May 23, 2025 • 37 mins
This week, how the FDA violated its own rules in approving marketing for opioid painkillers. Later, how does a company balance its heritage with its future?
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:23):
This is Wall Street Week. I'm David Weston bringing you
stories of capitalism this week. How HHS Secretary Kennedy's FDA
criticism hearkens back to its approval of OxyContin and the
enormous losses from opioid addiction. Plus what it takes to
keep a company on track or get it back on
track when it's wandered off. The tale of two very
(00:44):
different companies, the Mars Company and global power giant Ennel,
and their particular take on stakeholder capitalism. This is a
story about regulation, not too much of it, but instead
too little and when it matters most. The new sector
of Health and Human Services, Robert F. Kennedy Junior, has
(01:05):
accused the Food and Drug Administration of being too cozy
with the pharmaceutical industry.
Speaker 3 (01:11):
No, you want a present, who's going to end the
corruption at the federal agencies?
Speaker 4 (01:19):
Our FDA.
Speaker 2 (01:21):
In a closed door staff meeting this month, Secretary Kennedy
called the FDA a sack puppet, echoing his claim that
the agency has been captured by the industry it's supposed
to regulate.
Speaker 4 (01:32):
Look, these are the companies that gave us the opioid epidemic.
They pressured FDA to lie, and they got their way.
Speaker 2 (01:40):
A report in Bloomberg BusinessWeek examines how the FDA violated
its own rules in green lighting broad marketing of opioid painkillers,
sparking the epidemic, leading to years of litigation and ending
in Purdue Farmer's seven point four billion dollar bankruptcy plan.
Doctor Andrew Kolodney of Brandeis University is medical director for
(02:01):
the Opioid Policy Research Collaborative.
Speaker 5 (02:04):
If you think about FDA's failure with regard to opioids,
it's probably the worst regulatory failure leading to a public
health catastrophe in history.
Speaker 2 (02:15):
Since nineteen ninety nine, opioid overdoses have claimed over eight
hundred thousand American lives. Fentnyl makes headlines now, but the
addiction crisis began when FDA approvals led the way to
aggressive prescribing for chronic pain. Patients still pay the price.
One in thirty two on long term high dose opioids
(02:36):
loses their life within two and a half years, and
nearly five million are addicted, many just following the doctor's orders.
Estimates of economic loss rise to two point seven trillion
dollars in twenty twenty three alone.
Speaker 5 (02:50):
The FDA, if it had been following the law, it
would have required Purdue to demonstrate that OxyContin was safe
and effective for long term. Unfortunately, it never did that,
and it allowed produce pharma to promote OxyContin for conditions
where opioids are more likely to harm a patient than
(03:13):
help them.
Speaker 2 (03:14):
Could it happen again.
Speaker 5 (03:16):
It absolutely can happen again, and it's been happening. We're
seeing FDA put products onto the market despite the concerns
of FDA's own external advisory committees that products are not
necessarily effective or safe for the conditions that they're being marketed.
Speaker 2 (03:38):
The opioid crisis may be the most well known case
of regulatory failure in pharmaceuticals, but it's not the only one.
Controversy has followed a wave of costly new therapies, including
treatments for genetic diseases, cancer, and Alzheimer's.
Speaker 5 (03:54):
Because we haven't tried to study or learn from this mistake,
we're ready for the next public health crisis to result
from improper marketing of a drug that's not safe and effective.
Speaker 2 (04:09):
To understand how we got here, it helps to look
at the climate at the FDA in the nineteen eighties,
a time when AIDS activists and palliative care doctors began
pushing for faster drug approvals.
Speaker 5 (04:21):
We are simply asking the FDA to do it quicker.
Speaker 6 (04:25):
In the fight for the FDA to release all these
are possible treatments.
Speaker 2 (04:30):
Frank Vacci reviewed opioid applications at the FDA back then,
including Produe's first new opioid MS content.
Speaker 7 (04:39):
People were going to be on this drug for some time,
basically until they died.
Speaker 2 (04:45):
He says. Purdue exploited that political moment bypassing FDA directives
and launching their opioid without submitting clinical data.
Speaker 7 (04:53):
When the company came in and told us what they
had done at the actually marketed this product, I was shocked.
I was actually star there is a pathway to do this,
and they completely ignored it, and they ignored it with
a certain amount of arrogance. Also, I mean they actually
told us they weren't going to take the drug off
the market. To take the product off the market, which
(05:14):
the FDA could have done, would have made FDA the
bad guy here that they're essentially denying pain control to
people who are dying they had the FDA over.
Speaker 2 (05:24):
A barrel emotion trumped standards, and the firm persuaded the
agency to defer its plans for action on humanitarian grounds.
Purdue was permitted to make a late application for what
it was already doing. That late application was exceedingly weak.
Speaker 7 (05:41):
There was nothing in there that actually substantiated the duration
of effectiveness.
Speaker 2 (05:46):
The usual regulatory and scientific requirements need not apply.
Speaker 7 (05:51):
I thought the MS Cotton issue was set a bad precedent, frankly,
that companies could then do very little or no thing
at all, and then market in opioid products. Once precedent
is set, then you have a hard time reversing it.
Speaker 2 (06:07):
The next opioid on Vacci's desk, a fentanyl patch called
dura Jesik, was rejected under the standard. The studies failed,
but higher ups created a new fast tracked division and
sent the application to a reviewer named Curtis Wright, who
approved it. Richard Doblin, president of the Multidisciplinary Association for
(06:28):
Psychedelic Studies, got to know right in the nineteen nineties,
and what.
Speaker 8 (06:33):
I got to understand about Curtis is that he was,
when I worked with him, very focused on unmet medical
need and that he was not as focused on all
of the bureaucratic niceties. You could say that the law
required for these two double blind, placeble controlled studies to
approve drugs.
Speaker 2 (06:54):
At the time, Doblin was researching the division called the
Pilot Drug Evaluation Staff for his Harvard doctorate, interviewing officials
and spending time inside the agency. He says, Wright was
handed a quote license to kill bureaucracy.
Speaker 8 (07:10):
So he was a bit of a maverick, a bit
of a cowboy, and so he was willing to move
things forward through the FDA regulatory system in ways that
some of the old guard were not that happy with,
and some of those decisions turned into disasters. What he
did with opiates was a bit reckless, but this was
(07:31):
this experiment to try to see what would be the
outcomes if they remove layers of review.
Speaker 2 (07:37):
In a pledge to both chronic pain patients and the
drug industry, Wright told a conference in nineteen ninety three
his narcotics team would do everything that is humanly possible
to make it as easy as possible to get these
products to market. He was already working with Purdue on OxyContin.
Speaker 8 (07:57):
And one of the things that Pilot drug also did
that Curtis ro was really instrumental with is having a
different perspective on who the pharmaceutical companies were instead of
seeing them as the enemy, and that we don't trust
them and they're trying to get drugs through just so
they can make money, and we need to put up
all these obstacles and all these rigorous data gathering things
(08:20):
that they have to do. One of the key innovations
I would say that has lasted that Pilot drug put
into place was to see a partnership between the regulators
and the industry.
