Miami Dade College Leadership Roundtable

Miami, FL

September 10, 2007

Good afternoon. 

Thank you for that kind introduction, Alberto. It is indeed a great pleasure to be here in Miami.

I’d like to thank Miami Dade College’s President, Dr. Eduardo Padron, for extending this gracious invitation. It’s a privilege for me to participate in the Miami Leadership Forum.

And my thanks to all of you for being here.

Miami is a glorious city—a melting pot of many cultures, a city built and continuously enhanced by long-term citizens and its many immigrants. This is a city in which many people have realized improbable dreams and, even more important, have paved the way for others to thrive.

As I prepared for this speech today, I reflected on the improbable journey of my own life. A journey which, if traced back to its origins—a middle-class conservative Brahmin home in Madras, India—makes where I am today—the Chairman and CEO of a global company—not just improbable but incredible.  

Many things have made this journey possible, but one of the most important is the fact that, along the way, I have been so lucky in coming under the wing of some great mentors.

Alberto is one of those mentors. He is a man of many talents, many facets. There is Alberto the publisher, Alberto the philanthropist, Alberto the great ambassador for the Hispanic community here in Miami. I have been lucky enough to benefit from the wise counsel of Alberto, a member of the Board of Directors of PepsiCo. I am here because of the confidence that he and other members of the Board placed in me.

I want to repay that confidence by ensuring that PepsiCo remains not just a great company but is seen as one of the defining companies of the first half of the 21st century. I want people to look at the company and think it is a model of how to conduct business in the modern world. That is my instinct, the legacy I would like to leave behind.

Time and again in the historical archive, you find critics saying that a company has no soul. But we do. We, the people who comprise the company, bring to our work all our personal histories, all our hopes and ambitions for ourselves and our families. We are all of us people of many facets.

I am very fortunate. I have the opportunity to realize my ambition. My ambition is easy to state: I want PepsiCo to be known around the world as a good company. That is my subject today—the deceptively simple question of what makes a good company.

I say it is deceptively simple because there is an obvious answer that I want to reject. The obvious answer is this: a good company is one which yields the maximum possible return to shareholders while keeping its customers happy and obeying the law.

It’s clear and to the point. It’s what a lot of people think. What more is there to say?

Well, quite a lot actually. The word “good” has two meanings. It does means economically successful, of course. And that is one measure by which all companies are judged. But “good” also has a moral meaning. And it is that moral meaning that I want to explore today.

The man who drafted the law of limited liability, Robert Lowe, once described companies as “Little Republics.” And he was right. Today, of the world’s 100 largest economic entities, 37 are companies.

PepsiCo is one such “little republic,” and quite a successful one at that. With nearly $40 billion in sales, we operate in 190 countries and we employ about 168,000 people.

As the CEO of this successful multinational company, I am blessed with the opportunity to prove that a company can be a force for good in the world. Let me share a personal story to explain where this belief comes from. My sense of responsibility was instilled in me by one of India’s truly great women—my mother.

At the family dinner table in Madras, India, more than 40 years ago, she would challenge my sister and me to explain what we would do if we were elected Prime Minister or President of India. Every day, it was a different job she’d throw at us.

She’d ask us a simple but compelling question: what will you do to change the world? After we had each responded, my mother would decide who deserved her support. I can’t tell you how hard my sister and I competed to earn her vote!

At the time, I thought it was a fun game. But in reality, my mother was teaching us a lesson:  she was instructing us in how to live a good life. She wanted us to make a difference in the world. She wanted us to use whatever power I was granted to do good.

The struggle to define the good life and the good society are the bedrock of moral philosophy, from Aristotle onwards. In recent times, a new branch of economics has opened up which tries to develop the science of happiness. And the reason is simple: most of us share a sense that material prosperity does not mark the end of our journey as human beings. 

Naturally, we bring that belief with us to work. The me that runs a family and a household, the me that appreciates music and art, the me that loves sport, the me that turns up to work, these are all the same me. They’re all the same you as well.

