Editor's Plate: Bravo, Nestle, for Rebuffing Efforts by an Activist Investor

July 23, 2018
Guys with $18 billion hedge funds shouldn't be telling food companies how to operate.

Let me tell you how to run your business.

I don’t know your business. I’m editor of a food and beverage magazine. But I can tell you how to improve your bottom line.

Not convinced? I’ve spent 25 years writing about food and beverage manufacturing.

Still not convinced? I just bought $3 billion of your stock. Now you’re listening.

Just because I’ve invested $3 billion in your company doesn’t give me any more credibility, any more right to tell you how to run your business, than my 25 years writing about your business. Less, if you ask me.

(Spoiler alert: At the end of this I really am going to tell you how to run your business.)

Actually “invest” is too kind a word. Investors are asked, invited to join the party. Me, I picked up my $3 billion worth of stock quietly, stealthily, not wanting anyone to notice until I had enough to force you to do my bidding. And when I was legally required to inform the regulators what I had done.

That’s the situation Nestle SA finds itself in, now that Daniel Loeb and his Third Point $18 billion hedge fund have taken a substantial stake in the Swiss company. Loeb repeats his 2017 call for Nestle to abandon nonstrategic or poorly performing businesses and to split into three divisions: Beverages, Nutrition and Grocery.

He demands that Nestle spin off businesses that do not fit its strategy – which actually is HIS strategy – including ice cream, frozen foods and confectionary. And add an outsider to the board with expertise in the food and beverage business – apparently because, in its 151-year history, Nestle has not amassed much expertise in the food and beverage business.

“This is a call for urgency – rather than incrementalism,” said Loeb’s letter. It came with a 34-page presentation full of recommendations and critiques.

Loeb’s efforts symbolize much of what is wrong with Big Food these days. Big Food – and Nestle is as big as food gets – can get more interested in the P&L than in the R&D. More concerned with raising stock prices and dividends for people like Daniel Loeb than in creating great food, in maintaining jobs and communities and in being a good corporate citizen.

But that’s not Nestle – not yet, anyway, and I hope never.

Every major food and beverage company now publishes a corporate social responsibility report, and I’m as guilty as anyone for yawning at them and finding little space for them in this magazine or our website. But there are Herculean efforts going on that are feeding under-nourished people, improving communities and generally making the world a better place.

And finding ways to feed a world destined soon to hold a population of 8 billion.

This all reminds me of Nelson Peltz and his Trian Fund Management trying to pressure PepsiCo into splitting into two companies back in 2013. An umbrella phrase for PepsiCo’s responses said it best: “Better together.” Paul Bulcke, ask Indra Nooyi if you can borrow that.

Now, you want my advice on the most sure-fire way to grow your business? To transcend the gloom that is paralyzing much of Big Food? To beat at their own game those little companies that are chipping away at your sales?

Get closer to the foods and the farms where it originates. Henri Nestle was a foodie and an entrepreneur – not a Wall Street wizard. So was W. K. Kellogg. And John Tyson.

Become a force for good in your communities. Treat your employees well. Invest in and nurture even the small growth opportunities. In general, act like you want to be around for 151 years, not just the next fiscal quarter.

All this stuff is one reason why some companies are choosing to be certified as Public Benefit Corporations. They’re intended – actually, legally required, according to their statement of incorporation – to operate in a responsible and sustainable manner, balancing shareholders’ financial interests with the benefits they bring to people, the planet and broader society.

I suggest Mr. Loeb incorporate Third Point as a public benefit corporation. Maybe build a Habitat for Humanity house in New York, where Third Point is headquartered. Danny, you’ll love the warm, fuzzy feeling.

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