The Pepsi Challenge

Rick Wartzman

In his latest column—now appearing on Forbes.com—Drucker Institute Executive Director Rick Wartzman writes about the central challenge facing PepsiCo CEO Indra Nooyi as she seeks to have her company produce more “good for you” snacks and drinks.

“As much as any CEO I know of, Nooyi embodies [Peter] Drucker’s view that it is the function of all businesses ‘to satisfy a social need and at the same time serve themselves by making resolution of a social problem into a business opportunity,’” Wartzman writes. “Nooyi also demonstrates, as much as any CEO I know of, how immensely difficult it can be to pursue such noble ends—especially at a time when “maximizing shareholder value” remains a mantra among many.”

Wartzman says that the pressure on Nooyi “is palpable.” Earlier this year, he points out, “PepsiCo’s board said it was standing by Nooyi and her team, but the company stressed that directors were ‘committed to maximizing shareholder value.’ Last month, PepsiCo made a series of management changes apparently aimed at calming investors. And just a couple of weeks ago, it was reported that the company would soon launch a new global marketing effort, featuring rap star Nicki Minaj, that is aimed at reinvigorating its flagship brand. The possible slogan for the campaign: ‘Live for Now.’

“What Nooyi must be careful of is that, in her bid to prove that she is dedicated to enhancing shareholder gains, ‘Live for Now’ doesn’t become the basic premise on which the entire business is suddenly run,” Wartzman asserts. “She needs to soothe investors, but she shouldn’t surrender to them.”

Drucker, Wartzman notes, issued strong warnings about this kind of myopia. Managing a company to maximize shareholder value means “damaging, if not destroying, the wealth-producing capacity of the business,” Drucker wrote in his 1993 book Post-Capitalist Society. “Long-term results cannot be achieved by piling short-term results on short-term results.”