1 00:00:02,720 --> 00:00:07,840 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:23,079 --> 00:00:25,880 Speaker 2: This is Wall Street Week. I'm David Weston bringing you 3 00:00:25,920 --> 00:00:30,639 Speaker 2: stories of capitalism this week. How HHS Secretary Kennedy's FDA 4 00:00:30,800 --> 00:00:34,479 Speaker 2: criticism hearkens back to its approval of OxyContin and the 5 00:00:34,680 --> 00:00:38,519 Speaker 2: enormous losses from opioid addiction. Plus what it takes to 6 00:00:38,600 --> 00:00:41,159 Speaker 2: keep a company on track or get it back on 7 00:00:41,320 --> 00:00:44,199 Speaker 2: track when it's wandered off. The tale of two very 8 00:00:44,240 --> 00:00:48,000 Speaker 2: different companies, the Mars Company and global power giant Ennel, 9 00:00:48,360 --> 00:00:56,080 Speaker 2: and their particular take on stakeholder capitalism. This is a 10 00:00:56,120 --> 00:00:59,280 Speaker 2: story about regulation, not too much of it, but instead 11 00:00:59,360 --> 00:01:02,720 Speaker 2: too little and when it matters most. The new sector 12 00:01:02,800 --> 00:01:05,679 Speaker 2: of Health and Human Services, Robert F. Kennedy Junior, has 13 00:01:05,720 --> 00:01:08,520 Speaker 2: accused the Food and Drug Administration of being too cozy 14 00:01:08,680 --> 00:01:10,080 Speaker 2: with the pharmaceutical industry. 15 00:01:11,000 --> 00:01:14,200 Speaker 3: No, you want a present, who's going to end the 16 00:01:14,280 --> 00:01:17,200 Speaker 3: corruption at the federal agencies? 17 00:01:19,280 --> 00:01:20,640 Speaker 4: Our FDA. 18 00:01:21,360 --> 00:01:24,800 Speaker 2: In a closed door staff meeting this month, Secretary Kennedy 19 00:01:24,840 --> 00:01:28,319 Speaker 2: called the FDA a sack puppet, echoing his claim that 20 00:01:28,360 --> 00:01:31,320 Speaker 2: the agency has been captured by the industry it's supposed 21 00:01:31,360 --> 00:01:32,000 Speaker 2: to regulate. 22 00:01:32,319 --> 00:01:36,000 Speaker 4: Look, these are the companies that gave us the opioid epidemic. 23 00:01:36,400 --> 00:01:40,080 Speaker 4: They pressured FDA to lie, and they got their way. 24 00:01:40,400 --> 00:01:44,080 Speaker 2: A report in Bloomberg BusinessWeek examines how the FDA violated 25 00:01:44,120 --> 00:01:48,280 Speaker 2: its own rules in green lighting broad marketing of opioid painkillers, 26 00:01:48,600 --> 00:01:52,760 Speaker 2: sparking the epidemic, leading to years of litigation and ending 27 00:01:52,880 --> 00:01:56,200 Speaker 2: in Purdue Farmer's seven point four billion dollar bankruptcy plan. 28 00:01:57,360 --> 00:02:01,440 Speaker 2: Doctor Andrew Kolodney of Brandeis University is medical director for 29 00:02:01,520 --> 00:02:04,080 Speaker 2: the Opioid Policy Research Collaborative. 30 00:02:04,280 --> 00:02:07,600 Speaker 5: If you think about FDA's failure with regard to opioids, 31 00:02:07,920 --> 00:02:11,960 Speaker 5: it's probably the worst regulatory failure leading to a public 32 00:02:12,000 --> 00:02:14,960 Speaker 5: health catastrophe in history. 33 00:02:15,240 --> 00:02:19,280 Speaker 2: Since nineteen ninety nine, opioid overdoses have claimed over eight 34 00:02:19,360 --> 00:02:24,040 Speaker 2: hundred thousand American lives. Fentnyl makes headlines now, but the 35 00:02:24,080 --> 00:02:27,760 Speaker 2: addiction crisis began when FDA approvals led the way to 36 00:02:27,840 --> 00:02:32,200 Speaker 2: aggressive prescribing for chronic pain. Patients still pay the price. 37 00:02:32,760 --> 00:02:36,359 Speaker 2: One in thirty two on long term high dose opioids 38 00:02:36,480 --> 00:02:39,360 Speaker 2: loses their life within two and a half years, and 39 00:02:39,440 --> 00:02:44,120 Speaker 2: nearly five million are addicted, many just following the doctor's orders. 40 00:02:44,840 --> 00:02:48,000 Speaker 2: Estimates of economic loss rise to two point seven trillion 41 00:02:48,040 --> 00:02:50,360 Speaker 2: dollars in twenty twenty three alone. 42 00:02:50,680 --> 00:02:54,720 Speaker 5: The FDA, if it had been following the law, it 43 00:02:54,760 --> 00:02:58,560 Speaker 5: would have required Purdue to demonstrate that OxyContin was safe 44 00:02:58,560 --> 00:03:03,359 Speaker 5: and effective for long term. Unfortunately, it never did that, 45 00:03:03,800 --> 00:03:09,440 Speaker 5: and it allowed produce pharma to promote OxyContin for conditions 46 00:03:09,520 --> 00:03:13,639 Speaker 5: where opioids are more likely to harm a patient than 47 00:03:13,720 --> 00:03:14,240 Speaker 5: help them. 48 00:03:14,400 --> 00:03:15,320 Speaker 2: Could it happen again. 49 00:03:16,120 --> 00:03:19,960 Speaker 5: It absolutely can happen again, and it's been happening. We're 50 00:03:20,360 --> 00:03:27,560 Speaker 5: seeing FDA put products onto the market despite the concerns 51 00:03:27,600 --> 00:03:33,280 Speaker 5: of FDA's own external advisory committees that products are not 52 00:03:33,400 --> 00:03:38,720 Speaker 5: necessarily effective or safe for the conditions that they're being marketed. 53 00:03:38,960 --> 00:03:41,840 Speaker 2: The opioid crisis may be the most well known case 54 00:03:41,840 --> 00:03:45,920 Speaker 2: of regulatory failure in pharmaceuticals, but it's not the only one. 55 00:03:46,400 --> 00:03:50,040 Speaker 2: Controversy has followed a wave of costly new therapies, including 56 00:03:50,080 --> 00:03:53,680 Speaker 2: treatments for genetic diseases, cancer, and Alzheimer's. 57 00:03:54,160 --> 00:04:00,000 Speaker 5: Because we haven't tried to study or learn from this mistake, 58 00:04:00,800 --> 00:04:05,400 Speaker 5: we're ready for the next public health crisis to result 59 00:04:05,800 --> 00:04:09,200 Speaker 5: from improper marketing of a drug that's not safe and effective. 60 00:04:09,640 --> 00:04:12,160 Speaker 2: To understand how we got here, it helps to look 61 00:04:12,200 --> 00:04:14,840 Speaker 2: at the climate at the FDA in the nineteen eighties, 62 00:04:15,280 --> 00:04:18,880 Speaker 2: a time when AIDS activists and palliative care doctors began 63 00:04:18,960 --> 00:04:21,040 Speaker 2: pushing for faster drug approvals. 64 00:04:21,160 --> 00:04:25,440 Speaker 5: We are simply asking the FDA to do it quicker. 65 00:04:25,640 --> 00:04:28,640 Speaker 6: In the fight for the FDA to release all these 66 00:04:28,680 --> 00:04:30,479 Speaker 6: are possible treatments. 67 00:04:30,960 --> 00:04:34,800 Speaker 2: Frank Vacci reviewed opioid applications at the FDA back then, 68 00:04:35,320 --> 00:04:39,120 Speaker 2: including Produe's first new opioid MS content. 69 00:04:39,360 --> 00:04:41,479 Speaker 7: People were going to be on this drug for some time, 70 00:04:42,440 --> 00:04:44,960 Speaker 7: basically until they died. 71 00:04:45,400 --> 00:04:49,760 Speaker 2: He says. Purdue exploited that political moment bypassing FDA directives 72 00:04:50,120 --> 00:04:53,719 Speaker 2: and launching their opioid without submitting clinical data. 73 00:04:53,880 --> 00:04:55,800 Speaker 7: When the company came in and told us what they 74 00:04:55,800 --> 00:04:58,960 Speaker 7: had done at the actually marketed this product, I was shocked. 