Speaker 2 (08:31):
Purdue worked closely with Wright. According to a Justice Department investigation,
the drug baker behind OxyContin rented a room nearby and
spent days helping him write reviews of the clinical study
reports and the integrated summaries of efficacy and safety. Meanwhile,
the old guard at FDA had been raising concerns. They
(08:52):
said the Pilot division lacked objectivity, ignored regulations, and wasn't
scientifically rigorous. The agency shut down the division, but OxyContin
was already moving toward approval. A year after Wright left
the FDA, Purdue hired him.
Speaker 3 (09:09):
The opioid epidemic happened because the Food and Drug Administration
dropped the regulatory standards necessary to approve drugs, and with
that put opioids on the market labeled for chronic high
dose when they were never effective.
Speaker 2 (09:30):
Edwin Thompson is president of PMRS, a drug manufacturer based
outside Philadelphia.
Speaker 3 (09:37):
Whether a drug's effective or not isn't a matter of opinion.
It is a matter of data. And if you don't
have substantial evidence of efficacy, if you don't have adequate
and well controlled trials with statistical evidence, the drug's not effective.
It's just that simple.
Speaker 2 (09:54):
Thompson began his career in opioids at Johnson and Johnson
back in the nineteen seventies. In the nineties, he dealt
with the FDA's Pilot Drug Division, where he says he
first saw politics start to outweigh science. In his view,
it happened with OxyContin and is still happening today.
Speaker 3 (10:15):
There are patient populations and diseases that are unsuitably treated.
Without question, we all accept them. But approving and labeling
drugs as being effective for that patient population when there's
no data to support it, there's no substantial evidence of
efficacy to support it does more harm than good. It's
(10:36):
really wrong, and you can see the consequences. The harm
of this epidemic over thirty years is overwhelming.
Speaker 9 (10:44):
The greatest epidemic that the America has ever seen.
Speaker 2 (10:49):
It's the basic problem that we have the FDA, the law,
what the law says, or how the law is being enforced.
Speaker 5 (10:56):
The problem is how the law being enforced. We have
a good law. The failure was not a failure of
the law. The law is good. The law requires well
controlled trials that demonstrate safety and efficacy. The problem here
(11:18):
was that the FDA did not enforce that law.
Speaker 3 (11:24):
The system works, it doesn't have to be bureaucratic, but
it's got to be applied, and it's got to be
applied scientifically and without bias, and it has to be
applied with real methodology as well. And so there were
a number of breakdowns in the opioid approval process, starting
(11:48):
back with MS Cotton and how the drug ever got
approved and when it shouldn't have rad on up to
oxycotton and even immediate release oxycodone. Those approvals defy explanation
at the FDA. They're just a series of compounded mistakes
on compounded mistakes, and there was no one to be
(12:10):
able to step in and to stop them from going forward,
and certainly to reverse them as well.
Speaker 10 (12:18):
And so.
Speaker 3 (12:20):
Where we are today is we haven't made any progress
in stopping the opioid epidemic, and we've not made any
progress in stopping to approve ineffective drugs at the Food
and Drug Administration.
Speaker 2 (12:37):
Up next. Every week seems to bring another story of
a successful company losing its way. But what about those
that don't, or that having strayed, find their way back
to what made them great to begin with. We look
at the Mars Company and n AL, two major global companies,
and what they share in the way they do their business.
Speaker 1 (12:57):
You're listening to Bloomberg Wall Street Week with Data Weston
from Bloomberg Radio. This is Bloomberg Wall Street Week with
David Weston from Bloomberg Radio.
Speaker 2 (13:15):
This is a story about heritage. How a company's heritage
can help it succeed, return it to success, or put
it at risk when it is left behind.
Speaker 11 (13:24):
Without the unabsolute reputation, the safety and consistency, you simply
can't compete.
Speaker 4 (13:31):
And that's why everybody's worried about Boeing.
Speaker 2 (13:34):
Boeing is just the most recent and glaring example of
a once great company stumbling in its case by losing
its core edge in engineering.
Speaker 6 (13:44):
I'm an aerospace engineering Back in the day, I actually
work for Boeing. That's where you went if you wanted
to work on airplanes.
Speaker 2 (13:50):
You couldn't go anyplace else.
Speaker 6 (13:52):
You really couldn't.
Speaker 10 (13:52):
That's not the case today.
Speaker 2 (13:54):
Ron Epstein is a former Boeing engineer who now covers
aerospace and defense for Bank of America. He watched as
his former employer lost its way. It's far from the
only one, but there are also companies that over many years,
kept their momentum or even regained it after a stumble
or two.
Speaker 6 (14:15):
IBM turns one hundred and fourteen this year, one hundred
and forty in the technology industry. Think about companies that
have lasted a century in the technology industry. They're hard
to find because of the nature of technology.
Speaker 2 (14:27):
Sam Palmersano spent much of his career at IBM, rising
to become chairman and CEO. He attributes IBM's long term
success to a deep commitment to innovation.
Speaker 6 (14:39):
The Watsons defined that it was about the future and
about innovation, and that that's where you should drive. You
should drive innovation.
Speaker 2 (14:46):
Hello the business School at Yale University has created a
program to study what separates the companies that succeed over
the long term from those that don't. Some may find
the results surprising. They take a back to that notion
that has become known as stakeholder capitalism, although many of
the CEOs don't find it new at all.
Speaker 12 (15:09):
We've interviewed more than one hundred and seventy five chief
executive officers as to the practice of this concept of
stakeholder capitalism.
Speaker 2 (15:20):
John Iwada spent thirty five years at IBM, where he
worked closely on innovation and strategy with Sam Palmisano. He
is now an Executive Fellow at the Yale School of Management.
Speaker 12 (15:33):
One of the things we learned in these interviews is
that most of the CEOs felt this wasn't really a
departure or anything new, and some of them said this
is sound business practice, or it's a return to sound
business practice, especially if you think about the long term
leading a corporation or an enterprise for the long term.
(15:55):
There are short term pressures or expectations that sometimes getting
the way of making investments or decisions that may not
pay off for many quarters or even years, So you
have to think about that. You may think about non
financial commitments to employees, to society, and those are not standardized,
(16:16):
those are not accepted measurements and metrics, and so those
are soft or squishy, and other factors that come into
play here.
Speaker 2 (16:25):
I want to learn from his CEO interviews of the
challenges leaders face in trying to bring together disparate parts
of the company and disparate interested parties, and the key
role of purpose in weaving it all together.
Speaker 12 (16:39):
CEOs, like every executive comes up through a business or
through a professional career in a vertical finance or R
and D or sales, and when they get into the
CEO chair. Satia Nadella Microsoft set it some years ago
in an interview, is then you realize just how multi
(17:00):
constituent or how many stakeholders the enterprise actually has. You
have shareholders, you have governments, of course, you have customers
and employees, you have suppliers, and you have to have
these relationships with all of these constituents. The question is
do you manage them piecemeal or do we think of
(17:20):
this more holistically. A lot of the CEOs described sometimes
they use air quotes. This management system almost an operating
system for the company that is based on common definitions
of the firm. Some of them say, there are three
questions that you have to ask and answer why, what
(17:42):
and how? Why do we exist? Which turns into the
purpose of the company. What do we do which is
the strategy of the company? And how and that's the culture?
