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The objective of this assignment is to gain insight of the various concepts that fall
under the umbrella of Corporate Governance. The group was assigned the different
tasks to undertake a company and analyze all the concepts relating to corporate
governance. It gave us a chance to analyze the biggest MNC of food and beverage
Nestle. The report is divided into three speakers who cover different aspects starting
from the introduction of the company, consisting of the BOD, Committees of the
BOD. Moving further the second part of the report covers the brief history and
current scenario of the company, following the analysis of the actions taken for
increasing certain financial indicators of the company, and discussing the
challenges and future outlook of the company. The final part of the report discusses
about the various malpractices and criticisms against the company in different
regions, it also discusses the CSR activities of the company. Finally on behalf of the
panel recommendations are given as to how the future profitability of the company
can be increased.
NESTLE S.A
CEO OF NESTLE
The present CEO of Nestle is Paul Bulcke, born in 1954, in Belgium. Paul was appointed as
the new CEO of Nestle on 20 September 2007, and officially assumed office in April 2008.
Qualification of Paul Bulcke:
Paul Bulcke had graduated as a commercial engineer from the University of Louvian,
Belgium in 1976. He then attended the Vlerick Leuven Gent Management School, Belgium
for Post Graduate in Management in 1977. He also, attended the program for Executive
Development at the Swiss leading business school, International Institute for Management
Development, IMD in Lausanne, in 1995.
Personal life of Paul Bulcke:
Paul Buckle can speak six languages Dutch (mother tongue), French, English, Spanish,
Portuguese, and German. He is married and has 3 children.
Buckle has described Nestl under his tenure as 'une force tranquille' (English: 'calm
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Board member and co-chair of the Governance Committee, Consumer Goods Forum
MANAGEMENT:
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The executive board consists of 13 members who are responsible for the efficient
management of the group consist of the following members:
1. Peter Brabeck-Letmathe, Chairman of the Board of Directors, Nestl S.A.
2. Paul Bulcke, Chief Executive Officer, Nestl S.A.
3. Werner Bauer, Executive Vice President, Nestl S.A., Chief Technology Officer,
Head of Innovation, Technology, Research & Development
4. Friz van Dijk, Executive Vice President, Nestl S.A. Asia, Oceania, Africa, Middle
East
5. Luis Cantarell, Executive Vice President, Nestl S.A. United States of America,
Canada, Latin America, Caribbean
6. Jos Lopez, Executive Vice President, Nestl S.A. Operations, GLOBE
7. John J. Harris, Executive Vice President, Nestl S.A. Chairman & CEO of Nestl
Waters
8. Nandu Nandkishore, Executive Vice President, Nestl S.A. CEO of Nestl Nutrition
9. James Singh, Executive Vice President, Nestl S.A. Finance and Control, Legal, IP,
Tax, Global Nestl Business Services
10. Laurent Freixe, Executive Vice President, Nestl S.A. Europe
11. Petraea Heynike, Executive Vice President, Nestl S.A. Strategic Business Units,
Marketing, Sales and Nespresso
12. Marc Caira, Deputy Executive Vice President, Nestl S.A. Head of Nestl
Professional Strategic Business Division
13. Jean-Marc Duvoisin, Deputy Executive Vice President Nestl S.A. Head of Human
Resources and Centre Administration
14. David P. Frick, Senior Vice President and ex officio Member of the Executive Board
This committee consists of the Chairman, the two Vice Chairmen, the Chief
Executive Officer (CEO) and other members as elected by the Board.
It acts as a liaison between the Chairman and the full Board of Directors in order to
act as a advisory body to the Chairman.
The Committee annually reviews the Corporate Governance of the Company taking
into account the input received from shareholders and other stakeholders and
prepares recommendations for the Board. Minutes of the meetings are made
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The effectiveness of the BOD, can be seen from the fact that the members are
independent with a three year term to serve of the board.
