March 7, 2019

Breakingviews: Kraft Heinz new recipe could start with the board

by Breakingviews.

In all the discussion about what went wrong at Kraft Heinz, one place worth focusing on is the board. The directors who oversee the ketchup and cheese maker, shares in which have fallen 31 percent since a profit warning on Feb. 21, might have helped the company avoid its current strategic rut if they’d had broader experience, and fewer other demands on their time.

The 11-person board of Kraft Heinz does tick two boxes. It gives representation to the company’s biggest shareholders, Brazilian investment group 3G Capital and Warren Buffett’s Berkshire Hathaway, roughly in proportion to their 49 percent stake. There’s also no shortage of consumer-goods expertise – directors have worked for companies like PepsiCo, Nike, Walmart and other 3G properties like Anheuser-Busch InBev and Burger King.

But compared with rivals, Kraft Heinz misses a trick. Coca-Cola, the $195 billion drinks behemoth, has picked directors with senior roles at some of the world’s biggest finance companies, for example – including Santander boss Ana Botín – alongside executives from gaming, cloud computing and philanthropy among other industries. Switzerland’s Nestlé has luminaries from luxury goods, oil and gas, insurance and a former U.S. secretary of agriculture, Ann Veneman. Both companies have delivered better returns for shareholders than Kraft Heinz over the past three years.

Kraft Heinz’s board members are also spread thinly. All but two sit on three or more other boards; four members hold director positions in four or more companies. That might not be a problem in a business where everything is going well. But Kraft Heinz, which has badly disappointed shareholders, needs a board that can devote the time and resources needed to hold the feet of Chief Executive Bernardo Hees and his team to the fire.

Since Berkshire Hathaway and 3G own almost half of the company, they are unlikely to want to replace their own directors, and other investors can’t force them to. But that doesn’t mean there isn’t room for change. Kraft Heinz’s board only has 11 board members, where Nestlé, Kellogg, Mondelez, Pepsi and Coke all have more than 13. That means there’s space for the maker of Velveeta cheese to add a couple more. Fresh insights can only help.

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