And how are we going to show up?
Speaker 2 (17:54):
A well known company that has put purpose and values
at the core of its operation since it's founding. Is
the Mars Company in business since nineteen eleven.
Speaker 12 (18:04):
Mars is more than one hundred years old, very successful
for a long time. And as we began to talk
to management at Mars and members of the Mars family,
we learned that they were going through what we would
refer to as a founding moment. And why because for
much of Mars' history, members of the Mars family led
(18:27):
the company and worked in the company. But the reality
today in the future is very few members of the
Mars family, perhaps no members of the Mars family will
be in management or even work in the company.
Speaker 9 (18:41):
The principles and the values are at the heart of
who we are.
Speaker 2 (18:47):
Victoria Mars is the great granddaughter of founder frank Seymars.
She has been on the board for nearly twenty years,
three of them as chair.
Speaker 9 (18:57):
My grandfather had very strong principles and values, and these
principles and values I grew up with without actually knowing
that I was growing up with them. So when we
talk about the Mars Principles, we're really talking about the
family values that have existed since the beginning. And as
(19:18):
the company got larger and it was more and more
difficult for the family, specifically at that point my father
and my uncle to be around all the associates, to
be able to talk about the values and to be
able to talk about how we do business, they decided
it was time to write them down. The five principles
that were actually written down and defined in the early eighties. Quality, responsibility, efficiency,
(19:43):
mutuality and freedom have been our principles since the beginning
and they are the foundation of everything we do within
the business.
Speaker 2 (19:54):
Times change and businesses evolve, something the Mars Company has
certainly done. But as much as the Mars Principles maybe
updated every few years, the fundamentals do not change.
Speaker 9 (20:07):
So they haven't changed. They've just been updated to be relevant.
Management helps us and supports us and clearly obviously implements
them in our business, but any changes to them, any
tweaks to them, anything from the colors to the script
to the words, belongs to the family.
Speaker 2 (20:26):
A company having principles is one thing. Putting them to
use in everyday decisions, not to mention big strategic decisions
is something else. Entirely.
Speaker 10 (20:37):
It's not a checklist, but it comes up in conversations
when we make decisions. And I think that are two things.
One is this aligned with the purpose of what we're
trying to deliver here, whether it is overall from Mars.
You know, the kind of company that we are trying
to deliver today is well set up for the world
we want tomorrow.
Speaker 2 (20:57):
Klass our guard is the Mars Chief financial officer and
like all members of management, not a member of the
Mars family.
Speaker 10 (21:06):
Five principles come up, certainly as a fact check. You know,
this doesn't feel like in line with the five principles?
Well why not? And you know, and sometimes they're not
all equal in every decision. Are we really delivering quality?
Are we really directed by the consumer? Or is this
mutual to the stakeholders around us When we may make
(21:26):
decisions around renegotiating certain things or whatever, you know, we
are we true to the stakeholders around us.
Speaker 2 (21:34):
The Mars principles underlie the values of the family, but
the family also believes it makes the company more successful.
Speaker 9 (21:41):
Overall, the principles and the values help us be proud
of this company. We do believe that utilizing these principles
helps our associates make the right decision, the decisions that
create the concept of a win win We are all
going to seed together versus let me win and let
(22:03):
me see you fail. So I really do believe that
utilizing these principles has helped us be successful in business.
It helps us recruit good people and keep good people.
It helps us earn trust with government, It helps us
earn trust with our associates, It helps us earn trust
with communities where we work. So to us, yes, it
(22:25):
does make a difference and helps us be successful.
Speaker 2 (22:30):
The Mars Company is, at its base, a family company,
a global, highly successful one, but nonetheless a family endeavor,
which may give it advantages in pursuing its principle based
business strategy, but they can also come with some challenges.
Speaker 10 (22:46):
There no doubt many public companies with a long history
that also has a very great story to tell. We
believe we have our own story and our unique vision
for the future, while respecting that long term success is
also built on continuing to have healthy short term performance,
if you want to call it. That is an ingredient
(23:07):
that live well in our context with the way management
is set up, with the commitment also of our owners
to take a long term view and you know, leave
a lot of capital for reinvestment in the company and
set some objectives, both financial and non financial objectives that
(23:29):
really enables us to do the things that we're doing.
Speaker 9 (23:33):
When people used to ask me and say, you know,
what is your biggest fear, what is your biggest worry,
my response usually is it's not the business. The business
really can function very well on its own. It's managing
a family. So part of being able to be a
(23:54):
family business, to continue to be a family business, requires
a lot of energy and effort into working with the family.
We have been having annual family meetings for over twenty years.
Our family is continuously there because we're connected to this business.
(24:14):
We're joined at the hit by this business. So having
the family functioning well and having the family and being
able to manage through conflicts that come up, which of
course will come up in every family, and being able
to work towards a common outcome and common goals takes
a lot of work.
Speaker 2 (24:36):
The Mars family continues to work hard at pursuing the
goals and values it has established since the beginning of
the last century. But could a similar approach succeed in
a publicly traded company in a very different business. And
that's where we turn next to the second biggest power
company in the world and how it moved forward by
returning to its basic purpose.
Speaker 1 (24:57):
You're listening to Bloomberg Wall Street Week with Data Weston
from Bloomberg Radio.
Speaker 2 (25:07):
The Mars Company has enjoyed a very long and successful
history as a family company, pursuing the family's values even
as it expanded around the world and into new businesses.
But the Yale Project learned from its one hundred and
seventy five CEO interviews that Mars shares some approaches with large,
publicly traded companies in very different industries. One of them
(25:27):
is the Italian power giant Ennel, whose CEO redirected it
for a new age by taking it back to its
simple roots.
Speaker 12 (25:36):
Headquartered in Italy as a global energy generation and transmission company,
Francesco Staracci became CEO I think it was in twenty fourteen,
and he inherited a company that was troubled, particularly from
a stakeholder perspective. You know, from investor standpoint, the stock
was languishing, the company was heavily in debt. They were
in this chronic cycle of making mass of capital investments
(26:01):
in building new power plants that wouldn't come online in
some cases for ten years, and by the time the
plant was operational, it was obsolete, and they had these
big right offs and so forth. So not got good
for the investor. At the other end, they had difficult
community relationships all over the world. I think he said,
(26:24):
we were at war constantly with communities where we put
plants in they didn't want us there. And for forty
years or more, you know, we had these difficult relationships
with communities.
Speaker 2 (26:36):
Like other CEOs looking to move their companies forward, Staracci
studied a future of his business, and like so many others,
concluded it laid in technological changes in the very business
of power.
Speaker 4 (26:49):
The company was already a pretty large I mean, it
was big, and it was heavily in debted because of
the expansion we had in the preceding years. It had
let's say, a cash conversion problem, so there was a
lot of revenues that didn't really come up with a
lot of cash, and growth was a little bit stalling.