And most of us are doing our best to live a good life.

The kind of life where we have fun but take care of ourselves, where we care about someone else’s health and happiness as much as our own. The kind of life where we are satisfied to take no more than we need, and able to leave more than we find. The kind of life where we help each other and honor our common humanity.

We don’t all achieve this kind of life all the time. But every good life contributes to the creation of a better world.

So, how do we translate the principles that contribute to the good life into a company that contributes to the good society?

To some campaigners for global justice, it’s odd that a CEO would even ask this question. In their view, businesses are the enemy. A business, they say—echoing an argument that is at least 400 years old—has no soul. I think that’s just wrong.

Saying that a company has no soul is like saying a forest has no trees. A company is the sum total of the people who belong to it. Companies are places that people meet and work. It is usually one of the first questions we ask of people we meet: what do you do?

We say someone is good company when we enjoy being with them. A good company creates that kind of enjoyment. In the process, it creates a strong sense of identity. People come together in pursuit of the same goals. A team is formed.

The good company also offers employees a career, not just a job. To describe it as a career shows that we have an enduring interest in someone. They are not here today, gone tomorrow and thanks for what we could take from you.

If you support people properly, they will grow. As one of my colleagues put it recently—it’s like learning to ride a bike. Let me quote from what he said:

“Remember when you were learning, you were holding on to the handlebars and pedaling, but someone was jogging behind you holding on. They would let you go for a couple of seconds, but would grab the bike as you started to fall. There was probably a time when you bit the dust, but whoever was behind you tried to make sure those falls weren’t emergency room events. Sooner or later, they would let you go and you would be riding by yourself.”

And here’s the conclusion:

“Remember how you felt that first clean ride.”

I have another example. Recently, one of my employees was offered another job. He’s a very skilled guy, so it was a big job, and I wasn’t surprised he’d been spotted by another company. Eventually, he decided not to go. The thing that swung it was that the senior management at PepsiCo made him feel really valued.

Now, what’s the moral of that story? It’s not that the senior management of PepsiCo are uniquely sensitive and brilliant people—though of course they are. It’s that you should never wait until somebody is ready to say goodbye to tell them how much you value them. 

So being a good business starts with being a good employer. At PepsiCo, we call it “cherishing” our employees. And it’s part of a new operating philosophy—what we call Performance with Purpose.

To us, Performance with Purpose doesn’t mean we run our business normally and then do good deeds on the side. It doesn’t mean subtracting from the bottom line to boost our reputation or foregoing profits to ease our conscience. It means that we bring together what is good for business with what is good for the world.

Of course, performing well is a purpose in itself. A well-run business makes a major contribution in the course of its routine activity. We shouldn’t forget that. As entrepreneurs, we create jobs and offer products that satisfy people’s demands. We contribute to the tax base in all the nations in which we operate. We sponsor community activities and make philanthropic bequests.

And we do so with an eye to the long term. We recently participated in helping to draft a statement of corporate values with The Aspen Institute. They set out how a responsible company should define value in the longer term, how it should approach recruitment and compensation, how it should communicate with investors. It is a clear and precise document that reminds us of the need to look beyond the next quarterly earnings numbers.

The best part of the Aspen principles—and I cannot stress this enough—is that they suggest how we might free ourselves from the shackles of short-term thinking.

The Aspen principles are a great first step. But we can go further. The principles are still, after all, mostly concerned with core financial performance. I think a good company means more than that. 

If you look back into the fascinating history of the joint stock company, you will discover that the notion of a company as a profit center with no other responsibility is a very recent idea. Companies have always prided themselves on the roots they have in society and the legacy they leave to it.

The German economist and sociologist Max Weber famously pointed out the connection between the rise of capitalism and the ethic of Protestantism. The Quakers who founded some of the world’s best known banks and confectionary firms built whole communities around the company plant.

It was companies like Ford that built America’s middle class by making products people wanted, lifting the purchasing power of working people by paying good wages, and strengthening the communities in which they operated by supporting libraries, schools, the arts. 

