Politely pouring a cup of tea into a bone china cup in his sumptuous Claridges suite, Peter Brabeck-Letmathe is an unlikely bogeyman. Yet ask many food campaigners to name their least favourite corporate executive and the silver-haired Austrian at the head of the world’s largest food company, Nestlé, would come high on many lists.
Ever since the baby milk scandal in Africa first prompted a boycott of its products 30 years ago, the producer of Kit-Kat, Nescafé and Perrier has been the byword for corporate arrogance and even malice. This year, controversies have ranged from a baby milk recall due to excessive iodine content in China, accusations that the company sanctions child slavery in Côte d’Ivoire and continuing criticism by health campaigners, particularly in Britain, over its promotion of children’s cereals that contain high levels of sugar and salt.
Such criticism helps keep an army of press handlers and lobbyists employed by the Swiss multinational. During our talk, Brabeck-Letmathe is surrounded by no less than three bag-carriers with a further flunky waiting outside.
Yet the 38-year veteran of Nestlé seems not to need their help. Wearing a dark shirt and tie to match his suit, the 63-year-old pilot who climbs mountains and rides Harley-Davidsons in his spare time would not look out of place in the famous advertisement for his rival Cadbury’s Milk Tray. His answers to my questions about the company’s prickly reputation are equally smooth.
The company first got into trouble for aggressively marketing its baby milk formula to mothers in Africa decades ago, yet it is still the bête noire of many health campaign groups. How does that feel? “I can turn that around,” he says. “You can see what a fantastic corporate socially responsible company this is that after 30 years the only thing [you] can still talk about is baby milk.”
In London to deliver a speech on doing business in Africa 18 months after the British-backed commission into the issue, he is keen to promulgate the benefits of economic involvement in a continent with growth rates more than double those of western Europe. Nestlé opened its first African factory in the 1920s and employs 11 500 people there.
“If we can encourage business to invest over the long term in Africa in a responsible manner because it makes good business sense … we have a genuinely sustainable development model for the continent,” he says.
Owning up
The International Labour Rights Fund this year accused the company of buying cocoa from plantations in Côte d’Ivoire that use child slaves. His answers stop short of an outright denial that could silence such critics. He admits there is “no doubt that there were children of a certain age working on farms, especially during harvesting time” and that the company was working with international agencies. “We are trying to ensure that there is not undue child labour on those farms.”
Undue? “In this area we have very careful policy,” he begins, nodding to a flunky, who quickly produces a copy of Nestlé’s Corporate Business Principles. Turning to the page headed “Child Labour”, he says: “This was one of the most difficult policies to make sure we are not doing more harm than good.”
Basically, if children are not allowed to help their parents harvest they could end up “in a bar with European tourists”. The tricky part comes in keeping Nestlé’s pledge against “all forms of exploitation of children”.
In the past few years, the minefield of sustainable development in Africa has been at the heart of Nestlé’s campaign to prove its corporate social responsibility (CSR). Brabeck-Letmathe is a fan of the British Chancellor, Gordon Brown, and the feeling appears to be mutual. The Nestlé boss has been a Downing Street guest several times. Involved in marketing and sales for most of his career, Brabeck-Letmathe believes the emphasis on CSR — criticised by ethical campaign groups — has already changed the debate.
He points to a survey by research group GlobeScan that found Nestlé’s reputation on social responsibility to be good in Africa but bad in Britain, saying it is only the bogeyman for some in the UK and possibly Sweden. He has blamed Britain’s colonial past, but, to me, he simply says the UK is “a centre of many civic society organisations”. In a competitive chocolate market, Britain was also the site of Nestlé’s first and only hostile takeover, of the historic Rowntree confectionery business. “Those things combined always put us into the ugly part of big companies,” he says.
Nestlé produces evidence from academic and campaign sources that suggest its work on CSR has won plaudits. Mike Brady of Baby Milk Action, which organises a boycott of the company’s product, sees it differently. “Peter Brabeck has made things worse. He is pursuing a very deliberate strategy of putting company profits before the health of infants and rights of mothers.”
This single-issue pressure group set up in 1977 has been at loggerheads with Nestlé for decades.
Much more unusually, the urbane Nestlé chief has faced criticism from analysts and investors in recent years after he took on the mantle of chairperson as well as chief executive in April 2005.
The shareholder complaints, organised by Swiss funds but reflecting Anglo-Saxon corporate governance principles, highlight the changing nature of the once largely Swiss-owned group. About 45% to 48% of the company, still based in Vevey on Lake Geneva, is owned by mainly private Swiss funds. The rest is owned by foreign investors, mostly American, including US hedge funds.
Brabeck-Letmathe argued 18 months ago that he needed to take on both roles to ensure that two huge strategic initiatives were completed under his leadership. The first was to turn the food giant into a “nutrition, health and wellness” company – buying into health and fitness products such as bottled water and weight management companies and moving away from sweets and fatty food. The second was to complete an enormous IT project that has so far taken six years and 3-billion Swiss francs (£1,3-billion).
Austrian approach
Yet the controversy over his new job obviously irked him. He threatened to resign to see through the vote, which only went ahead after the company also promised several concessions. Does he regret making that threat? His answer, which begins with a denial, is delivered in his still-strong Austrian accent. “Let me say, I took an Austrian [approach] to the whole thing, which was wrong.”
The man who started his working life as a 24-year-old selling ice cream for Nestlé explains how he made this “mistake”: “In Austria, if a chancellor loses a referendum he is supposed to stand down. That was the way I reacted, as an Austrian. In Switzerland, you are not supposed to step down. You are supposed to accept the verdict of the people and change your opinion.”
Although Nestlé has had a relatively good run in recent months, its shares have underperformed peers such as Unilever or United States rivals such as General Mills and Kelloggs despite top-line growth rates consistently higher in the 5-7% range and margins that have improved from 10% to 13%. Alain Oberhuber, analyst at Bank Vontobel in Zurich, believes Brabeck-Letmathe’s manner detracts from this performance. “When I talk to investors in the UK they say he comes across as too Austrian. They mean he is not very sensitive to criticism … He believes analysts do not understand the potential of his company.”
Other analysts say his comments — he accused the Italian authorities of creating a “storm in a teacup” over a contamination scare there — can be “too frank”.
Brabeck-Letmathe believes enough will be done improving margins, revenues and its articles of association to improve relations with his majority shareholders. The articles bar any investor from holding more than 3%, for example. Brabeck-Letmathe suggests the company is changing. “You have to change the company in accordance with the outside environment, otherwise it won’t work … Consumer expectations are changing, the social environment is changing, of course you have to change with it. It’s an ongoing process.”
By the end of next year, Nestlé’s transition into a “wellness” company with a centralised IT system should be finished. By November, investors expect a new chief executive.
Brabeck-Letmathe is expected to become executive chairperson in spring 2008. “I have been chief executive for 10 years. I have worked at this company for 40 years and I think it’s time now to relax a little bit and have a new generation taking over a bit.”
At the end of the interview, I ask what he would have done if he had not started selling ice cream all those years ago. He admits he trained as a conductor but did not feel good enough to reach the top. “Now, if I could just get the company running like the Vienna Philarmonic,” he muses. “Of course, they got into trouble over their corporate social responsibility — they didn’t allow women.” There’s a hearty laugh from the room and Brabeck-Letmathe goes to orchestrate enthusiasm for business in Africa. – Guardian Unlimited Â