Former PepsiCo chair and CEO Indra Nooyi on the future of governance

Saturday, 01 June 2019

Dominic Rolfe
Journalist
    Current

    Indra Nooyi recounts the lessons she learned as CEO and chair of PepsiCo – from performance driven purpose to strong board composition.


    She might have been responsible for reshaping one of the world’s best known soft drink companies, but former PepsiCo CEO and chair Indra Nooyi got her first taste of leadership in the sporting arena. Growing up in cricket-obsessed Madras (now called Chennai) in India, she wielded the willow against siblings and neighbours at every chance. However, when she arrived at the coeducational Madras Christian College, Nooyi discovered female cricketing opportunities were non-existent.

    “The fact that the guys in college could wear whites and go off to play tournaments while the women were left to watch kind of hurt me,” she says. “So I brought the women together and said, ‘Guess what? We’re going to show them that we too can be a team.’ And I started the first women’s cricket team. I don’t know why those women followed me. It gave me the confidence to believe that if you really put your heart and mind into something, you can make the impossible possible.”

    Nooyi pivoted from wanting to work as a chemist — she studied chemistry, physics and maths in Madras, and played guitar in an all-girl rock band — to management, honing her leadership ambitions further with an MBA from the Indian Institute of Management in Calcutta (now Kolkata). She went on to receive a Masters in public and private management from Yale University School of Organization and Management, before joining PepsiCo in 1994 as senior vice president of strategic planning.

    Nooyi rose to become CEO and chair in 2006, stepping down late last year. Under her stewardship, the company’s revenues went from US$35b to US$63.5b with shareholder returns of 162 per cent, all while diversifying its offering to include healthier options, reducing its environmental impact and making strategic acquisitions. Today, she is on the boards of Amazon, oilfield services company Schlumberger, the International Advisory Council of Temasek, the Foundation Board of the World Economic Forum, and the American Academy of Arts and Sciences. And Nooyi has also managed to marry her love of cricket with her organisational skill set.

    “I have the supreme luxury of being the [first and] only female member on the International Cricket Council board so I see a lot of cricket, including every Chennai Super Kings’ Indian Premier League game!” she says.

    Corporations have a unique opportunity to make a difference in the world at a point when many governments are failing their people.

    Corporate responsibility

    In 2006, Nooyi launched Performance with Purpose, a marked shift from the solely profit-driven business she had inherited to one that takes account of the corporation’s broader social footprint. “I look at large corporations and say, ‘You have a unique opportunity to make a difference in the world at a point when many governments are failing their people. You have a chance to run a business in a way good for the community that does not pass on cost to society. So why don’t you adapt a business model to make sure that whatever you do, it leaves the country, community and society [you operate in] in a better place than when you first came into it?’

    “At Pepsi, we knew eating and drinking habits were changing, people were focused more on health and wellness, and knew we had to change our portfolio. We focused on making a great buck — we’re not in the non-profit business — while reducing salt, sugar and fat in our core products and dialing up our ‘good for you’ offerings.”

    Unlike many companies that embraced the notion of corporate responsibility by merely following Global Reporting Initiative standards or Dow Jones Sustainability Indices, Nooyi drove it via on-the-ground action. The company also looked at their supply chain, which was around three-quarters agricultural. They worked with their farmers to improve their yield with technology and use less water on their fields. They worked on increasing recycling rates and reducing water wastage in their plants.

    In 2016, she noted that a decade after she had started, the “Pepsi-Cola trademark accounted for just 12 per cent of 2015 revenue, while nutrition brands, low-calorie beverages and healthier snacks accounted for roughly 45 per cent during the same period”. Likewise, from 2011–2016, water and energy efficiency measures had delivered PepsiCo more than US$600m in savings.

    Most importantly, they aimed to create an environment where employees “didn’t have to leave themselves at the door and come into work. Rather, they could bring their whole selves to work. We were trying to build a company where we make money in a sensible, purpose-driven way to deliver great performance”.

    Nooyi encountered opposition from investors — who believed companies such as hers should focus on just running their model more and more efficiently — and from NGOs that believed she was “greenwashing”. But she says not taking a larger view of the corporation will bring unintended and unwanted consequences. “If companies don’t look at their environment and communities, and the technology that has an impact on their business, they’re crazy because I’ve never seen a more disruptive time in the world than now.”

    Pursuing purpose on a board

    According to Nooyi, a company’s board composition is key to ensuring that the ethical and commercial responsibilities of transforming a business are kept in focus. “I honestly believe in shaping boards, not stacking boards,” she says. “Often, I saw companies around us putting their best friends and people friendly to the CEO on the board. That is stacking the board, which doesn’t help me in times of trouble or when we’re going through major transformation. You should shape the board with people who can be a great sounding board. And if that shaped board is going to hold you accountable, is going to shake you up, is going to question things, so be it, because they become your best support if you ever have a problem.”

    The company analysed megatrends that would impact on their business, comparing those trends against the board, and sought out people who would fill any gaps. “From a functional perspective, we needed to have [directors with] skills that mapped to the megatrends,” says Nooyi. “We looked for people who spoke up, who read all the material, had time to come to board meetings, and were engaged in the running of the company between those meetings. Business doesn’t only happen four to five times a year. You want the board to be available for conversations, give us their point of view and basically — internally to the company — tell us off if we’re not doing things right, but, externally, be a support to us. Every member of our board did that.”

    Change of direction

    Just as she extols the benefits of lifelong learning — “If you want to continue to thrive in the years ahead, you’ll need to continually educate yourself,” she wrote in her valedictory note to PepsiCo — Nooyi is also learning new lessons by being a director rather than a CEO or chair. “Sitting on the boards of Schlumberger and now Amazon, and resisting the urge to try to give direction, was a great learning experience,” she says. “As CEO, you want to jump to action right away, but as a board member, you realise that’s not your job. A director is responsible for the selection of the CEO, making sure the company has got efficient plans and a good strategy in place, anticipating the risks for each business model, and making sure the compensation for senior leadership is consistent.”

    Nooyi declined to discuss the challenges and opportunities facing Amazon and its board. She’s focusing in public on more low-key roles, including as co-chair of the Connecticut Economic Resource Center, which encourages business in her home state, and presenting at the US Military Academy at West Point.

    “I’m also thinking through how I can play a constructive role in finding how young people today can have families and participate in the workforce,” she says. “It’s about working out what we need to do as a society, as communities, as families, as companies and governments, to enable a balance in work and life.”

    Indra Nooyi will be speaking at a dinner in Melbourne and Sydney, 17 & 18 June. Details at thegrowthfaculty.com.

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