Understanding the new alphas

A broader outlookProfiting frominternational markets

Join the dotsInfrastructure’s crucialrole in economic growth

You are what you eatProfessional benefitsof a healthy lifestyle

bridgepoint.eu

Success with a social conscience

Issue25 | June 2014

THE POINT

Intelligent investing in Europefrom Bridgepoint

4MANAGEMENT FOCUS

Follow the peopleReaping the benefits of emerging markets growth

8TALKING POINT

The new alphasOur definition of success is changing. Who are thenew alphas and what dothey want?

30BUSINESS TRENDS

China’s hidden jewelsGetting the measure of China’slesser-known cities

22IN MY OPINION

Reporting for dutyThe next steps on the environmental, social and corporate governance agenda

CONTENTS

2INS & OUTS

Bridgepoint investmentsand exits across Europe

18MARKET INSIGHT

Fuelling performanceUsing food, drink and sleep to enhanceoffice output and power growth

26FACE TO FACE

Taking a bite out of the marketJarosław Zawadzki, CEO of Dr Gerard, on Eastern Europe, expansion and top-quality biscuits

14SECTOR ANALYSIS

Getting Europe connectedHow the private sector can improveEurope's creaking infrastructure

36LAST WORD

Mixed messagesFinancial Times City editor Jonathan Guthrieopines on the “out of office” misnomer

1

FOREWORD

“Business with a social conscience”, by which I mean more sociallyconcerned organisations where greed does not look good and self-disciplinehas displaced self-indulgence, no longer has the hollow ring to it that itused to. The evidence for this? The emergence at work of the so-called new alpha males, and their apparent rejection of traditional forms ofconspicuous consumption.“The new alphas” (page 8) not only tests the theory that we have entered a new era in the professional workforce, but also explores the implications for businesses in consumer goods and services as old tastes are rejected in favour of more socially awareforms of consumption.Consumption is also changing, quite literally, on another front. Health and productivitythrough so-called wellness and better eating habits is not the fad it once appeared, as weexplore in “Fuelling performance” (page 18). As optimising attainment at work climbs upthe political and social agenda, companies themselves are realising the cost of poor dietand subsequent lost productivity.An increasing number of companies are also engaging in innovations to improve theirenvironmental, social and corporate governance (ESG) performance because to do so willbenefit them financially. “Reporting for duty” (page 22) shows that firms with better ESGdisclosure or performance tend to have better access to finance – a neat riposte to thesustainability cynics and their increasingly outmoded arguments.For European companies seeking to play the economic growth in China, there isincreasing evidence that China’s second and third-tier cities are proving a fruitful sourceof opportunity. In “China’s hidden jewels” (page 30), The Point explains why manycompanies find China challenging: they treat it as a single bloc and don’t grasp theeconomic diversity of the country and the role that the regional cities play as populationmovements create economic ebbs and flows.Finally, we report on the latest investments and divestments in Bridgepoint’s ownportfolio of companies and profile the CEO of one of these – Jarosław Zawadzki of Dr Gerard (page 26), the Polish biscuit manufacturer we acquired last year. Since our last issue, we have acquired Cambridge Education Group, one of the leading players inthe international schools market, invested in Quotient Clinical, an outsourced early-stage drug-development services provider, and bought marketing services businessInspired Thinking. In Germany, we also successfully exited CABB, a speciality chemicalsmanufacturer. With our support, the business started operations in China, acquired abusiness in Finland, invested €50 million in new capacity, created over 300 jobs anddoubled its profitability.

Enjoy the read. I hope, as always, that you like this issue of The Point n

June 2014Issue 25

Published by Bladonmore (Europe) Ltd

EditorJoanne Hart

DesignBagshawe Associates UK LLP

Reproduction, copying or extracting by any means ofthe whole or part of this publication must not be undertaken without the written permission of the publishers.

The views expressed in The Point are not necessarilythose of Bridgepoint.

www.bridgepoint.eu

THE POINT

William Jacksonis managing partner of Bridgepoint

Out with the old,inwith thenew

2

INS &OUTSBRIDGEPOINTnews across Europe

Established in 1952, the companyprovides pre-university educationto more than 4,000 students fromover 95 countries. The inter-national student market is growingfast, thanks to increasing demandfor US and UK university placesfrom young people in emergingeconomies such as China, SouthKorea, Brazil, Russia, Nigeria andSaudi Arabia. Chris Busby, partner and head of

Bridgepoint in the UK, says:‘‘Cambridge Education Group hasgrown substantially, extended itsteaching, targeted new marketsand, importantly, delivered strongacademic results. Our investmentwill provide the team withadditional financial capacity andreach to accelerate its push intointernational markets and realiseits ambitions in a growing sector.”International students typically

apply for university places outsidetheir home country directly orthrough ‘‘pathway preparationprogrammes”. Cambridge

Education Group focuses on theUK and US pathway marketthrough sixth-form colleges in theUK and high-school diplomaprogrammes in the US. The group also runs ‘‘Founda-

tion Campus” programmes inpartnership with 20 universities inthe UK, the US and the Nether-lands. It operates the School ofVisual & Performing Arts inCambridge and a number ofEnglish as a Foreign Language(EFL) schools, operating under theStafford House brand.Fergus Brownlee, chief

executive of Cambridge EducationGroup, says: ‘‘Our focus on qualityat every stage and the outstandingsuccess of our students havemade us one of the fastest-growing independent educationproviders in the world. We nowhave a strong platform for furthergrowth and we are delighted thatthe recent acquisition by Bridge-point will allow us to progress asan organisation.” n

Bridgepoint acquires Cambridge Education GroupCambridge Education Group, one of the leadingplayers in the international schools market, has beenacquired by Bridgepoint for £185 million.

A new discoveryfor BDCBridgepoint has acquiredQuotient Clinical, a provider ofoutsourced early-stage drug-development services, fromQuotient Bioresearch Group. The UK-based company

employs over 200 people and itscustomers range from top-tierpharmaceutical companies tosmall and medium-sized biotech-nology firms. More thanthree-quarters of its revenues are derived from the US andmainland Europe.Led by CEO Mark Egerton,

Quotient Clinical has developed aservice that significantly reducesthe time and cost of early-stagedrug development. Valued atmore than $400 million annually,the market for Quotient’s servicesis growing as pharmaceuticalgroups strive to bring drugs tomarket faster in order to boostreturns during the patent period.

Alan Payne, partner at Bridge-point Development Capital, says:‘‘Quotient Clinical serves a sub-stantial and growing market andthere is significant opportunity toincrease market penetrationthanks to its combination ofunique service offering, strongregulatory governance and atalented management team.” n

3

Bridgepoint Develop-ment Capital hasacquired a majority stakein marketing servicesbusiness InspiredThinking Group (ITG). Valued at £28 million,

the transaction will boostITG’s expansion in the UKand internationally. TheBirmingham-basedcompany was set up in2009 and specialises in“below the line”marketing services, suchas point-of-sale, digitaland direct marketing.Primarily focused on thebrand and retail sectors,ITG has 250 employeesand a number of majorinternational clients. Thegroup delivered revenuesof more than £43 millionin the year to 31 August

2013 and is expected toincrease sales signifi-cantly. According toestimates, the currentUK addressable marketin marketing services isabout £2.9 billion.Bridgepoint Develop-

ment Capitalpartner AdrianWilletts says:“ITG offers acompellingcustomerproposition andhas demonstratedan ability to win andretain customers in alarge, growing market.We believe the ITG teamis capable of doubling thesize of this business inthe next five years.” Simon Ward, CEO of

Inspired Thinking Group,

says: “Wehave an

experiencedand ambitious

management team andwe look forward toworking with Bridgepointto deliver our plans forfurther growth, bothwithin the UK, where wewill continue to developour range of marketing

services and expertise,and internationally,where we have recentlyhad new businesssuccess.” Bridgepointhas worked with Wardbefore: in 1999, the firmsupported his manage-ment buyout of SP Group,which was successfullysold to St Ives Group in 2004 n

Bridgepoint has exited fromCABB, a leading chemicalsmanufacturer headquartered inSulzbach, Germany.Founded in 2003 as a partial

spin-off from Swiss group Clariant,CABB has grown to become theleading supplier ofmonochloroacetic acid (MCA) – achemical intermediate used in avariety of markets and applica-tions including agrochemicals,pharmaceuticals, cosmetics,flavours, fragrances and vitamins.CABB is also a custom manufac-turer for global agrochemical,

food, pharma and chemicalcompanies.Bridgepoint acquired CABB in

March 2011, since when employeenumbers have increased by morethan 30 per cent to around 1,000people, while sales and profitshave grown substantially too. Marc Zügel, co-head of Bridge-

point Germany, says: ‘‘CABB hasperformed strongly. It hasgenerated excellent organic andacquisition-led growth, increasedprofits and consolidated its leader-ship position. It has also expandedits facilities and established new

operations in China and Finland.”Dr Martin Wienkenhöver, CEO

of CABB Group, agrees that thecompany has made tremendousheadway under Bridgepoint’sownership. ‘‘Today, CABB is a well-known and trusted partner for alarge number of blue-chipcompanies in the agrochemical,chemical and pharmaceuticalindustry. Together with Bridge-point, the management of CABBestablished a sustainable growthstrategy and we are lookingforward to continuing oursuccessful growth path,” he says n

A successful exit for chemicals group CABB

Inspired acquisition

4

The BRICBrazilRussiaIndiaChina

The Next 11Bangladesh Egypt Indonesia IranMexico Nigeria PakistanPhilippinesSouth KoreaTurkeyVietnam

Follow thepeople

Management focus

Egypt

Turkey

IranPakistan

Mexico

Brazil

Russia

Nigeria

Economies across Asia, Latin America and Africaare growing dramatically, and smart Europeancompanies can reap the benefits.

