Leading with Purpose: Changing the Way We Make Money to Change the World

• Published on July 11, 2018

Indra Nooyi

Former Chairman and CEO of PepsiCo

Twelve years ago, we embarked on a journey at PepsiCo that we call Performance with Purpose. Since then, much has changed—at PepsiCo and around the world—but the underlying principles behind Performance with Purpose remain the same.

We know we need to deliver the kind of top-tier financial results our investors, associates, and all our stakeholders expect. And we also know something else. We know we need to do it with a sense of purpose, a moral compass, guiding our way.

For me, and all of us at PepsiCo, Performance with Purpose is—and always has been—about the way we make money, not the way we spend it. About who we are, the character of our company.

We’ve tried to adhere to the idea of a social contract once defined by British statesman Edmund Burke as a partnership between the living, those who’ve come before, and those yet to be born.

And that means managing PepsiCo with an eye toward not only short-term priorities, but long-term priorities, not only the level of returns, but the duration of returns, as well, recognizing that our success—and the success of the communities we serve and the wider world—are inextricably bound together.

Much of our early work on Performance with Purpose required us to think differently about our business and the kinds of long-term investments—from researching and developing new, more nutritious products, to finding ways to reduce water and energy use across plants and farms—that could help us deliver on our vision of making our growth, our operations, and our impact more sustainable.

Sustainability has been defined as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” Over the last dozen years, we’ve tried to meet the needs of the present while strengthening the ability of future generations to meet theirs, integrating that aspiration into our goals for what we originally called Human Sustainability, Environmental Sustainability, and Talent Sustainability—today known as Products, Planet, and People:

When it comes to our Products, we’ve built on our legacy as the first company to voluntarily remove trans fat from our snacks by reducing added sugars, sodium and saturated fat in many of our products, launching a revolutionary nutrition-focused vending option, Hello Goodness, and growing our portfolio of Good for You and Better for You options from about 38 percent of revenue in 2006 to roughly 50 percent last year. We also teamed up with others in our industry to form the Healthy Weight Commitment Foundation, removing 6.4 trillion Calories from our food and beverage products, surpassing our collective pledge by more than 400%. And through Food for Good, we’ve provided 80 million nutritious servings to low-income U.S. families since 2009 to date.

When it comes to our Planet, we’ve raised the bar for what it means to be a responsible corporate water steward, earning the prestigious Stockholm Industry Water Award. In fact, we achieved a 25 percent water-use efficiency improvement between 2006 and 2015 in our legacy operations. And we’ve invested more than $40 million since 2006 to provide safe water access around the world, benefiting nearly 16 million people in some of the planet’s most water-stressed regions.

We’ve also made our delivery fleet more energy efficient, eliminating the need for over 1 million gallons of diesel fuel since our electric vehicle initiative began in 2010—the equivalent of keeping more than 2,000 passenger cars off the road for a year—while also making our beverage coolers and vending machines 60 percent more energy efficient. And we are one of the largest users of food-grade recycled PET in the U.S. In fact, if more recycled PET were available, we’d buy it. We’ve also launched the first 100 percent compostable chip bag in test markets, while diverting more and more of our waste from landfill—approximately 95 percent as of the end of 2017.

When it comes to our People, we’ve reimagined what it means to support our associates, from ushering in on-site and near-site childcare at campuses around the world, to expanding PepsiCo University’s online course offerings to help associates upgrade their skills to navigate a rapidly changing world. And we’ve also helped lift up the communities we serve, playing a critical role in disaster relief efforts, from Texas to Florida and Puerto Rico, Mexico to Ecuador, China to the Philippines.

So, while we still have work to do in certain areas, we’re incredibly proud of the progress we’ve made. Our aspiration of being a good company—good ethically and good commercially—is now coming to fruition, yielding a broader, more lasting impact than we ever imagined, and setting a standard that companies across our industry and beyond aspire to meet.

Looking ahead, we’ll continue viewing our work through both a microscope and a telescope, focusing on the most granular details—grams of saturated fat, parts per billion of greenhouse gas, the number of women in management roles—as well as the larger ambition of building a business that acts in accordance with our values, each of us striving to do what’s right for the company and what’s right for our communities. Because at the end of the day, there’s no separating the two.

Leading this company remains a source of incredible pride. In my first sustainability report letter in 2007, I opened with a story:

“When I was a child in India, my mother would ask my sister and me a simple but compelling question: ‘What would you do to change the world?’ Today, I know my answer would be that I want to lead a company that is a force for good in the world. A company that delivers strong financial performance, while embracing purpose in everything it does.”

That is still my answer. And I know that if we stay focused on our mission, if we engage the head, heart and hands of our more than 260,000 associates, and adhere to the idea that how we make money is as important as how we spend it, we’ll continue doing more than advancing the heritage of a great and iconic company. We’ll keep changing the world.