(27:12):
It was a company that had to deal mostly with
managing that given the size it had. The issue was
we needed to restart growth. But more than that, we
needed to, let's say, give clarity about the sustainability of
future revenues to the debt markets. You know that that
(27:35):
in itself, you know, the size of a debt is
a function of the size of the revenues that you
can generate to serve the debt. So there was a
little bit of an issue at what was the future
of the company going to be. So we had to
actually decide what was the trajectory of the company, sell
it to our shareholders and also to of course the
(27:57):
whole market in a way that it was understand and
the ball solid, robust enough to withstand potential shocks, and
of course more generative of cash flow. Basically, that was
the issue we had to deal with and that clearly
had to do with the time and how much time
did we have to do that, and also what kind
(28:17):
of pockets of value creation we have left. We had
in the company that were not that didn't we didn't
really tap well enough.
Speaker 2 (28:25):
As you determine the trajectory for growth and for a
revenue going forward, how did you find the trajectory that
you settled upon.
Speaker 4 (28:33):
Basically, we said, where is the technology going? You know,
because you can you can ignore technology for a while.
It's okay, but at the end of the day, it
always catch up with you. So where is the utility
sector in the industry that is with it? Where is
it going? And what forces are changing these technologies? And
(28:56):
we saw at that time we had seen it before
with any in power. I should say that there was
a major change in the technology of generating electricity, namely
that renewables were becoming competitive, had become already by twenty
fourteen competitive with termageneration by enlarge in many parts of
(29:17):
the world, and we were not active enough in that space.
And that space was going to be where value was
going to be created in a major way in the
next few years. So we said, how do we catch
this train, how do we jump on it, and what
can we do?
Speaker 2 (29:37):
And was that driven by a revenue stream that you
saw out there because of technological change?
Speaker 4 (29:42):
I think the revolutionary thing about renewables at that time,
the people didn't understand. I think we were maybe the first,
the first that understood it consciously and not inconsciously. You know,
we actually got and studied and really came with a
conclusion that shifting our generation from thermogeneration to renewables, we
(30:03):
would increase double the abitam margin, so the amount of
money we would make with the same kilobat hour. And
that was a major aha moment if you want, We said, okay,
well let's do it, because there's no time to get
to be lost here. And to do that, we had
to basically completely change our operating model at developing plans
(30:25):
and at thinking about generation going forward.
Speaker 2 (30:29):
For Staraci, identifying renewables as the growth opportunity for Anna
was the first step. But to get there with the
growth it promised required the company to move fast, faster
than it had ever done in the past.
Speaker 4 (30:44):
Imagine, this is an industry that worked before with a
time horizon of five to ten years. So you started
investing in something and that whatever it was, a power
plant or anything else, it would start generating revenues five
or ten years after. And we said we shortened that
to three year maximum. Okay, that was a major shock
(31:04):
for most people, and those that were impacted were basically
the development people, you know, and we said, scrap all
the stuff that does not stay in this three year
time horizon, and that accelerated a lot the circulation of
the capital, I mean, Capita started working a lot earlier
than before, and that gave us the momentum we needed
(31:26):
to really kick start the whole thing. I should say
it took six months to explain over and over more
than one time in this logic, but after that everybody
got it, and I would say in a few years
we were working at two years not three, so with
further strength short in that time. That was a major change.
Speaker 2 (31:50):
After some initial resistance, and all employees embraced the new
direction because of the opportunities it presented them. But ironically,
Staracchi sees this new direction as really a return to
the basics of what gave rise to the company in
the first place.
Speaker 4 (32:06):
The pushback was basically a different one was the fact
that we had say, a very limited number of very
large investments with which we thought we would continue to
grow the company, and applying these three years' role, we
would cut the investment size a lot, so the renewable
(32:26):
energy projects had smaller, much smaller sizes. So people said,
how can we grow because this project are so small,
And the answer we gave them is, well, you have
to multiply the number of projects. So instead of having
say twenty projects, you're going to have two hundred or
maybe four hundred. And that was a major shock because
(32:51):
to manage two or three hundred projects at the same
time was something a company had never done before. I
think at the end it was exciting for people. They
needed something and they loved at the fact that they
could go at it numerous times, many more times than
they ever dreamed.
Speaker 2 (33:08):
And every corporation has a culture. Did the culture change
under your leadership?
Speaker 4 (33:14):
No, it did not. Actually, what happened is that we
needed to declutter the cultural space in a way. So,
you know, utilities have a very deep culture and very
simple one, all of them. I mean, they're all the same.
(33:34):
You know, the semantics are important. A utility is useful
to people, that's why it exists. And most of the
utilities were formed in the past to electrify a space
that didn't have electricity. So people got pride in bringing
light to places that didn't have it. That is, the
culture of utility is useful to people, to people or businesses,
(33:57):
but in a way to society. The rest of the
stuff that over the decades were thrown at utilities is noise.
So what we had to do is the clatter, all
this noise, throw it away and say, guys, we are
here for one very simple purpose or not. And everybody
(34:20):
agreed to that, and that, I can tell you was
surprisingly identical across geographies. There was zero difference from Russia
to the US, from Latin America to Africa, including Europe,
it was exactly the same feedback. Everybody said, that's us exactly,
we want this. So it was super easy. I just
(34:40):
had to eliminate a lot of say, substrata and stuff
that were thrown at the utility over the years.
Speaker 2 (34:49):
So in a sense, you were not fighting with your heritage,
you were returning to it exactly.
Speaker 4 (34:54):
We had to go back to it. You know, we
had a purpose statement and that was like five sentences
glued together and you can read through them. Who wanted
to add something and nobody said no, it's so much.
So it was a super complex stuff and we just
said you know this doesn't matter. What are we for here?
I mean, we are useful to society. That's our purpose.
(35:15):
So we created a very nice purpose line that was
a cent open power. We empower sustainable progress. That's it,
and everybody immediately identified in that. So we didn't really
have to invent anything. We had to remove stuff.
Speaker 2 (35:33):
The term stakeholder capitalism has become somewhat controversial, a potential
distraction from the basics of running a for profit business.
But whether you're a global power like no or a
global family business like Mars or the one hundred and
forty year old IBM, those who actually run the businesses
(35:53):
find it to be pretty basic.
Speaker 6 (35:56):
Most people run the companies understand that the way you
create offit ability, which funds your future investment, is through
your innovation and your product lines and your customer service
whatever it happens to be. That's how you do it now.
Quite honestly, David, because I am old that I am cynical,
the CEO should have been doing this anyway. That's what
a lot of us were just doing.
Speaker 2 (36:14):
And even some of the most troubled businesses are embracing
some form of this stakeholder capitalism as the relatively new
CEO of Boeing, Kelly Ortwerg, recently told Congress.
Speaker 11 (36:27):
Boeing made serious missteps in recent years, and it's unacceptable.
In response, we've made sweeping changes to the people, processes,
and overall structure of our company. While there's still work ahead,
these profound changes are underpinned by deep commitment from all
of us to the safety of our products and services.