5

It’s very simple population economics.If you want to expand your business,you need to go full tilt in China. Andlong term, it is absolutely clear that thestrongest growth will come fromemerging markets” Sir Martin Sorrell, CEO, WPP

‘‘

y almost anymeasure, thebiggest changesin globaleconomicactivity over thepast 15 yearshave taken placein the south andthe east.

China has leapt up theeconomic ladder, swiftly followedby Russia, India and Brazil. Even asthese four countries have forgedahead, other Asian, Latin Americanand Eastern European nationshave made dramatic progress,developing industry and creating anew breed of consumer, hungry formiddle-class goods and services.

The change is plain to see and itprompts one pressing concern forcompanies in Europe: how to reapthe most benefit from theseshifting economic sands.

Selling overseasMany have started to try. In the UK, companies in the FTSE 250, which are valued from£400 million to more than £3 billion, now derive two-thirdsof their sales from internationalmarkets. However, non-listedcompanies are also adapting to the new environment.

“In 2000, more than half ofBridgepoint portfolio companies

were domestic champions,” saysChris Busby, partner and head ofBridgepoint in the UK. “By 2005,over 90 per cent of them had‘internationalised’ with sales fromwider Europe, and today, ourcompanies have operations in 33 countries and sales in 116.

“Since then, our portfoliocompanies have posted €1 billionof revenue growth beyond Europe.”

Looking ahead, the opportuni-ties are even greater.

The global economy is currentlyvalued at around $72 trillion andthe top five economies are the US,China, Japan, Germany and France.Fast-forward 25 years and thepicture is likely to be very different.

Consultants PwC forecast thatby that time the Chinese economywill have quadrupled to $33 trillionand it will have the largest GDP inthe world. The US economy will have almost doubled to $29 trillion; it will be followed inthe rankings by India, Japan andBrazil. European economies will nolonger rank in the top five and mostwill struggle to crack the top 10.

China or bust“It’s very simple populationeconomics,” says WPP chiefexecutive Sir Martin Sorrell, whospoke recently at a Bridgepointconference on internationalisation.“I think you have no choice: if you

Bangladesh

Vietnam

South Korea

Indonesia

PhilippinesIndia

China

6

Since 2005 Bridgepoint portfoliocompanies haveposted €1 billion ofrevenue growthbeyond Europe”

‘‘

want to expand your business, youneed to go full tilt in China. Andlong term, it is absolutely clearthat the strongest growth willcome from emerging markets.”

Sorrell suggests that companieswith growth ambitions shouldlook not only at the BRICeconomies (Brazil, Russia, Indiaand China), but also at the so-called Next 11, comprisingBangladesh, Egypt, Indonesia, Iran,Mexico, Nigeria, Pakistan, thePhilippines, Turkey, South Koreaand Vietnam.

“The BRICs and the Next 11 arebecoming more important, not lessimportant,” he says. “And eventhough growth in some regions hasslowed down, they are still growingfaster than the low-growth,developed markets.”

“In 2000, these new marketsaccounted for 15 per cent of ourbusiness. Now, they are around 30 per cent. I would like them tobe 45 per cent, because that’swhere the growth is.”

PwC’s projections reflectSorrell’s strategy. The consultantsbelieve that the fastest growthover the next quarter of a centurywill come from Nigeria, Vietnam,India, Indonesia and Malaysia.

Reasons for growthGrowth is being driven by severalfactors. Population growth isimportant, and political, legislativeand regulatory changes play a keyrole. But so does technology.Consumers in emerging marketshave been able to see, like neverbefore, what their peers indeveloped markets are buying orusing. And, in many cases, theycan access the same goods andservices – all with just the click ofa mouse.

“The dynamics of retail arechanging. The growth ofcompanies such as Amazon orAlibaba in China is altering thebalance of power because, for thefirst time in a long while, manufac-turers can reach consumers

7

directly,” says Sorrell. The trend isalmost certain to continue aspeople around the world becomeincreasingly aware of what theinternet can do, and how it canwork for them.

“If you look at the world today, about 50 per cent of thepopulation lives in cities, andthat’s going to rise to 70 per cent,”says Sorrell. “That means morecongestion, more cars and moretime pressure. At the same time,there will be more two-earnerfamilies, so more disposableincome. It all points to continuedgrowth in online retailing.”

For companies in Europe, thispresents an unprecedentedopportunity to expand into newregions by leveraging the power of the internet to attractconsumers from markets allaround the globe.

Some sectors are particularlywell placed to drive internationalgrowth. Retailers with strongfranchise models, global-brandowners, business and financialservices, creative industries,health and education providersand niche high-value-addedmanufacturers are singled out byPwC as sectors with real long-

term opportunities tointernationalise.

Local know-howThe consultants also stress theimportance of local knowledge andlocal business strategies. And thishas implications for managementstructures. Traditionally, manycompanies beyond a certain sizehave numerous layers of manage-ment, from executives at thecentre, to regional managers, tolocal staff. Now, even the largestbusinesses are trying to becomemore nimble, so that they arecloser to the markets in whichthey operate.

“Taking out regional manage-ment is a big trend amongmultinationals. They are realisingthat regional managers often blockinformation and that with thegrowth of technology you don’tneed them any longer, at least notas much as you did. It’s all aboutnimble centres and local presence– global and local,” says Sorrell.

Some companies worry aboutcultural differences, particularly inrelation to bribery and corruption,when they are trying to build aninternational presence. While it istrue that corruption is more

prevalent in some markets thanothers, employing informed,trustworthy people at a local levelcan help to mitigate the risks.

“We have a highly regardedChinese media guru on the groundwho has three roles: to make surewe have the best people, to makesure we work with the best localsand to make sure we make goodacquisitions,” says Sorrell.

In other words, sheprovides local knowledge.

This can be bolstered,too, by shrewd boardappointments. WPP, forexample, has two

Chinese people on itsboard, including RuigangLi, who founded and chairs

the sovereign private equity fundChina Media Capital.

“The value that he brings isimmense, not least because he isexceptionally well connected inChina,” says Sorrell. “He may notbe able to come to every boardmeeting, but his contribution onthe ground is superb.”

Beyond cost-cuttingWell-chosen local experts,supported by a lean but product-ive head office, may also helpcompanies to focus on growth,rather than relentlessly trying tocut costs to the bone.

“Companies today are totally different from how theywere before the financial crisis,”says Sorrell. “They are almostexclusively focused on procure-ment and finance. These areobviously important, but there is a limit to how much you cangrow by focusing on cost. There isno limit to how much you cangrow by expanding sales, so real success has to come from top-line growth.” n

Consumers in emerging marketshave been able to see, like neverbefore, what their peers indeveloped markets are buying orusing. And, in many cases, theycan access the same goods andservices – all with just the clickof a mouse”

‘‘

8

Talkingpoint

9

The new alphas

10

he typical alpha male isn’twhat he used to be. Out

goes Gordon Gekko, the fictionalantihero of the film Wall Streetwho came to symbolise ruthlessmaterialism in the 1980s. A newgeneration of ambitious youngmen and women have verydifferent icons. Real-life tycoonssuch as Elon Musk, founder of theelectric car maker Tesla, havecome to represent success with asocial conscience. Fellow billion-aire and Facebook founder MarkZuckerberg also represents thistrend, veering towards vegetari-anism by refusing to eat any meathe hasn’t killed himself.

“We have seen the emergenceof a softer, more socially concernedhigh-status male,” says SucharitaMulpuru-Kodali, a retail expert atresearch firm Forrester.

New alpha males recognise thatovert displays of wealth no longercut the mustard. Greed no longerlooks good and self-discipline rulesover self-indulgence.

“That has had profound implica-tions for the kinds of goods andservices that high-incomeyounger people are demanding.Clearly, this represents a tremen-dous opportunity for companiesthat can embody the new values ofa somewhat more empatheticgeneration,” says Mulpuru-Kodali.

Many trend-watchers believethat a rejection of traditional forms of conspicuous consumptionlies at the heart of new alpha male values.

“There are still plenty of menwho drive Ferraris and wearbespoke business suits,” saysMichael Norton, a professor atHarvard Business School. “Butmany high-end consumer goodshave become less flashy and logosmore discreet.”

T

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Understated styleBank of England governor MarkCarney and even actor Colin Firthseem to personify this new alphamale. They are well off but do notlike to flaunt it; they are authorita-tive but do not need to shout;they are charismatic and they canalso make you laugh.