Much of America’s health and educational infrastructure has been built out of the wealth generated by capitalists. Hewlett-Packard has been arguing for half a century now that profit is not its principal motivation. Pharmaceutical companies have put millions into AIDS research. Avon is one of the world’s biggest investors in breast cancer research. Many of you in this room are accomplished businesspeople and have been tremendous benefactors to the city of Miami, to the United States, and to the world.

So, it is not true that capitalism needs to be rapacious. It is not true that, historically, the company has been divorced from its society. And neither can it ever be true. The truth is that no business can ever truly succeed in a society that fails. We draw our people from its ranks.

A reputation for being a good business—good in the ethical as well as the commercial sense—is hard won but easily lost. Think of the companies who have had serious problems. Long after they have acted to rectify the specific issue, they find the problem sticking to their name.  

Corporate action that drags business into disrepute will no longer stay private or detached from the rest of society. The scrutiny of modern media is too intense for that.

For that reason, responsibility needs to be written through all our business planning. You can’t pursue profit blindly and then do a last-minute check on whether it’s been done ethically. Responsibility cannot be an afterthought. “Good for commerce” and “good for society” have to go together.

People these days are bringing their principles to their purchasing. We, in return, are bringing a purpose to our performance.

There are three specific components to this purpose, all of which follow from my account of the good company.

First, a good company makes products that responsibly nourish people and societies in some way—physically or spiritually, and often both at the same time.

Second, a good company tries to minimize its impact on the environment in which it operates. 

And third, a good company cherishes its employees.

I’ve said that no company can stand apart from the societies it does its business in. We operate in highly regulated product and labor markets. Companies rely on the legal and contractual framework that is supplied by government. Every company will, therefore, find itself entangled in questions of legitimate public interest.

For us, as a convenient food and beverages company, we pay great attention to debates on public health. In our lifetimes, public health has been the greatest success story of all. Most of the conditions that would have afflicted our grandparents have either been conquered or substantially alleviated. Life expectancy grew sharply and infant mortality all but disappeared.

Yet it is possible that the next generation may be the first to expect to live for a shorter span than its predecessor. We face a significant public health challenge in America and across the world today: obesity. 

As a company, our response to this issue reflects the fact that we are citizens, and in many cases parents first, and business executives second. I wouldn’t personally want to lead a company whose products I wouldn’t welcome into my home. As a parent, I want a range of products—I want healthy eats, but I want treats too.

That’s why our approach has been to provide variety. Providing fun, treat products like Pepsi and Doritos, and highly nutritious products like Quaker Oats and Tropicana juices.

As an aside, a Florida audience such as yourselves will appreciate that Tropicana really is your brand. It was born and raised in Florida, and to this day, it is 90% sourced from the Florida orange crop.

Even in our treat products, our goal has been to make them healthier by reducing or eliminating the things that are not needed and increasing the things that are healthy. For example, being the first to eliminate trans fats in all our Frito-Lay products and moving, as quickly as possible, to heart-healthy oils for our salty snacks.

Our acquisition and product strategies are also done with improved nutrition in mind.

Let me show you what it looks like. Look at our portfolio ten years ago: very little in the “good for you” category. But look at the change. We are in the midst of a true transformation.

And I am proud that we have done these things willingly, voluntarily, enthusiastically—and often with very little fanfare—not in begrudging response to regulation or litigation.

You can see that we take our responsibility very seriously indeed. I can guarantee that we will do everything that we can do. But nobody should be fooled into thinking that, even if PepsiCo and everyone else in the market, do all they can to change their portfolios, obesity will disappear. 

As important as it is, the intake of calories is only one side of the account here. The problem of obesity involves both the consumption and the expenditure of calories. It is a net condition.  More calories in than calories out equals obesity.

