Future of Business: Mars CEO on How Business Can Be a Force for Good

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0:32I'm Adi Ignatius, and this is the HBR IdeaCast.

0:43For the past several weeks, we've been sharing a series of conversations with CEOs that were part of HBR's recent Future of Business event. Today is the last in that series, a conversation about the role of business in society with Paul Weihraue, the CEO of Mars. Mars, of course, produces candies like M &M's, Snickers, and Skittles, as well as pet food and pet services. It's a private company, and it's a purpose-driven one with highly ambitious sustainability goals. Since taking the helm in 2022, Waiharao has committed himself and the company to responsible growth and to having a net positive impact on society.

1:19We wanted to hear from him on how that effort is currently going in a moment of business uncertainty and amid a backlash from some quarters against corporate social responsibility. Here's my conversation with Paul Weihrau, the CEO of Mars.

1:45Paul, you know, you're a family-owned company. It gives you a long-term lens that many CEOs don't have. How does that affect the way you think about growth or the way you think about risk? Well, we're an old company from 1911, and yet we are young. And we have a very diverse business with anything from consumer goods products to a healthcare business with more than 3 ,000 veterinary hospitals. And the family dynamic pays out in a number of ways. The first thing is that we can take a long-term view. We like to think we think in generations and not just in quarters. And because of our ownership, we carry the name of our owners on the door.

2:26We have an obligation to make sure that we behave well in society. It could be where we run a factory, where we run our offices, etc. But I also want to say you can't just focus on the long term. A business is run by delivering short term and delivering long term. or, you know, if you like sports, and there was just a marathon this weekend in New York, and all marathons are running as friends. So in a way, you have to do both. You must hear a lot from CEOs of publicly listed companies who say, oh, I wish I was like you and I wouldn't have these pressures. But you're basically saying you have the same pressures.

3:03You have to deliver to shareholders. I mean, what do you say to people who think that maybe it's so different? There's no doubt that at certain times, it's great not to be under the scrutiny of the stock exchange. I'm on a board of public listed company and very, very familiar with it. But I would also give it as an example, our shareholders want us to do good. So we have a compass that informs our shareholder objectives that has four quadrants. One is about growth, one is about a healthy P &L, one is about reputation, and one is positive societal impact. And our shareholders have told us that they want us to contribute positively to society.

3:42And one of the objectives is to halve our greenhouse gases before 2030. We're incredibly proud that our baseline year is 2015. We've grown the business 69 % since that year and lowered our greenhouse gases with 16. And my story is that 40 % of my compensation is on non-financial metrics. So if I have to tease back, I would say to a public listed CEO, how do you feel about having 40 % of your compensation on greenhouse gases? That's challenging, and it's a very good and welcome challenge. Yeah, all right. Well, there's a lot to pick up on, and maybe we'll start with the commitment to being net zero by 2050, right?

4:27Cutting emissions in half by 2030, net zero by 2050. I mean, that's a huge operational lift. What's been the toughest part of driving that objective into a company your size? The toughest part is that about 85 % of our environmental footprint sits outside the company, so what is called scope three in technical terms. And that is working with predominantly farmers across the world. It could be cocoa beans. It could be protein. It could be various corns. and convert these supply chains into becoming net neutral. So when it comes to cocoa, it's about deforestation. When it comes to corn, it's about regenerative agriculture, crop rotation.

5:15The biggest challenge is not just the technical knowledge of each individual ingredient, but scaling it across an enterprise that operates in pretty much every country in the world. That's by far the most difficult thing. What is not very difficult is to engage the next generation in the workforce, because all of our associates are really keen to contribute to this. So, you know, I always say, if you put the hand up and say, who would like to cut overheads? You don't have a lot of hands coming up. But if you ask the question and say, you know, who would like to contribute to a better world tomorrow through lowering our greenhouse gases or creating plastic recyclability?

5:56You have a whole forest of hands coming up and wanting to contribute. Are you feeling any backlash now? Because, you know, at least in my country, in the US, you know, there seems to be space, again, for people to say, is climate change real? You know, I thought we were way past that. But, you know, the kind of political, social conversation has changed. Does that, is there a backlash that gets to you that makes you recalibrate the emphasis you put on some sustainability issues versus others? I would argue, Adi, that this has absolutely nothing to do with politics at all. If you are a food company, you fundamentally live from converting crops that you buy, processing them and packaging.

