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Coming down from the peak

Nestle chairman Peter Brabeck reflects on water, dealing with controversies, and succession planning ahead of his retirement.
Saturday, August 20, 2016 - 05:50
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'I think we have a very good collaboration there, which does not mean that on every single subject we have exactly the same opinion. We can still have different opinions when it comes to genetically modified organisms, between Greenpeace and us, but instead of only concentrating on confrontation, we can also work together to solve other problems where we have common interests.' - On working with many NGOs including Greenpeace in areas of deforestation and palm oil, among others

PETER Brabeck has spent nearly half a century in the largest food and beverage company in the world, with two-fifths of that time at the top.

Yet, the one issue that most galvanises him is not food insecurity, genetically modified food or even climate change. Instead, it is the seemingly arbitrary topic of water.

Engage him on the topic, and numbers about watersheds in the world and global water usage come tumbling out. The chairman of Nestle is clearly one au fait with the world of water, otherwise an obscure one to most.

The 72-year-old Austrian has, for the past decade, been on a mission to warn global leaders about a looming water crisis, like a doomsday prophet. A third of the world's population face water shortages within 15-20 years, he has said.

Fortunately, his message hasn't fallen on deaf ears. General awareness about the issue has improved, though much work remains to be done, he says.

And Mr Brabeck - who happens to be a keen mountaineer on the side - is not stopping here. Even as he steps down from the top rung at Nestle next year and starts preparing to come down safely from the top - an important principle that he says applies to both mountaineering and the corporate world - he plans to remain involved in advisory work and keep himself close to political and economic developments.

How it started

Mr Brabeck's interest in water started when he was pondering on future issues that Nestle would face when it celebrated its 140th anniversary in 2006. After much analysis, he came down to one singular issue: water.

"It became obvious that without water there wouldn't be life, there wouldn't be consumers, there wouldn't be agriculture production which is very important for a food and beverage company," he says. "There wouldn't be water for our factories. There wouldn't be water in order to prepare our products, many of which are dehydrated products like Nescafe.

"So water crystallised to be the most important single factor for the long term development of our company."

Upon a closer study, however, he found an alarming situation. Water resources were being overdrawn by about 10 per cent, he says.

To accelerate reforms in water management, Mr Brabeck, with other like-minded individuals and companies, formed the 2030 Water Resources Group - a public-private-expert-civil society platform - in 2008. According to the group, the gap between water supply and demand will reach 40 per cent in 2030, if current practices continue.

Already, at that point, large lakes such as the Aral Sea in central Asia and Lake Chad in Africa were disappearing, and cities such as Jakarta and New Orleans were sinking as underground water reservoirs got depleted, says Mr Brabeck. "There was already quite a crisis at this point in time but nobody was really aware of it. So the first aspect was to create awareness about the phenomenon."

This the group did by publishing reports and analysing opportunities to balance supply and demand, watershed by watershed.

Since then, awareness of water being a critical issue has "increased substantially", says Mr Brabeck, citing how the World Economic Forum has placed water as the top risk for long-term economic development last year and this year.

Still, there is now a greater water deficit than before, of about 20 per cent, "so the crisis has become even stronger than it was 10 years ago", he adds.

The problem can be solved, he believes. "We have the technology for those but what is missing is the political will in order to improve water governance. It's a water management issue, not so much a water issue. With the water that is available we can easily serve up to 10 billion people - but not the way we are using water today."

In many developing countries, the government provides subsidies for water in order to ensure accessibility for its entire population. In practice, however, such policies backfire.

"The reality is that due to an imperfect infrastructure, those who have higher incomes have access to tap water resources and they enjoy a subsidised price. Those people living in slumps don't have access to tap water and they have to acquire (the water) through tankers and water vendors."

The concept of economies of scale should also be thrown out the window when thinking about water pricing, he adds. "If you have a pricing system which makes water cheaper because you're using more, the one who fills up the swimming pool gets the water at the lower cost - another fallacy of the system."

On top of poorly conceived water policies, there is a large investment deficit in the sector. "Most of the infrastructure is old, and we have huge leakage losses. This is not only in developing countries, but also in developed countries whether in US or Europe."

Every person, Mr Brabeck says, needs 25 litres of water a day: five litres for hydration, and 20 litres for minimum hygiene. Still, only 1.5 per cent of water use in the world goes towards this purpose. The balance is used irresponsibly, whether because water is mispriced, or due to inefficient use in agriculture and food.

"In agriculture we are using 2.5 times more water than what the plants really will need. That alone shows you there is a great opportunity for saving," he says. "The second one is just the waste that we are producing by the lack of infrastructure (in transporting food in developing countries) or by throwing away food (in developed countries)."

About two-fifths of all food produced is wasted, he adds. "If you would just diminish the food waste we already solve a big part of the water problem."

Controversial moments

While he might have achieved success in bringing water to the agenda of world leaders in recent years, Mr Brabeck's path to water advocacy hasn't always been smooth sailing.

Just a few years ago, comments he made previously in a 2005 documentary erupted into controversy. In the documentary on food security, Mr Brabeck had made an appearance, speaking on water.

He said then: "It's a question of whether we should privatise the normal water supply for the population. And there are two different opinions on the matter. The one opinion, which I think is extreme, is represented by the NGOs, who bang on about declaring water a public right. That means that as a human being you should have a right to water. That's an extreme solution.

"The other view says that water is a foodstuff like any other, and like any other foodstuff it should have a market value...Personally, I believe it's better to give a foodstuff a value so that we're all aware it has its price, and then that one should take specific measures for the part of the population that has no access to this water."

