Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is Wall Street Week. I'm David Weston bringing you
Speaker 2: stories of capitalism this week. How HHS Secretary Kennedy's FDA
Speaker 2: criticism hearkens back to its approval of OxyContin and the
Speaker 2: enormous losses from opioid addiction. Plus what it takes to
Speaker 2: keep a company on track or get it back on
Speaker 2: track when it's wandered off. The tale of two very
Speaker 2: different companies, the Mars Company and global power giant Ennel,
Speaker 2: and their particular take on stakeholder capitalism. This is a
Speaker 2: story about regulation, not too much of it, but instead
Speaker 2: too little and when it matters most. The new sector
Speaker 2: of Health and Human Services, Robert F. Kennedy Junior, has
Speaker 2: accused the Food and Drug Administration of being too cozy
Speaker 2: with the pharmaceutical industry.
Speaker 3: No, you want a present, who's going to end the
Speaker 3: corruption at the federal agencies?
Speaker 4: Our FDA.
Speaker 2: In a closed door staff meeting this month, Secretary Kennedy
Speaker 2: called the FDA a sack puppet, echoing his claim that
Speaker 2: the agency has been captured by the industry it's supposed
Speaker 2: to regulate.
Speaker 4: Look, these are the companies that gave us the opioid epidemic.
Speaker 4: They pressured FDA to lie, and they got their way.
Speaker 2: A report in Bloomberg BusinessWeek examines how the FDA violated
Speaker 2: its own rules in green lighting broad marketing of opioid painkillers,
Speaker 2: sparking the epidemic, leading to years of litigation and ending
Speaker 2: in Purdue Farmer's seven point four billion dollar bankruptcy plan.
Speaker 2: Doctor Andrew Kolodney of Brandeis University is medical director for
Speaker 2: the Opioid Policy Research Collaborative.
Speaker 5: If you think about FDA's failure with regard to opioids,
Speaker 5: it's probably the worst regulatory failure leading to a public
Speaker 5: health catastrophe in history.
Speaker 2: Since nineteen ninety nine, opioid overdoses have claimed over eight
Speaker 2: hundred thousand American lives. Fentnyl makes headlines now, but the
Speaker 2: addiction crisis began when FDA approvals led the way to
Speaker 2: aggressive prescribing for chronic pain. Patients still pay the price.
Speaker 2: One in thirty two on long term high dose opioids
Speaker 2: loses their life within two and a half years, and
Speaker 2: nearly five million are addicted, many just following the doctor's orders.
Speaker 2: Estimates of economic loss rise to two point seven trillion
Speaker 2: dollars in twenty twenty three alone.
Speaker 5: The FDA, if it had been following the law, it
Speaker 5: would have required Purdue to demonstrate that OxyContin was safe
Speaker 5: and effective for long term. Unfortunately, it never did that,
Speaker 5: and it allowed produce pharma to promote OxyContin for conditions
Speaker 5: where opioids are more likely to harm a patient than
Speaker 5: help them.
Speaker 2: Could it happen again.
Speaker 5: It absolutely can happen again, and it's been happening. We're
Speaker 5: seeing FDA put products onto the market despite the concerns
Speaker 5: of FDA's own external advisory committees that products are not
Speaker 5: necessarily effective or safe for the conditions that they're being marketed.
Speaker 2: The opioid crisis may be the most well known case
Speaker 2: of regulatory failure in pharmaceuticals, but it's not the only one.
Speaker 2: Controversy has followed a wave of costly new therapies, including
Speaker 2: treatments for genetic diseases, cancer, and Alzheimer's.
Speaker 5: Because we haven't tried to study or learn from this mistake,
Speaker 5: we're ready for the next public health crisis to result
Speaker 5: from improper marketing of a drug that's not safe and effective.
Speaker 2: To understand how we got here, it helps to look
Speaker 2: at the climate at the FDA in the nineteen eighties,
Speaker 2: a time when AIDS activists and palliative care doctors began
Speaker 2: pushing for faster drug approvals.
Speaker 5: We are simply asking the FDA to do it quicker.
Speaker 6: In the fight for the FDA to release all these
Speaker 6: are possible treatments.
Speaker 2: Frank Vacci reviewed opioid applications at the FDA back then,
Speaker 2: including Produe's first new opioid MS content.
Speaker 7: People were going to be on this drug for some time,
Speaker 7: basically until they died.