And they shy well away fromdesigner baubles. Rather thanwearing a £10,000 Rolexwristwatch, new alpha males aremore likely to make a statement bywearing a £100 watch they boughtat an airport, or a discreet vintagepiece that is impossible to value.

“Today’s alpha males need to conform to a collectivisedmorality, which demands empathyacross the social spectrum. In that regard, businesspeople need to be discreet about theirwealth to preserve their socialcredibility,” says Phillip Hodson, ofthe UK Council for Psychotherapy.“Flaunting it will no longer do. Spend it discreetly and preferably electronically so thatnobody knows.”

Professor Norton suggests thatfashion items such as LouisVuitton or Gucci bags have fallenout of favour as status symbolsamong many of the more sociallyconscious top earners. New alphamales still like to have the perfectbag for any occasion, but even if itis expensive and luxurious it ismore likely to be understated.Hard Graft, an Anglo-Austrianfirm, has done well in new alphamale circles with its cases ofBritish canvas, German felt andItalian leather combining functionand fashion.

The green gaugeEven high-end luxury goods now often need to convey less

egocentric values, says Mulpuru-Kodali. “Tesla’s electriccars say something very differentabout a person than a Porsche orFerrari,” she argues. “With pricetags of $71,000 upwards theyobviously convey a sense ofwealth. But they also signalconcern for the environment.”

The rapid growth of the firmunderlines this shift in values.Founder Elon Musk said inFebruary that he expected sales toclimb by 55 per cent in 2014.Although just 10 years old, thecompany had a market capitalisa-tion of $26 billion at the start ofApril 2014, already over half that of 100-year-old auto titan General Motors.

Indeed, a number of new alphamales dispense with the caraltogether. The younger version inparticular takes pride in beingseen on his cutting-edge bike –complete with state-of-the-arthelmet, jacket and trainers.Cycling between meetingsdenotes fitness, energy, a free-thinking attitude and, of course,concern for the environment.

As an added bonus, cyclingenthusiasts tend to be lean – acharacteristic that new alpha menare keen to espouse.

“New alpha men are less afraidof seeming vain and effeminatethan their counterparts in the1980s and ‘90s, and plenty ofcompanies have been riding thistrend,” says Hana Ben-Shabat, apartner at consultancy A.T. Kearney.

Keeping up appearancesA.T. Kearney calculates that theglobal market for male groominghas been expanding at close to 7 per cent annually over the pastfive years – far outpacing thesluggish growth of the global

economy. Spending on men’sclothing also rose by 4.7 per cent a year between 2009 and 2012.This was almost twice as fast asthe market for women’s clothing.

However, the preference fordiscretion also extends to thissector. “Men’s tastes are changing.New alpha men are much lessdriven by brands and brandedgoods and far more willing to buylesser-known labels or stores’ ownbrands,” says Honor Westnedge ofretail consultancy Verdict.

Concern with looks is alsoevidenced by a growing interest incosmetic surgery. Men in the UShad 1 million procedures in 2013 –an increase of 273 per centcompared with 1997, according tothe American Society forAesthetic Plastic Surgery.

“There is a rising trend of malesseeking plastic surgery,” says DrDavid Shafer, one of New YorkCity’s most sought-after cosmeticsurgeons. “In the past, men wouldhave shied away from being seenin the office or even accompany-ing their spouse or partner to theirappointment. Now they are

New alpha malesrecognise thatovert displays ofwealth no longercut the mustard.Greed does notlook good andself-disciplinerules over self-indulgence”

‘‘

booking their own visits. I don’tknow if the male is becomingsofter or if the environment haschanged, but it is now far moresocially acceptable.”

New alpha men play differentroles at home as well – a shift that many companies would dowell to recognise, according toPaul Flatters, chief executive of forecasting consultancy Trajectory Partnership.

“Companies need to understandthat the new alpha male is animportant target market,” he says.“In the fast-moving consumergoods industry, for example,packaging and marketing areprincipally aimed at women. Thatis increasingly outdated.

“And in advertising, men doingchores are often portrayed asidiots. To new alpha men, that isdownright insulting.”

Another notable transition hasbeen a move away from spendingon possessions and towardsexperiences, argues ProfessorNorton. “Young people are muchmore willing to splurge on servicesthat they will remember and canalso discuss with their friends,” hesays. “That’s why we have seenthe rise of things like ice hotels,which have become more presti-gious than more conventionalluxury places to stay.”

Goodwill huntingAmong the most prestigious formsof spending is donating to charity.Of course, the rich have alwaysderived status from giving awaypart of their wealth. “But moresuccessful young entrepreneursare doing this earlier in life,” saysProfessor Norton. The 29-year-oldZuckerberg, for example, startedgiving away millions even beforeFacebook went public. By contrast,industrial magnate Andrew

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Spending on men’sclothing rose by 4.7 per cent a yearbetween 2009 and2012. This wasalmost twice as fastas the market forwomen’s clothing”

‘‘

Carnegie only really started hisphilanthropic endeavours inearnest around 1901, when he wasin his mid sixties.

Explanations for this genera-tional shift are varied.Mulpuru-Kodali believes thatsofter styles of modern parentinghave helped to create a moreempathetic and socially awaremale, while Ben-Shabat arguesthat younger alpha males learntfrom the mistakes of their fathers,many of whom focused on theircareers to the exclusion of familyand other interests– only to be leftrudderless after retiring. “Evenhigh-achieving males now seek a bit more balance in their lives,”she says.

MIT academic Steven Pinkerargues in his book The BetterAngels of Our Nature that levels ofempathy have been graduallyincreasing for hundreds of years. Ifhe is right, future generations willfind it difficult ever to understandwhy many men in the 1980ssecretly admired or desired toemulate the likes of Gordon Gekko.

“Definitions of success arechanging,” says Flatters. “Newalpha men can’t just be successfulin business. They need to havemore rounded lives. In fact, inmany circles an obsessive focus on

one area, such as work, is seen asa failing.”

Instead, new alpha men make ashow of being laid back, even ifthey are paddling furiouslybeneath the water. They alsoknow that appealing to customers involves a direct andinformal approach.

Living the life“In consumer-led sectors, no one can afford to be too distantany more. If you want to show how cool your business is, live thelife. Attend your next meeting injeans and a pair of flip-flops –preferably not designer brands,”says Westnedge.

Running a top restaurantkitchen used to be one area whereobsession ruled. Indeed, theculinary premier league was aswell known for its vicious tempersand energetic swearing as it wasfor its Michelin stars. Now adifferent style of chef has takenpride of place, such as the quietlyspoken Simon Rogan at Claridgesin central London.

A man happier foraging in thehedgerows of Cumbria than glad-handing celebrities, he epitomisesa more low-key, almost bucolicapproach to haute cuisine. Newalpha males favour the relaxed

over the formal, the friendly overthe frosty.

Alpha womenAnd a new breed of female super-chef is also helping to soften thekitchen regime. Presiding over analmost all-male kitchen team inthe two Michelin-starred restaur-ants at the Connaught Hotel inLondon, the unassuming French-woman Hélène Darroze oozes aquiet authority. Alpha femalesshare the self-confidence, neatself-discipline and empathy oftheir male counterparts, but theydo it their own way.

The American-born AngelaArendts is a clear new alpha female.Slim, sleek-haired, discreetly madeup and apparently effortlessly chic,her look is reassuringly consistent.In her trademark elegant but simple trouser suits, she has the air of someone who is reliable and secure.

The fact that she is leaving thefashion world for the male-dominated technology universe –when she swaps being CEO ofBurberry for head of retail at Applelater this year – just adds to heralpha ranking.

Crucially, new alpha males arenot threatened by such women –in the workplace, in politics and inthe media – they embrace them,platonically speaking.

However, Professor Nortonbelieves that businesses will haveto remain on their toes.

“The role models for successand prestige are constantlyshifting,” he says. “At the moment,the cultural momentum is towardsa far less chest-pounding ideal ofmanhood. But as status is partlyabout differentiating yourself fromthe crowd, the old image of thealpha male may yet come backinto vogue.” n

13

Definitions of success arechanging. New alpha men can’t just be successful in business.They need to have more roundedlives. In fact, in many circles anobsessive focus on one area, suchas work, is seen as a failing”

‘‘

14

nfrastructure is one of the few industrialsectors about which almost everyone agrees.Whether we are travelling on overcrowdedtrains, fuming in traffic jams, bemoaningsmartphone speeds or counting the costs ofinadequate flood defences, the need formore spending is usually abundantly clear.

And it is increasingly pressing. Consult-ants McKinsey estimate that $57 trillion(€41 trillion) will be needed globally between2013 and 2030 simply to keep up with

predicted growth. That is 60 per cent more than wasspent over the 18 years to 2012 and is more than thecurrent value of worldwide infrastructure. Yet it onlyrepresents the cost of maintaining infrastructure atcurrent, inadequate, levels. Bringing existing systemsup to an acceptable standard and addressing thechronic deficiencies in many emerging, but fast-growing, economies would add many more trillions tothe bill. Preparing for the impact of climate change,which is already blamed for extreme weather eventssuch as the unprecedented flooding in the UK andEurope over the past year, will add further pressure to budgets.

