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Why Nestlé Won’t Disclose Quarterly Earnings

Topic: Thinking long-term

Peter Brabeck: I think we have one fundamental difference. The financial markets have been driving Anglo Saxon and companies principally but all other companies to a very short side approach. Quarterly profits are for an Anglo Saxon CEO, perhaps the most important thing for his personal survival. If you have this approach, the reaction which I have seen over and over again is that when a country hits a major political or social problem, the easiest reaction is to withdraw from this country.

That happened in Chile. Allende came to power and within the next six to eight months when people saw that he did not respect the democratic framework, the answer was “let's withdraw” and they left. And I understand that, because if I have to maximize my short-term profit, that's most probably, the answer I would also give.

Now, we at Nestlé, we were always privileged as managers that we were allowed, from our shareholders, or we took the liberty from our shareholders (that’s an interpretation aspect) to be more long-term oriented. So although we were like everybody else under the danger to be nationalized, and if Allende had continued, we would have been nationalized, no doubt. But we did not give up. We tried everything to survive. We continued to invest. We continued to invest in our production facilities, because we knew that one of the main reasons for nationalization would be that he could prove to us that we were not producing and therefore, boycotting his government.

So we did everything in order to continue, like we’re doing today in Venezuela. It is almost a similar situation. It’s very difficult to get to raw materials. It surprises sometimes being fixed by government. You get the feeling they rather want you out but in, but if you stick to that, although it has, on the short term, a negative impact, perhaps, on a profited loss, sometimes you survive and you are getting out there and you are so much stronger than you were before. So this is the privilege that we have. We have always been acting in the long term with long-term thinking, and not looking at quarterly profit. One of the reasons why we’re still up today is we do not deliver quarterly profit figures.

Not everybody appreciated our strategy and we were under heavy pressure, especially in the late 90s, when what I call “financial fundamentalists,” who were dictating to companies what they had to do and the only word and the only notion they had was shareholder value. We resisted again and I remember my road shows to the financial centers of this world, from Zurich to London to Boston and to New York, and the pressure that I received and the aggressiveness because we were not looking only on this quarterly profit and we were being punished by share price, which was substantially below that multiple that some of my competitors had.

There’s only one difference. Many of those competitors, who were being praised at that time, I don’t want to mention the names, but you can think for yourself. They’re not here anymore. They succumbed to the short-term pressure and to the maximization of short-term profits until they were so small that they were bought up by some others and some of them we bought and some others, some of my competitors bought them, but they are not here anymore.

So my answer has always been that in order to create a sustainable long-term shareholder value, you have to create value for the rest of the stakeholders that there are, otherwise you will be successful in the short term, but you will not be able to have a sustainable long-term shareholder value creation. So that’s the fundamental conviction. This is, perhaps, one of the reasons why we have very many shareholders. We don’t have one shareholder that has a major part of our company. As a matter of fact, I think the biggest shareholding is somewhere between 0.4 percent of our shareholdings. But we have hundreds of thousands of shareholders who have confidence in our long-term shareholder value creation. And I think the results, if you look at the long-term, I think they are talking for this model.

Recorded on August 25, 2009

Nestlé’s Chairman Peter Brabeck thinks American companies overemphasize the importance of short-term profits.

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