A bunch of CEOs got handed a tough new leadership challenge yesterday, and it will be instructive to observe how they handle it, for better or worse. As you’ve likely heard, a committee of the U.N.’s World Health Organization announced that processed meat causes cancer. This wasn’t the typical announcement of a new research study saying this or that “may contribute to” some health problem or “is correlated with” some nasty effect, and “further research is needed.” The WHO says processed meats – hot dogs, bacon, sausage, ham, deli meats – are carcinogens. They cause cancer, period. Like cigarettes. “Each 50-gram [1.8-ounce] portion of processed meat eaten daily increases the risk of colorectal cancer by 18%,” the panel says flatly.
We’ll now see how the producers respond to this potential industry crisis. Especially revealing will be the reactions of the four huge companies that dominate the U.S. meat business: Arkansas-based Tyson Foods, led by CEO Donnie Smith; the Brazilian company JBS, led by CEO Andre Nogueira; Cargill, America’s largest private company, led by CEO David MacLennan; and WH Group, led by chairman Wan Long, which owns America’s largest pork producer, Smithfield Foods (U.S. chief: Larry Pope). Watch specifically for answers to three key questions:
–Will they respond tactically or strategically? It’s unclear for now whether the WHO report will even affect U.S. consumption of processed meat. The very idea of Americans giving up bacon and hot dogs may turn out to be preposterous, no matter what some U.N. agency says. Even if consumption dips, the producers may just cut prices and hope the whole affair blows over. And who knows – maybe that will happen. But longer term, the tactical response will almost certainly be insufficient.
–Will they acknowledge risks? The meat producers knew the WHO announcement was coming and were ready with a response through their trade association. “Dramatic and alarmist overreach,” they called the report, stating that plenty of research shows no risks from processed meat and pointing out flaws in research that says otherwise. But the WHO panel included hundreds of researchers from around the world who agreed on a firm conclusion. If the industry leaders continue to deny any risk, and further research reinforces the WHO report, they may lose all credibility. That could hamper their ability to stave off potential new government regulation.
–Will anyone break ranks? If consumers take the report seriously and cut consumption significantly, pressure will grow on individual producers to break ranks with the industry, acknowledge risks, and promote “healthier” less-processed or unprocessed versions of today’s products (if they can). No producer would want to be the last one to do that.
The likeliest outcome is that this challenge will play out over years, much as the challenge to cigarette producers did. The processed meat business is different in dozens of ways, of course. But the risk is that, if not led wisely, it too could become a declining industry and a social pariah.
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What We’re Reading Today
U.S. warship approaches Chinese-claimed island
China has warned and will continue to track a U.S. warship that came within 12 nautical miles of Subi Reef in the Spratly Islands. The South China Sea islands are man-made and the U.S. has not recognized them as China’s property. The U.S. claims it’s abiding by international law, but the move could have been a response to a Chinese ship’s coming within 12 miles of the Alaskan coast while President Barack Obama visited the state. CNN
Congressional leaders, White House agree on budget
The tentative $80-billion deal would fund the government through September 2017 while also raising the debt limit for two years. In one of John Boehner‘s last acts as Speaker of the House, it will ensure that threats of a government shutdown aren’t used as routine bargaining chips. Raising the debt limit will upset some House conservatives but could improve Paul Ryan‘s ability to lead if he succeeds Boehner as expected. NBC News
Valeant names special panel
It will investigate whether the company properly reported financial transactions with its pharmacy, Philidor RX Services. The move is a response by CEO J. Michael Pearson to allegations by Citron Research’s Andrew Left that Valeant created “phantom accounts” to boost revenue. Valeant has denied the accusations, but the dispute has raised questions about the drugmaker’s overall strategy. USA Today
Alibaba sales jump 32%
The third quarter results from Jack Ma‘s company reflect booming mobile spending, up 60% from last year. They’re another indication that maybe China’s economic struggles of the past few months have eased. Still, Alibaba’s stock is down over 25% for the year. Fortune
Building a Better Leader
When should you sell a company?
Shark Tank’s Robert Herjavec says do it if the money will change your life. Inc.
REI to close on Black Friday
CEO Jerry Stritzke will pay employees for the day and give them Thanksgiving off as well. Fortune
The Norwegian Army may have solved sexism
Men assigned to mix-gender rooms during training showed no signs of sexism in picking women leaders after eight weeks. Quartz
Theranos to publish data defending its tech
CEO Elizabeth Holmes said it would be easier to publish the data 0n the efficacy of her company’s blood testing equipment, which has come under attack in the past month, than to defend against the attacks. The company, with a $9-billion valuation, will add its outside legal counsel, David Boies, to the board of directors. NYT
Walmart to test drones for delivery
To keep up with Amazon, Doug McMillon‘s company has filed papers with U.S. regulators to test drones for delivery and curbside pickup. It will also use drones to monitor shipping facilities by taking inventory of trucks. Reuters
JP Morgan Chase to launch an Apple Pay competitor
It has already signed a deal with the Merchant Customer Exchange, a group of companies that includes Walmart and Best Buy. It’s a big step for CEO Jamie Dimon‘s newest offering, as the group of companies account for $1 trillion in sales, while competitors like Apple Pay struggle to sign new retailers. CNBC
Up or Out
American Egg Board CEO Joanne Ivy has stepped down following the release of emails that indicated she conspired to keep Hampton Creek’s eggless mayonnaise off of Whole Foods’ shelves. Manufacturing.net
Investor Vinod Khosla has resigned as a director of Square before it goes public. TechCrunch
Fortune Reads and Videos
Kohls to open smaller stores…
…as its three-year turnaround plan sputters in year one. Fortune
Dreamworks CEO: Tesla saved my life
Jeffrey Katzenberg broke an arm and wrist in a car crash, but thanks Elon Musk for still being alive. Fortune
The red meat industry’s decline
With the World Health Organization’s announcement classifying red meat as a “probable” cause of cancer, it could get worse. Fortune
31% of companies have no CEO succession plan
The percentage is even higher for companies in private equity portfolios. Fortune
“You better figure it out, because there’s an Uber out there that’s already figured it out…The bottom line is that the c-suite is staying up at night.” – Glen Finch, IBM’s global head of big data and analytics, speaking at the IBM Conference, discussing the threat of encroachment from small, nimble startups. Fortune
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|Produced by Ryan Derousseau|