The economic implications of this infrastructuredeficit were set out in an Organisation for EconomicCo-operation and Development (OECD) report,Infrastructure to 2030, which warns that membercountries will have to more than double their invest-ment in electricity transmission and distribution,almost double their spending on road constructionand increase their water supply and treatmentspending by 50 per cent. In total, these requirementsadd up to some 3.5 per cent of global GDP.

Finding the money to spend is already hard, but it islikely to become even more difficult as governmentbudgets are stretched by issues such as ageing

populations, with the concomitant need to spend more on healthcare and pensions; falling birth rates, which are cutting tax revenues; highbudget deficits; and sluggish growth in the wake of the financial crisis.

Vital fundsYet investment is crucial. As the OECD report says:“The longer-term future performance of OECDeconomies, and of the global economy, will depend toan important extent on the availability of adequateinfrastructures to sustain growth and social develop-ment. This is a huge challenge for governments andbusinesses around the globe. Traditional sources ofpublic finance alone will not be sufficient to meetfuture infrastructureinvestment needs.Where will thefinancing come from?”

It is a pertinentquestion. The financialcrisis has not just leftgovernments short ofcash; it has also sharplyreduced the pool ofprivate finance available.Bank balance sheetshave been ravaged andregulators require farmore capital to be setaside against large loans– particularly the verylong-term lendingneeded for infrastruc-ture projects.

The financing markethas been hit too by the

I

15

Sectoranalysis

European infrastructure is under pressure. Demand is growing, capacity is atbreaking point and investment is elusive. Yet shifts in legislation and increasedprivate sector involvement could deliver dramatic change.

Getting Europe connected

Australia cutapproval times for projects by 11 per cent in thespace of a year byharmonisingprocesses andmeasuringperformance”

‘‘

16

virtual disappearance of monolineinsurers, which effectively issuedguarantees, or wraps, for special-purpose-vehicle companies setup to finance and run infrastruc-ture projects.

The sharp fall in theavailability of private sectorfinance prompted the EuropeanInvestment Bank (EIB) toestablish the Europe 2020Project Bond Initiative, whichaims to stimulate the fundingmarket by helping companies toissue project bonds that areattractive to investors. In its firstassessment, issued earlier thisyear, the EIB said it had approvedeight projects, with an expectedvalue of almost €1.4 billion.

Spending efficientlyMcKinsey believes it is essential to make infrastruc-ture spending more efficient – and it calculates thatadopting best practices could save $1 trillion a year.Better delivery of projects – achieved, for example, byspeeding up the time it takes to get planningapprovals and make land purchases – is vital. Theconsultancy points out that it can take four years toget all the permits needed for a power project inEurope. Cutting that time could save significantamounts. Initiatives such as the one-stop-shop forplanning issues adopted in the UK can help, whileAustralia cut approval times for projects by 11 per centin the space of a year by harmonising processes andmeasuring performance.

McKinsey also highlights the benefits of using andmaintaining existing resources. Denmark, forexample, has cut the cost of maintaining its roads bybetween 10 and 20 per cent by considering mainten-ance expenses as part of the total cost of ownership.It also cites an estimate that African countries couldhave saved $45 billion on road reconstruction byspending $12 billion more in the 1990s.

Investing in infrastructure should not just be seen asan end in itself, however: as well as improving andreplacing our capital assets, it boosts employment andtherefore has a beneficial impact on economic growth.McKinsey estimates that increasing infrastructurespending by the equivalent of just 1 per cent of global

‘‘$57 trillion will beneeded globallybetween 2013 and2030 simply tokeep up withpredicted growth”

17

GDP would translate into an extra 3.4 million jobs in India and 1.5 million in the US. Doing nothing could be expensive: the US is already losing more than$100 billion a year in excess commuting time and fuelcosts because of road congestion.

Relying on governments and public private partnership (PPP) projects will not, however, beenough. As McKinsey points out, PPP remains a verysmall part of infrastructure spending. If the UKachieves the goals set out by the government, around22 per cent of its spending will be financed in thisway. Elsewhere in Europe, it varies from zero to 12 per cent. Even if institutions increase their fundingto their own target levels, it would add $2.5 trillionbetween now and 2030 – nowhere near enough tobridge the gap. Government spending is also likely toremain subdued due to demographic changes andother fiscal pressures.

Going privatePrivatisations are one way of getting private moneyinto infrastructure. The OECD estimates that morethan $1 trillion of assets have been privatised, much ofthis in infrastructure, since the 1980s – including roadand rail projects in the UK, toll roads in Spain andtelecoms infrastructure across Europe. That has notalways been trouble-free, however. In Spain, the pre-crisis construction frenzy was not just in residentialproperty; thousands of kilometres of toll roads werealso constructed, but excess capacity coupled withthe severe recession means that traffic has been fartoo light to provide sufficient income and many of thecompanies have gone bust.

Nonetheless, such projects are an essential part ofthe future of infrastructure spending. “New businessmodels with private sector participation, notablyvariants of public private partnership models (PPPs)that are being increasingly used particularly in OECDcountries, offer further scope for unlocking privatesector capital and expertise,” the OECD concludes.

Stimulating private investment could have a significant impact on economic recovery. Accordingto McKinsey’s Investing in growth: Europe’s nextchallenge: “Private investment today is less constrainedthan other sources of GDP growth and thereforecould potentially play a larger role than it has typicallydone in the past. The one economic sector that hascapacity to spend across Europe is the non-financialcorporate sector. European companies have signifi-cant cash they could invest.”

Like McKinsey, the OECD also urges governmentsto look for ways to streamline and improve proceduresin order to help companies make big investments. Itpoints, for example, to EU measures to liberalise andstandardise the regulation of telecoms across theregion; the result was that productivity and valueadded rose by an estimated 9 per cent a year,compared with 6 per cent in the US.

Facilitating infrastructure spending clearly makes sense. As the OECD points out: “Infrastruc-tures are not an end in themselves. Rather, they are a means for ensuring the delivery of goods andservices that promote prosperity and growth andcontribute to quality of life, including the socialwellbeing, health and safety of citizens, and thequality of their environments.” n

‘‘Countries willhave to more thandouble theirinvestment inelectricitytransmission and distribution,almost doubletheir spending onroad constructionand increasewater supply andtreatmentspending by 50 per cent”

Marketinsight

Optimising attainment at workis good for everyone. Achievingit may lie in not just what you doat the office, but what youconsume there too.

18

performanceFuelling

t is 1pm and you have beenchained to your desk all morning.You are well prepared for your bigpresentation and there is justenough time to grab a bite to eatbefore the meeting. So youprobably buy a quick sandwich forlunch, while giving your notes afinal read-through.

Big mistake! That simple snackmay have just sabotaged yourchances of turning in a peak

performance. According tonutrition specialist Dr John Briffa,eating bread at lunchtime is one ofthe key causes of the “mid-afternoon slump” – the drop inenergy, attention and productivitylevels that affects so many of usduring the working day.

“It’s a common phenomenon forpeople to have productivemornings but then to experience acrash around 3pm to 4pm. Byavoiding bread, you can avoid thecrash,” says Briffa. “It’s notoverstating it to say that thesandwich is a major drain onproductivity. If I have something

important to do, I’ll never eatbread beforehand.”

Prioritising wellbeingThe issue of nutrition and generalwellbeing at work has beenclimbing the political and socialagenda in recent years. In 2005,the International Labour Organ-ization revealed some startlingfindings in a detailed survey offood at work, estimating that poor

diet on the job was costingcountries around the world up to20 per cent in lost productivity.

The drive for change gainednew impetus in 2008, when theWorld Economic Forum issued a“call for action” at its illustriouswinter gathering in Davos,Switzerland. Attended by 2,500 ofthe world’s leading executives,academics, economists and polit-icians, Davos was a powerful forumfor the message, which resulted inthe launch of the WorkplaceWellness Alliance (WWA) in 2010.

With more than 150 corporatemembers, the WWA’s aim is to

improve global health and product-ivity by making wellness a priority– starting in the workplace.Members include Novartis, theSwiss pharmaceuticals giant thatemploys 121,000 people in morethan 140 countries. Novartislaunched its company-wide BeHealthy programme in 2011 andruns a range of health andwellbeing activities to encourageemployees to exercise regularly. Italso offers incentives – forexample, the healthiest mealoption in the canteen will also bethe lowest-priced.

Other companies offer differentincentives to employees. AtHumana, the American healthcaregroup, members of its onsitefitness centres pay less the morethey exercise. Nestlé’s WellnessFor Me initiative aims to teachstaff of the Swiss-based globalfood and health group how tointegrate nutrition and physicalactivity into their daily habits.Employees are offered regularnutrition-education sessions andare also provided with free fruitand water (not chocolate).

Below-par workingSuch an approach may strike somehardened toilers as excessive, butBriffa believes that below-parworking is “endemic” in thecorporate arena. A practisingmedical doctor, he is a leadingauthority on the impact ofnutrition and other lifestyle factorson health and productivity. He

19

Do you want to fuel your best brainswith crisps, cake and fizzy drinks? Ifyou really want to serve party food ata business meeting, you might aswell invite Coco the Clown”

‘‘

20

maintains that there is a genuinelack of general wellbeing amongprofessionals, stemming from poornutrition, lack of fitness and/orinsufficient sleep.