6:42There is no person on this planet who cannot say that there are significant impacts because of climatic changes, because of hurricanes, because of warming temperatures, where crops cannot be grown in certain regions where they used to be grown. I was in northern Italy visiting one of our veterinary hospitals. And I've been there a couple of times. And I said, this used to be a rice growing region. and the gentleman that was standing with me said it used to be rice growing here Paul we can no longer grow the crop because we don't have enough water so you know it's not a political topic it is a topic if we want people to have access to great affordable nutrition this is something we need to lean into and I hear a lot of politicians politicians talk about affordability and you cannot disconnect the two things.

7:37So yes, do I hear it in the press? Of course I do. Do I hear it when I walk around among CEOs? Yes, I do. Are we going to change the policy as one of the world's food companies that the world necessitates we do? Absolutely not. We have an environmental footprint of a small-sized country being mass incorporated. That would be the equivalent of Finland. So it would not be responsible of me to run a company and say, ah, let's just ignore that and keep going as is. We can't do that. You know, you have this vast global supply chain. Can you talk a little bit more, maybe a little more granularly about how the promises and the pledges you make actually, you know, reach the farmer, reach the factory, reach the, you know, the shopping aisle, you know, more tactically sort of how, what some of those steps are to ensure you're actually on that path.

8:32I'll just go walk back half a step. In 2018, our shareholders created four shareholder objectives, which was the compass. And one of them was positive societal impact. That was the moment we in the management team got a very clear target. And then subsequently it was moved into compensation of more than 2000 managers across Mars Incorporated. That's quite an important element because it's the moment where the corporation says, we take this very seriously. We take it as serious as we do with the financial P &L. And then we started working on what are the crops that have the biggest impact in our supply chain and work through those.

9:11And I can give two examples. First one being cocoa. So on cocoa, what we needed to make sure was that we sourced cocoa from regions without deforestation. So we started working on satellite images. We started to work with farming and cooperatives with farmers, predominantly in West Africa, where 60 % of the world's cocoa is sourced, but also in Indonesia and Latin America, and made sure that to the best we could, we do not source from deforested areas. And then we started working on minimum wage, etc. as well. So that would be one example where deforestation was the trick. If I move into our pet food business, the most important thing is we design pet food that is respecting the animal that we are feeding.

10:03So we have to have optimized nutrition for each animal, whether it's a cat or a dog or whether it's a particular breed. And as you design these products, there are different nutritional content of beef, lamb and poultry. But from an environmental point of view, you are much better off using poultry versus lamb and beef being the most challenged. So we got our scientists to work on detailed product formulation strategies, made an IT system where they could sit and optimize what is the percent of whatever ingredient you need to both optimize for the quality of nutrition, as well as optimizing for my mental footprint.

10:49So it's a massive undertaking across the enterprise. And I could talk similarly about packaging as well as another example. It's interesting that your incentive is partly linked to some of these goals. And obviously, that has an effect, right? We respond to how we're being measured. How much of your time is spent on sort of this aspect of your work? So we have tried to integrate sustainability in the way we do business. So we actually moved the responsibility in the beginning of this into finance to make sure that when we review the plan, so coincidentally, we are reviewing plans for 2026 this week.

11:32as part of this we are reviewing the investment levels in sustainability in our food business our pet food business our snacking business and and in our veterinary business so we have a review where veterinary would tell us okay we have 2200 hospitals that are on 100 green energy How do we get the last 800 on them? And are they in countries where we can't access it? So just like we review the P &L, we look at how much are you invested in recycling packaging? How much are you investing in regenerative agriculture? How many hectares have we implemented this? And where are we sourcing certain things from?

12:18So we try to make it an integral part of the way we do business. So it's hard to say how much time. My experience is a bit like an S-curve in a way. In the beginning, it's a lot of hard work, but then as you get it into the existing processes of the company, like the R &D example with product formulation I mentioned, it goes down a little bit because it becomes part of your daily life. So it's really hard to put a percent on. It's significant. Yep. So I'm always interested, you know, when I talk to people like yourself about the balance between, you know, innovation and growth, but then how to grow responsibly.

12:59And I, you know, maybe I'm a skeptic, but to me, it's impossible to maximize everything at once. So, you know, how do you think about the inevitable trade-offs that will come your way? you're right. And, you know, one would almost wish you could make sort of a mathematical formula where you could calculate the trade-off between these things. We like to say that purpose and profit are not enemies, that it is our task that we have to do both. And I think you, when you get yourself into the mindset that both of them are important objectives, you start thinking differently about it. And, you know, as a corporation, if I take the last five years, 80 % of our growth is organic.

13:43And a lot of that has come from products where we have done work on sustainability. Do we invest a lot of money into this area? We absolutely do. We have a plan that we are investing close to$700 million this year in sustainability activities. and you could argue, Eddie, put that behind advertising and you will grow faster. And my answer would be in the short term, probably yes. But in the long term, consumers will vote with their feet. They will want to buy responsible products. They will want to see that we do the right thing for the world we want to create tomorrow. I'm sure there's a marketing professor that would challenge me on this one.

