Pepsico, Inc. - Shareholder/Analyst Call
PepsiCo Inc. (PEP)
May 02, 2012 9:00 am ET
Executives
Indra K. Nooyi - Chairman and Chief Executive Officer
Maura Abeln Smith - Executive Vice President of Public Policy & Government Affairs, General Counsel and Corporate Secretary
Operator
Before we begin, please take note of our cautionary statement. This presentation includes forward-looking statements based on currently available information. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Also, defined disclosures and reconciliations of non-GAAP measures that we may use when discussing PepsiCo's financial results, please refer to the Investors section of PepsiCo's website under the Investor Presentation tab. And now please welcome the Chairman and Chief Executive Officer of PepsiCo, Indra Nooyi.
Indra K. Nooyi
Good morning, everyone. On behalf of PepsiCo's Board of Directors and our entire management team, it's my privilege to welcome all of you in the room and those joining us via webcast to PepsiCo's 2012 Annual Meeting of Shareholders.
It was as a pharmacy counter right here in New Bern in 1898 that a pharmacist named Caleb Bradham set about making a fountain drink that was both delicious and refreshing, what he originally called Brad's Drink became Pepsi-Cola. And 110 years ago this September, Bradham filed a trademark for his now world-famous drink. Since then, we have grown into a global food and beverage leader, but we have never forgotten where we came from. We are absolutely delighted to be back in New Bern today.
Even beyond New Bern, we have a rich heritage here in North Carolina and have continued to maintain incredibly close ties with the state over the years. In fact, former Governor Jim Hunt has been a longtime advisor to PepsiCo. We feel right at home here, gathered with members of our New Bern family, and we couldn't risked -- we couldn't not accept the invitation Governor Bev Perdue extended to us to host our shareholders' meeting here in New Bern. Thanks to all of you for joining us here on this location.
I'd like to begin today by acknowledging the shareholders who have taken the time to submit proposals for us to consider. Ms. Hannah Freedberg is here, representing the New York State Common Retirement Fund. We welcome Mr. John Skinner, who will present a proposal on behalf of Ms. Betsy Krieger, and Mr. Anton Washington [ph] is here on behalf of Mr. Kenneth Steiner. Thank you all for being here today.
And it's nice to see several of our partners and members of the PepsiCo family here today. I'd like to welcome our former Chairman and Chief Executive Officer, the wonderful Don Kendall. Don? And its special pleasure to welcome Jan Calloway, who's late husband, Wayne Calloway, succeeded Don Kendall as our Chairman and Chief Executive Officer. And Wayne Calloway was from North Carolina. Jan Calloway.
And we are happy to be joined by Jeff Minges, the President and CEO of Minges Bottling Group, a respected leader of the local business community and our franchise partner for many counties across the great state of North Carolina. Jeff, welcome, and Jeff's 2 sons. Welcome to all of you. All 3 look like sons.
Next, I'd like to welcome and introduce the members of our Board of Directors who will each stand as their name is read. This year, we bid a fond farewell to Arthur Martinez, the brilliant former Chairman of the Board, President and CEO of Sears, Roebuck and Co., who served on our board with distinction since 1999. And this year, we also welcome Alberto Weisser, the Chairman and Chief Executive Officer of the agribusiness and food company, Bunge Limited, who joined our board in 2011.
We also welcome here in New Bern today Ian Cook, Dina Dublon, Victor Dzau, Ray Hunt, Alberto Ibarguen, Jim Schiro, Lloyd Trotter, Dan Vasella, Shannon Percy Rockefeller and Shona Brown. If you'll please stand to be acknowledged.
Now it's my pleasure to introduce members of the PepsiCo leadership team, starting on the desk with Maura Smith, Executive Vice President, PepsiCo General Counsel, Public Policy, Government Affairs and Corporate Secretary. We're also joined by John Compton, President of PepsiCo. John? I'll read everybody's names one after the other, then you all can stand up. Saad Abdul-Latif, Chief Executive Officer of PepsiCo Asia, Middle East & Africa; Al Carey, Chief Executive Officer of PepsiCo Americas Beverages; Zein Abdalla, Chief Executive Officer of PepsiCo Europe; Brian Cornell, a former member of our executive team. He left and became CEO of Michaels and then Sam's Club. And then returned home to us in March as Chief Executive of PepsiCo Americas Foods; Hugh Johnston, Executive Vice President and Chief Financial Officer; Dr. Mehmood Khan, Executive Vice President and Chief Scientific Officer of Global Research and Development; Cynthia Trudell, Executive Vice President, PepsiCo's Chief Human Resources Officer; and Enderson Guimaraes, President of Global Operations of PepsiCo. If all of you could stand, please.