75 00:04:59,080 --> 00:05:02,719 Speaker 7: I was actually star there is a pathway to do this, 76 00:05:02,960 --> 00:05:06,520 Speaker 7: and they completely ignored it, and they ignored it with 77 00:05:06,839 --> 00:05:09,359 Speaker 7: a certain amount of arrogance. Also, I mean they actually 78 00:05:09,440 --> 00:05:11,200 Speaker 7: told us they weren't going to take the drug off 79 00:05:11,279 --> 00:05:14,200 Speaker 7: the market. To take the product off the market, which 80 00:05:14,480 --> 00:05:17,120 Speaker 7: the FDA could have done, would have made FDA the 81 00:05:17,160 --> 00:05:21,560 Speaker 7: bad guy here that they're essentially denying pain control to 82 00:05:21,640 --> 00:05:24,200 Speaker 7: people who are dying they had the FDA over. 83 00:05:24,080 --> 00:05:28,640 Speaker 2: A barrel emotion trumped standards, and the firm persuaded the 84 00:05:28,680 --> 00:05:32,920 Speaker 2: agency to defer its plans for action on humanitarian grounds. 85 00:05:33,440 --> 00:05:36,240 Speaker 2: Purdue was permitted to make a late application for what 86 00:05:36,279 --> 00:05:41,039 Speaker 2: it was already doing. That late application was exceedingly weak. 87 00:05:41,640 --> 00:05:45,360 Speaker 7: There was nothing in there that actually substantiated the duration 88 00:05:45,560 --> 00:05:46,560 Speaker 7: of effectiveness. 89 00:05:46,960 --> 00:05:50,920 Speaker 2: The usual regulatory and scientific requirements need not apply. 90 00:05:51,760 --> 00:05:55,520 Speaker 7: I thought the MS Cotton issue was set a bad precedent, frankly, 91 00:05:55,760 --> 00:06:00,200 Speaker 7: that companies could then do very little or no thing 92 00:06:00,240 --> 00:06:03,520 Speaker 7: at all, and then market in opioid products. Once precedent 93 00:06:03,720 --> 00:06:06,960 Speaker 7: is set, then you have a hard time reversing it. 94 00:06:07,560 --> 00:06:11,359 Speaker 2: The next opioid on Vacci's desk, a fentanyl patch called 95 00:06:11,520 --> 00:06:16,080 Speaker 2: dura Jesik, was rejected under the standard. The studies failed, 96 00:06:16,560 --> 00:06:19,680 Speaker 2: but higher ups created a new fast tracked division and 97 00:06:19,800 --> 00:06:23,200 Speaker 2: sent the application to a reviewer named Curtis Wright, who 98 00:06:23,240 --> 00:06:28,719 Speaker 2: approved it. Richard Doblin, president of the Multidisciplinary Association for 99 00:06:28,839 --> 00:06:32,480 Speaker 2: Psychedelic Studies, got to know right in the nineteen nineties, 100 00:06:33,200 --> 00:06:33,480 Speaker 2: and what. 101 00:06:33,480 --> 00:06:36,560 Speaker 8: I got to understand about Curtis is that he was, 102 00:06:37,760 --> 00:06:42,080 Speaker 8: when I worked with him, very focused on unmet medical 103 00:06:42,120 --> 00:06:46,800 Speaker 8: need and that he was not as focused on all 104 00:06:46,839 --> 00:06:49,279 Speaker 8: of the bureaucratic niceties. You could say that the law 105 00:06:49,320 --> 00:06:52,880 Speaker 8: required for these two double blind, placeble controlled studies to 106 00:06:52,920 --> 00:06:53,680 Speaker 8: approve drugs. 107 00:06:54,320 --> 00:06:57,640 Speaker 2: At the time, Doblin was researching the division called the 108 00:06:57,720 --> 00:07:02,960 Speaker 2: Pilot Drug Evaluation Staff for his Harvard doctorate, interviewing officials 109 00:07:02,960 --> 00:07:06,479 Speaker 2: and spending time inside the agency. He says, Wright was 110 00:07:06,520 --> 00:07:09,640 Speaker 2: handed a quote license to kill bureaucracy. 111 00:07:10,400 --> 00:07:12,000 Speaker 8: So he was a bit of a maverick, a bit 112 00:07:12,000 --> 00:07:14,920 Speaker 8: of a cowboy, and so he was willing to move 113 00:07:15,000 --> 00:07:19,400 Speaker 8: things forward through the FDA regulatory system in ways that 114 00:07:19,440 --> 00:07:21,200 Speaker 8: some of the old guard were not that happy with, 115 00:07:22,000 --> 00:07:25,840 Speaker 8: and some of those decisions turned into disasters. What he 116 00:07:25,920 --> 00:07:31,800 Speaker 8: did with opiates was a bit reckless, but this was 117 00:07:31,840 --> 00:07:34,720 Speaker 8: this experiment to try to see what would be the 118 00:07:34,760 --> 00:07:37,280 Speaker 8: outcomes if they remove layers of review. 119 00:07:37,720 --> 00:07:40,440 Speaker 2: In a pledge to both chronic pain patients and the 120 00:07:40,520 --> 00:07:43,960 Speaker 2: drug industry, Wright told a conference in nineteen ninety three 121 00:07:44,120 --> 00:07:48,160 Speaker 2: his narcotics team would do everything that is humanly possible 122 00:07:48,360 --> 00:07:50,840 Speaker 2: to make it as easy as possible to get these 123 00:07:50,880 --> 00:07:56,640 Speaker 2: products to market. He was already working with Purdue on OxyContin. 124 00:07:57,240 --> 00:07:59,400 Speaker 8: And one of the things that Pilot drug also did 125 00:07:59,400 --> 00:08:04,240 Speaker 8: that Curtis ro was really instrumental with is having a 126 00:08:04,280 --> 00:08:07,800 Speaker 8: different perspective on who the pharmaceutical companies were instead of 127 00:08:07,840 --> 00:08:10,600 Speaker 8: seeing them as the enemy, and that we don't trust 128 00:08:10,600 --> 00:08:13,960 Speaker 8: them and they're trying to get drugs through just so 129 00:08:14,000 --> 00:08:16,400 Speaker 8: they can make money, and we need to put up 130 00:08:16,440 --> 00:08:20,400 Speaker 8: all these obstacles and all these rigorous data gathering things 131 00:08:20,400 --> 00:08:23,320 Speaker 8: that they have to do. One of the key innovations 132 00:08:23,320 --> 00:08:25,800 Speaker 8: I would say that has lasted that Pilot drug put 133 00:08:25,840 --> 00:08:30,520 Speaker 8: into place was to see a partnership between the regulators 134 00:08:30,520 --> 00:08:31,280 Speaker 8: and the industry. 135 00:08:31,840 --> 00:08:35,800 Speaker 2: Purdue worked closely with Wright. According to a Justice Department investigation, 136 00:08:36,480 --> 00:08:40,520 Speaker 2: the drug baker behind OxyContin rented a room nearby and 137 00:08:40,559 --> 00:08:43,800 Speaker 2: spent days helping him write reviews of the clinical study 138 00:08:43,840 --> 00:08:48,640 Speaker 2: reports and the integrated summaries of efficacy and safety. Meanwhile, 139 00:08:48,720 --> 00:08:52,400 Speaker 2: the old guard at FDA had been raising concerns. They 140 00:08:52,440 --> 00:08:57,240 Speaker 2: said the Pilot division lacked objectivity, ignored regulations, and wasn't 141 00:08:57,320 --> 00:09:02,200 Speaker 2: scientifically rigorous. The agency shut down the division, but OxyContin 142 00:09:02,360 --> 00:09:06,200 Speaker 2: was already moving toward approval. A year after Wright left 143 00:09:06,200 --> 00:09:08,960 Speaker 2: the FDA, Purdue hired him. 144 00:09:09,320 --> 00:09:15,040 Speaker 3: The opioid epidemic happened because the Food and Drug Administration 145 00:09:15,520 --> 00:09:21,080 Speaker 3: dropped the regulatory standards necessary to approve drugs, and with 146 00:09:21,280 --> 00:09:27,320 Speaker 3: that put opioids on the market labeled for chronic high 147 00:09:27,400 --> 00:09:29,720 Speaker 3: dose when they were never effective. 