Thursday, April 19, 2007

A glimpse of Nestlé's soul

Well, well, well, well, well.

Today I attended my first Nestlé shareholder meeting (how I managed that, I’ll explain tomorrow).

A shareholder meeting is a glimpse of a company’s soul. Its cold, calculating ruthless mind was also on show, in the persons of its all-male executive board. Its conscience should have been there in the form of its board of directors, but the Chief Executive, Mr. Brabeck, made himself Chairman of the board of directors a couple of years ago so there would be no obstacles to the plans he wanted to roll out. No restraining voice in the ear then (we have, in the past, written to the board of directors asking it to investigate Mr. Brabeck's policy of systematic violation of the World Health Assembly marketing requirments - an even more futile endeavour if we are asking Mr. Brabeck to investigate himself).

I am already familiar with Mr. Brabeck’s words and deeds. It was the assembly of 2,405 representatives of 49% of the share holdings that was truly chilling.

They booed people who raised difficult questions. They groaned when the next shareholder stood up to speak, even before they had a chance to open their mouth. These are the owners who unleash Nestlé on the world.

One speaker from the floor raised a well-crafted question on Nestlé’s failure to act on child slavery in its cocoa supply chain. As the shareholders realised this was a criticism of the company’s practices both in its treatment of cocoa farmers and in fighting a legal action brought against it in the US they became increasingly vociferous.

My colleague, Patti, who has spoken in the past on the baby milk issue has been booed in the same way, though sometimes there are pockets of applause, just as there were today when Mr. Brabeck’s pay cheque was questioned.

But overall there is an impression of a mob that boo just for being reminded of a blemish on the otherwise gleaming white Nestlé façade presented by Mr. Brabeck in his role of Chief Executive or Chairman, whichever role he was speaking in.

The question on cocoa had even been couched in terms the shareholders cared about most: money. How much was Nestlé spending fighting the legal action brought against it in the US? Why wasn’t it working to reach an out-of-court settlement which would likely be less than punitive damages in similar cases? Why had its well-paid lawyers launched a legally untenable action demanding the identification of the children bringing the case alleging kidnapping, enslavement and torture? As minors their identities are protected by the law.

The shareholder meeting booed and groaned as the short overview of the situation and questions reached their conclusion.

And what of Mr. Brabeck’s response? According to the simultaneous translation he said: “I was going to answer, but it appears you are some type of legal expert so I do not wish to prejudice shareholders interests. So I will not answer.”

And the shareholders cheered.

Mr. Brabeck presented a slide show with his year report, prior to the questions, demonstrating the money-making machine that is Nestlé, selling 48 million tonnes of products every day, requiring billions of individual purchases on a daily basis. You can read Mr. Brabeck’s statement for yourself by clicking here.

Growth continued to achieve the 5-6% promised by Mr. Brabeck. And only 1% of this through net acquisitions.

Richard Laube, head of Nestlé Nutrtion, later explained that infant nutrition sales in Latin America helped to achieve 7.2% growth there. Globally the recently created division had shown 6.1% growth, putting it in the top 8 Nestlé sectors. Its CHF6 billion sales were 6% of the group total and generated CHF1 billion profit, or 17%, greater a margin than any other sector.

In his comments on infant nutrition, Mr. Laube announced good news. More women are breastfeeding. A 15% increase from 1990 to 2005, a figure that is familiar from a UNICEF report on the Innocenti Declaration. Mr. Laube did not mention that this report highlights the importance of regulating the baby food industry.

How could Nestlé be welcoming an increase in breastfeeding, I thought, when everything for them is about growth? Any sector or brand that does not meet Mr. Brabeck’s growth target is sold off, as they have done recently with their dairy business in Vietnam. Would infant nutrition go the same way? No, because Mr. Laube was not finished. Breastfeeding is not sustained. Citing France as an example, he pointed out that 50% of mothers return to work within the first 4 months of giving birth and looked to formula. Nestlé would be looking to achieve its growth in the 4 to 36 months sector, combined with a relaunch of Nan formula over the coming 18 months.

Before becoming demoralised for losing so many times, Nestlé (UK) Head of Corporate Affairs, Beverly Mirando, used to debate the baby milk issue at public meetings with Baby Milk Action. She extended Mr. Laube’s argument to developing countries, suggesting that as women enter the workforce there they deserve the same access to infant formula as mothers elsewhere. Well, the marketing requirements do not stop formuula being on sale. All the same Nestlé's argument presupposes that industrialisation and artificial feeding go hand in hand, which is not the case. In those countries that do not allow aggressive marketing and support mothers in breastfeeding, extended breastfeeding continues or is recovering. That is of little relevance to Nestlé as its business plan – the ‘Nestlé model’ repeatedly referred to by the executives at the shareholder meeting – requires growth in sales.

The acquistion of Gerber is an important part of the plan, making Nestlé the global leader by far. Rather than changing Nestlé practices to bring them into line with the Code and Resolutions, as previous owner Novartis had promised to do, Nestlé has indicated it will continue with business as usual, targeting mother.