Speaker 2: He says. Purdue exploited that political moment bypassing FDA directives
Speaker 2: and launching their opioid without submitting clinical data.
Speaker 7: When the company came in and told us what they
Speaker 7: had done at the actually marketed this product, I was shocked.
Speaker 7: I was actually star there is a pathway to do this,
Speaker 7: and they completely ignored it, and they ignored it with
Speaker 7: a certain amount of arrogance. Also, I mean they actually
Speaker 7: told us they weren't going to take the drug off
Speaker 7: the market. To take the product off the market, which
Speaker 7: the FDA could have done, would have made FDA the
Speaker 7: bad guy here that they're essentially denying pain control to
Speaker 7: people who are dying they had the FDA over.
Speaker 2: A barrel emotion trumped standards, and the firm persuaded the
Speaker 2: agency to defer its plans for action on humanitarian grounds.
Speaker 2: Purdue was permitted to make a late application for what
Speaker 2: it was already doing. That late application was exceedingly weak.
Speaker 7: There was nothing in there that actually substantiated the duration
Speaker 7: of effectiveness.
Speaker 2: The usual regulatory and scientific requirements need not apply.
Speaker 7: I thought the MS Cotton issue was set a bad precedent, frankly,
Speaker 7: that companies could then do very little or no thing
Speaker 7: at all, and then market in opioid products. Once precedent
Speaker 7: is set, then you have a hard time reversing it.
Speaker 2: The next opioid on Vacci's desk, a fentanyl patch called
Speaker 2: dura Jesik, was rejected under the standard. The studies failed,
Speaker 2: but higher ups created a new fast tracked division and
Speaker 2: sent the application to a reviewer named Curtis Wright, who
Speaker 2: approved it. Richard Doblin, president of the Multidisciplinary Association for
Speaker 2: Psychedelic Studies, got to know right in the nineteen nineties,
Speaker 2: and what.
Speaker 8: I got to understand about Curtis is that he was,
Speaker 8: when I worked with him, very focused on unmet medical
Speaker 8: need and that he was not as focused on all
Speaker 8: of the bureaucratic niceties. You could say that the law
Speaker 8: required for these two double blind, placeble controlled studies to
Speaker 8: approve drugs.
Speaker 2: At the time, Doblin was researching the division called the
Speaker 2: Pilot Drug Evaluation Staff for his Harvard doctorate, interviewing officials
Speaker 2: and spending time inside the agency. He says, Wright was
Speaker 2: handed a quote license to kill bureaucracy.
Speaker 8: So he was a bit of a maverick, a bit
Speaker 8: of a cowboy, and so he was willing to move
Speaker 8: things forward through the FDA regulatory system in ways that
Speaker 8: some of the old guard were not that happy with,
Speaker 8: and some of those decisions turned into disasters. What he
Speaker 8: did with opiates was a bit reckless, but this was
Speaker 8: this experiment to try to see what would be the
Speaker 8: outcomes if they remove layers of review.
Speaker 2: In a pledge to both chronic pain patients and the
Speaker 2: drug industry, Wright told a conference in nineteen ninety three
Speaker 2: his narcotics team would do everything that is humanly possible
Speaker 2: to make it as easy as possible to get these
Speaker 2: products to market. He was already working with Purdue on OxyContin.
Speaker 8: And one of the things that Pilot drug also did
Speaker 8: that Curtis ro was really instrumental with is having a
Speaker 8: different perspective on who the pharmaceutical companies were instead of
Speaker 8: seeing them as the enemy, and that we don't trust
Speaker 8: them and they're trying to get drugs through just so
Speaker 8: they can make money, and we need to put up
Speaker 8: all these obstacles and all these rigorous data gathering things
Speaker 8: that they have to do. One of the key innovations
Speaker 8: I would say that has lasted that Pilot drug put
Speaker 8: into place was to see a partnership between the regulators
Speaker 8: and the industry.
Speaker 2: Purdue worked closely with Wright. According to a Justice Department investigation,
Speaker 2: the drug baker behind OxyContin rented a room nearby and
Speaker 2: spent days helping him write reviews of the clinical study
Speaker 2: reports and the integrated summaries of efficacy and safety. Meanwhile,
Speaker 2: the old guard at FDA had been raising concerns. They
Speaker 2: said the Pilot division lacked objectivity, ignored regulations, and wasn't
Speaker 2: scientifically rigorous. The agency shut down the division, but OxyContin
Speaker 2: was already moving toward approval. A year after Wright left
Speaker 2: the FDA, Purdue hired him.