Indra Nooyi

Former Chairman and CEO of PepsiCo

Help answering the questions please

Consider Nooyi’s ideas (untraditional more than a decade ago when she launched her initiative and still not mainstream!) about the purpose of the corporation. What effect might her views be influenced by being raised in a developing economy and her exposure to social inequality and extreme environmental pressures? Would you deem her an ethical leader? What are your thoughts about her views of and attitudes toward stakeholders (such as investors, consumers, employees, critics and civil society) and how she interacted with them? What about her three planks of sustainability (people, planet and products)? She said she knew at the start that to be successful she would need to fundamentally change PepsiCo's corporate culture and that it would take years to do it. Recall she patiently gave people time to "come around," but planned "retirement parties" for those that could not. Is she a leader you would aspire to work with or for? Why or why not?  

Assume that you are the international trade manager of XYZ Inc. Because your firm exports goods, to Mexico, your job as international trade manger requires you to forecast the value of year, your firm exported one-billion-peso worth of products to Mexico. The exchange rate between US dollar and Mexican peso was $.02/peso. Now, you are expecting that the following changes will take place in the markets. Assume that everything else remains the same.

1. Last year, the inflation rate in the US was 3% and 8% in Mexico. Now, you are expecting that the following change will take place in the markets. Next, year, the inflation in the US is expected to be 2% while it will increase to 9% in Mexico. With each percentage change in the differential inflation, there will be a 5% change in the demand for exports by the Mexican customers. In addition, for each percentage change in the differential inflation, there will be a 1.5% change in the value of the Mexican peso. Explain how the above changes will affect the value of exports of your company to Mexico.

2. Last year, GDP growth rate in the US was 2.5% while it was 3% in Mexico. Next year, you expect that the national income of US will increase by 3% while Mexican national income, will increase by 4.5%. for each percentage change in the differential national income, there will be a 3% change in the differential national income, there will be a 2% change in the value of the peso. Explain how the above changes will affect the value of exports of your company to Mexico.

Please list detailed steps as to how you came up with your answers.

Crane Company has provided information on intangible assets as follows.

A patent was purchased from Ford Company for $2,559,000 on January 1, 2016. Crane estimated the remaining useful life of the patent to be 10 years. The patent was carried in Ford’s accounting records at a net book value of $1,822,000 when Ford sold it to Crane.

During 2017, a franchise was purchased from Polo Company for $545,000. In addition, 4% of revenue from the franchise must be paid to Polo. Revenue from the franchise for 2017 was $2,505,000. Crane estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase.

Crane incurred research and development costs in 2017 as follows.

Crane estimates that these costs will be recouped by December 31, 2020. The materials and equipment purchased have no alternative uses.

On January 1, 2017, because of recent events in the field, Crane estimates that the remaining life of the patent purchased on January 1, 2016, is only 5 years from January 1, 2017

Prepare the income statement effect (related to expenses) for the year ended December 31, 2017, as a result of the facts above

Should a CEO have Guaranteed Pension provided.

The CEO of Asempa farms limited is considering whether to plant this year’s yam with a fertilizer
or go organic (i.e. without fertilizer). In case of using a fertilizer, 10kg of either the Platinum or
Standard type fertilizer would be needed at the start of the planting year. The Platinum type is
GH¢1000 per kilogram and could lead to a high yield of 30 tons or a moderate yield of 20 tons of
yam at the end of the year. The Standard type is GH¢800 per kilogram and could also lead to a high yield of 15 tons or a moderate yield of 10 tons of yam at the end of the year. The Standard
has fewer chemicals and would lead to tastier yam that sells for a higher price than that of Platinum.
There is a probability of 0.7 that high yield would be recorded at the end of the year.
Market price for yam is uncertain and depends on the type as well as the volume of yam on the
market. Generally, a year of high yield results in higher volume whiles a year of moderate yield
leads to moderate volume of yam on the market. Even then, there is 60-40 chance that yam from
the Platinum fertilizer could sell for GH¢2000 or GH¢2400 per ton in times of high yield, and
GH¢3000 or GH¢3500 per ton in times of moderate yield. The Standard fertilizer yam has a 40-
60 chance of selling for GH¢4000 or GH¢5000 per ton in times of high yield, and GH¢5500 or
GH¢6000 in times of moderate yield.
Organic yam would take 2 years to harvest and would require the supply of manure that can be
borrowed from a local shop at a total cost of GH¢8,500 at the end of year 2. This could lead to a
high yield of 8 tons or a moderate yield of 6 tons at the end of year 2. Prices for organic yam are
quite high and will sell for GH¢9,000 per ton in a high yield season and GH¢11,000 in moderate
yield season. Assume interest rate of 10% per year and answer the following questions.
a. Draw a decision tree for the problem faced by the CEO indicating the probabilities of occurrence
and monetary values of events.
b. Advice the CEO of Asempa farms on which decision to take if he wants to make his decision
based on expected monetary value technique. Show your calculations.
c. Will your advice change if the total cost of manure at the end of year 2 is GH¢6000? Show your
calculations.
d. What would be Asempa farms payoff if there happens to be a moderate yield, and price of yam
is GH¢6000 per ton?
e. If the CEO of Asempa farms is risk averse, which decision do you think the CEO should opt for? Explain