148 00:09:30,960 --> 00:09:35,600 Speaker 2: Edwin Thompson is president of PMRS, a drug manufacturer based 149 00:09:35,600 --> 00:09:36,880 Speaker 2: outside Philadelphia. 150 00:09:37,760 --> 00:09:40,960 Speaker 3: Whether a drug's effective or not isn't a matter of opinion. 151 00:09:41,720 --> 00:09:44,560 Speaker 3: It is a matter of data. And if you don't 152 00:09:44,559 --> 00:09:48,160 Speaker 3: have substantial evidence of efficacy, if you don't have adequate 153 00:09:48,160 --> 00:09:52,600 Speaker 3: and well controlled trials with statistical evidence, the drug's not effective. 154 00:09:52,679 --> 00:09:53,760 Speaker 3: It's just that simple. 155 00:09:54,559 --> 00:09:57,840 Speaker 2: Thompson began his career in opioids at Johnson and Johnson 156 00:09:57,880 --> 00:10:01,040 Speaker 2: back in the nineteen seventies. In the nineties, he dealt 157 00:10:01,080 --> 00:10:04,760 Speaker 2: with the FDA's Pilot Drug Division, where he says he 158 00:10:04,800 --> 00:10:08,679 Speaker 2: first saw politics start to outweigh science. In his view, 159 00:10:09,240 --> 00:10:14,240 Speaker 2: it happened with OxyContin and is still happening today. 160 00:10:15,440 --> 00:10:19,560 Speaker 3: There are patient populations and diseases that are unsuitably treated. 161 00:10:20,280 --> 00:10:25,320 Speaker 3: Without question, we all accept them. But approving and labeling 162 00:10:25,400 --> 00:10:29,160 Speaker 3: drugs as being effective for that patient population when there's 163 00:10:29,200 --> 00:10:32,160 Speaker 3: no data to support it, there's no substantial evidence of 164 00:10:32,160 --> 00:10:36,200 Speaker 3: efficacy to support it does more harm than good. It's 165 00:10:36,280 --> 00:10:39,800 Speaker 3: really wrong, and you can see the consequences. The harm 166 00:10:39,840 --> 00:10:44,400 Speaker 3: of this epidemic over thirty years is overwhelming. 167 00:10:44,120 --> 00:10:48,480 Speaker 9: The greatest epidemic that the America has ever seen. 168 00:10:49,120 --> 00:10:53,000 Speaker 2: It's the basic problem that we have the FDA, the law, 169 00:10:53,040 --> 00:10:56,040 Speaker 2: what the law says, or how the law is being enforced. 170 00:10:56,400 --> 00:11:02,720 Speaker 5: The problem is how the law being enforced. We have 171 00:11:03,559 --> 00:11:07,960 Speaker 5: a good law. The failure was not a failure of 172 00:11:08,000 --> 00:11:12,800 Speaker 5: the law. The law is good. The law requires well 173 00:11:12,840 --> 00:11:18,720 Speaker 5: controlled trials that demonstrate safety and efficacy. The problem here 174 00:11:18,800 --> 00:11:23,120 Speaker 5: was that the FDA did not enforce that law. 175 00:11:24,480 --> 00:11:28,320 Speaker 3: The system works, it doesn't have to be bureaucratic, but 176 00:11:28,360 --> 00:11:30,400 Speaker 3: it's got to be applied, and it's got to be 177 00:11:30,480 --> 00:11:37,199 Speaker 3: applied scientifically and without bias, and it has to be 178 00:11:37,280 --> 00:11:43,319 Speaker 3: applied with real methodology as well. And so there were 179 00:11:43,360 --> 00:11:48,280 Speaker 3: a number of breakdowns in the opioid approval process, starting 180 00:11:48,360 --> 00:11:52,200 Speaker 3: back with MS Cotton and how the drug ever got 181 00:11:52,240 --> 00:11:56,240 Speaker 3: approved and when it shouldn't have rad on up to 182 00:11:56,280 --> 00:12:03,079 Speaker 3: oxycotton and even immediate release oxycodone. Those approvals defy explanation 183 00:12:03,200 --> 00:12:07,640 Speaker 3: at the FDA. They're just a series of compounded mistakes 184 00:12:07,720 --> 00:12:10,920 Speaker 3: on compounded mistakes, and there was no one to be 185 00:12:10,960 --> 00:12:14,960 Speaker 3: able to step in and to stop them from going forward, 186 00:12:15,559 --> 00:12:17,640 Speaker 3: and certainly to reverse them as well. 187 00:12:18,000 --> 00:12:18,360 Speaker 10: And so. 188 00:12:20,000 --> 00:12:23,760 Speaker 3: Where we are today is we haven't made any progress 189 00:12:24,040 --> 00:12:28,120 Speaker 3: in stopping the opioid epidemic, and we've not made any 190 00:12:28,160 --> 00:12:35,120 Speaker 3: progress in stopping to approve ineffective drugs at the Food 191 00:12:35,160 --> 00:12:36,160 Speaker 3: and Drug Administration. 192 00:12:37,000 --> 00:12:40,040 Speaker 2: Up next. Every week seems to bring another story of 193 00:12:40,080 --> 00:12:43,520 Speaker 2: a successful company losing its way. But what about those 194 00:12:43,559 --> 00:12:46,800 Speaker 2: that don't, or that having strayed, find their way back 195 00:12:46,840 --> 00:12:49,439 Speaker 2: to what made them great to begin with. We look 196 00:12:49,440 --> 00:12:52,880 Speaker 2: at the Mars Company and n AL, two major global companies, 197 00:12:53,040 --> 00:12:55,920 Speaker 2: and what they share in the way they do their business. 198 00:12:57,040 --> 00:13:00,560 Speaker 1: You're listening to Bloomberg Wall Street Week with Data Weston 199 00:13:00,920 --> 00:13:11,800 Speaker 1: from Bloomberg Radio. This is Bloomberg Wall Street Week with 200 00:13:12,000 --> 00:13:14,440 Speaker 1: David Weston from Bloomberg Radio. 201 00:13:15,440 --> 00:13:18,720 Speaker 2: This is a story about heritage. How a company's heritage 202 00:13:18,760 --> 00:13:22,240 Speaker 2: can help it succeed, return it to success, or put 203 00:13:22,240 --> 00:13:24,280 Speaker 2: it at risk when it is left behind. 204 00:13:24,720 --> 00:13:30,920 Speaker 11: Without the unabsolute reputation, the safety and consistency, you simply 205 00:13:30,960 --> 00:13:31,679 Speaker 11: can't compete. 206 00:13:31,760 --> 00:13:34,040 Speaker 4: And that's why everybody's worried about Boeing. 207 00:13:34,920 --> 00:13:38,480 Speaker 2: Boeing is just the most recent and glaring example of 208 00:13:38,520 --> 00:13:42,080 Speaker 2: a once great company stumbling in its case by losing 209 00:13:42,080 --> 00:13:44,080 Speaker 2: its core edge in engineering. 210 00:13:44,440 --> 00:13:47,520 Speaker 6: I'm an aerospace engineering Back in the day, I actually 211 00:13:47,520 --> 00:13:50,000 Speaker 6: work for Boeing. That's where you went if you wanted 212 00:13:50,000 --> 00:13:50,679 Speaker 6: to work on airplanes. 213 00:13:50,679 --> 00:13:51,720 Speaker 2: You couldn't go anyplace else. 214 00:13:52,160 --> 00:13:52,840 Speaker 6: You really couldn't. 215 00:13:52,880 --> 00:13:54,000 Speaker 10: That's not the case today. 216 00:13:54,920 --> 00:13:58,720 Speaker 2: Ron Epstein is a former Boeing engineer who now covers 217 00:13:58,760 --> 00:14:02,719 Speaker 2: aerospace and defense for Bank of America. He watched as 218 00:14:02,760 --> 00:14:06,320 Speaker 2: his former employer lost its way. It's far from the 219 00:14:06,360 --> 00:14:10,360 Speaker 2: only one, but there are also companies that over many years, 220 00:14:10,480 --> 00:14:14,400 Speaker 2: kept their momentum or even regained it after a stumble 221 00:14:14,520 --> 00:14:14,800 Speaker 2: or two. 222 00:14:15,440 --> 00:14:18,360 Speaker 6: IBM turns one hundred and fourteen this year, one hundred 223 00:14:18,360 --> 00:14:21,600 Speaker 6: and forty in the technology industry. Think about companies that 224 00:14:21,640 --> 00:14:24,880 Speaker 6: have lasted a century in the technology industry. They're hard 225 00:14:24,880 --> 00:14:27,560 Speaker 6: to find because of the nature of technology. 