Speaker 2 (36:49):
That does it for us. Here at Wall Street Week,
I'm David Weston. This is Bloomberg. See you next week
for more stories of capitalism. T
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:23):
This is Wall Street Week. I'm David Weston bringing you
stories of capitalism this week. How HHS Secretary Kennedy's FDA
criticism hearkens back to its approval of OxyContin and the
enormous losses from opioid addiction. Plus what it takes to
keep a company on track or get it back on
track when it's wandered off. The tale of two very
(00:44):
different companies, the Mars Company and global power giant Ennel,
and their particular take on stakeholder capitalism. This is a
story about regulation, not too much of it, but instead
too little and when it matters most. The new sector
of Health and Human Services, Robert F. Kennedy Junior, has
(01:05):
accused the Food and Drug Administration of being too cozy
with the pharmaceutical industry.
Speaker 3 (01:11):
No, you want a present, who's going to end the
corruption at the federal agencies?
Speaker 4 (01:19):
Our FDA.
Speaker 2 (01:21):
In a closed door staff meeting this month, Secretary Kennedy
called the FDA a sack puppet, echoing his claim that
the agency has been captured by the industry it's supposed
to regulate.
Speaker 4 (01:32):
Look, these are the companies that gave us the opioid epidemic.
They pressured FDA to lie, and they got their way.
Speaker 2 (01:40):
A report in Bloomberg BusinessWeek examines how the FDA violated
its own rules in green lighting broad marketing of opioid painkillers,
sparking the epidemic, leading to years of litigation and ending
in Purdue Farmer's seven point four billion dollar bankruptcy plan.
Doctor Andrew Kolodney of Brandeis University is medical director for
(02:01):
the Opioid Policy Research Collaborative.
Speaker 5 (02:04):
If you think about FDA's failure with regard to opioids,
it's probably the worst regulatory failure leading to a public
health catastrophe in history.
Speaker 2 (02:15):
Since nineteen ninety nine, opioid overdoses have claimed over eight
hundred thousand American lives. Fentnyl makes headlines now, but the
addiction crisis began when FDA approvals led the way to
aggressive prescribing for chronic pain. Patients still pay the price.
One in thirty two on long term high dose opioids
(02:36):
loses their life within two and a half years, and
nearly five million are addicted, many just following the doctor's orders.
Estimates of economic loss rise to two point seven trillion
dollars in twenty twenty three alone.
Speaker 5 (02:50):
The FDA, if it had been following the law, it
would have required Purdue to demonstrate that OxyContin was safe
and effective for long term. Unfortunately, it never did that,
and it allowed produce pharma to promote OxyContin for conditions
where opioids are more likely to harm a patient than
(03:13):
help them.
Speaker 2 (03:14):
Could it happen again.
Speaker 5 (03:16):
It absolutely can happen again, and it's been happening. We're
seeing FDA put products onto the market despite the concerns
of FDA's own external advisory committees that products are not
necessarily effective or safe for the conditions that they're being marketed.
Speaker 2 (03:38):
The opioid crisis may be the most well known case
of regulatory failure in pharmaceuticals, but it's not the only one.
Controversy has followed a wave of costly new therapies, including
treatments for genetic diseases, cancer, and Alzheimer's.
Speaker 5 (03:54):
Because we haven't tried to study or learn from this mistake,
we're ready for the next public health crisis to result
from improper marketing of a drug that's not safe and effective.
Speaker 2 (04:09):
To understand how we got here, it helps to look
at the climate at the FDA in the nineteen eighties,
a time when AIDS activists and palliative care doctors began
pushing for faster drug approvals.
Speaker 5 (04:21):
We are simply asking the FDA to do it quicker.
Speaker 6 (04:25):
In the fight for the FDA to release all these
are possible treatments.
Speaker 2 (04:30):
Frank Vacci reviewed opioid applications at the FDA back then,
including Produe's first new opioid MS content.
Speaker 7 (04:39):
People were going to be on this drug for some time,
basically until they died.
Speaker 2 (04:45):
He says. Purdue exploited that political moment bypassing FDA directives
and launching their opioid without submitting clinical data.
Speaker 7 (04:53):
When the company came in and told us what they
had done at the actually marketed this product, I was shocked.
I was actually star there is a pathway to do this,
and they completely ignored it, and they ignored it with
a certain amount of arrogance. Also, I mean they actually
told us they weren't going to take the drug off
the market. To take the product off the market, which
(05:14):
the FDA could have done, would have made FDA the
bad guy here that they're essentially denying pain control to
people who are dying they had the FDA over.
Speaker 2 (05:24):
A barrel emotion trumped standards, and the firm persuaded the
agency to defer its plans for action on humanitarian grounds.
Purdue was permitted to make a late application for what
it was already doing. That late application was exceedingly weak.
Speaker 7 (05:41):
There was nothing in there that actually substantiated the duration
of effectiveness.
Speaker 2 (05:46):
The usual regulatory and scientific requirements need not apply.
Speaker 7 (05:51):
I thought the MS Cotton issue was set a bad precedent, frankly,
that companies could then do very little or no thing
at all, and then market in opioid products. Once precedent
is set, then you have a hard time reversing it.
Speaker 2 (06:07):
The next opioid on Vacci's desk, a fentanyl patch called
dura Jesik, was rejected under the standard. The studies failed,
but higher ups created a new fast tracked division and
sent the application to a reviewer named Curtis Wright, who
approved it. Richard Doblin, president of the Multidisciplinary Association for
(06:28):
Psychedelic Studies, got to know right in the nineteen nineties,
and what.
Speaker 8 (06:33):
I got to understand about Curtis is that he was,
when I worked with him, very focused on unmet medical
need and that he was not as focused on all
of the bureaucratic niceties. You could say that the law
required for these two double blind, placeble controlled studies to
approve drugs.
Speaker 2 (06:54):
At the time, Doblin was researching the division called the
Pilot Drug Evaluation Staff for his Harvard doctorate, interviewing officials
and spending time inside the agency. He says, Wright was
handed a quote license to kill bureaucracy.
Speaker 8 (07:10):
So he was a bit of a maverick, a bit
of a cowboy, and so he was willing to move
things forward through the FDA regulatory system in ways that
some of the old guard were not that happy with,
and some of those decisions turned into disasters. What he
did with opiates was a bit reckless, but this was
(07:31):
this experiment to try to see what would be the
outcomes if they remove layers of review.
Speaker 2 (07:37):
In a pledge to both chronic pain patients and the
drug industry, Wright told a conference in nineteen ninety three
his narcotics team would do everything that is humanly possible
to make it as easy as possible to get these
products to market. He was already working with Purdue on OxyContin.
Speaker 8 (07:57):
And one of the things that Pilot drug also did
that Curtis ro was really instrumental with is having a
different perspective on who the pharmaceutical companies were instead of
seeing them as the enemy, and that we don't trust
them and they're trying to get drugs through just so
they can make money, and we need to put up
all these obstacles and all these rigorous data gathering things
(08:20):
that they have to do. One of the key innovations
I would say that has lasted that Pilot drug put
into place was to see a partnership between the regulators
and the industry.