The CEO of Asempa farms limited is considering whether to plant this year’s yam with a fertilizer
or go organic (i.e. without fertilizer). In case of using a fertilizer, 10kg of either the Platinum or
Standard type fertilizer would be needed at the start of the planting year. The Platinum type is
GH¢1000 per kilogram and could lead to a high yield of 30 tons or a moderate yield of 20 tons of yam at the end of the year. The Standard type is GH¢800 per kilogram and could also lead to ahigh yield of 15 tons or a moderate yield of 10 tons of yam at the end of the year. The Standard
has fewer chemicals and would lead to tastier yam that sells for a higher price than that of Platinum.
There is a probability of 0.7 that high yield would be recorded at the end of the year.
Market price for yam is uncertain and depends on the type as well as the volume of yam on the
market. Generally, a year of high yield results in higher volume whiles a year of moderate yield
leads to moderate volume of yam on the market. Even then, there is 60-40 chance that yam from
the Platinum fertilizer could sell for GH¢2000 or GH¢2400 per ton in times of high yield, and
GH¢3000 or GH¢3500 per ton in times of moderate yield. The Standard fertilizer yam has a 40-60 chance of selling for GH¢4000 or GH¢5000 per ton in times of high yield, and GH¢5500 or GH¢6000 in times of moderate yield.
Organic yam would take 2 years to harvest and would require the supply of manure that can be
borrowed from a local shop at a total cost of GH¢8,500 at the end of year 2. This could lead to a high yield of 8 tons or a moderate yield of 6 tons at the end of year 2. Prices for organic yam are quite high and will sell for GH¢9,000 per ton in a high yield season and GH¢11,000 in moderate yield season. Assume interest rate of 10% per year and answer the following questions.
a. Draw a decision tree for the problem faced by the CEO indicating the probabilities of occurrence
and monetary values of events.
b. Advice the CEO of Asempa farms on which decision to take if he wants to make his decision
based on expected monetary value technique. Show your calculations.
c. Will your advice change if the total cost of manure at the end of year 2 is GH¢6000? Show your calculations.
d. What would be Asempa farms payoff if there happens to be a moderate yield, and price of yam is GH¢6000 per ton?
e. If the CEO of Asempa farms is risk averse, which decision do you think the CEO should opt for? Explain

You run a firm called Hammocks ‘R Us (R Us) and are in a duopoly with Hammocks, Hammocks, Hammocks (HHH). You both sell hammocks, but your products are differentiated. You and your competitor compete on price with each firm facing a demand curve: Qrus = 24 − 2Prus + 2Phhh and Qhhh= 24 − 2Phhh + 2Prus You each face a fixed cost of $5 and no variable costs.

A) Explain why own price has a negative sign in the demand equation and why competitor’s price has a positive sign. Use economic terms to explain this.

B)  Solve for R Us’ price reaction curve.

C) What quantity of hammocks does each company produce?

Trident is a US company that sells goods to crown, a British firm in March for Sterling pounds 1,000,000. Payments are due in three months that is June. Trident cost of capital is 12%. The following quotes are available:
a. spot exchange rate: $1.7640/pound
b. Three month forward rate: $1.7540/pound
c. UK 3 month borrowing interest rate is 8% p.a (or 2% per quarter)
d. US 3 month rate is 8% p.a (or 2% per quarter)
e. US 3 month investment rate is 6% p.a (1.5 per quarter)
June put options on the stock exchange of 12,500 pounds, strike price is $1.75; 1.5% per pound premium, and brokerage cost $25 per contract.

June put option in the OTC market 1,000,000 pounds; strike price is $1.75; 1.5% premium. Trident foreign exchange adviser forecasts that the spot rate in 3 months will be $1.76/pound.

REQUIRED
i. Remain unhedged position
ii. Hedge in the forward market
iii. Hedge in the money market
iv. Hedge in the capital market

Suppose the following: You are an HR Director for a US-based company and are preparing to hire a Chinese citizen for a job in the U.S., which will require him to attain H-1B visa in order to be eligible for employment in the U.S. Research and discuss the process of attaining an H-1B visa. What are the requirements of the employee? What are the requirements and committments of the company? When does it make business sense to support an H-1B visa for an employee?

The response should be a minimum of 500 words.

Thank you!