The Nutrition sector, which also includes things like food to 'help the obese to lose weight' is set to achieve sales of CHF10 billion next year.

I would very much like to have raised some of these points and other issues, but Nestlé had refused to register the share I had bought to attend the meeting. The broker I had used found this highly unusual. I will explain more about this tomorrow.

I did hand out some leaflets with Swiss friends to alert shareholders to some key facts. None thought it worth raising any questions with the board.

It seems they were too ravenous. Eager for the tedious questions to finish so they could get to the spread of food Nestlé had laid on in the adjoining hall and most keen only to hear about how much money Nestlé was making for them.

A group of shareholders aiming to change Nestlé practices did make some other points. About the total lack of women at board level. Mr. Babeck explained that Nestlé is not discriminatory against women, but it is easier for men to persuade wives to follow them around the world to gain the experience necessary to rise to board level, than for women to persuade husbands.

There were concerns over Nestlé’s environmental impact, with a particular focus on the packaging of a popular Nestlé chocolate brand in plastic wrappers, which provoked a 24% fall in sales. Milllions of Francs had been lost. As the meeting was taking place, Nestlé was in the process of distributing a free bar of chocolate to every home in Switzerland to try to recover market share.

Several speakers raised concern about the level of pay to the board and demonstrators outside had also distributed leaflets. The board members receive a total of CHF 3 million for 6 meetings of 2 and a half hours, one speaker said. Mr. Brabeck ridiculed this, saying with the travel some have to make, and time to read papers, it is more like 6 times three days work, or 18 days in total. And attracting talented people to work for 18 days does not come cheap.

On his own remuneration Mr. Brabeck defended his CHF3 million salary brilliantly. A graph hurriedly placed in front of a video camera to show how the share price had risen so significantly under his tenure. His comment to the questioner: “You have made so much money and you are ashamed of how much I earn?” This received thunderous applause. Though his defence of his 3 million was rather undermined as he failed to mention that his share bonuses brought him in a total of CHF15 million so one speaker claimed. I'll try and do the calculation myself to check.

But Mr. Brabeck’s argument can be used against shareholder complaint. The shareholders have profited from his management of the company – and many have booed down anyone who tried to bring malpractice to their attention – so how can they complain later? Better to sit back and count the money. If shareholders are the soul of the company, it seems it is already lost.

There were, however, two key notes to reassure any wavering shareholders that Nestlé makes profits in a way that is responsible. On its efficient use of water, for which a film was shown and a report made available and its cuts in carbon emissions. Mr. Brabeck said Nestlé was so efficient it could now sell carbon credits to other companies helping to cover the costs of the investment.

Impressive if true. Unfortunately knowing the board misled shareholders on two issues in which I am expert raises questions over all its boasts. Even those it claims are independently audited. Especially those it claims are audited, in fact.

There is Nestlé abysmal performance against the Code and Resolutions of course, which Richard Laube claimed Nestlé abides by.

The other was Nestlé’s water pumping operation in the historic spa town on São Lourenço, Brazil. See:

Nestlé began to exploit water illegally (demineralising it, contrary to federal law) from wells sunk illegally (in an area of high ambiental risk) from 1996. Pumping damaged surrounding springs which people visited for their alleged medicinal properties. The citizens of São Lourenço prompted an investigation by gathering petition signatures and, following this, the Public Prosecutor in the city brought a legal action against Nestlé in 2001. After much campaigning, a public hearing in the Congress, bad publicity in Switzerland and a seminar held by Baby Milk Action in the UK, Nestlé finally settled with the public prosecutor in March 2006. Yet, as I reported here, pumping did not stop, despite the accrual of daily fines while pumping goes on.

It was raised by a shareholder. And the executive responsible responded stating that pumping continued even then and carbon dioxide was removed from the water for adding to another bottled water.

One of the auditing firms name-checked by Mr. Brabeck, Bureau Veritas, had conducted an audit that cleared Nestlé of any wrong-doing. A ten-year-old doing a homework assignment could have done a better job in my opinion. Meeting Bureau Veritas staff at the launch of a Nestlé report on corporate social responsibility, I asked why they hadn’t referred to the Civil Public Action brought against Nestlé and it was apparent they were not aware of it, despite having been to São Lourenço to investigate. Seems like Nestlé didn’t let on they had been taken to court. Or if they did it did not end up in the report. Bureau Veritas later admitted to Baby Milk Action: “our work did not constitute a legal audit as such, nor did it include a review of the on-going civil action”. Bureau Veritas had again got it wrong as the civil public action had been settled at that point.

Though Nestlé carries on pumping.

Such details would have the shareholders groaning and booing no doubt. Too tedious. Too much of a blemish on the gleaming facade.

So an illuminating few hours.

Shareholder democracy in action.

1 comment:

Unknown said...

This is ths Nestle way! Besides being forbidden of pumping the Primavera well for a U$ 25.000 dollars a day fine , they go their way: they thrive in 3rd world countries where water legislation is poor and judge$ are eager to please!