226 00:14:27,800 --> 00:14:31,760 Speaker 2: Sam Palmersano spent much of his career at IBM, rising 227 00:14:31,800 --> 00:14:36,240 Speaker 2: to become chairman and CEO. He attributes IBM's long term 228 00:14:36,280 --> 00:14:39,160 Speaker 2: success to a deep commitment to innovation. 229 00:14:39,840 --> 00:14:42,080 Speaker 6: The Watsons defined that it was about the future and 230 00:14:42,120 --> 00:14:45,120 Speaker 6: about innovation, and that that's where you should drive. You 231 00:14:45,120 --> 00:14:46,160 Speaker 6: should drive innovation. 232 00:14:46,480 --> 00:14:50,240 Speaker 2: Hello the business School at Yale University has created a 233 00:14:50,280 --> 00:14:53,880 Speaker 2: program to study what separates the companies that succeed over 234 00:14:53,920 --> 00:14:57,720 Speaker 2: the long term from those that don't. Some may find 235 00:14:57,760 --> 00:15:01,160 Speaker 2: the results surprising. They take a back to that notion 236 00:15:01,280 --> 00:15:05,880 Speaker 2: that has become known as stakeholder capitalism, although many of 237 00:15:05,960 --> 00:15:08,640 Speaker 2: the CEOs don't find it new at all. 238 00:15:09,600 --> 00:15:13,360 Speaker 12: We've interviewed more than one hundred and seventy five chief 239 00:15:13,400 --> 00:15:18,280 Speaker 12: executive officers as to the practice of this concept of 240 00:15:18,320 --> 00:15:19,520 Speaker 12: stakeholder capitalism. 241 00:15:20,480 --> 00:15:24,240 Speaker 2: John Iwada spent thirty five years at IBM, where he 242 00:15:24,280 --> 00:15:28,800 Speaker 2: worked closely on innovation and strategy with Sam Palmisano. He 243 00:15:28,880 --> 00:15:32,400 Speaker 2: is now an Executive Fellow at the Yale School of Management. 244 00:15:33,040 --> 00:15:35,880 Speaker 12: One of the things we learned in these interviews is 245 00:15:35,920 --> 00:15:39,360 Speaker 12: that most of the CEOs felt this wasn't really a 246 00:15:39,400 --> 00:15:43,080 Speaker 12: departure or anything new, and some of them said this 247 00:15:43,120 --> 00:15:46,360 Speaker 12: is sound business practice, or it's a return to sound 248 00:15:46,400 --> 00:15:50,840 Speaker 12: business practice, especially if you think about the long term 249 00:15:51,080 --> 00:15:55,120 Speaker 12: leading a corporation or an enterprise for the long term. 250 00:15:55,520 --> 00:15:59,960 Speaker 12: There are short term pressures or expectations that sometimes getting 251 00:16:00,080 --> 00:16:03,600 Speaker 12: the way of making investments or decisions that may not 252 00:16:03,760 --> 00:16:07,480 Speaker 12: pay off for many quarters or even years, So you 253 00:16:07,560 --> 00:16:10,360 Speaker 12: have to think about that. You may think about non 254 00:16:10,480 --> 00:16:16,400 Speaker 12: financial commitments to employees, to society, and those are not standardized, 255 00:16:16,640 --> 00:16:20,160 Speaker 12: those are not accepted measurements and metrics, and so those 256 00:16:20,200 --> 00:16:23,800 Speaker 12: are soft or squishy, and other factors that come into 257 00:16:23,800 --> 00:16:24,320 Speaker 12: play here. 258 00:16:25,160 --> 00:16:27,840 Speaker 2: I want to learn from his CEO interviews of the 259 00:16:27,960 --> 00:16:31,880 Speaker 2: challenges leaders face in trying to bring together disparate parts 260 00:16:31,920 --> 00:16:36,120 Speaker 2: of the company and disparate interested parties, and the key 261 00:16:36,240 --> 00:16:38,880 Speaker 2: role of purpose in weaving it all together. 262 00:16:39,640 --> 00:16:44,440 Speaker 12: CEOs, like every executive comes up through a business or 263 00:16:44,520 --> 00:16:48,680 Speaker 12: through a professional career in a vertical finance or R 264 00:16:48,720 --> 00:16:52,160 Speaker 12: and D or sales, and when they get into the 265 00:16:52,200 --> 00:16:56,560 Speaker 12: CEO chair. Satia Nadella Microsoft set it some years ago 266 00:16:56,640 --> 00:16:59,960 Speaker 12: in an interview, is then you realize just how multi 267 00:17:00,160 --> 00:17:05,719 Speaker 12: constituent or how many stakeholders the enterprise actually has. You 268 00:17:05,760 --> 00:17:08,560 Speaker 12: have shareholders, you have governments, of course, you have customers 269 00:17:08,560 --> 00:17:12,080 Speaker 12: and employees, you have suppliers, and you have to have 270 00:17:12,160 --> 00:17:16,879 Speaker 12: these relationships with all of these constituents. The question is 271 00:17:17,320 --> 00:17:20,719 Speaker 12: do you manage them piecemeal or do we think of 272 00:17:20,760 --> 00:17:25,840 Speaker 12: this more holistically. A lot of the CEOs described sometimes 273 00:17:25,840 --> 00:17:30,040 Speaker 12: they use air quotes. This management system almost an operating 274 00:17:30,080 --> 00:17:35,840 Speaker 12: system for the company that is based on common definitions 275 00:17:35,880 --> 00:17:38,800 Speaker 12: of the firm. Some of them say, there are three 276 00:17:38,920 --> 00:17:42,320 Speaker 12: questions that you have to ask and answer why, what 277 00:17:42,480 --> 00:17:45,240 Speaker 12: and how? Why do we exist? Which turns into the 278 00:17:45,240 --> 00:17:48,119 Speaker 12: purpose of the company. What do we do which is 279 00:17:48,160 --> 00:17:51,720 Speaker 12: the strategy of the company? And how and that's the culture? 280 00:17:51,800 --> 00:17:53,560 Speaker 12: And how are we going to show up? 281 00:17:54,320 --> 00:17:57,600 Speaker 2: A well known company that has put purpose and values 282 00:17:57,640 --> 00:18:00,679 Speaker 2: at the core of its operation since it's founding. Is 283 00:18:00,720 --> 00:18:04,280 Speaker 2: the Mars Company in business since nineteen eleven. 284 00:18:04,840 --> 00:18:07,880 Speaker 12: Mars is more than one hundred years old, very successful 285 00:18:07,920 --> 00:18:11,440 Speaker 12: for a long time. And as we began to talk 286 00:18:11,480 --> 00:18:15,400 Speaker 12: to management at Mars and members of the Mars family, 287 00:18:16,160 --> 00:18:18,800 Speaker 12: we learned that they were going through what we would 288 00:18:18,880 --> 00:18:23,240 Speaker 12: refer to as a founding moment. And why because for 289 00:18:23,359 --> 00:18:27,680 Speaker 12: much of Mars' history, members of the Mars family led 290 00:18:27,720 --> 00:18:31,200 Speaker 12: the company and worked in the company. But the reality 291 00:18:31,240 --> 00:18:35,320 Speaker 12: today in the future is very few members of the 292 00:18:35,359 --> 00:18:38,600 Speaker 12: Mars family, perhaps no members of the Mars family will 293 00:18:38,640 --> 00:18:40,920 Speaker 12: be in management or even work in the company. 294 00:18:41,480 --> 00:18:45,359 Speaker 9: The principles and the values are at the heart of 295 00:18:45,520 --> 00:18:46,080 Speaker 9: who we are. 296 00:18:47,119 --> 00:18:51,359 Speaker 2: Victoria Mars is the great granddaughter of founder frank Seymars. 