Speaker 3: The opioid epidemic happened because the Food and Drug Administration
Speaker 3: dropped the regulatory standards necessary to approve drugs, and with
Speaker 3: that put opioids on the market labeled for chronic high
Speaker 3: dose when they were never effective.
Speaker 2: Edwin Thompson is president of PMRS, a drug manufacturer based
Speaker 2: outside Philadelphia.
Speaker 3: Whether a drug's effective or not isn't a matter of opinion.
Speaker 3: It is a matter of data. And if you don't
Speaker 3: have substantial evidence of efficacy, if you don't have adequate
Speaker 3: and well controlled trials with statistical evidence, the drug's not effective.
Speaker 3: It's just that simple.
Speaker 2: Thompson began his career in opioids at Johnson and Johnson
Speaker 2: back in the nineteen seventies. In the nineties, he dealt
Speaker 2: with the FDA's Pilot Drug Division, where he says he
Speaker 2: first saw politics start to outweigh science. In his view,
Speaker 2: it happened with OxyContin and is still happening today.
Speaker 3: There are patient populations and diseases that are unsuitably treated.
Speaker 3: Without question, we all accept them. But approving and labeling
Speaker 3: drugs as being effective for that patient population when there's
Speaker 3: no data to support it, there's no substantial evidence of
Speaker 3: efficacy to support it does more harm than good. It's
Speaker 3: really wrong, and you can see the consequences. The harm
Speaker 3: of this epidemic over thirty years is overwhelming.
Speaker 9: The greatest epidemic that the America has ever seen.
Speaker 2: It's the basic problem that we have the FDA, the law,
Speaker 2: what the law says, or how the law is being enforced.
Speaker 5: The problem is how the law being enforced. We have
Speaker 5: a good law. The failure was not a failure of
Speaker 5: the law. The law is good. The law requires well
Speaker 5: controlled trials that demonstrate safety and efficacy. The problem here
Speaker 5: was that the FDA did not enforce that law.
Speaker 3: The system works, it doesn't have to be bureaucratic, but
Speaker 3: it's got to be applied, and it's got to be
Speaker 3: applied scientifically and without bias, and it has to be
Speaker 3: applied with real methodology as well. And so there were
Speaker 3: a number of breakdowns in the opioid approval process, starting
Speaker 3: back with MS Cotton and how the drug ever got
Speaker 3: approved and when it shouldn't have rad on up to
Speaker 3: oxycotton and even immediate release oxycodone. Those approvals defy explanation
Speaker 3: at the FDA. They're just a series of compounded mistakes
Speaker 3: on compounded mistakes, and there was no one to be
Speaker 3: able to step in and to stop them from going forward,
Speaker 3: and certainly to reverse them as well.
Speaker 10: And so.
Speaker 3: Where we are today is we haven't made any progress
Speaker 3: in stopping the opioid epidemic, and we've not made any
Speaker 3: progress in stopping to approve ineffective drugs at the Food
Speaker 3: and Drug Administration.
Speaker 2: Up next. Every week seems to bring another story of
Speaker 2: a successful company losing its way. But what about those
Speaker 2: that don't, or that having strayed, find their way back
Speaker 2: to what made them great to begin with. We look
Speaker 2: at the Mars Company and n AL, two major global companies,
Speaker 2: and what they share in the way they do their business.
Speaker 1: You're listening to Bloomberg Wall Street Week with Data Weston
Speaker 1: from Bloomberg Radio. This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio.
Speaker 2: This is a story about heritage. How a company's heritage
Speaker 2: can help it succeed, return it to success, or put
Speaker 2: it at risk when it is left behind.
Speaker 11: Without the unabsolute reputation, the safety and consistency, you simply
Speaker 11: can't compete.
Speaker 4: And that's why everybody's worried about Boeing.
Speaker 2: Boeing is just the most recent and glaring example of
Speaker 2: a once great company stumbling in its case by losing
Speaker 2: its core edge in engineering.
Speaker 6: I'm an aerospace engineering Back in the day, I actually
Speaker 6: work for Boeing. That's where you went if you wanted
Speaker 6: to work on airplanes.
Speaker 2: You couldn't go anyplace else.