Through shareholder surveys, investor roundtables and bilateral meetings the Bod
have established a dialogue with shareholders and governance experts that help
Board of Directors listen to their concerns and establish best practices in the longterm interests of the Company and their shareholders.
The company has achieved higher organic growth which is mainly is the process
of businesses expansion due to increasing overall customer base, increased output
per customer or representative, new sales, or any combination of the above, as
opposed to mergers and acquisitions that are examples of inorganic growth. Organic
growth is achieved by the efficiency of the management which shows that the
management of Nestle is capable and efficient throughout the years of its operation.
The Board meets as often as necessary, at least quarterly, and on notice by the
Chairman or by the person designated by him. In addition, the Board is convened as
soon as a Board member requests the Chairman to call a meeting. All Committees
provide a detailed report to the full Board at each meeting in a dedicated Chairmans
session.
The Board reserves one full day per year to discuss the strategic long-term plan of
the Company.
In addition, every year the Board visits one operating company for three to five days
to meet members of the senior management. In 2010 Nestl visited the United States
of America. The average attendance at the Board meetings was 100%.
The CEO chairs the Executive Board and delegates to its members individually the
powers necessary for carrying out their responsibilities, within the limits fixed in the
Executive Boards Regulations.
The executive board submits reports on significant projects and events to the BOD.
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The Chairman and CEO ensure a proper flow of information between both parties.
SPEAKER 2
HISTORY
Nestle S.A originated in a 1905 merger of the Anglo-Swiss Milk Company, which was
established in 1866 by brothers George Page and Charles Page, and the Farine Lactee Henri
Nestl Company, which was founded in 1866 by Henri Nestle. It is headquartered in Vevey,
Switzerland.
1867-1877
In September 1867, in Vevey, Henri Nestl developed a milk-based baby food and soon began
marketing it. In 1877 Anglo-Swiss added milk-based baby foods to its products, and in the
following year the Nestl Company added condensed milk, so that the firms became direct and
fierce rivals.
1900-1920
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The company was operating factories in the United States, United Kingdom, Germany and
Spain. World War I created new demand for dairy products. The 1920s saw Nestl's first
expansion into new products, with chocolate the company's second most important activity.
1938-1947
Factories were established in developing countries particularly Latin America. Ironically the war
helped with the introduction of the company's newest product. Nestl Alimenting SA was taken
as a result of the acquisition of Fabrique de Produits Maggi SA (founded 1884) and its holding
company, Alimentana SA of Kempttal Switzerland.
1950-1977
In 1947 came the merger with Maggi seasonings and soups. Crosse & Blackwell followed in
1950, as did Findus (1963), Libby's (1971) and Stouffer's (1973). Diversification came with a
shareholding in LOreal in 1974. In 1977, Nestl made its second venture outside the food
industry by acquiring Alcon Laboratories Inc.
1984-1995
Nestl's improved by launching a new round of acquisitions, notably American food giant
Carnation and the British confectionery company Rowntree Mackintosh. Trade barriers crumbled
and world markets developed into more or less integrated trading areas.
1996-2010
Since 1996 there have been acquisitions including San Pellegrino (1997),Spillers Pet foods
(1998), and Ralston Purina (2002). In December of 2005 Nestl bought the Greek company
Delta Ice Cream also acquiring in 2007 the milk flavoring product known as Ovaltine. Nestl
agreed to sell its controlling stake in Alcon to Novartis on 4 January 2010.
Current scnario:
Since its inception Nestle is still moving on and in 2008 when the world was under economic
slump even in developed countries economies were in great loss, but in 2009 Nestle started with
success and in last quarter of 2010 when whole economy faces large deficit but Nestle cotinued
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its success. This unpredictable and volatile macro-environment, particularly in the developed
world, has weighed heavily on consumer confidence.
In such bad circumstances Nestle got heavily profit
In January Nestle announced the acquisition of the leading USA player in frozen pizza.