Not getting enough sleep is agrowing problem for manyexecutives, and the impact can beprofound. One study from Queen’sUniversity in Ontario shows thatsleep deprivation has the same

detrimental impact on the bodyand brain as having a bloodalcohol level of 0.05 per cent,which is the legal limit for drivingin most EU countries. And turningup for work “sleep drunk” does notjust result in tiredness and aninability to concentrate – we nowknow that poor sleep can worsenserious medical conditions such as diabetes.

Briffa suggests, however, thatthere are ways to fight back andoptimise energy and effectiveness.Top tips for peak performanceinclude keeping the body wellhydrated – and with water ratherthan carbonated drinks or calorie-laden fruit juices. Even moderatedehydration can lead to a loss ofconcentration and increasedtension. “This is one of thebiggest, most under-recogniseddrains on performance in theworkplace,” says Briffa.

It is also important to take abreak at lunchtime, preferablyoutdoors, in order to gain light exposure, which can be

beneficial even on an overcastautumn day. Light is important for brain function, mood mainten-ance and the production ofvitamin D, and exposure of just 20 minutes a day can have ahugely beneficial impact.

Food for thoughtAnd then there is that simpleadvice of avoiding bread at

lunchtime. This can be put intoaction immediately and there issome compelling science behind it.

Grain crops such as wheat andcorn are relatively new introduc-tions to the human diet, whichhad previously been made up ofmeat, fish, seeds, vegetables andfruit. We only began to cultivatecrops about 10,000 years ago. Ifthat sounds like rather a long timeago, imagine for a moment thathuman evolution is telescopedfrom millions of years into onecalendar year: if human life beganon 1 January, then we wereexclusively hunter-gatherers fromthat date until about midnight on30 December, only adding grain toour diet on the last day of the year.

Briffa contends that our bodieshave not yet adapted toprocessing these “new” sources of nutrition, so they can comprom-ise our health and wellbeing overtime. The best diet, he says, is theone the human race has beeneating for longest, and that meansfar less wheat.

So to ensure a flying start to theday, toast and cereal should be offthe breakfast menu, replacedperhaps by yoghurt, fruit or eggs.Soup or salad can help you avoidthe wheat trap at lunchtime, whilenuts make a good snack at anytime of day.

Learning from athletesEating badly is not an option inthe world of sport and, when itcomes to high performance, thecorporate world can learn a lotfrom elite athletes, says Dr ChrisShambrook of Planet K2, thebusiness coaching company.

Shambrook should know: he hasbeen psychology consultant to theGreat Britain rowing team since1997, seeing it through the Sydney,Athens, Beijing and LondonOlympic Games. “Being anOlympian is about being obsessedwith performance,” he says. “Andwe can apply the same tools andtechniques in the business world,helping people to think, prepareand perform like elite athletes.

“Athletes understand thedemands of their environment andyou need to do the same inbusiness,” he adds. “We ask people to take a good look at theirparticular playing field, at thechallenges and obstacles. Whatare the demands of yourworkplace? How much energy will these tasks take? Think aboutyour nutrition and hydrationneeds, rather than getting to 3pmand realising you’ve had nothingto eat all day.”

While there is growing recognition among employers ofthe need to ensure employeewellbeing, Shambrook suggeststhat it is also up to individuals totake responsibility for their ownperformance – and that meanskeeping fit, eating healthily andgetting enough sleep.

‘‘Sleep deprivation has the samedetrimental impact on the body andbrain as having a blood alcohol levelof 0.05 per cent – the legal limit fordriving in most EU countries”

The InternationalLabour Organiza-tion estimated thatpoor diet at workwas costingcountries aroundthe world up to 20 per cent in lostproductivity”

‘‘

Those who don’t are “wilfullyunderperforming”, according toShambrook. “There is no need tomake things tougher than theyshould be. People have a choice:carry on working ineffectively andaccept a lower level of product-ivity, or make some changes.”

Playing with foodOne of the foremost corporatesexperimenting with food at work is Google, which is renownedfor its employee perks. Its co-founder Sergey Brin is said toinsist that no staff member bemore than 200 feet away from freefood. But last year the groupbecame concerned that its peoplewere eating too much of thesugar-packed sweets on offer,damaging not only their waistlinesbut also their performance.

So it made changes in its NewYork office, placing the supplies offree M&Ms in opaque containerswhile healthier nuts weredisplayed more prominently inglass jars. That resulted in the

2,000 employees there consuming3.1 million fewer calories fromM&Ms over a seven-week period.

And to encourage people to eatsmaller portions in its freecanteens, Google introducedsmaller plates along with thetraditional-sized ones. It found thatalmost one-third of employeesopted for the smaller plates – anddidn’t go up for seconds.

That said, Brin’s belief in theimportance of regular food intakewins support from Shambrook,who suggests that busy workersare more likely to deliver an eliteperformance if they eat and drinkproactively, rather than playingcatch-up. “Cyclists on the Tour deFrance don’t wait until they arehungry or thirsty,” he says. “Theythink ahead and fuel themselvesfor what is coming, rather thanjust replacing energy.”

It is not just regular intake thatcounts, however. Nutritionalquality is essential too.

“Do you really want to fuel yourbest brains with crisps, cake and

fizzy drinks?” Shambrook asks.“Or would you prefer them to behaving nuts, fruit and water?

“We need to think about the quality of energy we are taking in,” he says. “If you want toserve party food at a businessmeeting, you might as well inviteCoco the Clown.” n

Top tips for a peak performance

n Remember to eatn Avoid bread and biscuits at lunchtime

n Snack on fruit and nutsn Drink plenty of watern Go outside during daylight hours

n Have a good night’s rest

21

22

ur society ischallenged.Environmentalchallenges relatedto pollution,climate change,

water shortages and the depletionof natural resources put foodsupplies at risk, as well as theamount of clean water and cleanair in the world. Social challenges,such as rising levels of unemploy-ment – especially among youngpeople – rising social inequalityand decreasing social mobility arecreating unstable social andpolitical environments.

Governance challenges such asaccounting scandals and corrup-tion are contributing to large-scalecorporate failures and a lack oftrust in business as an institution.

Since large corporations are themain mechanism for organisingeconomic activities, it is nosurprise that their social andenvironmental impact and theirgovernance structure and

processes are under increasedscrutiny. Actually, corporations are larger than ever. The Global1,000, the 1,000 largest listedcompanies in the world, now hasaggregate sales of more than $34 trillion; in 1980 it had just $7 trillion in current terms(adjusted for inflation).

This growth significantlyexceeds global GDP growth,underlining the increased powerand importance these companieshave over future social progressand economic development. As aresult, both civil society andgovernments are trying to holdthese corporations accountable fortheir impact on society and theenvironment. But if we are tounderstand their impact, we needhigh-quality environmental, socialand corporate governance (ESG)metrics, and these are still at anembryonic stage in relation tofinancial reporting.

To highlight the underdevel-oped state of ESG reporting,

conduct the following experiment:choose at random 10 largecompanies from your country andtry to rank them on profitabilitymetrics such as return-on-equity(ROE). Since all companies reporttheir ROE, you will be able to rankeach company.

Then ask a couple of yourcolleagues to rank the samecompanies in terms of ROE. All ofthem will be able to rank eachcompany and, absenting signifi-cant concerns about accountingfraud, you will all reach the sameranking. Now try to do the sameexperiment by ranking companieson how engaged their workforce isor how satisfied their customersare. Or on how much water theyare consuming or how manycarbon emissions they areemitting. Or on how many corrup-tion cases have been detected inthe organisation or how manyemployees had accidents duringworking hours. It would be almostimpossible to construct a similar

Reporting for dutyEnvironmental, social and governance issueshave clearly moved up the corporate agenda,butGeorge Serafeim, associate professor ofbusiness administration at Harvard BusinessSchool, argues that certain important stepsstill need to be taken.

In myopinion

O

23

ranking, since only a fewcompanies provide information onthese metrics. And even if youcould, the lack of standards aroundhow you measure these metricsand the lack of monitoringprocesses (such as auditing) wouldlead you to disagree about theranking, since people would placelittle faith in the data.

Of course, there has beenconsiderable progress around ESGissues over the past 20 years, evenif the information environment issub-optimal. The number oforganisations issuing ESG reportsgrew from fewer than 30 in 1992 to more than 6,000 in 2013.Corporations increasingly provideESG information to explain theirimpact on the environment andsociety and how they areattempting to provide solutions to environmental and socialchallenges. The importance ofenvironmental and social impactfor businesses is reflected intrends such as the creation of a

new C-Suite position – the ChiefSustainability Officer – and thenumber of businesses that havesigned the UN Global CompactPrinciples, the signatories ofwhich grew from fewer than 1,000in 2003 to almost 8,000 in 2013.

Reaping the benefits of ESGMore recently, an increasingnumber of companies have beenengaging in minor or majorinnovations to improve their ESGperformance and have evenbenefited financially from doingso. Process innovations haveallowed companies to reduce theirenvironmental impact in terms ofenergy, water, carbon emissionsand waste – and save money atthe same time.