Speaker 6: You really couldn't.
Speaker 10: That's not the case today.
Speaker 2: Ron Epstein is a former Boeing engineer who now covers
Speaker 2: aerospace and defense for Bank of America. He watched as
Speaker 2: his former employer lost its way. It's far from the
Speaker 2: only one, but there are also companies that over many years,
Speaker 2: kept their momentum or even regained it after a stumble
Speaker 2: or two.
Speaker 6: IBM turns one hundred and fourteen this year, one hundred
Speaker 6: and forty in the technology industry. Think about companies that
Speaker 6: have lasted a century in the technology industry. They're hard
Speaker 6: to find because of the nature of technology.
Speaker 2: Sam Palmersano spent much of his career at IBM, rising
Speaker 2: to become chairman and CEO. He attributes IBM's long term
Speaker 2: success to a deep commitment to innovation.
Speaker 6: The Watsons defined that it was about the future and
Speaker 6: about innovation, and that that's where you should drive. You
Speaker 6: should drive innovation.
Speaker 2: Hello the business School at Yale University has created a
Speaker 2: program to study what separates the companies that succeed over
Speaker 2: the long term from those that don't. Some may find
Speaker 2: the results surprising. They take a back to that notion
Speaker 2: that has become known as stakeholder capitalism, although many of
Speaker 2: the CEOs don't find it new at all.
Speaker 12: We've interviewed more than one hundred and seventy five chief
Speaker 12: executive officers as to the practice of this concept of
Speaker 12: stakeholder capitalism.
Speaker 2: John Iwada spent thirty five years at IBM, where he
Speaker 2: worked closely on innovation and strategy with Sam Palmisano. He
Speaker 2: is now an Executive Fellow at the Yale School of Management.
Speaker 12: One of the things we learned in these interviews is
Speaker 12: that most of the CEOs felt this wasn't really a
Speaker 12: departure or anything new, and some of them said this
Speaker 12: is sound business practice, or it's a return to sound
Speaker 12: business practice, especially if you think about the long term
Speaker 12: leading a corporation or an enterprise for the long term.
Speaker 12: There are short term pressures or expectations that sometimes getting
Speaker 12: the way of making investments or decisions that may not
Speaker 12: pay off for many quarters or even years, So you
Speaker 12: have to think about that. You may think about non
Speaker 12: financial commitments to employees, to society, and those are not standardized,
Speaker 12: those are not accepted measurements and metrics, and so those
Speaker 12: are soft or squishy, and other factors that come into
Speaker 12: play here.
Speaker 2: I want to learn from his CEO interviews of the
Speaker 2: challenges leaders face in trying to bring together disparate parts
Speaker 2: of the company and disparate interested parties, and the key
Speaker 2: role of purpose in weaving it all together.
Speaker 12: CEOs, like every executive comes up through a business or
Speaker 12: through a professional career in a vertical finance or R
Speaker 12: and D or sales, and when they get into the
Speaker 12: CEO chair. Satia Nadella Microsoft set it some years ago
Speaker 12: in an interview, is then you realize just how multi
Speaker 12: constituent or how many stakeholders the enterprise actually has. You
Speaker 12: have shareholders, you have governments, of course, you have customers
Speaker 12: and employees, you have suppliers, and you have to have
Speaker 12: these relationships with all of these constituents. The question is
Speaker 12: do you manage them piecemeal or do we think of
Speaker 12: this more holistically. A lot of the CEOs described sometimes
Speaker 12: they use air quotes. This management system almost an operating
Speaker 12: system for the company that is based on common definitions
Speaker 12: of the firm. Some of them say, there are three
Speaker 12: questions that you have to ask and answer why, what
Speaker 12: and how? Why do we exist? Which turns into the
Speaker 12: purpose of the company. What do we do which is
Speaker 12: the strategy of the company? And how and that's the culture?
Speaker 12: And how are we going to show up?
Speaker 2: A well known company that has put purpose and values
Speaker 2: at the core of its operation since it's founding. Is
Speaker 2: the Mars Company in business since nineteen eleven.
Speaker 12: Mars is more than one hundred years old, very successful
Speaker 12: for a long time. And as we began to talk
Speaker 12: to management at Mars and members of the Mars family,
Speaker 12: we learned that they were going through what we would
Speaker 12: refer to as a founding moment. And why because for
Speaker 12: much of Mars' history, members of the Mars family led
Speaker 12: the company and worked in the company. But the reality
Speaker 12: today in the future is very few members of the
Speaker 12: Mars family, perhaps no members of the Mars family will
Speaker 12: be in management or even work in the company.