Before we begin our formal proceedings, I'd like to take a few minutes to comment on our business. PepsiCo today is a strong and profitable company. We are a $66-billion global powerhouse, the largest food and beverage business in North America and the second-largest food and beverage company in the world. More than 1 billion times a day our fantastic products refresh and delight people in more than 200 countries and territories. If you look around the room, you'll see that we've proudly displayed 12 of the most powerful brands in our portfolio, brands like Pepsi, Mountain Dew, Gatorade, Tropicana, Lay's, Doritos, Cheetos and Quaker. Our beloved snack and beverage and nutrition brands are delivering solid results and returns to shareholders.
In 2011, PepsiCo's core net revenue was up 14% to $66 billion. Core division operating profit rose 7%, while core operating margins of 16%, core earnings per share grew 7%. And on a core basis, we achieved a net return on invested capital of 17% and a return on equity of 31%.
Management operating cash flow, excluding certain items, reached $6.1 billion. Importantly, we returned $5.6 billion to you, our shareholders, through share repurchases and dividend. That brings our total over the past 5 years to $30 billion.
We entered 2012 in a good position to grow, with $22 billion brands, a balanced portfolio of snacks, beverages and nutrition products, a presence in emerging and developing markets and developed markets, and emerging and developing market revenue have tripled in the past 5 years, and products that are in the sweet spot of several global trends.
And that portfolio momentum has challenged the first quarter of 2012. Our Q1 earnings were in line with our expectations. Core earnings per share was $0.69. Net revenue grew 5% on a constant-currency basis, and we offset $300 million of commodity cost inflation in our day-to-day operations. We had net revenue gains across all of our 4 business units on an organic basis. In global snacks, global beverage revenues grew and global nutrition revenues grew 10%. In emerging markets, net revenue was up 13% on a constant-currency basis.
And for you, our shareholders, we returned almost $1 billion. And in 2012, we expect to return more than $6 billion to you, our shareholders, this year. In fact, our dividend will increase 4% this year from $2.06 to $2.15 per share for the June payment, making this our 40th consecutive year of dividend per share increase.
But we also know we can do more to meet the expectations of you, our shareholders. Going forward, we're taking steps to further strengthen our company in 5 specific areas, and we want to do that to better position PepsiCo to drive long-term sustainable profit growth.
First, we are stepping up our brand investment. This year, we are significantly increasing our investment in advertising and marketing. We are shifting more of our A&M to working A&M rather than nonworking A&M, which is payments to agency fees. We're shifting it more to TV and digital marketing. And we're focusing our A&M investments to drive growth behind these 12 mega brands you see on the side of the room here, including brands like Pepsi-Cola, which is launching its first global campaign in the brand's history. That's going to be launching this month. I hope you stop by the Live for Now wall in the lobby, and that'll give you a glimpse of the new campaign. We believe that all of these efforts will further strengthen our big global brands, translating into greater sales in 2013 and beyond.
Second, we are energizing our businesses by making innovation a company hallmark, and our goal is to double the contribution of new products to our total revenue. We have been good at refreshing our brands, doing a lot of line extensions. Now we're bringing new focus to driving breakthrough products and platform that we can leverage around the world. We are also accelerating investments in research and development in key areas like packaging, premium innovations and value-oriented products and food service opportunity.
Let me just share a couple of examples with you. We just debuted a product called Pepsi NEXT, a product that tastes -- that delivers the great taste of Pepsi-Cola with 60% less sugar. It's a game-changer in the cola business, and I hope you enjoy some of the Pepsi NEXT products out there in the lobby, or better still, take some home with you in your shopping bag when you leave our shareholders' meeting today.
We also built on our beverage relationship with Taco Bell to jointly launch Doritos Locos Tacos. It's a traditional Taco Bell with a Nacho Cheese-flavored Doritos shell. It's had a phenomenal debut, with sales of more than 1.5 million taco shells the day. This shows how we can leverage our brand into building bigger, new platform.