14:29But, you know, we have shown research that proves if you advertise a positive environmental impact of a product close to the product, i.e., you explain the exact thing you have changed on a product, then that brand will benefit. But there has to be an immediate link. So there is some marketing science to it. So for instance… Interesting, interesting. Yeah, not a general… Repetable packaging, consumers absolutely understand. Biodegradable packaging, they absolutely understand. So if you make claims on it, you can prove an uplift in sales. So I want to ask a little bit about your business strategy.

15:12You've made some big portfolio moves in recent years. You've got the$36 billion acquisition of Kelanova. How do you decide when Mars should build, when Mars should buy? By far, the most important part of our growth is organic. So the last five years, 80 % of our sales is organic growth. Over a 10-year period, that figure is 50%. We have two large businesses and a smaller food business. And if I take the example of our pet business, where we have brand from being a pet food company into therapeutic food, into managing hospitals, into managing diagnostic labs, we basically had a purpose, which was a better world for pets.

15:57And we realized that in order to live up to the purpose, we needed to focus on not just making the best pet food for any animal, but also providing health care. It's a bit like when you and I go to the doctor. The doctor will ask, do you get your five greens every day, vegetables or fruit? Do you eat healthy? Do you get some exercise? And do you have your cholesterol checked? It's the same for cat and the dog. So we realized the only way we could live up to this purpose was to move into veterinary services and healthcare. Then we started studying this market and found out actually the consumer projects human behavior onto the animals.

16:40So 15 years ago, very few people would have a dental clean of their dogs. Ironically, today, my two dogs had a Dinsen Clean at VCA, something that the previous generation would not have done as bed owners. And then we figured out, okay, we have to get into this industry. Let's acquire and develop and grow our veterinary industry. At the same time, the second we have bought them, it's about organic growth and opening new hospitals, which we do as well as organic growth. And I can give an example. Snickers is an almost 100-year-old brand, and it grows 10 % this year, which is pretty remarkable when you think about a brand that's born in the early 1930s.

17:28So you have to do both, but you look at the societal changes. You look at where the consumer is moving. Sometimes you can make that move organically. Other times, you have to say, okay, to step change and make a transformation here, I really need to double down and acquire a company. On the topic of innovation, you've been, I think, more than 25 years at Mars. What's your advice to executives who serve for a long time within one company? How can they avoid getting trapped by legacy thinking? How can they really drive innovation and reinvention? I think if you go back and study what really constitutes the most important elements of leadership, the most important is personal learning.

18:14It has the biggest correlation. And the way you learn, you need high curiosity. So it's incredibly important as a leader that you are curious about the world, that you are curious about people, that you can engage with people and get the best out of people, and that you make sure that you have your tap on a lot of things in society and see where where changes is coming and going. So my advice would be overinvest in personal learning, both on the content side and as importantly on personal development and leadership development, and always be curious about the world, about business, about business models.

18:55And that would automatically lead you there. All right. So I want to go to a couple of audience questions. This first one is from Anonymous, but it's a good question. When you do your capital allocation, how do you balance sustainability investments versus other types of investments? In other words, I don't know if you differentiate them, but if you do, are they both required to reach the same returns? Or is it an understanding that we're doing this for this reason, we're willing to accept more modest returns because we're doing the right thing? When we do capital allocation, we do it in many different buckets.

19:27and we have an allocated number in sustainability that is linked to our goal. So we want to reduce by X percent at that date and we work. What are the investments required to achieve that goal? Likewise, on the financial side, we want to achieve a certain goal with a certain growth, earnings and a cash yield. And we allocate our capital in order to achieve those goals. Not all of our investments have the same requirements. So let me give you an example. We have plenty of investments that are simply required to live up to good quality standards. So we have a lot of factories around the world, and we need to make sure that we don't have food quality and safety issues.

20:14You can't calculate the return on upgrading and making sure that that plant lives up to that return. you need to make sure that all of these are simple living playfields. You have to live up to this. And you can't have a return. When you build a new factory and allocate capital to that, you can calculate the return. When you build a new factory today, we say it must be zero waste to landfills. You must have minimum league goals. You are building thermal wells. It costs more money. And we then require of our business that we can work harder to make sure we deliver the returns. So there is not a one list that defines all of them, but there's a very definite methodology that is based on the goals we want to achieve.

