What do you say in your annual letter when you’re running a company that has delivered disappointing returns for investors and is getting clobbered by competitors?
If you are Indra Nooyi, CEO of PepsiCo, you talk about all the positives.
According to her just published annual letter, things are going quite well at Pepsi. She writes:
“I am pleased to report that we have made strong progress…2011 capped a five-year performance that delivered, on a core basis, compounded growth rates for net revenue of 13 percent, operating profit growth of 9 percent and EPS growth of 8 percent. We also delivered impressive cash returns: not only have dividends per share grown at 12 percent annually, but since 2007, through share repurchases and dividends, we have returned $30 billion to our shareholders.”
She then details all the good news, noting:
“We are creating mega brands that consumers love around the world.”
“We are extremely well-positioned to grow-by category, region and trend.”
“We are innovating globally and delighting locally.”
“We have phenomenal people.”
“We are dedicated to delivering Performance with a Purpose.”
From the annual letter you get the impression that things are great at Pepsi.
There is just one problem: things, well, aren’t so great. The stock hasn’t moved in the past five years; it finished 2011 at $66.35 per share. Five years earlier it was at $62.55 per share. So Pepsi gained +6% over five years. Coke’s stock was up +45% in the same period. Coke is building market share at Pepsi’s expense. Pepsi is churning through executives. Investors are calling for the company to be split in two and for the CEO to resign.
Putting a happy spin on things certainly is appealing; as my grandfather often said, “If you don’t have anything nice to say, don’t say anything at all.”
But this usually doesn’t work too well for leaders: ignoring difficult business realities doesn’t make them go away. It just looks like you are dodging the tough issues.