Speaker 2 (08:31):
Purdue worked closely with Wright. According to a Justice Department investigation,
the drug baker behind OxyContin rented a room nearby and
spent days helping him write reviews of the clinical study
reports and the integrated summaries of efficacy and safety. Meanwhile,
the old guard at FDA had been raising concerns. They
(08:52):
said the Pilot division lacked objectivity, ignored regulations, and wasn't
scientifically rigorous. The agency shut down the division, but OxyContin
was already moving toward approval. A year after Wright left
the FDA, Purdue hired him.
Speaker 3 (09:09):
The opioid epidemic happened because the Food and Drug Administration
dropped the regulatory standards necessary to approve drugs, and with
that put opioids on the market labeled for chronic high
dose when they were never effective.
Speaker 2 (09:30):
Edwin Thompson is president of PMRS, a drug manufacturer based
outside Philadelphia.
Speaker 3 (09:37):
Whether a drug's effective or not isn't a matter of opinion.
It is a matter of data. And if you don't
have substantial evidence of efficacy, if you don't have adequate
and well controlled trials with statistical evidence, the drug's not effective.
It's just that simple.
Speaker 2 (09:54):
Thompson began his career in opioids at Johnson and Johnson
back in the nineteen seventies. In the nineties, he dealt
with the FDA's Pilot Drug Division, where he says he
first saw politics start to outweigh science. In his view,
it happened with OxyContin and is still happening today.
Speaker 3 (10:15):
There are patient populations and diseases that are unsuitably treated.
Without question, we all accept them. But approving and labeling
drugs as being effective for that patient population when there's
no data to support it, there's no substantial evidence of
efficacy to support it does more harm than good. It's
(10:36):
really wrong, and you can see the consequences. The harm
of this epidemic over thirty years is overwhelming.
Speaker 9 (10:44):
The greatest epidemic that the America has ever seen.
Speaker 2 (10:49):
It's the basic problem that we have the FDA, the law,
what the law says, or how the law is being enforced.
Speaker 5 (10:56):
The problem is how the law being enforced. We have
a good law. The failure was not a failure of
the law. The law is good. The law requires well
controlled trials that demonstrate safety and efficacy. The problem here
(11:18):
was that the FDA did not enforce that law.
Speaker 3 (11:24):
The system works, it doesn't have to be bureaucratic, but
it's got to be applied, and it's got to be
applied scientifically and without bias, and it has to be
applied with real methodology as well. And so there were
a number of breakdowns in the opioid approval process, starting
(11:48):
back with MS Cotton and how the drug ever got
approved and when it shouldn't have rad on up to
oxycotton and even immediate release oxycodone. Those approvals defy explanation
at the FDA. They're just a series of compounded mistakes
on compounded mistakes, and there was no one to be
(12:10):
able to step in and to stop them from going forward,
and certainly to reverse them as well.
Speaker 10 (12:18):
And so.
Speaker 3 (12:20):
Where we are today is we haven't made any progress
in stopping the opioid epidemic, and we've not made any
progress in stopping to approve ineffective drugs at the Food
and Drug Administration.
Speaker 2 (12:37):
Up next. Every week seems to bring another story of
a successful company losing its way. But what about those
that don't, or that having strayed, find their way back
to what made them great to begin with. We look
at the Mars Company and n AL, two major global companies,
and what they share in the way they do their business.
Speaker 1 (12:57):
You're listening to Bloomberg Wall Street Week with Data Weston
from Bloomberg Radio. This is Bloomberg Wall Street Week with
David Weston from Bloomberg Radio.
Speaker 2 (13:15):
This is a story about heritage. How a company's heritage
can help it succeed, return it to success, or put
it at risk when it is left behind.
Speaker 11 (13:24):
Without the unabsolute reputation, the safety and consistency, you simply
can't compete.
Speaker 4 (13:31):
And that's why everybody's worried about Boeing.
Speaker 2 (13:34):
Boeing is just the most recent and glaring example of
a once great company stumbling in its case by losing
its core edge in engineering.
Speaker 6 (13:44):
I'm an aerospace engineering Back in the day, I actually
work for Boeing. That's where you went if you wanted
to work on airplanes.
Speaker 2 (13:50):
You couldn't go anyplace else.
Speaker 6 (13:52):
You really couldn't.
Speaker 10 (13:52):
That's not the case today.
Speaker 2 (13:54):
Ron Epstein is a former Boeing engineer who now covers
aerospace and defense for Bank of America. He watched as
his former employer lost its way. It's far from the
only one, but there are also companies that over many years,
kept their momentum or even regained it after a stumble
or two.
Speaker 6 (14:15):
IBM turns one hundred and fourteen this year, one hundred
and forty in the technology industry. Think about companies that
have lasted a century in the technology industry. They're hard
to find because of the nature of technology.
Speaker 2 (14:27):
Sam Palmersano spent much of his career at IBM, rising
to become chairman and CEO. He attributes IBM's long term
success to a deep commitment to innovation.
Speaker 6 (14:39):
The Watsons defined that it was about the future and
about innovation, and that that's where you should drive. You
should drive innovation.
Speaker 2 (14:46):
Hello the business School at Yale University has created a
program to study what separates the companies that succeed over
the long term from those that don't. Some may find
the results surprising. They take a back to that notion
that has become known as stakeholder capitalism, although many of
the CEOs don't find it new at all.
Speaker 12 (15:09):
We've interviewed more than one hundred and seventy five chief
executive officers as to the practice of this concept of
stakeholder capitalism.
Speaker 2 (15:20):
John Iwada spent thirty five years at IBM, where he
worked closely on innovation and strategy with Sam Palmisano. He
is now an Executive Fellow at the Yale School of Management.
Speaker 12 (15:33):
One of the things we learned in these interviews is
that most of the CEOs felt this wasn't really a
departure or anything new, and some of them said this
is sound business practice, or it's a return to sound
business practice, especially if you think about the long term
leading a corporation or an enterprise for the long term.
(15:55):
There are short term pressures or expectations that sometimes getting
the way of making investments or decisions that may not
pay off for many quarters or even years, So you
have to think about that. You may think about non
financial commitments to employees, to society, and those are not standardized,
(16:16):
those are not accepted measurements and metrics, and so those
are soft or squishy, and other factors that come into
play here.
Speaker 2 (16:25):
I want to learn from his CEO interviews of the
challenges leaders face in trying to bring together disparate parts
of the company and disparate interested parties, and the key
role of purpose in weaving it all together.
Speaker 12 (16:39):
CEOs, like every executive comes up through a business or
through a professional career in a vertical finance or R
and D or sales, and when they get into the
CEO chair. Satia Nadella Microsoft set it some years ago
in an interview, is then you realize just how multi
(17:00):
constituent or how many stakeholders the enterprise actually has. You
have shareholders, you have governments, of course, you have customers
and employees, you have suppliers, and you have to have
these relationships with all of these constituents. The question is
do you manage them piecemeal or do we think of
(17:20):
this more holistically. A lot of the CEOs described sometimes
they use air quotes. This management system almost an operating
system for the company that is based on common definitions
of the firm. Some of them say, there are three
questions that you have to ask and answer why, what
(17:42):
and how? Why do we exist? Which turns into the
purpose of the company. What do we do which is
the strategy of the company? And how and that's the culture?