This deal complements nestle existing leadership in frozen meals, frozen snacks and ice
cream in the US market, enhances our distribution capabilities.
In August 2010, Nestle closed the sale of Alcon. This partnership brought the total
realized by Nestl to USD 41 billion from an investment in 1977. Nestles management
thanked the Alcon for their team work and help.
In September 2010 Nestle announced the creation of both Nestl Health Science S.A. and
the Nestl Institute of Health Sciences. Nestl is the worlds leading Nutrition, Health and
Wellness company one responsibility of leadership is to be a pioneer.
Acquisitions play a role in helping to accelerate the companys strategic priorities and to
enhance its growth profile, but its key driver of profitable growth is the organic
development of their categories and geographic positions. They have made or announced
major capital investments in the developed world and in emerging countries such as
India, China Indonesia, the Philippines, the Middle East, Russia, Brazil, and Mexico.
In 2010, Nestle announced that they have intention to invest CHF 500 million in a wide
ranging plan to address responsible farming sourcing and consumption across the coffee
supply chain.
PRODUCTS OF NESTLE:
NESTLE
MILK, DAIRY & CHILLED DAIRY:
Nestle Milkpak
Nestle Nido
Nestle Everyday
Nestle Yogurt
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Nestle Cream
Nestle Desi ghee
Pure, rich and delicious Nestle milkpak standardized UHT milk benefits from Nestles expertise
in bringing people the very best life has to offer and benefits from 140 years of consumer trust.
Milk is a must-drink for your children as it is a rich source of Calcium that helps in the growth
and development of strong bones and teeth. It is equally beneficial in keeping grown-ups bones
strong.
BEVERAGES:
NESCAFE
Nestle Milo
Nestle Juices
Nestle instant drinks.
COFFEE:
Nescafe
Nepresso
JUICES:
Nestle Fruita Vitals (wide range of flavours)
They are naturally low in calories, and an excellent source of Fiber and Vitamin C. Nestle juices
Apple Pineapple and other pure and rich sources of minerals and vitamins.
BOTTLED WATER:
Nestle pure life.
Ava
Every bottle of Nestle PURE LIFE is produced with the Nestl Safety System and is carefully
sealed with a proprietary seal. Purity of the highest standards is matched by an optimal balance
of essential minerals, enhancing the health and wellbeing of your family.
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BABY FOOD
Nestle Cerelac
Its full of nutritions which are suitable for infants and little growing babies. Also provide shield
against diseases like diarrhea and other stomach problems.
PREAPRED MEALS:
BRAKFAST CEREALS:
Nestle Nesquick
Nestle Fruits n Minerals Cereal
Nestle cereals are tasty and full of vitamins that help body remaining energizing.
CHOCOLATE & CONFECTIONARY:
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NESTLE is by far one of the most popular chocolates all around the world.Its trademark red and
white colors and the distinct Nestle kitkat logo make it One of the most recognized brands ever.
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CHF 469 million and increased impairments of goodwill. Net financing costs increased slightly
Cash flow
The operating cash flow was CHF 13.6 billion reduced from previous year of 17.9%. The
working capital increased by about CHF 600 million, reflecting sales in 2010.
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2010 sales
The Group achieved organic growth of 6.2%, including real internal growth (RIG) of 4.6%.
Foreign exchange impacted sales by 3.6%, at the same time as divestitures, net of acquisitions,
reduced sales by 0.6%. Overall, Group sales increased by 2.0% to CHF 109.7 billion from
previous year of 107.6 billion. The foreign exchange impact was 3.8%, and acquisitions, net of
divestitures, added 1.8%. Overall, continuing operations sales increased by 4.0%.
Profitability
The Groups EBIT margin increased by 20 basis points to 14.8% of sales. The EBIT margin is
not comparable to that of 2009 following the disposal of the remaining interest in Alcon in
August 2010.
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The improvement in EBIT margin was driven by our sales growth and business mix, as well as
by the achievement of operating efficiencies of over CHF 1.5 billion through Nestl Continuous
Excellence, which benefited the cost of goods sold, distribution and administrative costs
.