The US conglomerate 3M, forexample, has increased sales whiledecreasing carbon emissions, savingbillions of dollars in the past 20years. Similarly, Marks & Spencerhas achieved more than $300million in net benefits, over five

years, from its efforts to reduceenergy consumption, waterwithdrawal and waste generation.

Product innovations are takingplace to help other companies andconsumers to improve their

The number ofinvestors that havesigned the UNPrinciples forResponsible Invest-ment and committedto the use of ESGdata has grown from100 in 2006 to morethan 1,200 in 2013”

‘‘

energy efficiency or to mitigateworld problems such as lack ofdrinking water, obesity and lack ofeducation opportunities. Business-model innovations such asclosed-loop productions, inclusivesourcing of ingredients andmicrofinance are spreading, too.

Indicatively, both Siemens andGeneral Electric are creating newtechnologies that advance the useof renewable energy. The propor-tion of Siemens’ revenuegenerated by green technologiesin 2013 stood at 43 per cent, with€32.3 billion coming from eco-friendly products and solutions.

The Dow Chemical Companyhas invested a total of $1 billion inenvironmentally beneficialproducts such as new seeds andtraits. Along with the social benefitof higher crop yields and reducedcarbon emissions, the company’sreturn on this investment has beenestimated at $5 billion. And BMWrecently brought to market i8, ahigh-end sports car with superiorperformance and extremely low gas consumption.

The sustainability journeyFor most companies, the journeytowards sustainability involvesthree distinct phases: compliance,where firms manage risks associ-ated with current and futureregulations; efficiency, wherecompanies focus on activities thatimprove the bottom line –primarily through cost savings;and innovation and growth, wherecompanies focus on providingsolutions to societal problems andgrow their top line as a result.

Broadly speaking, 10 years agomost large companies were at thecompliance stage; now, most are atthe efficiency stage, while a fewleading companies have reachedthe innovation and growth stage.

Socially responsible investorshave focused on ESG data for awhile, but mainstream investorsare now following suit as corpor-ations try to use innovation tocreate economic value whilesimultaneously improving theirESG performance. In other words,investors are starting to think that better ESG performancecould ultimately lead to betterfinancial performance throughcost savings, increased salesand/or reputation enhancement.

The number of investors thathave signed the UN Principles forResponsible Investment andcommitted to the use of ESG datahas grown from 100 in 2006 tomore than 1,200 in 2013, withassets under managementexceeding $30 trillion. While there is certainly a lot of “signingbut not doing” among investors,studies suggest that many areseeking and accessing ESG data.Similarly, research has found thatfirms with better ESG disclosureor performance have better accessto finance.

Towards better dataHowever, for civil society andgovernments to hold corporationsaccountable for their impact andfor investors to make efficientcapital allocation decisions, they donot just need information; they

need high-quality information.Financial reporting has beeninstrumental in allowinginterested parties to holdmanagement accountable for acompany’s financial performance,and it has been used extensivelyby investors in evaluating thefuture prospects of a business.

The reason that reportedfinancial information is so widelyused is because society hasinvested heavily over the past 100years in increasing the quality ofthat information. The accountingstandard-setting process, theauditing methodologies andpractices developed and theregulatory enforcement andmonitoring agencies have allhelped to develop a high-qualityinformation environment, wherethe best business ideas receivefunding while the most effectivemanagement teams are put inplace to execute those ideas.

The ESG landscape is ratherdifferent. While it is true thatsustainability reporting providessome information around ESGmetrics, generally acceptedaccounting and auditing standardsdo not exist. Without any high-quality information, it is virtuallyimpossible to distinguishcompanies that are having a morepositive influence on society fromthe rest, so economic resources

24

For civil society and governmentsto hold corporations accountablefor their impact and for investors tomake efficient capital allocationdecisions, they do not just need information; they need high-quality information”

‘‘

can be misallocated and corporateresources squandered.

Fortunately, changes are afoot.Non-governmental organisationssuch as the Global ReportingInitiative (which was the catalystfor many companies to increaseESG disclosure), the SustainabilityAccounting Standards Board, theCarbon Disclosure Project and theInternational Integrated ReportingCouncil (IIRC) are creatingframeworks or standards aroundESG data.

Both companies and investorsare active in these efforts. Morethan 100 of the largest companiesin the world are participating inthe pilot programme of the IIRC,with a support network of about40 large institutional investors.

Integrated thinkingThe desired outcome of thisprogramme is integratedreporting, according to the IIRC:“A process founded on integratedthinking that results in a periodicintegrated report by an organisa-tion … a concise communicationabout how an organisation’sstrategy, governance, perform-ance and prospects, in thecontext of its external environ-ment, lead to the creation ofvalue in the short, medium andlong term.”

Similarly, more than 200companies and 100 institutionalinvestors have been participatingin the industry working groups ofthe Sustainability AccountingStandards Board, whose mission isto establish industry-basedsustainability standards for therecognition and disclosure ofmaterial environmental, social andgovernance impacts by companiestraded on US stock exchanges.

Governments and stockexchanges in Brazil, China,Norway, Denmark, Finland, France,Spain and South Africa haverecently mandated corporatereporting of ESG data. This is a

significant step in increasingtransparency, improving accounta-bility and enabling investors tomake better decisions.

At the same time, as morepeople pay attention to ESG data, companies have a strongerincentive to disclose goodperformance on ESG metrics and avoid disclosure of bad ESG performance.

I believe that the time is now right to decide the steps that we need to take to enhancethe quality of ESG reporting. Then companies that should berewarded for their contributionsreap the fruits of their efforts,while companies that should be held accountable for theiractions feel the heat. Corporatereporting is an important lever in shaping corporate behaviourand aligning the incentives ofbusiness with those of society. We should use it n

The author is a member of theStandards Council of the Sustain-ability Accounting Standards Board.Bridgepoint is a signatory of theUnited Nations Principles forResponsible Investing (UNPRI).

25

‘‘The Dow Chemical Companyinvested a total of $1 billion inenvironmentally beneficialproducts. Along with the socialbenefit of higher crop yields andreduced carbon emissions, thecompany’s return on this investmenthas been estimated at $5 billion”

Face to face

26

Taking a

biteout of the market

Jarosław Zawadzkihas been a keenconsumer of Dr Gerard biscuitsfor many years.Now he is the CEOand is on a missionto double the size ofthe Bridgepoint-backed company.

27

arosław Zawadzki nibblesthoughtfully on a custardcream. “We will produce30,000 tonnes of biscuits

this year. As each biscuit weighsjust 20g, that’s an awful lot ofbiscuits,” he says.

Dr Gerard is one of the leadingbiscuit manufacturers in Poland,with a small but growing exportpresence. Poland’s biscuit marketis expanding by around 8 per centper annum, as living standards rise and consumer tastes evolve.But Zawadzki plans to develop Dr Gerard at an even faster rate.

“We are a market leader inPoland, but we still only have an 8 per cent share. This market isvery fragmented so there is a lot ofroom for growth – both organic-ally and through acquisition,”Zawadzki explains.

“We are also keen to expandacross Central and Eastern Europe[CEE],” he adds. “Particularly in theCzech Republic, Slovakia,Hungary and Romania.”

Appetite for growthThis desire for expansion isrelatively recent. When Zawadzkijoined Dr Gerard in late 2011, thecompany was in trouble. Havingbeen founded in 1993 by a singleentrepreneur, Dr GerardKolanowski, the group struggledto find its way after he sold out

in 2010. “It was

difficult becausethe old teamwas not used tomaking its own

decisions and thenew team did not

know the business,”Zawadzki explains.

“So we created a team thatblended experienced hands and

new blood and we set up threedivisions: traditional, modern andexport. Traditional involved sellingto wholesalers who traded withindependent retailers, whilemodern focused on supermarketsand hypermarkets. Exports hadbeen treated as ad hoc, but wecreated a proper channel with agenuine strategy and focus.”

This shift paid off and, within afew months, sales were rising andconfidence was improving. At thispoint, Zawadzki began talking toBridgepoint about the future.

“It was clear from the beginningthat we shared a common visionfor Dr Gerard and a commonstrategy on how to get there. Weboth saw that Dr Gerard could bea consolidator in Poland and weboth wanted to create a profitable,branded business across the CEEregion,” says Zawadzki.

In October 2013, Dr Gerard wasacquired by Bridgepoint andZawadzki began to put to workhis ideas for growth.

“I am very lucky to have strongsupport from Bridgepoint and fromour staff. The managers I workwith are passionate about thisbusiness. They really care about it.They really want to reach ourtargets and they are confidentthat they will,” he says.

“That extends to our factoryworkers, too. Three years ago, thebig question was whether theywould still have jobs in the future.Now, the big question is ‘how arewe going to expand?’”

Dr Gerard employs around 1,150 people, and numbers aregrowing all the time.

“People are proud of thiscompany and so am I. When yourun a business you need to feelthat it has integrity, and that isexactly how I feel about DrGerard. We sell really goodproducts,” says Zawadzki.