Speaker 9: The principles and the values are at the heart of
Speaker 9: who we are.
Speaker 2: Victoria Mars is the great granddaughter of founder frank Seymars.
Speaker 2: She has been on the board for nearly twenty years,
Speaker 2: three of them as chair.
Speaker 9: My grandfather had very strong principles and values, and these
Speaker 9: principles and values I grew up with without actually knowing
Speaker 9: that I was growing up with them. So when we
Speaker 9: talk about the Mars Principles, we're really talking about the
Speaker 9: family values that have existed since the beginning. And as
Speaker 9: the company got larger and it was more and more
Speaker 9: difficult for the family, specifically at that point my father
Speaker 9: and my uncle to be around all the associates, to
Speaker 9: be able to talk about the values and to be
Speaker 9: able to talk about how we do business, they decided
Speaker 9: it was time to write them down. The five principles
Speaker 9: that were actually written down and defined in the early eighties. Quality, responsibility, efficiency,
Speaker 9: mutuality and freedom have been our principles since the beginning
Speaker 9: and they are the foundation of everything we do within
Speaker 9: the business.
Speaker 2: Times change and businesses evolve, something the Mars Company has
Speaker 2: certainly done. But as much as the Mars Principles maybe
Speaker 2: updated every few years, the fundamentals do not change.
Speaker 9: So they haven't changed. They've just been updated to be relevant.
Speaker 9: Management helps us and supports us and clearly obviously implements
Speaker 9: them in our business, but any changes to them, any
Speaker 9: tweaks to them, anything from the colors to the script
Speaker 9: to the words, belongs to the family.
Speaker 2: A company having principles is one thing. Putting them to
Speaker 2: use in everyday decisions, not to mention big strategic decisions
Speaker 2: is something else. Entirely.
Speaker 10: It's not a checklist, but it comes up in conversations
Speaker 10: when we make decisions. And I think that are two things.
Speaker 10: One is this aligned with the purpose of what we're
Speaker 10: trying to deliver here, whether it is overall from Mars.
Speaker 10: You know, the kind of company that we are trying
Speaker 10: to deliver today is well set up for the world
Speaker 10: we want tomorrow.
Speaker 2: Klass our guard is the Mars Chief financial officer and
Speaker 2: like all members of management, not a member of the
Speaker 2: Mars family.
Speaker 10: Five principles come up, certainly as a fact check. You know,
Speaker 10: this doesn't feel like in line with the five principles?
Speaker 10: Well why not? And you know, and sometimes they're not
Speaker 10: all equal in every decision. Are we really delivering quality?
Speaker 10: Are we really directed by the consumer? Or is this
Speaker 10: mutual to the stakeholders around us When we may make
Speaker 10: decisions around renegotiating certain things or whatever, you know, we
Speaker 10: are we true to the stakeholders around us.
Speaker 2: The Mars principles underlie the values of the family, but
Speaker 2: the family also believes it makes the company more successful.
Speaker 9: Overall, the principles and the values help us be proud
Speaker 9: of this company. We do believe that utilizing these principles
Speaker 9: helps our associates make the right decision, the decisions that
Speaker 9: create the concept of a win win We are all
Speaker 9: going to seed together versus let me win and let
Speaker 9: me see you fail. So I really do believe that
Speaker 9: utilizing these principles has helped us be successful in business.
Speaker 9: It helps us recruit good people and keep good people.
Speaker 9: It helps us earn trust with government, It helps us
Speaker 9: earn trust with our associates, It helps us earn trust
Speaker 9: with communities where we work. So to us, yes, it
Speaker 9: does make a difference and helps us be successful.
Speaker 2: The Mars Company is, at its base, a family company,
Speaker 2: a global, highly successful one, but nonetheless a family endeavor,
Speaker 2: which may give it advantages in pursuing its principle based
Speaker 2: business strategy, but they can also come with some challenges.