And Quaker recently launched its newest hot cereal innovation, Quaker Real Medleys. It's made from premium rolled oats, whole grains, chunks of real fruit nuts in a convenient single-serve bowl, and it's absolutely delicious. Please, I urge you to try some, and it's available in the lobby.
These are just first of many exciting, new products that will be introduced in 2012 and beyond. So innovation is going to become an even bigger hallmark in our company.
Third, we are working to take execution to a whole new level across the world. Last year, we laid the groundwork for a global network to simplify all of our processes, reduce costs and increase our speed to market. This year, we are measuring and driving execution across every element of the value chain to increase efficiency, quality and service, to get to absolute best-in-class levels. And we're already beginning to see great results with our customers.
Last month, we signed an agreement with Family Dollar, the PepsiCo's snacks customer with more than 7,000 stores in the U.S., to become a beverage customer also. And our recent conversion of Papa John's from the -- from our key competitor was one of the fastest ever, with 3,000 Papa John's locations converting to Pepsi products in just 3 weeks. And we're also very proud of the fact that beverage purchases at Papa John's have been significantly higher since Pepsi products became available at Papa John's.
And earlier this week, we announced our agreement with DineEquity, the largest full-service restaurant operation of the country, for PepsiCo to be the exclusive nonalcoholic beverage provider for 3,300 Applebee's and IHOP restaurants in the United States. And I think this is a fantastic opportunity for us to build on our already strong relationship with Applebee's and through the new partnership with IHOP, to sell a variety of our beverages and Quaker products. So that's execution.
And fourth, we are taking steps to make PepsiCo a lot more productive. At PepsiCo, we have a mantra which says that, "Every penny has to be a prisoner." And we're undertaking a series of initiatives that we expect to generate cost savings of about $3 billion over the next 3 years.
We want to better leverage our tremendous scale, and what we're doing is focusing our attention on simplifying and improving our global processes, planning, portfolio management, new product development, go-to-market decision-making. We're just going to look for ways to become a lot more efficient. And when we're done with this sort of a look across the company, we're going to think, act and win better as one global company, leveraging the true scale of PepsiCo.
Fifth, we're taking steps to drive higher returns on our invested capital and cash returns to you, our shareholders. In quarter 1 alone, we reduced our net capital spending by $122 million while cutting capital expenditures as a percentage of sales over the last 4 quarter.
We remain committed to returning cash to you, our shareholders. And in 2012, we have a clear, focused game plan that's allowing us to return over $6 billion to you, but more importantly, compete effectively in the short term while positioning us for sustainable long-term growth and shareholder value creation.
With strong style iconic brands that are loved around the world, we have made great progress in Q1, and we plan to continue to build on that momentum. These steps will also ensure that what began here in New Bern will remain strong for years to come. We have never been more excited about PepsiCo's future.
Thank you very much for your time. And now, I'll turn the meeting over to Maura Smith to continue the proceeding. Maura?
Maura Abeln Smith
Thank you, Madame Chairman, and good morning, everyone. I'm pleased to report that a majority of the votes entitled to be cast at this meeting are represented today in person or by proxy, and therefore, we have the necessary quorum to conduct this meeting under North Carolina state law and our bylaws.
If anyone has not yet voted and would like to do so by ballot here today, please raise your hand, and we'll have a staff assistant come by and pick up your ballot. If you're the holder of a convertible preferred stock, please tell the staff assistant that that's your stockholding, and she can give you the appropriate ballot.
Please remember to vote on all items. Do not just vote on which you wish to change your vote this morning. Please also remember to sign your ballot. If you have previously voted by proxy, you do not need to vote today, unless you wish to change your vote.
Indra, I turn it back to you.
Indra K. Nooyi
Thank you, Maura. Now that we have a quorum, I declare this meeting to be duly convened for purposes of transacting such business as may properly come before it in accordance with state law and our bylaws. It is now -- in order to proceed with the meeting, then I hereby declare the polls to be open.
We have 7 agenda items this morning. The first is the election of directors. The second is to ratify the appointment of KPMG LLP as the company's independent registered public accountants for fiscal year 2012. The third is an advisory vote on executive compensation. The fourth is the reapproval of the performance measures available under PepsiCo's 2007 Long-Term Incentive Plan. We then have 3 shareholder proposals that will be voted on, if properly presented.