J

‘‘People are focused on price, butthey are also much moreinterested in quality than maybethey were in the past. They are nolonger content just to buy thecheapest products on offer; theywant better quality, too”

28

Zawadzki knows whathe’s talking about: evenbefore he joined thebusiness, he was a keenfan of its products.

“I have been a heavyuser of Dr Gerard biscuitsfor 20 years. Before Ijoined, I didn’t really knowmuch about them, butwhen I realised theymade my favouritebiscuit, Pryncy Palki, I loved that,” he says,smiling. “And that is partof our strategy, actually.The brands are very well

known, but Dr Gerard, the umbrella group, isn’t. Thatis something we want to work on.”

Pryncy Palki, which are chocolate-covered wafers,may be Zawadzki’s first snacking choice, but hisenthusiasm for the company’s biscuits is notrestricted to that one brand.

“When we say a product is tasty, it is,” saysZawadzki. “When we sell chocolate biscuits, they areseriously chocolatey. We are fair and honest withconsumers, and that is what I like about the business.We’ve developed a platform that allows us to make anenormous range and we are constantly investing innew product development.”

Quality focusConsumers clearly approve of the Dr Gerard productrange. The company enjoys double-digit sales growthand extremely strong earnings growth, too.

“We are much more profitable than our rivals andour quality is better. The two go hand in hand.Because we are recognised for our quality, we can sell our products at a relatively higher price. Many of our products are unique. Noone else is making them, so wecan charge a bit more forthem. At the same time, werun a very lean ship so wekeep tight control of costs,”says Zawadzki.

For now, one of Dr Gerard’sbiggest challenges is keepingup with demand, especially forsome of its smaller brands.

“We have 200 stock-keeping units, 17 productionlines and three factories, so we have to be really onthe ball with logistics, purchasing and production.Our three most popular biscuits account for 50 percent of the business, but the rest is made up of lots ofsmaller brands – that can be difficult to manage.

“Now, we are investing in new production lines,increasing capacity and looking at add-on acquisitionsto boost capacity further. We are also really focusedon product development and quality improvement.”

Investment in marketing expertise is on the agendatoo. “We need marketers to support our sales peopleand help this business to grow, particularly outside ofPoland. This is a crucial part of our expansion plan,”he explains.

Dr Gerard has already had some success withexports, which Zawadzki attributes not just to thequality of his biscuits but also to the company’sflexible approach to customers.

“We are far more flexible and adaptable than someof the major consumer goods groups out there. Ifsomeone says they want 150g packages, rather than170g packages, we can do it. If they want orangecream rather than vanilla, we can do it. It’s easy for us. We can make these small changes in a fewminutes,” he says.

In fact, the group develops new products by makingchanges to existing ranges and offering them tocustomers to sample.

“It’s no big deal for us to make a batch of newbiscuits and give them to customers to try,” Zawadzkiexplains. “If they like them, that’s great. If they don’t,we can start again. The financial implications are verysmall and it helps us to forge strong relationships withour key customers.”

Delivering the goodsDr Gerard is a strategic supplier to Poland’s biggestsupermarket chain, Biedronka, as well as several other

We are flexible and adaptable. Ifsomeone says they want 150gpackages, rather than 170gpackages, we can do it. If they wantorange cream rather than vanilla, wecan do it. It’s easy for us”

‘‘

29

chains such asCarrefour and Leclerc.The group’s productsare also seen inindependent Polishretailers, and it isestablishing a presencewith both large andsmaller store groups in its target export markets.

“At home,” Zawadzki says, “supermarkets are takingmarket share from independents and we can benefitfrom that trend because we are flexible enough toadapt to their needs, but we already supply all themajors apart from Lidl.

Overseas ambitions“Outside Poland, we intend to grow the business bybuilding our brand and taking market share. We wantto expand the company across the CEE region and Iam confident that we can do it,” adds Zawadzki.

Several Dr Gerard biscuits have already won awards for being the best in Poland, and Zawadzkibelieves that the company is well placed to benefitfrom Poles’ increased interest in and awareness ofquality produce.

“People are focused on price, but they are alsomuch more interested in quality than maybe theywere in the past. They are no longer content just tobuy the cheapest products on offer; they want betterquality, too,” he says.

Dr Gerard aims to provide this quality and to beseen to be offering it. Almost all of the biscuitpackaging involves a section of transparent plastic so

that customers can see what they are buying. Thecompany has been investing in social media, too,engaging with consumers via Facebook and othernetworks in order to build relationships and trust.

“We are selling indulgence, really, and the best wayto tempt consumers is to invite them to try ourgoods,” says Zawadzki.

A life in foodZawadzki speaks from experience. Aged 41, he has spent his entire career in the food manufac-turing industry.

“My first job was at the Polish division of theFrench dairy group Bongrain. Then I went to theNorwegian conglomerate Orkla and, before joining Dr Gerard, I ran the CEE activities of La LorraineBakery Group, a Belgian business. So I have spent myadult life in the food sector, but this is the first time Ihave worked so close to home,” he says.

Zawadzki is extremely ambitious for Dr Gerard,aiming to double revenues over the next few yearsand become a top name in the CEE region.

“In five years’ time,” he says, “if someone in the CEE is asked to name a high-quality biscuit, I want Dr Gerard brands to be the ones they name.” n

Name: Jarosław ZawadzkiAge: 41

Nationality: Polish

Educated:Warsaw School of Economics

Family:Married, with two youngdaughters

Hobbies: Squash, skiing and motor racing

Car:Drives a black Jaguar XJ; races aNissan GT-R

Ambition: “To be happy with what I amdoing and proud of what I am achieving”

Regrets: “None”

People are proud of this company and so am I.When you run a business you need to feel thatit has integrity, and that is exactly how I feelabout Dr Gerard. We sell really good products”‘‘

30

Businesstrends

31

China’s hidden jewelsChina’s economic growth has been the subjectof hot debate in recent months. But with morethan 250 cities, the country’s opportunities arelegion – at least for those who know where togo and what to offer.

32

ravel along the 30km road betweenQingdao’s airport and the eastern coastal

hub’s biggest shopping centre, and constructioncranes are visible at every point of the journey.

There is both promise and danger in thosecranes. The government has promised reform,and knows that sustainable economic growth

depends not just on China’s premier cities but also onlesser-known, lower-tier cities such as Qingdao.

Reform will be thorny, however. Local governmentindebtedness is perilously high – particularly in the smaller urban centres. As debt-driven growth ispared away, the true economic worth of China’s lower-tiered cities will be exposed: those that depend onresources, have strong industrial bases or havedeveloped robust services sectors will emerge aswinners; for others, the great urbanisation story maywell fizzle and disappoint.

Qingdao’s successPlaces like Qingdao appear, for the moment, to bewinners. It is already a metropolis with a reportedannual GDP the size of Hungary’s and a population(at 8.7 million) some 10 per cent smaller. But even thisdoes not satisfy its ambitions. As China’s nationalgrowth slows to a “cruising speed” of around 7.5 per cent, Qingdao is aggressively targetingsomething closer to 9 per cent.

In the blur of Qingdao’s construction, it is possibleto stand at a set of crossroads that did not exist a yearago, wait for traffic lights that were not there sixmonths ago and choose between competing coffeeshops that were not there six weeks ago. For multi-national companies and their domestic Chinesecompetitors – vigorously scrutinising every aspect ofgrowth in second-tier cities and below – it hasbecome vital to find out who will seduce the locals.

Will it be Starbucks, or one of the 1,000 Korean andTaiwanese coffee shops scattered through China’ssecond-tier urban ecosystem? Will consumers washtheir hair with a L’Oréal product or a local brand?When they graduate from public transport to cars, willthey dare to be seen driving a Chinese brand?

Winners and losersFor European companies seeking to play theeconomic growth of China’s second- and third-tiercities, the business environment has changed consid-erably since the early days.

In the initial phases of China’s boom, the likes ofCarrefour, Tesco, Ikea and other multinationalconsumer product and food companies all rushed to bepart of the great growth story. Now, however, there is asharp delineation between the winners and the losers.Some have fared well, others less so, and some are evenstarting to scale back, despite the imperative ofassuring shareholders that they are giving priority totheir “China strategy”. Even among European luxury-goods makers, success has been unevenly distributed:surprising triumphs have been enjoyed by the likes ofCoach and Zara, while higher-end brands have taken ahit from the government’s campaign against officialcorruption and lavish gift-giving.

Many companies that find China most challengingsay that their difficulties arise from treating thecountry as a single bloc. The differences of consumerbehaviour, even between neighbouring provinces, canbe significant. Companies that base their strategieson an assumption that two third-tier cities at differentends of China will respond the same way to the samemarketing campaign, for example, should expectdisappointment, according to analysts.

There is also a measure of political risk: growth insecond- and third-tier cities is creating massiveopportunities for European pharmaceutical groups asincomes rise, access to healthcare improves andlifestyles and pollution generate more of the diseasessuch as diabetes and asthma for which Europeancompanies offer medicines. But China has chosen toput those companies under extreme pressure,cracking down on the way drugs are sold and howdoctors are incentivised.