Speaker 10: There no doubt many public companies with a long history
Speaker 10: that also has a very great story to tell. We
Speaker 10: believe we have our own story and our unique vision
Speaker 10: for the future, while respecting that long term success is
Speaker 10: also built on continuing to have healthy short term performance,
Speaker 10: if you want to call it. That is an ingredient
Speaker 10: that live well in our context with the way management
Speaker 10: is set up, with the commitment also of our owners
Speaker 10: to take a long term view and you know, leave
Speaker 10: a lot of capital for reinvestment in the company and
Speaker 10: set some objectives, both financial and non financial objectives that
Speaker 10: really enables us to do the things that we're doing.
Speaker 9: When people used to ask me and say, you know,
Speaker 9: what is your biggest fear, what is your biggest worry,
Speaker 9: my response usually is it's not the business. The business
Speaker 9: really can function very well on its own. It's managing
Speaker 9: a family. So part of being able to be a
Speaker 9: family business, to continue to be a family business, requires
Speaker 9: a lot of energy and effort into working with the family.
Speaker 9: We have been having annual family meetings for over twenty years.
Speaker 9: Our family is continuously there because we're connected to this business.
Speaker 9: We're joined at the hit by this business. So having
Speaker 9: the family functioning well and having the family and being
Speaker 9: able to manage through conflicts that come up, which of
Speaker 9: course will come up in every family, and being able
Speaker 9: to work towards a common outcome and common goals takes
Speaker 9: a lot of work.
Speaker 2: The Mars family continues to work hard at pursuing the
Speaker 2: goals and values it has established since the beginning of
Speaker 2: the last century. But could a similar approach succeed in
Speaker 2: a publicly traded company in a very different business. And
Speaker 2: that's where we turn next to the second biggest power
Speaker 2: company in the world and how it moved forward by
Speaker 2: returning to its basic purpose.
Speaker 1: You're listening to Bloomberg Wall Street Week with Data Weston
Speaker 1: from Bloomberg Radio.
Speaker 2: The Mars Company has enjoyed a very long and successful
Speaker 2: history as a family company, pursuing the family's values even
Speaker 2: as it expanded around the world and into new businesses.
Speaker 2: But the Yale Project learned from its one hundred and
Speaker 2: seventy five CEO interviews that Mars shares some approaches with large,
Speaker 2: publicly traded companies in very different industries. One of them
Speaker 2: is the Italian power giant Ennel, whose CEO redirected it
Speaker 2: for a new age by taking it back to its
Speaker 2: simple roots.
Speaker 12: Headquartered in Italy as a global energy generation and transmission company,
Speaker 12: Francesco Staracci became CEO I think it was in twenty fourteen,
Speaker 12: and he inherited a company that was troubled, particularly from
Speaker 12: a stakeholder perspective. You know, from investor standpoint, the stock
Speaker 12: was languishing, the company was heavily in debt. They were
Speaker 12: in this chronic cycle of making mass of capital investments
Speaker 12: in building new power plants that wouldn't come online in
Speaker 12: some cases for ten years, and by the time the
Speaker 12: plant was operational, it was obsolete, and they had these
Speaker 12: big right offs and so forth. So not got good
Speaker 12: for the investor. At the other end, they had difficult
Speaker 12: community relationships all over the world. I think he said,
Speaker 12: we were at war constantly with communities where we put
Speaker 12: plants in they didn't want us there. And for forty
Speaker 12: years or more, you know, we had these difficult relationships
Speaker 12: with communities.
Speaker 2: Like other CEOs looking to move their companies forward, Staracci
Speaker 2: studied a future of his business, and like so many others,
Speaker 2: concluded it laid in technological changes in the very business
Speaker 2: of power.
Speaker 4: The company was already a pretty large I mean, it
Speaker 4: was big, and it was heavily in debted because of
Speaker 4: the expansion we had in the preceding years. It had
Speaker 4: let's say, a cash conversion problem, so there was a
Speaker 4: lot of revenues that didn't really come up with a
Speaker 4: lot of cash, and growth was a little bit stalling.