Achieving significant cost savings at the same time as increased levels of safety, quality, service
and environmental performance. These actions contributed significantly to 2010 performance of
Nestle; and at the same time laid foundations for further performance improvement in 2011.
The Nestle return on invested capital fell by 10 basis points to 15.5%, including goodwill,
following the Pizza acquisition announced in January 2010.
Company increased by 100 basis points to 36.1%, excluding goodwill.
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CHF 15.5 billion of cash returned to shareholders through CHF 5.4 billion dividend and
CHF 10.1 billion share buy-back
CHF 6.1 billion or a CHF 1.85 dividend per share (proposed) for 2010,
an increase of 15.6%
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Financial position
The Nestle net financial debt fell from CHF 18.1 billion at the end of 2009 to CHF 3.9 billion.
The Group received USD 28.3 billion from the divestiture of Alcon and spent CHF 5.6 billion on
acquisitions during the year.
Due to strong profit in 2010 enable company to buy back its share in 2011.
It is also expected that in 2011 debt of company will increased.
Challenges:
There are uncertainties ahead including volatile raw material prices. Company ready for
challenge and are confident of achieving the Nestl Model in 2011: organic growth
between 5% and 6%.
Any major event triggered by a serious food safety or other compliance issue could
potentially impact upon Nestls reputation or brand image.
Nestle business depend on consumers habits any seasonality and adverse whether
condition impacts its operations.
The food industry as a whole is faced with the global challenge of rapidly rising obesity
levels it is a raising concern for the company.
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Future outlook:
The biggest area of focus is infants believing that mothers milk is best it is the
commitment of Nestle to use their nutritional expertise for healthier generation they have
started start healthy, stay healthy approach to infant nutrition by providing products to
help parents have healthier children from beginning through their life.
In September 2010 Nestle initiated the creation of Nestle health science with the existing
global Nestle health care nutrition business, and creation of Nestle institute of health
sciences the purpose to conduct research in relevant areas of bio medical science to
translate the knowledge into nutritional strategies to improve health and longevity.
There outlook is to create a better society by preventing improving and treating acute a
chronic medical conditions.
By 2020, there will likely be an additional one billion consumers in emerging markets
Nestle expect to be achieving about 45% of Group sales in those countries.
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SPEAKER 3
3. Zimbabwe farms
In late September 2009, it was brought to light that Nestl was buying milk from illegallyseized farms currently operated by Robert Mugabe's wife, Grace Mugabe. Mugabe and his
regime are currently subject to European Union sanctions. Nestl later stopped buying milk
from the dairy farms in question.
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5. E. Coli
In June 2009, an outbreak of E. Coli O157:H7 was linked to Nestl's refrigerated cookie
dough originating in a plant in Danville, Virginia. In the USA, it caused sickness in at least
69 people in 29 states, half of whom required hospitalization. Following the outbreak, Nestl
voluntarily recalled 30,000 cases of the cookie dough. How the dough became contaminated
is unclear, because E. Coli is not known to live in any of its constituent ingredients.
6. Child labor
The 2010 documentary The Dark Side of Chocolate alleges that Nestl purchases cocoa
beans from Ivory Coast plantations that use child slave labor. The children are usually 12 to
15 years old, and some are trafficked from nearby countries. In September of 2001, Bradley
Alford, Chairman and CEO of Nestl USA signed the Harkin-Engel Protocol (commonly
called the Cocoa Protocol), an international agreement aimed at ending child labor in the
production of cocoa.
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Nutrition:
In 2008, Nestls CEO, and those from eight major food and beverage companies made five
global commitments to the World Health Organizations Director General, to tackle obesity and
the non-communicable diseases associated with it through diet and physical activity. These
commitments led to the International Food and Beverage Alliance (IFBA), which Nestl has cochaired since its formation,
Water:
Water has been identified as the most important factor for Nestls long-term success, as it affects
the supply of raw materials, its operations and the consumption of many of its products.