21:04And by the way, we have found out that it becomes cheaper and cheaper to invest in sustainability over time. So some of the investments we have done in green energy have turned out to be very good investments. And we didn't do it at the time because they were. We did it because it was the right thing to do. And I think you heard from a previous speaker, Doc McMillan, telling a similar story in Walmart when he made a very big decision on paying benefit for all of his associates. At the time, it didn't seem very obvious, but today there are higher retention rates, more development of people going on, and we have had the same experience in the area of sustainability.

21:46But that's a very clear goal-based method. So when we were talking before about, you know, particularly the environment in the U.S., I think you're right to say these issues aren't political. They just, it's science, right? But there are changes. You know, there are policy changes, there are regulatory changes, there are tariff policy changes. You know, to the extent that the picture is clear now, how will Mars, how is it, this is actually a question from somebody in the audience, Dan Weingart, how will Mars adjust to the changes in the U.S. regulatory environment, maybe in the U.S. tariff environment, relative to its supply chain, and how could that impact the consumer?

22:23Well, let me start by saying that they're not exactly clear because they still change by the day at times. But let's step back. We are a company from 1911. We have lived through a couple of world wars, cold wars, banning our products in different places, etc. And business runs through these cycles, etc. The most important thing is resiliency. To build up a supply chain that is resilient enough to take some of these hits that are coming with political issues across the globe. And it happens in many jurisdictions, by the way, and many trade lanes. So to build up a maximum resiliency. So we try and manufacture as much as possible in the countries we operate.

23:14Before all the tariffs happened in the United States, 94 % of what we sold in the United States was produced in the United States. And we have continued to invest in that. Where it's much more difficult to control is where raw materials that cannot be grown in a certain part of the world, example, you cannot grow cocoa in the United States. It's 20 degrees north and south of the equator. That only qualifies Hawaii. for it. That's not enough. That's where it gets really, really hard to manage it. So resilient supply chain and support the people that work in this area because it's really, really hard work to manage these fluctuations all the time.

23:58Stability is important to business. So when you think about the next generation then of Mars leaders, what qualities are you looking for now that maybe weren't as important 20 years ago, even five years ago? I think the qualities we're looking for are already there, but there are certain qualities that are more important today than what they were in the past. If you think about the workplace today, many of the things that go on inside companies like ours were things that happened outside the company, certainly when I started. Whether it is demonstrations that are not brought in in terms of demonstration, but the topics are brought in.

24:38You know, positions on war around the world, political positions, etc. is brought in in the workplace. And I think the most important thing as a leader is to have empathy and listen. We cannot agree on everything. We are 150 ,000 associates at Mars. We don't agree on everything and we are a mirror of society outside. But what we can do is to have a civil conversation and listen to each other and ask, how are you? And if you have family, we have a couple of Ukrainian associates sitting in this office. And if I go and choose and go and say, how are you this morning? How is the family back home? Do you feel they're safe?

25:24Have you spoken to them? It will go a long way. I can't solve the problem. But I can at least express an empathy. And I think that is much more important today than what it was 10, 15 years ago. Self-awareness is more important today than what it was in the past, because the softer values of leadership are much more in focus today than what they were in the past. And you can only engage in those conversations if you're aware of your own triggers, your own faults, your own traps, so you don't get caught up in these situations. As a leader today, you'll be tested many times. You'll be tested on politics.

26:09And the reality is, in Mars Inc., we don't do politics. We have policies, but we don't engage in politics. Because if we wanted to do that, I should become a politician then. I have no ambitions of such. So, you know, A couple of these areas, I think, are much more important today. And then I would also say on the content side, we are living at a time with an unbelievable amount of technological change. Generic knowledge, the good old standard disciplines at a university like mathematics, literature, culture, history, becomes incredibly important in this world. because some of our big decisions will be much more in the area of values, of morale.

26:54What is my AI policy? How do I make sure it's responsible? And those are questions you want to have answered by people that have a very good and well-rounded classic education. Well, this leads to another good audience question. This is from Ginger Tay. And it's really, so the question about doing good, having positive social impact, that could be in a lot of different things from sustainability to nutrition to health quality to DEI, you name it. How do you prioritize what areas of good Mars should invest in? And by the way, what if your employees want to suggest others? So the first time we started working on this is we have five principles in Mars.

27:33And Forrest Mars Sr. made a principle of mutuality in 1947, where he said that the purpose of Mars is to add value to consumers, customers, suppliers, society at large, and government bodies. And if you think about that as a thought in 1947, that's actually quite ahead of its time. We endeavor to try and be an above average employer in quality in how we pay people, how we treat people, how we educate people. And that has been running through, coming from our owners through the company since its inception. And that's the most important. People in our CPG business, consumer business, stay with us 3.8 times longer than the average in the industry.