Nestlé has been a leader in the “shared value” movement – an effort to show businesses can do good in the world, even as they are doing well for shareholders. It has rebranded itself, in its own words, from a food company into “the world’s leading nutrition, health and wellness company.”
But that carefully cultivated corporate image took a terrible beating last year, when the Indian government declared it had found lead in the company’s popular Maggi noodles. The product was pulled from the shelves, and the crisis cost the company close to half a billion dollars, with a damage to the brand that could last for years.
What went wrong? Fortune’s Erika Fry has spent months untangling the complicated story, which reads like a drive through the streets of Mumbai, with miscues, misinformation, and the muddle of Indian politics. I recommend it as a case study in how a crisis can hit you when and where you least expect it, and have profound implications for your business.
Ultimately, our story doesn’t solve the fundamental riddle – how 30 Indian government tests somehow detected lead in Nestlé’s noodles while the company’s repeated testing could find none. But it does document some critical lessons learned along the way.
“This is a case where you can be right and yet be so wrong,” Nestlé CEO Paul Bulcke told Fortune. “We were right on the factual arguments and yet so wrong in the arguing. It’s not a matter of being right. It’s a matter of engaging the right way and finding a solution… We live in an ambiguous world. We have to be able to cope with that.”
The story is featured in our May magazine, but you can – and should – take time to read the full story here.
• Charter Gets OK for Time Warner Cable Deal
Federal regulators are set to wave through Charter Communications’ $55 billion bid for Time Warner Cable, with a few key conditions aimed at ensuring that the emerging video streaming industry, personified by the likes of Netflix and Hulu, can provide in future what the cable market has historically lacked: competition. According to The Wall Street Journal, the terms laid down by Justice Department and the FCC, Charter will have to avoid anything that looks like data rationing and roll out its broadband network to another two million homes, forcing it into competing with other cable companies. The WSJ notes that the regulators have gone further than they did when approving AT&T’s bid for DirecTV last year, also banning Charter from imposing fees for interconnection deals on companies like Netflix.
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• SWIFT Under Attack
SWIFT, the global financial network that banks use to transfer billions of dollars every day, has warned its customers it has seen “a number of recent cyber incidents” where attackers had sent fraudulent messages over its system. The disclosure came as law enforcement authorities in Bangladesh and elsewhere investigate the February cyber theft of $81 million from a Bangladesh Bank account at the New York Federal Reserve Bank. SWIFT said that the scheme involved altering SWIFT software on the bank’s computers to hide evidence of fraudulent transfers. All cybercrime against financial institutions is scary, but most of the time the immediate consequences are limited to the individual bank concerned. That’s not the case here. SWIFT is the backbone of the global payments system, so the criminal opportunities from exploiting its flaws are frighteningly scaleable.
• Alibaba’s Finance Arm Raises $4.5 Billion
Talking of scale (and payment systems), head-spinning numbers have long been Alibaba’s stock-in-trade, and the news of its latest fund-raising is characteristically eye-catching. Ant Financial, the Alibaba unit that controls its online payment business Alipay, just raised $4.5 billion in a pre-IPO funding round, the biggest ever for a privately-held internet company. The round appears to value the company at close to $60 billion. In a world where financing for western startups has gotten notoriously tighter in recent months, it’s a timely reminder of how far the Chinese consumer market growth story has to run. At least, that’s what the state-owned banks who backed the round (and whose commercial arms are sitting on billions of bad industrial debt) will be telling themselves, with crossed fingers.
• Japan’s Brothers in Woe
As one sorry tale of Japanese corporate governance nears the bottom, another just falls more steeply into the arc of pain. Toshiba booked a $6.2 billion operating loss–50% more than expected–after writing down its investment in nuclear power group Westinghouse by $2.3 billion. Its shares have fallen again, amid speculation that the damage to its balance sheet is so great that it will have to sell its PC business (having already hawked its medical devices and home appliance businesses). Meanwhile, Mitsubishi Motors has admitted using fake testing methods for fuel economy for 25 years, much longer than previously known, in another powerful blow to its reputation. Its shares lost another 10% as they resumed trading Tuesday and have now lost half their value since last week.
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Around the Water Cooler
• Saudi’s $2 Trillion Plan to Kick Oil Habit
It’s been well flagged, but now it’s public. Saudi Arabia is converting Aramco, the holding that controls the world’s biggest oil reserves, into a joint-stock company and plans to list a stake of up to 5% on stock exchanges in Riyadh. It’s part of Deputy Crown Prince Mohammed bin Salman’s ambitious plan to build up reserves to prepare the kingdom for the post-hydrocarbon age and diversify its economy. Expect a barrage of propaganda from the country and its investment banks about the quality of the asset base, etc. etc as they try to realize a valuation of up to $3 trillion for their biggest crown jewel. In the end, though, valuation will depend on governance, both within the company and at the sovereign level. Just ask shareholders in Gazprom and Rosneft.
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• The New Incarnation of Nokia
Nokia is back in a new guise. The company that has built and lost fortunes making paper, computer monitors and, more famously, mobile phones and networks, is buying connected-devices maker Withings for $192 million) to aid its push into digital health technology. Withings makes a wide range of devices, from the Activite smartwatch to home security cameras, baby monitors, connected scales, thermometers, and blood-pressure monitors. President Ramzi Haidamus recently told Fortune that the sector “comes very natural to Nokia” due to its reputation for reliability. The company is a case study in how to adapt and survive, even if its investors would scream that there must be easier ways of earning decent long-term returns.
• Bernie Will Back Hillary
It may be a low bar, but the Democratic presidential candidates are showing a touch more party discipline than their GOP counterparts. Bernie Sanders told a town hall meeting Monday that if he loses the Democratic nomination, he will help Hillary Clinton in the fight against Republicans, albeit he tied it to her supporting his plan for Medicare for all and more advocacy in fighting climate change. We wonder whether Hillary Clinton would feel this is the right strategy for winning the general election once she has seen off the challenge from her left. But it’s a degree of solidarity most Republicans can still only envy.
• This Isn’t the Drone I’m Looking For
Meanwhile, back in news sphere that really matters, the Japan Times reports that e-commerce giant Rakuten is testing drones that will deliver snacks and refreshment to golfers anywhere on the course. It’s a relatively trouble-free way of stress-testing a product that Rakuten eventually hopes to use in more crowded urban skies for its delivery business. As with so much Japanese innovation, even as you marvel at the hardware, you struggle to suppress the nagging feeling that they’ve got the application wrong. Any golfer could have told them that what is really needed is a drone that will find their ball in a foot of rough over the crest of a hill 200 yards away. We also shudder to think what Donald Trump, who thinks that the slow rotating blades of wind turbines miles offshore spoil his golf courses, would make of high-pitched whirring noises in the rarefied air above them.