Tuesday, August 7, 2018

Self-marginalizing journalists

The media can be so aggravating. From Indra Nooyi, PepsiCo C.E.O. Who Pushed for Healthier Products, to Step Down by Julie Creswell. This is another of those Gell-Mann Amnesia incidents. As global leader of the Consumer Products sector for one of the top three global consulting firms, as well as global account partner for Pepsi's primary competitor, I know something about this market.

Creswell is apparently not interested in reporting news, she is interested in pushing an advocacy agenda. Pepsi's performance, strategies and innovations barely get a look in, the entire article is focused on the mystery of why 50% of CEOs aren't women. A mystery only to those in academia and the media. The rest of the intelligent world understand exactly why there are variances in individual human choices and individual personal performance. It has nothing to do with group identities, Creswell's obsession, but with individual choices and abilities.
In her 12 years as chief executive of PepsiCo, Indra K. Nooyi has been part of an elite club: She is one of only a small number of women leading large corporations. It is a position that has often meant her every move received greater scrutiny than the actions of her male peers.

That was true again on Monday, when Ms. Nooyi, 62, announced she was giving it all up and handing the reins of the multinational conglomerate to Ramon Laguarta, a 22-year veteran of the company, in October.

Her departure served as a stark reminder that the absence of women at the very top of corporate America remains a problem. She was one of 11 such women at the helm of the biggest American companies in 2006. She’s now one of only 25 in the Standard & Poor’s 500. She will remain PepsiCo’s chairwoman until early 2019, the company said.
Its all about Nooyi's gender, nothing about her performance. Come on. Show some respect. It is incredibly demeaning to make her an identity token. She is a person. Talk about what she has done.

And what a ridiculous claim "It is a position that has often meant her every move received greater scrutiny than the actions of her male peers." I am sure Creswell believes that, but is it true? It is absurdly easy to check. All CEOs receive great scrutiny within their industry, especially from shareholders and analysts. It is part of what being a CEO is all about. Outside their industry, it is much more variable.

To check Creswell's ideological assumption, I did a quick Google Trends search for long serving consumer related CEOs. Coca-Cola's CEO is new and and also relatively new to the company so I omitted him as a comparison. I came up with:
Paul Polman, CEO of Unilever, general consumer products.
Indra Nooyi, CEO of Pepsi.
Tim Cook, CEO of Apple, consumer electronics.
Jeff Bezos, CEO of Amazon, Retail and Consumer.
Richard Fairbank, CEO of Capital One, consumer finance.

Does that look like Nooyi receives greater scrutiny than her peers? I'd say not. OK, so Creswell is already misleading us on an easily checked assertion.

Creswell continues to report from the world that exists in her mind.
In recent months, the list of departing female chief executives has included Denise M. Morrison at Campbell Soup, Margo Georgiadis at the toy company Mattel, Sherilyn S. McCoy at Avon, Irene Rosenfeld at Mondelez and Meg Whitman at Hewlett-Packard. All five have been replaced by men.

The number of women in top jobs has, in fact, fallen sharply.

“I hate seeing her step down this particular year because we’ve had a 25 percent drop in women C.E.O.s at major firms, and this is a big loss,” Jeffrey A. Sonnenfeld, the senior associate dean of leadership programs at the Yale School of Management, said of Ms. Nooyi.
Hmmm. I could swear that I just read that the number of female CEOs increased from eleven in 2006 to twenty-five today, an increase of 125% in a decade or so. Where did I read that? Oh. Yes. Two paragraphs earlier in Creswell's own article. More than doubling or falling sharply - which is it?

OK, we're six paragraphs in and there are two material errors in reporting. The number of female CEOs has risen sharply and female CEOs do not receive disproportionate scrutiny than their male peers.
Others tie the lack of women at the top not only to the choices of individual executives, but to a wider culture that is biased against women in the workplace, some experts argue.
Really, this tired shibboleth of the eighties? And delivered in such weasel terms. Unnamed "others"; "some" experts. Make a proposition Creswell, and defend it; don't just suggest. Give us the news, not the speculation. And please see the work of Claudia Goldin of Harvard as well as repeated and replicated studies from the OECD and elsewhere documenting why life choices are a barrier to the number of people wishing to spend eighty hours a week in an environment of high uncertainty, high accountability and constrained agency.