And we know that our lifestyles have changed. Paid work less often involves physical exertion. We all have labor-saving devices in the home. We are less likely to walk to and from school or work. Car usage has grown precipitously. That means parents are reluctant to let their children play outside as much as they once did. The fear of litigation, and stretched municipal budgets, have meant that school and community sport is less common.

At the same time, people have found their time being squeezed. They don’t have time for meal preparation. They need convenience. Mothers, who a generation ago, might have stayed at home, are now often at work, sometimes as a career choice, sometimes as a necessity.

I don’t want to sound like I am lamenting these changes. I’m not. I don’t want to suggest that we all throw away our washing machines and dryers. I don’t want work to involve back-breaking labor. But I am saying that lifestyle changes can have unintended consequences.

We have begun to work the “calories out” side of the equation also. The “Vive Saludable Escuela” program in Mexico, for example, aims to teach children how a correct diet coupled with physical activity can lead to a healthier lifestyle. It makes that proposition fun and cool—in other words, more likely to succeed with kids.

In the U.S., we used our Smart Spot brand and logo—itself a PepsiCo innovation aimed at helping consumers make healthier purchase decisions—to popularize a dance program featuring Mario Lopez of “Dancing with the Stars” fame—to popularize that magic combination of better diet and physical activity.

And we are a title sponsor of “America on the Move,” a program developed by Dr. Jim Hill after 20 years of research, to help people lose weight on a sustainable basis by walking regularly, in combination with lower caloric intake.

Obesity is a big problem, in many nations of the world. It could even reduce life expectancy and undo all the gains of modern medicine. The solution needs many hands: individuals, companies, healthcare workers and governments all need to come together. You can rest assured that we are and will continue to do more than our fair share to enhance Human Sustainability.

The same is true of the second specific obligation of Performance with Purpose. This is probably the biggest issue of our times: the environment—and our commitment to replenish what we take.

I don’t want to get into the debate about the rate of climate change far into the future. If proof arrives that is so definitive that it satisfies everyone, won’t it then be too late? Neither do I want to get into the debate about whether changes to behavior or technology will prove to be the answer. Why do we have to choose?

This is not an issue we can post-date—its effects are obvious right now. Water shortages are a reality in some places while others are flooded. Soaring energy prices are back on the agenda. The landfill is not an indefinitely viable solution.

We were the first consumer products company to join with other concerned companies and NGOs in a group called U.S. Climate Action Partnership to encourage the federal government to enact climate legislation. But we are not waiting for the law to act for us. It just makes good commercial sense for us, right here and now, to use our resources well.

We are proud to be America’s largest purchaser of Renewable Energy Credits, a financial instrument which stimulates and supports the development of alternative renewable energy sources. This investment matches the purchased electricity used by all PepsiCo U.S.-based manufacturing facilities, headquarters, distribution centers and regional offices.

This year we also won the U.S. EPA’s prestigious “Energy Star Partner of the Year” Award in recognition of excellence in energy management. 

We have just cut the ribbon on our second LEED Gold facility, a new Gatorade plant in Wytheville, Virginia, which is the largest food and beverage site ever to earn this designation of superior sustainability. And another of our facilities has just been announced—a distribution warehouse in Tolleson, Arizona. That makes three.

But we aren’t resting on the laurels of a few LEED awards. We’re going to reduce our water usage and move more rapidly towards the ideal of “net zero.” In other words, for every liter of water needed to make our products, we’ll return a liter to the water supply.

We are also working with local municipalities everywhere to improve recycling rates, while at the same time investing in research for biodegradable and other new packaging options to reduce waste.

Finally, just last week, we earned inclusion in the Dow Jones Sustainability Index in both the U.S. and World indices. This double inclusion is a first for us and we are one of only a handful of companies to make both lists.

When we apply ourselves to this work, extraordinary results are possible. Looking again at the Mexico market, our Sabritas team has cut per-unit electricity usage by 22% over the past five years, and water usage by 44%. Taking advantage of abundant Mexican sunshine, solar power preheats water used in boilers in Mexicali and Obregon.