297 00:18:51,920 --> 00:18:54,400 Speaker 2: She has been on the board for nearly twenty years, 298 00:18:54,760 --> 00:18:56,080 Speaker 2: three of them as chair. 299 00:18:57,000 --> 00:19:02,760 Speaker 9: My grandfather had very strong principles and values, and these 300 00:19:02,760 --> 00:19:07,600 Speaker 9: principles and values I grew up with without actually knowing 301 00:19:07,760 --> 00:19:10,439 Speaker 9: that I was growing up with them. So when we 302 00:19:10,480 --> 00:19:14,440 Speaker 9: talk about the Mars Principles, we're really talking about the 303 00:19:14,480 --> 00:19:18,840 Speaker 9: family values that have existed since the beginning. And as 304 00:19:18,880 --> 00:19:21,880 Speaker 9: the company got larger and it was more and more 305 00:19:21,920 --> 00:19:25,359 Speaker 9: difficult for the family, specifically at that point my father 306 00:19:25,440 --> 00:19:28,520 Speaker 9: and my uncle to be around all the associates, to 307 00:19:28,520 --> 00:19:30,440 Speaker 9: be able to talk about the values and to be 308 00:19:30,520 --> 00:19:33,879 Speaker 9: able to talk about how we do business, they decided 309 00:19:33,920 --> 00:19:36,840 Speaker 9: it was time to write them down. The five principles 310 00:19:36,960 --> 00:19:43,360 Speaker 9: that were actually written down and defined in the early eighties. Quality, responsibility, efficiency, 311 00:19:43,560 --> 00:19:47,840 Speaker 9: mutuality and freedom have been our principles since the beginning 312 00:19:48,720 --> 00:19:52,320 Speaker 9: and they are the foundation of everything we do within 313 00:19:52,400 --> 00:19:52,960 Speaker 9: the business. 314 00:19:54,760 --> 00:19:59,200 Speaker 2: Times change and businesses evolve, something the Mars Company has 315 00:19:59,280 --> 00:20:02,800 Speaker 2: certainly done. But as much as the Mars Principles maybe 316 00:20:02,920 --> 00:20:06,960 Speaker 2: updated every few years, the fundamentals do not change. 317 00:20:07,320 --> 00:20:10,920 Speaker 9: So they haven't changed. They've just been updated to be relevant. 318 00:20:11,640 --> 00:20:15,159 Speaker 9: Management helps us and supports us and clearly obviously implements 319 00:20:15,200 --> 00:20:19,040 Speaker 9: them in our business, but any changes to them, any 320 00:20:19,119 --> 00:20:22,880 Speaker 9: tweaks to them, anything from the colors to the script 321 00:20:23,359 --> 00:20:26,120 Speaker 9: to the words, belongs to the family. 322 00:20:26,920 --> 00:20:30,240 Speaker 2: A company having principles is one thing. Putting them to 323 00:20:30,400 --> 00:20:34,440 Speaker 2: use in everyday decisions, not to mention big strategic decisions 324 00:20:34,920 --> 00:20:36,600 Speaker 2: is something else. Entirely. 325 00:20:37,160 --> 00:20:41,160 Speaker 10: It's not a checklist, but it comes up in conversations 326 00:20:41,200 --> 00:20:43,760 Speaker 10: when we make decisions. And I think that are two things. 327 00:20:43,840 --> 00:20:47,760 Speaker 10: One is this aligned with the purpose of what we're 328 00:20:47,760 --> 00:20:51,119 Speaker 10: trying to deliver here, whether it is overall from Mars. 329 00:20:51,640 --> 00:20:53,440 Speaker 10: You know, the kind of company that we are trying 330 00:20:53,440 --> 00:20:56,080 Speaker 10: to deliver today is well set up for the world 331 00:20:56,160 --> 00:20:57,040 Speaker 10: we want tomorrow. 332 00:20:57,680 --> 00:21:01,320 Speaker 2: Klass our guard is the Mars Chief financial officer and 333 00:21:01,760 --> 00:21:04,639 Speaker 2: like all members of management, not a member of the 334 00:21:04,680 --> 00:21:05,800 Speaker 2: Mars family. 335 00:21:06,160 --> 00:21:09,600 Speaker 10: Five principles come up, certainly as a fact check. You know, 336 00:21:10,000 --> 00:21:12,679 Speaker 10: this doesn't feel like in line with the five principles? 337 00:21:12,680 --> 00:21:15,159 Speaker 10: Well why not? And you know, and sometimes they're not 338 00:21:15,240 --> 00:21:19,120 Speaker 10: all equal in every decision. Are we really delivering quality? 339 00:21:19,240 --> 00:21:22,359 Speaker 10: Are we really directed by the consumer? Or is this 340 00:21:22,560 --> 00:21:26,920 Speaker 10: mutual to the stakeholders around us When we may make 341 00:21:26,960 --> 00:21:31,320 Speaker 10: decisions around renegotiating certain things or whatever, you know, we 342 00:21:31,400 --> 00:21:33,360 Speaker 10: are we true to the stakeholders around us. 343 00:21:34,000 --> 00:21:37,560 Speaker 2: The Mars principles underlie the values of the family, but 344 00:21:37,640 --> 00:21:41,000 Speaker 2: the family also believes it makes the company more successful. 345 00:21:41,240 --> 00:21:46,920 Speaker 9: Overall, the principles and the values help us be proud 346 00:21:47,320 --> 00:21:52,080 Speaker 9: of this company. We do believe that utilizing these principles 347 00:21:52,560 --> 00:21:56,399 Speaker 9: helps our associates make the right decision, the decisions that 348 00:21:56,440 --> 00:21:59,320 Speaker 9: create the concept of a win win We are all 349 00:21:59,359 --> 00:22:03,440 Speaker 9: going to seed together versus let me win and let 350 00:22:03,440 --> 00:22:06,439 Speaker 9: me see you fail. So I really do believe that 351 00:22:06,640 --> 00:22:10,280 Speaker 9: utilizing these principles has helped us be successful in business. 352 00:22:10,920 --> 00:22:15,200 Speaker 9: It helps us recruit good people and keep good people. 353 00:22:15,840 --> 00:22:19,159 Speaker 9: It helps us earn trust with government, It helps us 354 00:22:19,160 --> 00:22:21,920 Speaker 9: earn trust with our associates, It helps us earn trust 355 00:22:22,000 --> 00:22:25,840 Speaker 9: with communities where we work. So to us, yes, it 356 00:22:25,920 --> 00:22:29,040 Speaker 9: does make a difference and helps us be successful. 357 00:22:30,200 --> 00:22:33,160 Speaker 2: The Mars Company is, at its base, a family company, 358 00:22:33,480 --> 00:22:38,040 Speaker 2: a global, highly successful one, but nonetheless a family endeavor, 359 00:22:38,560 --> 00:22:41,679 Speaker 2: which may give it advantages in pursuing its principle based 360 00:22:41,760 --> 00:22:45,560 Speaker 2: business strategy, but they can also come with some challenges. 361 00:22:46,000 --> 00:22:49,399 Speaker 10: There no doubt many public companies with a long history 362 00:22:49,400 --> 00:22:52,520 Speaker 10: that also has a very great story to tell. We 363 00:22:52,600 --> 00:22:56,080 Speaker 10: believe we have our own story and our unique vision 364 00:22:56,160 --> 00:23:00,840 Speaker 10: for the future, while respecting that long term success is 365 00:23:00,880 --> 00:23:05,200 Speaker 10: also built on continuing to have healthy short term performance, 366 00:23:05,240 --> 00:23:07,480 Speaker 10: if you want to call it. That is an ingredient 367 00:23:07,520 --> 00:23:10,960 Speaker 10: that live well in our context with the way management 368 00:23:11,400 --> 00:23:17,000 Speaker 10: is set up, with the commitment also of our owners 369 00:23:17,000 --> 00:23:20,880 Speaker 10: to take a long term view and you know, leave 370 00:23:22,000 --> 00:23:24,879 Speaker 10: a lot of capital for reinvestment in the company and 371 00:23:25,240 --> 00:23:29,800 Speaker 10: set some objectives, both financial and non financial objectives that 372 00:23:29,920 --> 00:23:32,680 Speaker 10: really enables us to do the things that we're doing. 