Common featuresHowever, there are certain common features ofgrowth in second-tier cities and below that arebeginning to attract a new wave of Europeanbusinesses. Many are crucibles of innovation, centredon e-commerce. More and more people havesmartphones; apps and software are in demand.

As China’s nationalgrowth slows to around 7.5 per cent,Qingdao is aggres-sively targetingsomething closerto 9 per cent”

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Distribution channels for European goods andservices are changing dramatically, and those with theability to satisfy online retail demand will almostcertainly flourish.

In an increasing number of sectors, China’s second-and third-tier cities are at the vanguard of change.Last year, China became the world’s second-largestcinema box office – the effect of opening nearly 100new screens across the country each week. While theChinese authorities resist the influx of foreign films,and Hollywood lobbies for a larger quota, cinemas arechanging the way Chinese entertain themselves withtheir disposable income. It is in the smaller cities thatthe change has been most pronounced, and wherethe appetite for new entertainment burns strongest.

Last year, scores of large shopping complexes wereopened in China’s second-tier cities and more than1,000 smaller complexes are expected to open by theend of 2015.

There are certain commonfeatures in second-tier cities and belowthat are beginning toattract a new waveof Europeanbusiness. Many arecrucibles of innova-tion, centred one-commerce”

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It is growth, but can it last? Vacancy rates could be shockingly high as China’s e-commerce leapfrogsthe legacy bricks-and-mortar retail that dominates inthe West and establishes itself as the norm forChinese urbanites.

Less than an hour’s drive away from Qingdao, cityauthorities are wiping away a village of small factoriesto build a second airport – one of the 82 that Chinawill have completed nationwide (mostly in second-and third-tier cities) between 2011 and next year. Next to it will be a colossal, water-themed naturepark with hotels, villas and a high-speed railwaystation. And along the channel linking the new airportwith the city proper, scores of huge property develop-ments will offer residents and speculators “luxuryliving” apartments.

New consumersAnd behind all this – the new growth propellant thatso excites, confounds and perplexes – are the peopleof China’s new economy: the emerging middle classes,the wealthy and those lower down the financialspectrum whom China’s mass urbanisation projecthas only just begun to empower.

A recent Nielsen report showed that consumerconfidence, optimism about job prospects andoptimism about personal finance were expandingmost strongly in China’s second- and third-tier cities.The 113 million households and 252 cities theyrepresent, it seems, need absolutely no persuasion intheir quest to wean the economy off investment-ledgrowth and build China’s future on consumption.When these citizens have spare cash, clothes, dining

out and their children’seducation sit firmly at thetop of spending priorities.

For Chinese companies,many of the most enticingprospects lie with thesecustomers. Chow Tai Fook– the world’s largestjewellery retailer by manymeasures – has based itsentire growth strategyaround second-tier citiesand below. As thecompany freely admits,this is because those citiesare where Chinese aregetting married, finding

Consumer confidenceover job prospects andpersonal finance hasbeen expanding moststrongly in China’ssecond- and third-tiercities, which represent113 million householdsand 252 urban centres”

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Photo: Lewis Tse Pui Lung / Shutterstock.com

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their first white-collar jobs and having children – alloccasions on which jewellery is bought, and atincreasing values. The opening of a Chow Tai Fookbranch has, much like the appearance of a KFC orCarrefour, become the symbol of a city’s arrival on theradar of corporations, advertisers and investors; itsends a message, says Ben Simpfendorfer, Chinaanalyst at the investment consultancy Silk RoadAssociates, which says that “a middle class lives here”.Many have opened in recent years, evidence of theproliferation of poorer cities across the country.Second-, third- and even fourth-tier cities haveswollen in size as the government has encouragedgrowth in central and western China away from themore developed east coast.

Beyond the top fourFurthermore, property developers that first cut theirteeth in the four first-tier cities of China (Beijing,Shanghai, Guangzhou and Shenzhen) are nowthrusting their way into the hinterland. In July 2013,for example, the salesroom of the Bucking Citydevelopment outside the south-western city ofGuiyang opened for business. It was sellingapartments in a 16 million square metre project thatnumbers among the very biggest in the world. Thelargest, opened three years earlier and only a fewkilometres away, is an 18 million square metre projectcalled Garland.

Around Guiyang, some 15 other developments, eachlarger than 1 million square metres, are eithercompleted or under construction; this is astonishingeven by the standards of China, especially in as poor a province as Guizhou.

But this is where the greatest fissures lie. Thoseprojects have been fuelled by debt that was extendedin 2009 and subsequent years. Since then, times have

changed. The tone of Beijing’s rhetoric, and thebehaviour of its central bank in the final months of2013 and the early months of this year, suggest thatthe authorities are serious about reining in credit.This could hit the property market hard. Developersneed cash and are cutting prices, and buyers arefinding it harder to secure discount mortgages.

“The debt burden is the biggest issue, even withthe government providing economic growthmomentum,” says Zhou Chunsheng, a professor offinance at Cheung Kong Graduate School of Business.

Analysts at Gavekal Dragonomics believe that theprospects for second- and third-tier cities – and thequestion of which ones will actively propel nationalgrowth – can be split quite simply between winnersand losers. That will be defined, they suggest, by thedirection and pace of migration. Since China’s popula-tion is barely growing, cities that get bigger do so atthe expense of others. Out of 237 prefecture-levelcities, 30 per cent actually lost population between2000 and 2010, despite the overall movement ofhundreds of millions from the countryside to urbanareas. Cities with excessive outflows are, generallyspeaking, the ones where disproportionate invest-ment and debt accumulation has taken place.

What emerges strongly from the research, however,is that China’s population movements appear drivenby eminently sensible economic judgement. Peopleare moving from areas with fewer opportunities tothose with more. Urbanisation continues apace – companies just have to follow the people n

Chow Tai Fook – the world’s largest jewellery retailer by many measures – has based its entire growthstrategy around second-tiercities and below”

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Lastword

Mixed messagesWhen it was first invented, the out of office auto response seemed like theperfect way to ensure that you really could get away from it all. As JonathanGuthriepoints out, however, the phrase has developed a multitude of meanings.

mail is at the crux of humankind’s Faustianbargain with technology. Implicit in the powerit gives us to bother others is the obligation

to be bothered ourselves. The out of office message is generally as puny a defence against the torrent of communication as a palm-frond umbrella against a typhoon.

It is our own fault for succumbing to thepassive/aggressive lure of email. For me, theharbinger of doom was Robert Peston, a former bossof mine and now economics editor of the BBC.

One day he told me brightly: “There’s this thingcalled email. We can use it to communicate.”

The ground did not split asunder. But perhaps itshould have done, because emails change everything.

If you switch off your phone and disable voicemail,you are incommunicado. But emails will stack upwilly-nilly, mutely reproaching you for failing to reply.

If I go away for a fortnight, I can expect to findseveral thousand emails in my inbox when I return –like virtually anyone else in the workplace today. Indays gone by, this was almost a badge of honour, atestament to one’s own importance. Now, it is a curse.

Most of us can instantly delete emails frompersistent spammers but that still leaves masses ofbumf. Finding real emails within this quagmire, fromreal people, is slow going. But occasionally a gem willbe found amid the piles of rubbish, so we have tomake the effort.

This is time-consuming and irritating, hence thetemptation to check – and answer – emails evenwhen one is supposed to be on holiday. Smartphoneshave made this whole process that much easier andthereby reduce the extent to which anyone takes outof office notifications seriously.

The consequence is bitterness. Most of us imagineourselves to be more important than everyone elsedeems us to be (life would otherwise be unbearable).The implied slight of an unanswered email thereforeextends into holiday time.

I still carry a handheld emailer and a lowfunctionality mobile. The duplication matters less to

me than the ability to read emails and field callssimultaneously, although younger colleagues regardme as hopelessly out of date. A handheld emailer has one key advantage: on holiday you can stick it in adrawer and forget about it, and in a few days thebattery goes flat.

The dead device enables the owner to assert moralascendancy over a partner with a smartphone whosejob allegedly requires them to reply to emails fromclients and colleagues at all times.

“I just wish we could spend some quality timetogether as a family,” sighs the late adopter, assmartphone user combines snacking on tapas withresponding to Alard in the Frankfurt office – andprobably doing neither very well.

So what can you do?For a start, out of office notifications should be

short. “I’m away” is good. “Catch me if you can” isunnecessarily flippant. “I’m on leave” is better than“I’m on holiday”. The first implies that you are awarrior, taking a deserved furlough from the war zonethat is the fast-moving consumer goods industry. The second conjures visions of someone in a kiss-me-quick hat.

You do not have to write a treatise telling recipi-ents to contact Janice while you’re away or Ranjit ifJanice is unexpectedly laid up with her back problem.Colleagues and acquaintances should be capable ofworking out what to do in your absence. If they aren’t,don’t worry about them.

Probably the best solution to the dilemmas createdby always-on email is to become the chief executiveof a FTSE 100 multinational. You can then deploy ahighly qualified personal assistant to answer emailson your behalf, regardless of whether you’re workingor on holiday. That’s if you dare leave your inbox insomeone else’s hands… n

Jonathan Guthrie is the City editor of the Financial Times. He wrote this articleon a day off, having first set his out ofoffice to “stun”.

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