: Thank you, Kai. It's been a pleasure talking with you.

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Talk about a softball interview. You let Nooyi completely steamroll you by allowing her to claim that if we all "assume positive intent" and accept her statement that corporations being beholden to stockholders over "shareholders," the world will be a better place.

Last I checked, in this country anyway, corporations are LEGALLY REQUIRED to put the interests of stockholders above everything and everyone else. There are movements to allow corporations to write stakeholder primacy (vs. shareholder primacy) into their bylaws and make that kind of requirement the prime directive of a company (see B Lab's work in California). Until that kind of corporate structure becomes law, and until companies such as Nooyi's actually write that kind of language into their bylaws, her assertion that corporations have the world's best interest as a priority is not worth the paper it's printed on.

In response to Deborah Sharp's remark below (which reflects a widespread misunderstanding about how our economy works): greed is not the problem; capitalism is. Greed = wanting more than one needs. Under capitalism, companies never want more money--more profits--than they need; ever-increasing profits is precisely what they need simply in order to stay in the game, so what they want is exactly what they need (and therefore not greed). In his book DEMOCRACY FOR THE FEW, Michael Parenti puts this point well: “The ultimate purpose of a corporation is not to perform public services or produce goods as such, but to make as large a profit as possible for the investor. This relentless pursuit of profit arises from something more than just greed--although there is plenty of that. Under capitalism, enterprises must expand in order to survive. To stand still while competitors grow is to decline, not only relatively but absolutely. A firm must be able to move into new markets, hold onto old ones, command investment capital, and control suppliers. So even the biggest corporations are beset by a ceaseless drive to expand, consolidate, and find new means of extracting value from the market” (p. 8). As Parenti notes, it's not the case that greed plays no role in our economy. It's just that getting people to be less greedy (or, as Ms. Nooyi proposes, "assuming positive intent") would do nothing to keep companies acting as if they were run by greedy people. Again, a potential solution is to have markets without capitalism, perhaps using the model presented in Schweickart's AFTER CAPITALISM.

I have worked as a manager in the executive compensation area for multinational corporations for three decades, and can attest to the fact that Ms. Nooyi's comments illustrate perfectly the parallel universe in which senior executives reside, out of touch with any other than their self-selected sycophantic subordinates and advisors. For well over a decade the purported management philosophy has been to serve multiple stakeholders - shareholders, the community and employees -- but in reality the only stakeholders served were senior management, their friends and family. In most cases their intentions are laudable, but their decisions are based only on information filtered by subordinates and advisors chosen to prevent the arrival of facts inconsistent with the executives' world views.

Thank you for airing this story. Corporations can be profitable and responsible - which is ultimately better for all stakeholders in the long term. But driven by excessive greed, many large corporations have sought to maximize profits and reduce expenses by any means possible - regardless of the legality or morality of their actions. Consequences of this greed are some of the monumental problems facing society today: the recent debacle in the financial industry, the loss of millions of manufacturing jobs to other countries & employment of illegal immigrants over qualified native residents in order to reduce salary expenses. And ostensibly the reason for this bad behavior is to increase revenues & earnings-per-share for the benefit of shareholders… some of whom are people whose jobs will someday be outsourced… in order to maximize earnings-per-share for someone else.

So Ms. Nooyi thinks that "assuming positive intent" would make things better? What is positive intent in the face of capitalist competition? At the very least, regulation is required if corporations are to align profit-making with the intention of CEOs to do good for society (Aaron Joseph above puts this point well). Ultimately, though, people like Nooyi--and pretty much everyone I've heard speak on Marketplace for the past seven years--need to understand that capitalism isn't about what's good for society; it's about what's good for profit-making, which too often goes hand in hand with environmental destruction, driving down wages, inequality, imperialism, etc. Kai rightly pointed out in the interview that corporations are (legally) obliged to make money for their shareholders. It would be great if he and others on the show would push that idea just a little further so as to better understand the nature of capitalism. Watching the first 30 minutes of THE CORPORATION is an easy way to learn this pretty simple idea. See also "The Needs of Capital Versus the Needs of Humans," the first chapter of Michael Lebowitz's BUILD IT NOW: SOCIALISM FOR THE 21st CENTURY. Given its name, Marketplace owes it to its listeners to think critically about what's required for well-functioning markets. Doing so would include abandoning the mistaken assumption that you can have markets only under capitalism. Check out David Schweickart's AFTER CAPITALISM for how markets without capitalism might solve a heck of a lot of problems we face.

Kai, Do you call that an interview? I know your show is short but come on. You let Ms. Nooyi get away with saying that CEO's are going to start acting on the triple bottom line which has been tried, it's a sham and it does not pay in our deregulated system. If she said that the CEO's were going to lobby governments to regulate everone so that they COULD act on other-than-bottom-line interests that would be a different story. "Stakeholders" mean nothing and shareholders mean everything and she knows it.

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