Automated mirror technology is installed in all distribution centers, which has reduced power usage by 25%. And today, the team is developing a way to produce corn chips using over 90% less water and processing time, and 30% less energy.

I could tell a similar story about any region in the world. We are taking this responsibility seriously, partly because it is just right to do but also, of course, because it’s the smart thing to do for a business that is obsessed with efficiency.

But, again, there is a bigger story here than the more efficient use of resources. Wherever in the world an environmental program has been established, the passion unleashed—especially amongst our younger employees—has been amazing. Nothing has incited their creativity, or their engagement with the company, more.

It was once said that youth was wasted on the young: all that opportunity but no sense of responsibility. Well, not any longer. The young people I meet have a passionate concern for the environment and a deep sense of responsibility. So it should: it will be their world soon.

The passion I have seen on this issue has reminded me that the only way to get the best from our people is to share their concerns. They want to know that the company really cares for them. This is the third responsibility I want to focus on: the requirement for companies to cherish their people.

When I use the word “cherish,” I mean it to sound like a lofty ideal. Of course it includes the working environment, pay and benefits, career progression and so on. But really cherishing our employees means more than that. It means supporting their passions, even those passions that might be considered outside the scope of our company’s direct responsibility.

When our associates in South Africa told us they wanted to join the fight against HIV/AIDS, we gave them our support. We’ve established health outposts to provide medical checkups and distribute medicine.

When they saw natural disasters like the flood in New Orleans or the tsunami in South Asia and wanted to help, they helped. With financial support—not just from the PepsiCo account but also from their own pockets—and with relief supplies like water and food, and lots of volunteers.

Cherishing our employees means making our company a place where each of our 168,000 associates can also bring their “whole selves” to work—their passions, their pride, their beliefs. Only through their diversity can we understand the full spectrum of the consumer we wish to reach.

I take pride in leading a company that pioneered diversity and inclusion long before it became fashionable. We have a clear ambition: our employee base should look like our consumer base. This journey is not over yet but, every year, we check how far we’ve come, and make sure the progress continues.

This is a matter of basic justice. But remember, I said there were two senses to the phrase “good business.” As well as a moral imperative to treat people well, this has now become vital to business success. 

Good candidates can pick and choose more between companies who make similar offers to them. The deciding factor is the kind of company that they want to work for. They are comfortable in societies with many cultures, they want to work flexibly. They are both more demanding and more in demand. They want success, but not at any price. They want to do some good in the world.

We can unleash their potential. Transforming what we offer and reducing our environmental footprint will unlock their ability. Like the many facets of Alberto, all three parts of our purpose are united in one. The net result of our purpose is great performance.

And you know what? The model works. Take just one of our operating units I’ve mentioned a few times here today, Sabritas in Mexico. It is a good company—a really good company. It is also a financial gem. The business commands over 70% market share, earns an operating margin over 20%, and delivers impressive top and bottom-line growth.

That’s why I believe passionately that corporate wealth, properly directed, can be a power for good. Today, I’ve given you an abstract picture of what a good company looks like.

But, at root, it’s a personal story. It’s all of our personal stories—our desire to live a good life every day. And that includes those many days when we leave our homes, arrive at an office, and go to work on company business.

As I prepared for this speech, and as we worked back through the history and the theory of the firm, I found that everything I read was confirming something that I already knew. I already knew that a company has a profound responsibility to society over and above generating a return on investment.

You must all know the feeling of thinking of a witty or wise remark long after it is too late to answer. After the long journey of my life, I’d like to go back to that kitchen table in Madras all those years ago when my mother would ask us what we would do to change the world. Mom, I now know the answer. I now know exactly what I would say.

I would say that I wanted to lead a company that was a force for good in the world. A company that did 100% of what it can do. A company that helped to define good business for the 21st century.

Perhaps it would be enough to secure my mother’s vote. I hope it would justify the confidence Alberto Ibargüen and the PepsiCo Board placed in me. I am certain it can help to change the world.

Thank you.

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