It is ten paragraphs into the article before Crewell gets to the substance and pays respect to Nooyi as an individual. She starts talking about Nooyi in terms of executive results instead of as a poster child for gender studies.
Ms. Nooyi’s impact on PepsiCo cannot be overstated. Over the past decade, she has transformed the company dramatically, expanding its presence in international markets, and also shifting its products increasingly into healthier beverage and snack choices.

In addition to Doritos and Mountain Dew, it now offers customers baked chips and water brands like Lifewtr and Bubly, and it recently acquired Bare Foods, a maker of baked fruit and vegetable snacks. As Ms. Nooyi steered the change, she clashed with activists and other investors who told her that her ideas were flat-out wrong.

Today, half of the company’s revenues come from healthier drink and snack products, up from 38 percent in 2006.

Still, Ms. Nooyi spent much of her tenure at the top defending her strategy to critics, who included activist investors. When PepsiCo lost market share on its namesake product a few years ago, critics claimed Ms. Nooyi was too focused on the “healthy” strategy. Others, including the billionaire activist Nelson Peltz of Trian Fund Management, wanted the company split into two, a beverage giant and a snack king.

Ms. Nooyi held firm. Since she took over, revenue has grown to $63.5 billion from $35 billion in 2006, while the company’s share price has nearly doubled in that time.
OK. Interesting to an extent. But revenue? That's your benchmark of performance? A business journalist ought to know the answer to this question, even though a gender studies ideologue might not. What is a CEO responsible for? What are shareholders interested in? CEOs do all sorts of things with branding and portfolio diversification and process improvement and financial restructuring and acquisitions and new product development, etc. These aren't achievements, these are means to an end. Shareholders want the value of the company to increase (market capitalization) and they want there to be a stream of profits. Since Creswell wants to talk about things other than what are the key measures of CEO performance, you have a foreshadowing of what that analysis might look like.

I have never had Pepsi or Nooyi as a client. I do not know her. But I know other consumer products CEOs and executives. It is a brutal industry. Fickle consumer tastes, always changing regulatory issues, vast numbers of customers with nano profit margins per consumer purchase, sea-changes in retail and in distribution, products which are typically exquisitely influenced by economic conditions. Successful or not, they all earn their keep.

How has Nooyi done? OK. Not spectacular but reasonable and, as I say, anyone who can keep ahead in consumer products is a champion. There are two somewhat comparable beverage companies: Coca-Cola and Pepsi. What do their respective performances look like since 2006. Here are the sources - Pepsi Market Cap, Pepsi Margins, Coca-Cola Market Cap, Coca-Cola Margins.

Market Capitalization at Pepsi grew by 160%. Great, especially in a hard industry and turbulent times which included the global recession of 2007. But what about the competition? Coca-Cola grew by 195% in the same period.

What about profitability? Pepsi shrank from 12.47 TTM Net Margin in 2006 to 7.14 in 2018, a decline of 43%. But Coca declined 66% to almost the same TTM as Pepsi's in 2018, 7.18.

Finally, Coca-Cola margins have been rising since June 2017 whereas Pepsi's have been falling since September 2017.

How has Nooyi been as a CEO? Decent. Not quite as good a performance as her primary competitor but quite decent given the sector and global challenges.

Given that she did not do as well as her primary benchmark competitor, it is not surprising that she had her critics and challenges from shareholder activists. Not because of her gender but because she is a CEO. Coca-Cola's CEO had exactly the same challenges in the same period. None of the criticism directed at him was due to his gender but because he was the CEO.

It is regrettable. Creswell had an opportunity to tell an interesting life story of how Nooyi became CEO, or tell about the complexities of the challenges over the years. She could have shed interesting light on the variances in consumer tastes across cultures or talked about the ethics of beverage and snack companies in a world plagued by obesity. All sorts of interesting things Nooyi as an executive had to address.

Instead we get an anemic lecture from gender studies circa 1990 revealing the ignorance and biases of the journalist and little about the interesting executive.

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