And how are we going to show up?
Speaker 2 (17:54):
A well known company that has put purpose and values
at the core of its operation since it's founding. Is
the Mars Company in business since nineteen eleven.
Speaker 12 (18:04):
Mars is more than one hundred years old, very successful
for a long time. And as we began to talk
to management at Mars and members of the Mars family,
we learned that they were going through what we would
refer to as a founding moment. And why because for
much of Mars' history, members of the Mars family led
(18:27):
the company and worked in the company. But the reality
today in the future is very few members of the
Mars family, perhaps no members of the Mars family will
be in management or even work in the company.
Speaker 9 (18:41):
The principles and the values are at the heart of
who we are.
Speaker 2 (18:47):
Victoria Mars is the great granddaughter of founder frank Seymars.
She has been on the board for nearly twenty years,
three of them as chair.
Speaker 9 (18:57):
My grandfather had very strong principles and values, and these
principles and values I grew up with without actually knowing
that I was growing up with them. So when we
talk about the Mars Principles, we're really talking about the
family values that have existed since the beginning. And as
(19:18):
the company got larger and it was more and more
difficult for the family, specifically at that point my father
and my uncle to be around all the associates, to
be able to talk about the values and to be
able to talk about how we do business, they decided
it was time to write them down. The five principles
that were actually written down and defined in the early eighties. Quality, responsibility, efficiency,
(19:43):
mutuality and freedom have been our principles since the beginning
and they are the foundation of everything we do within
the business.
Speaker 2 (19:54):
Times change and businesses evolve, something the Mars Company has
certainly done. But as much as the Mars Principles maybe
updated every few years, the fundamentals do not change.
Speaker 9 (20:07):
So they haven't changed. They've just been updated to be relevant.
Management helps us and supports us and clearly obviously implements
them in our business, but any changes to them, any
tweaks to them, anything from the colors to the script
to the words, belongs to the family.
Speaker 2 (20:26):
A company having principles is one thing. Putting them to
use in everyday decisions, not to mention big strategic decisions
is something else. Entirely.
Speaker 10 (20:37):
It's not a checklist, but it comes up in conversations
when we make decisions. And I think that are two things.
One is this aligned with the purpose of what we're
trying to deliver here, whether it is overall from Mars.
You know, the kind of company that we are trying
to deliver today is well set up for the world
we want tomorrow.
Speaker 2 (20:57):
Klass our guard is the Mars Chief financial officer and
like all members of management, not a member of the
Mars family.
Speaker 10 (21:06):
Five principles come up, certainly as a fact check. You know,
this doesn't feel like in line with the five principles?
Well why not? And you know, and sometimes they're not
all equal in every decision. Are we really delivering quality?
Are we really directed by the consumer? Or is this
mutual to the stakeholders around us When we may make
(21:26):
decisions around renegotiating certain things or whatever, you know, we
are we true to the stakeholders around us.
Speaker 2 (21:34):
The Mars principles underlie the values of the family, but
the family also believes it makes the company more successful.
Speaker 9 (21:41):
Overall, the principles and the values help us be proud
of this company. We do believe that utilizing these principles
helps our associates make the right decision, the decisions that
create the concept of a win win We are all
going to seed together versus let me win and let
(22:03):
me see you fail. So I really do believe that
utilizing these principles has helped us be successful in business.
It helps us recruit good people and keep good people.
It helps us earn trust with government, It helps us
earn trust with our associates, It helps us earn trust
with communities where we work. So to us, yes, it
(22:25):
does make a difference and helps us be successful.
Speaker 2 (22:30):
The Mars Company is, at its base, a family company,
a global, highly successful one, but nonetheless a family endeavor,
which may give it advantages in pursuing its principle based
business strategy, but they can also come with some challenges.
Speaker 10 (22:46):
There no doubt many public companies with a long history
that also has a very great story to tell. We
believe we have our own story and our unique vision
for the future, while respecting that long term success is
also built on continuing to have healthy short term performance,
if you want to call it. That is an ingredient
(23:07):
that live well in our context with the way management
is set up, with the commitment also of our owners
to take a long term view and you know, leave
a lot of capital for reinvestment in the company and
set some objectives, both financial and non financial objectives that
(23:29):
really enables us to do the things that we're doing.
Speaker 9 (23:33):
When people used to ask me and say, you know,
what is your biggest fear, what is your biggest worry,
my response usually is it's not the business. The business
really can function very well on its own. It's managing
a family. So part of being able to be a
(23:54):
family business, to continue to be a family business, requires
a lot of energy and effort into working with the family.
We have been having annual family meetings for over twenty years.
Our family is continuously there because we're connected to this business.
(24:14):
We're joined at the hit by this business. So having
the family functioning well and having the family and being
able to manage through conflicts that come up, which of
course will come up in every family, and being able
to work towards a common outcome and common goals takes
a lot of work.
Speaker 2 (24:36):
The Mars family continues to work hard at pursuing the
goals and values it has established since the beginning of
the last century. But could a similar approach succeed in
a publicly traded company in a very different business. And
that's where we turn next to the second biggest power
company in the world and how it moved forward by
returning to its basic purpose.
Speaker 1 (24:57):
You're listening to Bloomberg Wall Street Week with Data Weston
from Bloomberg Radio.
Speaker 2 (25:07):
The Mars Company has enjoyed a very long and successful
history as a family company, pursuing the family's values even
as it expanded around the world and into new businesses.
But the Yale Project learned from its one hundred and
seventy five CEO interviews that Mars shares some approaches with large,
publicly traded companies in very different industries. One of them
(25:27):
is the Italian power giant Ennel, whose CEO redirected it
for a new age by taking it back to its
simple roots.
Speaker 12 (25:36):
Headquartered in Italy as a global energy generation and transmission company,
Francesco Staracci became CEO I think it was in twenty fourteen,
and he inherited a company that was troubled, particularly from
a stakeholder perspective. You know, from investor standpoint, the stock
was languishing, the company was heavily in debt. They were
in this chronic cycle of making mass of capital investments
(26:01):
in building new power plants that wouldn't come online in
some cases for ten years, and by the time the
plant was operational, it was obsolete, and they had these
big right offs and so forth. So not got good
for the investor. At the other end, they had difficult
community relationships all over the world. I think he said,
(26:24):
we were at war constantly with communities where we put
plants in they didn't want us there. And for forty
years or more, you know, we had these difficult relationships
with communities.
Speaker 2 (26:36):
Like other CEOs looking to move their companies forward, Staracci
studied a future of his business, and like so many others,
concluded it laid in technological changes in the very business
of power.
Speaker 4 (26:49):
The company was already a pretty large I mean, it
was big, and it was heavily in debted because of
the expansion we had in the preceding years. It had
let's say, a cash conversion problem, so there was a
lot of revenues that didn't really come up with a
lot of cash, and growth was a little bit stalling.