Water Resource Reviews are conducted at factories and in commodity-growing areas; by
helping farmers to become better stewards of water;
support water resource awareness and education programmes;
take a leading role in the global dialogue on the issue.
Nestle have also reduced our total water withdrawal by 32% to 144 million m3 since 2000.
Rural development:
Nestle will also continue to support 144 926 farmers through capacity building training
programmes, access to financial assistance, farm assessment tools and investment in biogas
generation, amongst others.
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Human Rights:
Nestl recognises the corporate responsibility to respect human rights, as outlined in the UN
Framework on Human Rights and Business proposed by John Ruggie, Special Representative of
the UN Secretary General on Business and Human Rights. In cocoa-growing areas, child labour
is a challenge, so Nestl and others in the International Cocoa Initiative (ICI) continue to tackle
child labour and improve access to education.
Environmental sustainability:
Nestles aim is to continuously improve our performance and produce tastier, nutritious food and
beverages that are better for the environment. By assessing the environmental impact of their
value chains including procurement, logistics, manufacturing, marketing and consumer
engagement using a life cycle approach. Through an ongoing commitment to operational
environmental efficiency and a move towards cleaner energy Nestle have kept direct greenhouse
gas emissions stable at 4 million tones CO2eq and increased energy consumption by only 4% to
88.6 PJ, despite an increase in production volume of 6.2%.
They continue to focus on packaging optimization and two additional factories in the UK
achieved zero waste to landfill in 2010.
Nestl is also a founding signatory of the UN Global Compacts CEO Water Mandate, and has
provided a Communication on Progress on water since 2009.
Being committed to use only palm oil from sustainable sources by 2015 and became the first
company to commit to eliminating tropical rainforest deforestation in our supply chain. Through
membership of The Forest Trust, they are working with suppliers to meet a series of principles
to achieve this.
In recognition of improved environmental performance, Nestl was ranked second in the
consumer goods sector in the Carbon Disclosure Projects (CDP) Carbon Disclosure Leadership
Index 2010, and contributed to the CDPs Water Disclosure Project.
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RECOMMENDATIONS:
BY further improving the operations of the company and adhering to the issues faced by
the company relating to child labour, and infant milk powder, the corporation can
enhance its list of Fair Trade products of which only kit kat is a part. By doing so the firm
can enhance their future profitability and also gain the respect and likings of the
customers who dislike nestle products.
Nestle has opened a company of nutrition and health with further growth and
enhancement in this area they can add on to their current expertise, as nutrition and health
are one of its prime concerns.
Nestle has to give more focus on its advertisements and make them more attractive for
the consumers as Nestle only advertises specific products and most of its products are not
very popular in the markets
Entering emerging markets are the key competitive advantage of Nestle, however prices
are quite high of nestle products. If the prices are set according to the PCI of the average
people of the emerging markets, everyone would be in a position to purchase their
products thus enhancing their profitability.
The opportunities are realised through a strong pipeline of innovation, through increasing
distribution, through product superiority for both taste and nutrition. Also, developed
markets are often the launch pad for innovations that will end up with global reach and
enhance firms profitability.
In September 2010, Nestle announced two initiatives: the creation of Nestl Health
Science, incorporating the existing global CHF 1.7 billion Nestl HealthCare Nutrition
business; and the creation of the Nestl Institute of Health Sciences, which will conduct
research in relevant areas of biomedical science to translate this knowledge into
nutritional strategies to improve health and longevity. It believes that personalized health
science nutrition will create value for Nestl, and for society, by preventing, improving
and treating acute and chronic medical conditions.
If Nestle successfully implements its practices it is likely to expand further and improve
its profitability in the coming years.
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References:
www.wikipedia.com , history of Nestle and background.
www.nestleglobal.com
nestle corporategovernance report
nestle board regulations report.
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