373 00:23:33,720 --> 00:23:35,960 Speaker 9: When people used to ask me and say, you know, 374 00:23:36,040 --> 00:23:40,280 Speaker 9: what is your biggest fear, what is your biggest worry, 375 00:23:40,600 --> 00:23:43,800 Speaker 9: my response usually is it's not the business. The business 376 00:23:43,840 --> 00:23:50,600 Speaker 9: really can function very well on its own. It's managing 377 00:23:50,640 --> 00:23:54,600 Speaker 9: a family. So part of being able to be a 378 00:23:54,640 --> 00:23:59,080 Speaker 9: family business, to continue to be a family business, requires 379 00:23:59,760 --> 00:24:05,360 Speaker 9: a lot of energy and effort into working with the family. 380 00:24:05,640 --> 00:24:09,800 Speaker 9: We have been having annual family meetings for over twenty years. 381 00:24:10,240 --> 00:24:14,880 Speaker 9: Our family is continuously there because we're connected to this business. 382 00:24:14,920 --> 00:24:18,040 Speaker 9: We're joined at the hit by this business. So having 383 00:24:18,119 --> 00:24:22,200 Speaker 9: the family functioning well and having the family and being 384 00:24:22,240 --> 00:24:25,720 Speaker 9: able to manage through conflicts that come up, which of 385 00:24:25,760 --> 00:24:28,879 Speaker 9: course will come up in every family, and being able 386 00:24:28,880 --> 00:24:33,399 Speaker 9: to work towards a common outcome and common goals takes 387 00:24:33,520 --> 00:24:34,480 Speaker 9: a lot of work. 388 00:24:36,200 --> 00:24:39,000 Speaker 2: The Mars family continues to work hard at pursuing the 389 00:24:39,040 --> 00:24:41,600 Speaker 2: goals and values it has established since the beginning of 390 00:24:41,640 --> 00:24:44,840 Speaker 2: the last century. But could a similar approach succeed in 391 00:24:44,840 --> 00:24:47,959 Speaker 2: a publicly traded company in a very different business. And 392 00:24:48,000 --> 00:24:50,720 Speaker 2: that's where we turn next to the second biggest power 393 00:24:50,760 --> 00:24:54,640 Speaker 2: company in the world and how it moved forward by 394 00:24:54,680 --> 00:24:56,280 Speaker 2: returning to its basic purpose. 395 00:24:57,040 --> 00:25:00,560 Speaker 1: You're listening to Bloomberg Wall Street Week with Data Weston 396 00:25:00,960 --> 00:25:04,840 Speaker 1: from Bloomberg Radio. 397 00:25:07,400 --> 00:25:10,520 Speaker 2: The Mars Company has enjoyed a very long and successful 398 00:25:10,600 --> 00:25:14,440 Speaker 2: history as a family company, pursuing the family's values even 399 00:25:14,480 --> 00:25:17,359 Speaker 2: as it expanded around the world and into new businesses. 400 00:25:17,760 --> 00:25:19,960 Speaker 2: But the Yale Project learned from its one hundred and 401 00:25:20,000 --> 00:25:24,119 Speaker 2: seventy five CEO interviews that Mars shares some approaches with large, 402 00:25:24,320 --> 00:25:27,720 Speaker 2: publicly traded companies in very different industries. One of them 403 00:25:27,800 --> 00:25:31,399 Speaker 2: is the Italian power giant Ennel, whose CEO redirected it 404 00:25:31,480 --> 00:25:33,840 Speaker 2: for a new age by taking it back to its 405 00:25:33,840 --> 00:25:35,480 Speaker 2: simple roots. 406 00:25:36,560 --> 00:25:41,440 Speaker 12: Headquartered in Italy as a global energy generation and transmission company, 407 00:25:41,480 --> 00:25:44,879 Speaker 12: Francesco Staracci became CEO I think it was in twenty fourteen, 408 00:25:45,480 --> 00:25:49,440 Speaker 12: and he inherited a company that was troubled, particularly from 409 00:25:49,440 --> 00:25:52,680 Speaker 12: a stakeholder perspective. You know, from investor standpoint, the stock 410 00:25:52,800 --> 00:25:56,040 Speaker 12: was languishing, the company was heavily in debt. They were 411 00:25:56,040 --> 00:26:01,720 Speaker 12: in this chronic cycle of making mass of capital investments 412 00:26:01,760 --> 00:26:05,399 Speaker 12: in building new power plants that wouldn't come online in 413 00:26:05,440 --> 00:26:08,480 Speaker 12: some cases for ten years, and by the time the 414 00:26:09,400 --> 00:26:13,720 Speaker 12: plant was operational, it was obsolete, and they had these 415 00:26:13,720 --> 00:26:17,240 Speaker 12: big right offs and so forth. So not got good 416 00:26:17,280 --> 00:26:20,640 Speaker 12: for the investor. At the other end, they had difficult 417 00:26:20,720 --> 00:26:24,280 Speaker 12: community relationships all over the world. I think he said, 418 00:26:24,320 --> 00:26:27,280 Speaker 12: we were at war constantly with communities where we put 419 00:26:27,359 --> 00:26:30,280 Speaker 12: plants in they didn't want us there. And for forty 420 00:26:30,359 --> 00:26:33,879 Speaker 12: years or more, you know, we had these difficult relationships 421 00:26:33,960 --> 00:26:35,400 Speaker 12: with communities. 422 00:26:36,080 --> 00:26:39,840 Speaker 2: Like other CEOs looking to move their companies forward, Staracci 423 00:26:39,960 --> 00:26:43,840 Speaker 2: studied a future of his business, and like so many others, 424 00:26:44,119 --> 00:26:47,960 Speaker 2: concluded it laid in technological changes in the very business 425 00:26:48,200 --> 00:26:48,840 Speaker 2: of power. 426 00:26:49,000 --> 00:26:51,080 Speaker 4: The company was already a pretty large I mean, it 427 00:26:51,119 --> 00:26:54,480 Speaker 4: was big, and it was heavily in debted because of 428 00:26:55,000 --> 00:26:57,879 Speaker 4: the expansion we had in the preceding years. It had 429 00:26:58,119 --> 00:27:02,480 Speaker 4: let's say, a cash conversion problem, so there was a 430 00:27:02,480 --> 00:27:06,800 Speaker 4: lot of revenues that didn't really come up with a 431 00:27:06,840 --> 00:27:11,720 Speaker 4: lot of cash, and growth was a little bit stalling. 432 00:27:12,359 --> 00:27:16,119 Speaker 4: It was a company that had to deal mostly with 433 00:27:16,240 --> 00:27:20,600 Speaker 4: managing that given the size it had. The issue was 434 00:27:21,720 --> 00:27:25,479 Speaker 4: we needed to restart growth. But more than that, we 435 00:27:25,520 --> 00:27:31,480 Speaker 4: needed to, let's say, give clarity about the sustainability of 436 00:27:31,960 --> 00:27:35,720 Speaker 4: future revenues to the debt markets. You know that that 437 00:27:35,880 --> 00:27:38,879 Speaker 4: in itself, you know, the size of a debt is 438 00:27:38,920 --> 00:27:41,080 Speaker 4: a function of the size of the revenues that you 439 00:27:41,080 --> 00:27:43,119 Speaker 4: can generate to serve the debt. So there was a 440 00:27:43,119 --> 00:27:46,160 Speaker 4: little bit of an issue at what was the future 441 00:27:46,560 --> 00:27:49,359 Speaker 4: of the company going to be. So we had to 442 00:27:49,640 --> 00:27:54,440 Speaker 4: actually decide what was the trajectory of the company, sell 443 00:27:54,480 --> 00:27:57,359 Speaker 4: it to our shareholders and also to of course the 444 00:27:57,400 --> 00:28:00,119 Speaker 4: whole market in a way that it was understand and 445 00:28:00,200 --> 00:28:04,720 Speaker 4: the ball solid, robust enough to withstand potential shocks, and 446 00:28:04,800 --> 00:28:09,320 Speaker 4: of course more generative of cash flow. Basically, that was 447 00:28:09,400 --> 00:28:12,200 Speaker 4: the issue we had to deal with and that clearly 448 00:28:12,240 --> 00:28:14,560 Speaker 4: had to do with the time and how much time 449 00:28:14,600 --> 00:28:17,880 Speaker 4: did we have to do that, and also what kind 450 00:28:17,960 --> 00:28:21,040 Speaker 4: of pockets of value creation we have left. We had 451 00:28:21,040 --> 00:28:23,600 Speaker 4: in the company that were not that didn't we didn't 452 00:28:23,640 --> 00:28:25,440 Speaker 4: really tap well enough. 