Corporate leaders suffer under the capitalist gun

Pity Indra Nooyi. When she won the coveted post of CEO at PepsiCo Inc. in 2006, she indicated she wanted to shift Pepsi from snack foods to health foods and from caffeinated colas to juices.

“It doesn’t mean subtracting from the bottom line,” she argued: The company would simply bring together what is good for business and good for the world, making money by doing good.

It sounded glorious. But a moment of truth came on July 21, 2011, when PepsiCo had to revise downward its guidance for the year’s earnings per share. It had still done well in the previous quarter, with lots of signs of growth. Because of the desire to continue growing, Ms. Nooyi fended off calls to reduce staff in a quest for greater productivity, which she said would leave remaining employees working harder and more likely to face burnout.

But the stock price tumbled and analysts savaged her for failing to attack costs and supposedly neglecting the carbonated products. “Is she ashamed of selling carbonated sugar water?” a bottler told the Wall Street Journal.

Maybe you don’t pity Ms. Nooyi, figuring that CEOs deserve all the criticism they get, in return for their gargantuan salaries. But Yvan Allaire, a former senior executive at Bombardier Inc. and now chair of the Institute for Governance of Private and Public Organizations, and Mihaela Firsirotu, a professor of strategy at the University of Quebec, believe the PepsiCo chief’s situation epitomizes what’s wrong with capitalism today.

In A Capitalism of Owners, they say the judgment against Ms. Nooyi, by the analysts and stock market, was that she “has too much of a social conscience. That may be good for the company in the long run but not for today’s and tomorrow’s stock price. If she persists, she should be replaced by someone who does not have these qualms.”

[ … ]

They also see value in companies with a dual class of shares, with the founders retaining a controlling block of voting shares to insulate the company from stock markets. They note that many of Canada’s industrial champions such as Bombardier, Rogers Communications, Shaw Communications, CGI, Power Corp., Onex Corp. and Telus have dual-class shares. As long as minority shareholders are protected, the authors see value in dual-share protection.

The book picks up from the lambasting Mr. Allaire and Prof. Firsirotu gave capital markets in their 2009 effort, Black Markets … and Business Blues. That book had a number of strong recommendations for reform, but this new book details a more comprehensive agenda for change.

It should be essential reading for directors of companies and senior executives who, like Ms. Nooyi, are under the gun, as well as legislators, regulators and members of the public who are concerned about the situation.

Read more