Speaker 4: It was a company that had to deal mostly with
Speaker 4: managing that given the size it had. The issue was
Speaker 4: we needed to restart growth. But more than that, we
Speaker 4: needed to, let's say, give clarity about the sustainability of
Speaker 4: future revenues to the debt markets. You know that that
Speaker 4: in itself, you know, the size of a debt is
Speaker 4: a function of the size of the revenues that you
Speaker 4: can generate to serve the debt. So there was a
Speaker 4: little bit of an issue at what was the future
Speaker 4: of the company going to be. So we had to
Speaker 4: actually decide what was the trajectory of the company, sell
Speaker 4: it to our shareholders and also to of course the
Speaker 4: whole market in a way that it was understand and
Speaker 4: the ball solid, robust enough to withstand potential shocks, and
Speaker 4: of course more generative of cash flow. Basically, that was
Speaker 4: the issue we had to deal with and that clearly
Speaker 4: had to do with the time and how much time
Speaker 4: did we have to do that, and also what kind
Speaker 4: of pockets of value creation we have left. We had
Speaker 4: in the company that were not that didn't we didn't
Speaker 4: really tap well enough.
Speaker 2: As you determine the trajectory for growth and for a
Speaker 2: revenue going forward, how did you find the trajectory that
Speaker 2: you settled upon.
Speaker 4: Basically, we said, where is the technology going? You know,
Speaker 4: because you can you can ignore technology for a while.
Speaker 4: It's okay, but at the end of the day, it
Speaker 4: always catch up with you. So where is the utility
Speaker 4: sector in the industry that is with it? Where is
Speaker 4: it going? And what forces are changing these technologies? And
Speaker 4: we saw at that time we had seen it before
Speaker 4: with any in power. I should say that there was
Speaker 4: a major change in the technology of generating electricity, namely
Speaker 4: that renewables were becoming competitive, had become already by twenty
Speaker 4: fourteen competitive with termageneration by enlarge in many parts of
Speaker 4: the world, and we were not active enough in that space.
Speaker 4: And that space was going to be where value was
Speaker 4: going to be created in a major way in the
Speaker 4: next few years. So we said, how do we catch
Speaker 4: this train, how do we jump on it, and what
Speaker 4: can we do?
Speaker 2: And was that driven by a revenue stream that you
Speaker 2: saw out there because of technological change?
Speaker 4: I think the revolutionary thing about renewables at that time,
Speaker 4: the people didn't understand. I think we were maybe the first,
Speaker 4: the first that understood it consciously and not inconsciously. You know,
Speaker 4: we actually got and studied and really came with a
Speaker 4: conclusion that shifting our generation from thermogeneration to renewables, we
Speaker 4: would increase double the abitam margin, so the amount of
Speaker 4: money we would make with the same kilobat hour. And
Speaker 4: that was a major aha moment if you want, We said, okay,
Speaker 4: well let's do it, because there's no time to get
Speaker 4: to be lost here. And to do that, we had
Speaker 4: to basically completely change our operating model at developing plans
Speaker 4: and at thinking about generation going forward.
Speaker 2: For Staraci, identifying renewables as the growth opportunity for Anna
Speaker 2: was the first step. But to get there with the
Speaker 2: growth it promised required the company to move fast, faster
Speaker 2: than it had ever done in the past.
Speaker 4: Imagine, this is an industry that worked before with a
Speaker 4: time horizon of five to ten years. So you started
Speaker 4: investing in something and that whatever it was, a power
Speaker 4: plant or anything else, it would start generating revenues five
Speaker 4: or ten years after. And we said we shortened that
Speaker 4: to three year maximum. Okay, that was a major shock
Speaker 4: for most people, and those that were impacted were basically
Speaker 4: the development people, you know, and we said, scrap all
Speaker 4: the stuff that does not stay in this three year
Speaker 4: time horizon, and that accelerated a lot the circulation of
Speaker 4: the capital, I mean, Capita started working a lot earlier
Speaker 4: than before, and that gave us the momentum we needed
Speaker 4: to really kick start the whole thing. I should say
Speaker 4: it took six months to explain over and over more
Speaker 4: than one time in this logic, but after that everybody
Speaker 4: got it, and I would say in a few years
Speaker 4: we were working at two years not three, so with
Speaker 4: further strength short in that time. That was a major change.
Speaker 2: After some initial resistance, and all employees embraced the new
Speaker 2: direction because of the opportunities it presented them. But ironically,
Speaker 2: Staracchi sees this new direction as really a return to
Speaker 2: the basics of what gave rise to the company in
Speaker 2: the first place.