453 00:28:25,760 --> 00:28:29,720 Speaker 2: As you determine the trajectory for growth and for a 454 00:28:29,840 --> 00:28:32,879 Speaker 2: revenue going forward, how did you find the trajectory that 455 00:28:32,920 --> 00:28:33,600 Speaker 2: you settled upon. 456 00:28:33,960 --> 00:28:39,640 Speaker 4: Basically, we said, where is the technology going? You know, 457 00:28:39,880 --> 00:28:44,280 Speaker 4: because you can you can ignore technology for a while. 458 00:28:44,680 --> 00:28:46,440 Speaker 4: It's okay, but at the end of the day, it 459 00:28:46,480 --> 00:28:49,680 Speaker 4: always catch up with you. So where is the utility 460 00:28:49,760 --> 00:28:52,880 Speaker 4: sector in the industry that is with it? Where is 461 00:28:52,920 --> 00:28:56,520 Speaker 4: it going? And what forces are changing these technologies? And 462 00:28:56,560 --> 00:28:59,560 Speaker 4: we saw at that time we had seen it before 463 00:28:59,600 --> 00:29:02,920 Speaker 4: with any in power. I should say that there was 464 00:29:03,440 --> 00:29:07,880 Speaker 4: a major change in the technology of generating electricity, namely 465 00:29:08,000 --> 00:29:12,120 Speaker 4: that renewables were becoming competitive, had become already by twenty 466 00:29:12,160 --> 00:29:17,120 Speaker 4: fourteen competitive with termageneration by enlarge in many parts of 467 00:29:17,120 --> 00:29:21,400 Speaker 4: the world, and we were not active enough in that space. 468 00:29:21,800 --> 00:29:26,240 Speaker 4: And that space was going to be where value was 469 00:29:26,280 --> 00:29:29,080 Speaker 4: going to be created in a major way in the 470 00:29:29,120 --> 00:29:32,960 Speaker 4: next few years. So we said, how do we catch 471 00:29:33,040 --> 00:29:36,440 Speaker 4: this train, how do we jump on it, and what 472 00:29:36,440 --> 00:29:37,000 Speaker 4: can we do? 473 00:29:37,240 --> 00:29:39,920 Speaker 2: And was that driven by a revenue stream that you 474 00:29:40,040 --> 00:29:42,200 Speaker 2: saw out there because of technological change? 475 00:29:42,480 --> 00:29:46,800 Speaker 4: I think the revolutionary thing about renewables at that time, 476 00:29:46,920 --> 00:29:49,960 Speaker 4: the people didn't understand. I think we were maybe the first, 477 00:29:51,200 --> 00:29:54,840 Speaker 4: the first that understood it consciously and not inconsciously. You know, 478 00:29:55,000 --> 00:29:58,320 Speaker 4: we actually got and studied and really came with a 479 00:29:58,360 --> 00:30:03,800 Speaker 4: conclusion that shifting our generation from thermogeneration to renewables, we 480 00:30:03,880 --> 00:30:09,120 Speaker 4: would increase double the abitam margin, so the amount of 481 00:30:09,160 --> 00:30:11,680 Speaker 4: money we would make with the same kilobat hour. And 482 00:30:11,760 --> 00:30:15,240 Speaker 4: that was a major aha moment if you want, We said, okay, 483 00:30:15,280 --> 00:30:18,360 Speaker 4: well let's do it, because there's no time to get 484 00:30:18,360 --> 00:30:20,520 Speaker 4: to be lost here. And to do that, we had 485 00:30:20,560 --> 00:30:25,880 Speaker 4: to basically completely change our operating model at developing plans 486 00:30:25,920 --> 00:30:28,880 Speaker 4: and at thinking about generation going forward. 487 00:30:29,880 --> 00:30:34,200 Speaker 2: For Staraci, identifying renewables as the growth opportunity for Anna 488 00:30:34,480 --> 00:30:37,200 Speaker 2: was the first step. But to get there with the 489 00:30:37,240 --> 00:30:41,560 Speaker 2: growth it promised required the company to move fast, faster 490 00:30:42,040 --> 00:30:43,959 Speaker 2: than it had ever done in the past. 491 00:30:44,400 --> 00:30:47,560 Speaker 4: Imagine, this is an industry that worked before with a 492 00:30:47,600 --> 00:30:50,400 Speaker 4: time horizon of five to ten years. So you started 493 00:30:50,640 --> 00:30:53,760 Speaker 4: investing in something and that whatever it was, a power 494 00:30:53,760 --> 00:30:57,080 Speaker 4: plant or anything else, it would start generating revenues five 495 00:30:57,160 --> 00:31:00,080 Speaker 4: or ten years after. And we said we shortened that 496 00:31:00,160 --> 00:31:03,640 Speaker 4: to three year maximum. Okay, that was a major shock 497 00:31:04,600 --> 00:31:09,120 Speaker 4: for most people, and those that were impacted were basically 498 00:31:09,240 --> 00:31:12,680 Speaker 4: the development people, you know, and we said, scrap all 499 00:31:12,720 --> 00:31:15,680 Speaker 4: the stuff that does not stay in this three year 500 00:31:15,720 --> 00:31:19,920 Speaker 4: time horizon, and that accelerated a lot the circulation of 501 00:31:19,960 --> 00:31:22,840 Speaker 4: the capital, I mean, Capita started working a lot earlier 502 00:31:22,840 --> 00:31:26,120 Speaker 4: than before, and that gave us the momentum we needed 503 00:31:26,160 --> 00:31:29,000 Speaker 4: to really kick start the whole thing. I should say 504 00:31:29,520 --> 00:31:34,400 Speaker 4: it took six months to explain over and over more 505 00:31:34,400 --> 00:31:38,120 Speaker 4: than one time in this logic, but after that everybody 506 00:31:38,160 --> 00:31:41,520 Speaker 4: got it, and I would say in a few years 507 00:31:41,560 --> 00:31:45,200 Speaker 4: we were working at two years not three, so with 508 00:31:45,400 --> 00:31:50,160 Speaker 4: further strength short in that time. That was a major change. 509 00:31:50,280 --> 00:31:54,040 Speaker 2: After some initial resistance, and all employees embraced the new 510 00:31:54,080 --> 00:31:58,240 Speaker 2: direction because of the opportunities it presented them. But ironically, 511 00:31:58,480 --> 00:32:02,600 Speaker 2: Staracchi sees this new direction as really a return to 512 00:32:02,680 --> 00:32:05,400 Speaker 2: the basics of what gave rise to the company in 513 00:32:05,440 --> 00:32:06,200 Speaker 2: the first place. 