(27:12):
It was a company that had to deal mostly with
managing that given the size it had. The issue was
we needed to restart growth. But more than that, we
needed to, let's say, give clarity about the sustainability of
future revenues to the debt markets. You know that that
(27:35):
in itself, you know, the size of a debt is
a function of the size of the revenues that you
can generate to serve the debt. So there was a
little bit of an issue at what was the future
of the company going to be. So we had to
actually decide what was the trajectory of the company, sell
it to our shareholders and also to of course the
(27:57):
whole market in a way that it was understand and
the ball solid, robust enough to withstand potential shocks, and
of course more generative of cash flow. Basically, that was
the issue we had to deal with and that clearly
had to do with the time and how much time
did we have to do that, and also what kind
(28:17):
of pockets of value creation we have left. We had
in the company that were not that didn't we didn't
really tap well enough.
Speaker 2 (28:25):
As you determine the trajectory for growth and for a
revenue going forward, how did you find the trajectory that
you settled upon.
Speaker 4 (28:33):
Basically, we said, where is the technology going? You know,
because you can you can ignore technology for a while.
It's okay, but at the end of the day, it
always catch up with you. So where is the utility
sector in the industry that is with it? Where is
it going? And what forces are changing these technologies? And
(28:56):
we saw at that time we had seen it before
with any in power. I should say that there was
a major change in the technology of generating electricity, namely
that renewables were becoming competitive, had become already by twenty
fourteen competitive with termageneration by enlarge in many parts of
(29:17):
the world, and we were not active enough in that space.
And that space was going to be where value was
going to be created in a major way in the
next few years. So we said, how do we catch
this train, how do we jump on it, and what
can we do?
Speaker 2 (29:37):
And was that driven by a revenue stream that you
saw out there because of technological change?
Speaker 4 (29:42):
I think the revolutionary thing about renewables at that time,
the people didn't understand. I think we were maybe the first,
the first that understood it consciously and not inconsciously. You know,
we actually got and studied and really came with a
conclusion that shifting our generation from thermogeneration to renewables, we
(30:03):
would increase double the abitam margin, so the amount of
money we would make with the same kilobat hour. And
that was a major aha moment if you want, We said, okay,
well let's do it, because there's no time to get
to be lost here. And to do that, we had
to basically completely change our operating model at developing plans
(30:25):
and at thinking about generation going forward.
Speaker 2 (30:29):
For Staraci, identifying renewables as the growth opportunity for Anna
was the first step. But to get there with the
growth it promised required the company to move fast, faster
than it had ever done in the past.
Speaker 4 (30:44):
Imagine, this is an industry that worked before with a
time horizon of five to ten years. So you started
investing in something and that whatever it was, a power
plant or anything else, it would start generating revenues five
or ten years after. And we said we shortened that
to three year maximum. Okay, that was a major shock
(31:04):
for most people, and those that were impacted were basically
the development people, you know, and we said, scrap all
the stuff that does not stay in this three year
time horizon, and that accelerated a lot the circulation of
the capital, I mean, Capita started working a lot earlier
than before, and that gave us the momentum we needed
(31:26):
to really kick start the whole thing. I should say
it took six months to explain over and over more
than one time in this logic, but after that everybody
got it, and I would say in a few years
we were working at two years not three, so with
further strength short in that time. That was a major change.
Speaker 2 (31:50):
After some initial resistance, and all employees embraced the new
direction because of the opportunities it presented them. But ironically,
Staracchi sees this new direction as really a return to
the basics of what gave rise to the company in
the first place.
Speaker 4 (32:06):
The pushback was basically a different one was the fact
that we had say, a very limited number of very
large investments with which we thought we would continue to
grow the company, and applying these three years' role, we
would cut the investment size a lot, so the renewable
(32:26):
energy projects had smaller, much smaller sizes. So people said,
how can we grow because this project are so small,
And the answer we gave them is, well, you have
to multiply the number of projects. So instead of having
say twenty projects, you're going to have two hundred or
maybe four hundred. And that was a major shock because
(32:51):
to manage two or three hundred projects at the same
time was something a company had never done before. I
think at the end it was exciting for people. They
needed something and they loved at the fact that they
could go at it numerous times, many more times than
they ever dreamed.
Speaker 2 (33:08):
And every corporation has a culture. Did the culture change
under your leadership?
Speaker 4 (33:14):
No, it did not. Actually, what happened is that we
needed to declutter the cultural space in a way. So,
you know, utilities have a very deep culture and very
simple one, all of them. I mean, they're all the same.
(33:34):
You know, the semantics are important. A utility is useful
to people, that's why it exists. And most of the
utilities were formed in the past to electrify a space
that didn't have electricity. So people got pride in bringing
light to places that didn't have it. That is, the
culture of utility is useful to people, to people or businesses,
(33:57):
but in a way to society. The rest of the
stuff that over the decades were thrown at utilities is noise.
So what we had to do is the clatter, all
this noise, throw it away and say, guys, we are
here for one very simple purpose or not. And everybody
(34:20):
agreed to that, and that, I can tell you was
surprisingly identical across geographies. There was zero difference from Russia
to the US, from Latin America to Africa, including Europe,
it was exactly the same feedback. Everybody said, that's us exactly,
we want this. So it was super easy. I just
(34:40):
had to eliminate a lot of say, substrata and stuff
that were thrown at the utility over the years.
Speaker 2 (34:49):
So in a sense, you were not fighting with your heritage,
you were returning to it exactly.
Speaker 4 (34:54):
We had to go back to it. You know, we
had a purpose statement and that was like five sentences
glued together and you can read through them. Who wanted
to add something and nobody said no, it's so much.
So it was a super complex stuff and we just
said you know this doesn't matter. What are we for here?
I mean, we are useful to society. That's our purpose.
(35:15):
So we created a very nice purpose line that was
a cent open power. We empower sustainable progress. That's it,
and everybody immediately identified in that. So we didn't really
have to invent anything. We had to remove stuff.
Speaker 2 (35:33):
The term stakeholder capitalism has become somewhat controversial, a potential
distraction from the basics of running a for profit business.
But whether you're a global power like no or a
global family business like Mars or the one hundred and
forty year old IBM, those who actually run the businesses
(35:53):
find it to be pretty basic.
Speaker 6 (35:56):
Most people run the companies understand that the way you
create offit ability, which funds your future investment, is through
your innovation and your product lines and your customer service
whatever it happens to be. That's how you do it now.
Quite honestly, David, because I am old that I am cynical,
the CEO should have been doing this anyway. That's what
a lot of us were just doing.
Speaker 2 (36:14):
And even some of the most troubled businesses are embracing
some form of this stakeholder capitalism as the relatively new
CEO of Boeing, Kelly Ortwerg, recently told Congress.
Speaker 11 (36:27):
Boeing made serious missteps in recent years, and it's unacceptable.
In response, we've made sweeping changes to the people, processes,
and overall structure of our company. While there's still work ahead,
these profound changes are underpinned by deep commitment from all
of us to the safety of our products and services.
Speaker 2 (36:49):
That does it for us. Here at Wall Street Week,
I'm David Weston. This is Bloomberg. See you next week
for more stories of capitalism. T
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