Speaker 4: The pushback was basically a different one was the fact
Speaker 4: that we had say, a very limited number of very
Speaker 4: large investments with which we thought we would continue to
Speaker 4: grow the company, and applying these three years' role, we
Speaker 4: would cut the investment size a lot, so the renewable
Speaker 4: energy projects had smaller, much smaller sizes. So people said,
Speaker 4: how can we grow because this project are so small,
Speaker 4: And the answer we gave them is, well, you have
Speaker 4: to multiply the number of projects. So instead of having
Speaker 4: say twenty projects, you're going to have two hundred or
Speaker 4: maybe four hundred. And that was a major shock because
Speaker 4: to manage two or three hundred projects at the same
Speaker 4: time was something a company had never done before. I
Speaker 4: think at the end it was exciting for people. They
Speaker 4: needed something and they loved at the fact that they
Speaker 4: could go at it numerous times, many more times than
Speaker 4: they ever dreamed.
Speaker 2: And every corporation has a culture. Did the culture change
Speaker 2: under your leadership?
Speaker 4: No, it did not. Actually, what happened is that we
Speaker 4: needed to declutter the cultural space in a way. So,
Speaker 4: you know, utilities have a very deep culture and very
Speaker 4: simple one, all of them. I mean, they're all the same.
Speaker 4: You know, the semantics are important. A utility is useful
Speaker 4: to people, that's why it exists. And most of the
Speaker 4: utilities were formed in the past to electrify a space
Speaker 4: that didn't have electricity. So people got pride in bringing
Speaker 4: light to places that didn't have it. That is, the
Speaker 4: culture of utility is useful to people, to people or businesses,
Speaker 4: but in a way to society. The rest of the
Speaker 4: stuff that over the decades were thrown at utilities is noise.
Speaker 4: So what we had to do is the clatter, all
Speaker 4: this noise, throw it away and say, guys, we are
Speaker 4: here for one very simple purpose or not. And everybody
Speaker 4: agreed to that, and that, I can tell you was
Speaker 4: surprisingly identical across geographies. There was zero difference from Russia
Speaker 4: to the US, from Latin America to Africa, including Europe,
Speaker 4: it was exactly the same feedback. Everybody said, that's us exactly,
Speaker 4: we want this. So it was super easy. I just
Speaker 4: had to eliminate a lot of say, substrata and stuff
Speaker 4: that were thrown at the utility over the years.
Speaker 2: So in a sense, you were not fighting with your heritage,
Speaker 2: you were returning to it exactly.
Speaker 4: We had to go back to it. You know, we
Speaker 4: had a purpose statement and that was like five sentences
Speaker 4: glued together and you can read through them. Who wanted
Speaker 4: to add something and nobody said no, it's so much.
Speaker 4: So it was a super complex stuff and we just
Speaker 4: said you know this doesn't matter. What are we for here?
Speaker 4: I mean, we are useful to society. That's our purpose.
Speaker 4: So we created a very nice purpose line that was
Speaker 4: a cent open power. We empower sustainable progress. That's it,
Speaker 4: and everybody immediately identified in that. So we didn't really
Speaker 4: have to invent anything. We had to remove stuff.
Speaker 2: The term stakeholder capitalism has become somewhat controversial, a potential
Speaker 2: distraction from the basics of running a for profit business.
Speaker 2: But whether you're a global power like no or a
Speaker 2: global family business like Mars or the one hundred and
Speaker 2: forty year old IBM, those who actually run the businesses
Speaker 2: find it to be pretty basic.
Speaker 6: Most people run the companies understand that the way you
Speaker 6: create offit ability, which funds your future investment, is through
Speaker 6: your innovation and your product lines and your customer service
Speaker 6: whatever it happens to be. That's how you do it now.
Speaker 6: Quite honestly, David, because I am old that I am cynical,
Speaker 6: the CEO should have been doing this anyway. That's what
Speaker 6: a lot of us were just doing.
Speaker 2: And even some of the most troubled businesses are embracing
Speaker 2: some form of this stakeholder capitalism as the relatively new
Speaker 2: CEO of Boeing, Kelly Ortwerg, recently told Congress.
Speaker 11: Boeing made serious missteps in recent years, and it's unacceptable.
Speaker 11: In response, we've made sweeping changes to the people, processes,
Speaker 11: and overall structure of our company. While there's still work ahead,
Speaker 11: these profound changes are underpinned by deep commitment from all
Speaker 11: of us to the safety of our products and services.
Speaker 2: That does it for us. Here at Wall Street Week,
Speaker 2: I'm David Weston. This is Bloomberg. See you next week
Speaker 2: for more stories of capitalism. T