These comments sparked a backlash on the Internet, with many criticising his apparent stand that water isn't a human right. Nestle, in response, released a statement on the website and a video interview with Mr Brabeck, clarifying that this wasn't the case.

Asked about the episode, Mr Brabeck replies calmly that he has never said water isn't a human right. Rather, he was referring to the 98.5 per cent of irresponsible water use, which stems from water not having been assigned the right value. "I was proposing to the United Nations that water be declared a human right. So (it's) funny enough I was being accused of being against water as a human right," he says, smiling.

As the head of Nestle, Mr Brabeck is nevertheless used to controversy. The group had been the target of a boycott in the 1970s, when it aggressively marketed breast milk substitutes, especially in less developed countries.

In 2010, it also got into trouble for the use of unsustainable palm oil. In a video by environmental group Greenpeace, a bored office worker bites off a finger of Kit Kat that turns into a bloody finger of an orang utan.

Nestle's initial response was to make YouTube take down the video, citing copyright. But this gained the company more brickbats.

Within months, it adapted its approach, suspending purchases from the offending supplier Sinar Mas and engaging a credible external partner to certify the sustainability of its palm oil suppliers. It also created a new post of global head of digital and social media, which eventually led to a team that monitors social media sentiment around the clock.

"There is no doubt that social media has certainly changed the communication role," says Mr Brabeck. "And like anything else in life you have to learn how to move into this new space."

The change in the communication landscape has also changed the way the company is responding, he adds. "What is absolutely vital is total transparency. There is no way today that you can try to hide or even not to recognise (issues)."

Citing accusations levelled against Nestle last year of using forced labour, Mr Brabeck says it did not immediately refute the charges "although we don't have forced labour in our supply chain".

"We are saying, well, we know within Nestle there is none. But let's find out if outside of Nestle, on the supplier side, there might be one."

The company engaged an external party to conduct an independent investigation, which found forced labour in its seafood supply chains in Thailand, confirming media reports. "We published this on social media to everybody. And we were completely transparent and said that well, we realised that there is in Nestle but within the total supply chain which includes suppliers."

"Therefore we're going to work together with the government and NGOs in order to ensure that this doesn't happen. It is a completely different approach than perhaps 20 years ago."

The relationship between civil society and private companies itself has also evolved. "Only 15 years ago this was a controversial and confrontational relationship," says Mr Brabeck. "NGOs accusing especially MNCs of misbehaviour in one way or another, and those MNCs trying to prove those accusations are not true."

Many years were spent playing this fruitless game of ping pong, with each party more interested in dragging the other down than solving the problem. "Nobody really cared about the subject, which was quite interesting," Mr Brabeck quips.

In the last few years, both sides have recognised that it would be better if solutions to the problem were placed in the middle of the relationship, and both adopted a more collaborative approach.

Today Nestle works with many NGOs including its former nemesis Greenpeace in areas of deforestation and palm oil, among others. "I think we have a very good collaboration there, which does not mean that on every single subject we have exactly the same opinion," says Mr Brabeck. "We can still have different opinions when it comes to genetically modified organisms, between Greenpeace and us, but instead of only concentrating on confrontation, we can also work together to solve other problems where we have common interests."

The next chapter

With the company in good shape, Mr Brabeck is confident that he will be able to arrange an orderly succession when he steps down next year.

Speaking at an event in Singapore in 2004, when he was stepping down as Nestle CEO, Mr Brabeck had said that it is equally important to climb down safely before one can claim one has succeeded.

"There's one thing in mountain-climbing which is important also for business," said the avid mountain climber. "You are only successful on the mountain climb when you come back to the valley healthy. Most of the accidents happen when you are coming down from the top. That's where most people fail."

Succession planning, he tells BT, has to be done on an ongoing basis. As a company, Nestle plans for scenarios where everybody, from the chairman downwards, has to be replaced within 24 hours, as part of emergency succession planning. "If something happens to me, tomorrow you'll have a new (Nestle) chairman," he says.

Then there is also more longterm planning, which would take into consideration the successor's age and capability, among other factors. "It doesn't have to be the same person."

Life away from the peak of the corporate world, however, will not be any less busy for Mr Brabeck.

Besides staying on as the vice-chairman of World Economic Forum's Foundation Board and remaining on the advisory board for several companies, there are also numerous businesses he has built up on the side to attend to: fish farming, caviar production and real estate.

The recreational pilot, who flies both helicopters and fixed-wing planes, will also be spending more time in the skies. "So I'll be very busy," he says, beaming.

And of course, there are the mountains, though these days he scales those that are not too high. "I would say every year you are older, the mountains get higher," he laughs.


PETER BRABECK

Chairman, Nestlé SA

1944 Born in Austria

1968 Joined Nestle in Austria as a salesman

1970 Appointed National Sales Manager, later Director of Marketing for Nestlé Chile

1981 Appointed CEO, Nestlé Ecuador

1983 Appointed Chairman and CEO, Nestlé Venezuela

1987 Transferred to international headquarters to be Senior Vice President in charge of Culinary Products Division

1992 Appointed Executive Vice President, Nestlé SA, with wordwide leadership of strategic business groups

1997 Appointed Member of the Board of Directors and CEO of Nestlé SA

2001 Elected Vice Chairman of Nestlé SA's board

2005 Elected Chairman of Nestlé SA's board

2008 Handed over office of CEO and remained as Chairman of the Board

Other positions

Chairman, 2030 Water Resource Group

Vice Chairman, L'Oréal

Vice Chairman, Foundation Board of

World Economic Forum

Board member, ExxonMobil Corporation, Texas