514 00:32:06,800 --> 00:32:10,000 Speaker 4: The pushback was basically a different one was the fact 515 00:32:10,040 --> 00:32:14,000 Speaker 4: that we had say, a very limited number of very 516 00:32:14,080 --> 00:32:18,479 Speaker 4: large investments with which we thought we would continue to 517 00:32:18,480 --> 00:32:23,080 Speaker 4: grow the company, and applying these three years' role, we 518 00:32:23,160 --> 00:32:26,760 Speaker 4: would cut the investment size a lot, so the renewable 519 00:32:26,840 --> 00:32:31,600 Speaker 4: energy projects had smaller, much smaller sizes. So people said, 520 00:32:31,680 --> 00:32:35,120 Speaker 4: how can we grow because this project are so small, 521 00:32:35,600 --> 00:32:38,680 Speaker 4: And the answer we gave them is, well, you have 522 00:32:38,720 --> 00:32:42,360 Speaker 4: to multiply the number of projects. So instead of having 523 00:32:42,480 --> 00:32:45,880 Speaker 4: say twenty projects, you're going to have two hundred or 524 00:32:45,920 --> 00:32:51,080 Speaker 4: maybe four hundred. And that was a major shock because 525 00:32:51,320 --> 00:32:54,320 Speaker 4: to manage two or three hundred projects at the same 526 00:32:54,360 --> 00:32:57,880 Speaker 4: time was something a company had never done before. I 527 00:32:57,880 --> 00:33:00,240 Speaker 4: think at the end it was exciting for people. They 528 00:33:00,240 --> 00:33:03,440 Speaker 4: needed something and they loved at the fact that they 529 00:33:03,480 --> 00:33:07,800 Speaker 4: could go at it numerous times, many more times than 530 00:33:07,840 --> 00:33:08,760 Speaker 4: they ever dreamed. 531 00:33:08,920 --> 00:33:12,720 Speaker 2: And every corporation has a culture. Did the culture change 532 00:33:13,160 --> 00:33:14,160 Speaker 2: under your leadership? 533 00:33:14,280 --> 00:33:17,280 Speaker 4: No, it did not. Actually, what happened is that we 534 00:33:17,680 --> 00:33:22,959 Speaker 4: needed to declutter the cultural space in a way. So, 535 00:33:23,880 --> 00:33:29,080 Speaker 4: you know, utilities have a very deep culture and very 536 00:33:29,080 --> 00:33:33,160 Speaker 4: simple one, all of them. I mean, they're all the same. 537 00:33:34,360 --> 00:33:37,360 Speaker 4: You know, the semantics are important. A utility is useful 538 00:33:37,360 --> 00:33:40,680 Speaker 4: to people, that's why it exists. And most of the 539 00:33:40,800 --> 00:33:45,760 Speaker 4: utilities were formed in the past to electrify a space 540 00:33:45,840 --> 00:33:49,880 Speaker 4: that didn't have electricity. So people got pride in bringing 541 00:33:50,000 --> 00:33:53,560 Speaker 4: light to places that didn't have it. That is, the 542 00:33:53,600 --> 00:33:57,880 Speaker 4: culture of utility is useful to people, to people or businesses, 543 00:33:57,920 --> 00:34:02,400 Speaker 4: but in a way to society. The rest of the 544 00:34:02,440 --> 00:34:08,080 Speaker 4: stuff that over the decades were thrown at utilities is noise. 545 00:34:08,880 --> 00:34:11,719 Speaker 4: So what we had to do is the clatter, all 546 00:34:11,800 --> 00:34:15,279 Speaker 4: this noise, throw it away and say, guys, we are 547 00:34:15,320 --> 00:34:20,080 Speaker 4: here for one very simple purpose or not. And everybody 548 00:34:20,080 --> 00:34:22,920 Speaker 4: agreed to that, and that, I can tell you was 549 00:34:23,280 --> 00:34:28,480 Speaker 4: surprisingly identical across geographies. There was zero difference from Russia 550 00:34:28,480 --> 00:34:32,240 Speaker 4: to the US, from Latin America to Africa, including Europe, 551 00:34:32,520 --> 00:34:37,680 Speaker 4: it was exactly the same feedback. Everybody said, that's us exactly, 552 00:34:37,840 --> 00:34:40,520 Speaker 4: we want this. So it was super easy. I just 553 00:34:40,560 --> 00:34:45,000 Speaker 4: had to eliminate a lot of say, substrata and stuff 554 00:34:45,000 --> 00:34:48,880 Speaker 4: that were thrown at the utility over the years. 555 00:34:49,040 --> 00:34:51,840 Speaker 2: So in a sense, you were not fighting with your heritage, 556 00:34:51,880 --> 00:34:53,920 Speaker 2: you were returning to it exactly. 557 00:34:54,080 --> 00:34:55,880 Speaker 4: We had to go back to it. You know, we 558 00:34:55,960 --> 00:34:59,400 Speaker 4: had a purpose statement and that was like five sentences 559 00:34:59,400 --> 00:35:02,520 Speaker 4: glued together and you can read through them. Who wanted 560 00:35:02,560 --> 00:35:05,480 Speaker 4: to add something and nobody said no, it's so much. 561 00:35:05,640 --> 00:35:08,520 Speaker 4: So it was a super complex stuff and we just 562 00:35:08,560 --> 00:35:11,799 Speaker 4: said you know this doesn't matter. What are we for here? 563 00:35:11,880 --> 00:35:15,080 Speaker 4: I mean, we are useful to society. That's our purpose. 564 00:35:15,480 --> 00:35:19,279 Speaker 4: So we created a very nice purpose line that was 565 00:35:19,320 --> 00:35:24,160 Speaker 4: a cent open power. We empower sustainable progress. That's it, 566 00:35:24,960 --> 00:35:30,600 Speaker 4: and everybody immediately identified in that. So we didn't really 567 00:35:30,760 --> 00:35:33,160 Speaker 4: have to invent anything. We had to remove stuff. 568 00:35:33,760 --> 00:35:38,760 Speaker 2: The term stakeholder capitalism has become somewhat controversial, a potential 569 00:35:38,760 --> 00:35:41,960 Speaker 2: distraction from the basics of running a for profit business. 570 00:35:42,760 --> 00:35:45,920 Speaker 2: But whether you're a global power like no or a 571 00:35:45,960 --> 00:35:49,520 Speaker 2: global family business like Mars or the one hundred and 572 00:35:49,600 --> 00:35:53,440 Speaker 2: forty year old IBM, those who actually run the businesses 573 00:35:53,800 --> 00:35:55,560 Speaker 2: find it to be pretty basic. 574 00:35:56,280 --> 00:35:58,799 Speaker 6: Most people run the companies understand that the way you 575 00:35:58,880 --> 00:36:02,520 Speaker 6: create offit ability, which funds your future investment, is through 576 00:36:02,560 --> 00:36:05,680 Speaker 6: your innovation and your product lines and your customer service 577 00:36:05,719 --> 00:36:08,040 Speaker 6: whatever it happens to be. That's how you do it now. 578 00:36:08,280 --> 00:36:10,920 Speaker 6: Quite honestly, David, because I am old that I am cynical, 579 00:36:11,160 --> 00:36:13,120 Speaker 6: the CEO should have been doing this anyway. That's what 580 00:36:13,200 --> 00:36:14,360 Speaker 6: a lot of us were just doing. 581 00:36:14,920 --> 00:36:18,520 Speaker 2: And even some of the most troubled businesses are embracing 582 00:36:18,640 --> 00:36:22,680 Speaker 2: some form of this stakeholder capitalism as the relatively new 583 00:36:22,760 --> 00:36:27,239 Speaker 2: CEO of Boeing, Kelly Ortwerg, recently told Congress. 584 00:36:27,280 --> 00:36:31,840 Speaker 11: Boeing made serious missteps in recent years, and it's unacceptable. 585 00:36:32,160 --> 00:36:36,359 Speaker 11: In response, we've made sweeping changes to the people, processes, 586 00:36:36,560 --> 00:36:40,760 Speaker 11: and overall structure of our company. While there's still work ahead, 587 00:36:41,160 --> 00:36:44,839 Speaker 11: these profound changes are underpinned by deep commitment from all 588 00:36:44,880 --> 00:36:47,719 Speaker 11: of us to the safety of our products and services. 589 00:36:49,719 --> 00:36:51,520 Speaker 2: That does it for us. Here at Wall Street Week, 590 00:36:51,600 --> 00:36:54,439 Speaker 2: I'm David Weston. This is Bloomberg. See you next week 591 00:36:54,480 --> 00:37:02,080 Speaker 2: for more stories of capitalism. T