In proceeding with the meeting, we will introduce all agenda items and then we will open the floor to questions relating to the agenda items only. I ask you to hold all questions in our agenda items until we actually open the floor, and please direct your questions to me -- only me. The proponents of the shareholder proposals or their representatives will have 5 minutes to present each shareholder's proposal. After we address any questions regarding the agenda items, we will collect all ballots, then ask our inspector of election to tabulate of the voting results, and at the end of the meeting, we will open the floor to general questions.
So let's begin with our first item, which is the election of directors. I place before the meeting to serve as directors of the coming year the 12 individuals whose names and biographies appear on the proxy statement. Our board recommends a vote For each of the nominees for director.
We now turn to the second agenda item, ratification of the appointment of KPMG as our independent registered public accountants for 2012, which I place before the meeting. John Chapman and Adam Colaco [ph] are here with us, representing KPMG. Our board recommends a vote For ratification of the appointment of KPMG as our independent registered public accountants for 2012.
The third agenda item is the advisory vote to approve the compensation of the executive officers named in the proxy statement, which I place before this meeting. Our board recommends a vote For the advisory resolution to approve executive compensation.
The fourth agenda item, reapproval of the performance measures in our 2007 Long-Term Incentive Plan, which I place before the meeting, and our board recommends a vote For reapproval of the performance measures.
We'll now move onto the shareholder proposals and the order that they appear in the agenda. Each of the shareholders or their representatives will present their proposals.
Now we turn to our first shareholder proposal, submitted by the New York State Common Retirement Fund, regarding disclosure of political spending and lobbying activities with Ms. Hannah Freedberg, the representative of the New York State Common Retirement Fund, please introduce yourself and the proposal.
Hannah Freedberg
Hello, thank you for having us. Fellow shareholders, my name is Hannah Freedberg, and I'm here today with Corporate Accountability International. For over 35 years, Corporate Accountability International has worked to hold corporations accountable and to protect people and the environment from corporate abuse.
I am speaking today on behalf of the New York State Common Retirement Fund to introduce the fund's shareholder proposal, as well as to offer our support for this measure. The measure aligns with our vision for increased accountability for the political activities of corporations. This proposal asks PepsiCo to provide a report on its lobbying expenditures, including indirect funding of lobbyings with trade associations. The New York Retirement Fund's proposal is right in line with Corporate Accountability's priorities, and we're honored to have the opportunity to speak on their behalf.
Transparency and accountability in corporate spending to influence legislation are in the best interest of PepsiCo's shareholders. Oversight of lobbying is a board responsibility under Sarbanes-Oxley. Without a clear system ensuring accountability, corporate assets can be used to promote public policy objectives which may pose risks to PepsiCo and its shareholders.
Unfortunately, while lobbying oversight is a board responsibility, most companies do not have lobbying oversights in place. Out of the S&P 500, 64% of companies make no mention of lobbying activities, policies or oversights. Last year, before this initiative started, only 13 companies in the S&P 500 provided investors with information on how much they spent on lobbying.
Corporate federal lobbying exceeds other political expenditures by a 9:1 ratio. In 2010, S&P 500 companies spent a total of $1.1 billion on political contributions and lobbying, with $979.3 million in federal lobbying expenditures comprising 87% of this spending. And the lobbying figure does not even include the corporation's state-level expenditures.
PepsiCo spent about $10.3 million in 2010 and 2011 on federal lobbying activity, according to federal disclosure reports. But there is incomplete disclosure about spending at the state-level, where disclosure is not comprehensively required by law. Through internal research, the New York Common Retirement Fund found more than $700,000 in 2011 state-lobbying expenditures by PepsiCo in 8 states, but this disclosure presents only a partial picture.
Corporations can easily contribute corporate resources to trade associations or other organizations that lobby indirectly on their behalf without specific disclosures or accountability. Lobbying by trade associations and the corporate contributions that fund this activity are not broken down and reported.
In 2009, the Chamber of Commerce and 7 other trade groups took in more than $1.3 billion and spent some $500 million on lobbying and other political activity. And in 2010, the Chamber spent $132 million on lobbying involving financial reform legislation.
Support for disclosure is part of emerging governance best practice. The International Corporate Governance Network, representing more than $18 trillion in assets, supports lobbying disclosure and political disclosure as best practice and supports disclosure of any amounts over $10,000.
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Publicly available data does not provide a complete picture of PepsiCo's lobbying expenditures. PepsiCo's board and its stockholders need to complete disclosure to be able to evaluate the use of corporate assets through direct and grassroots lobbying and the risks spending poses to stockholders. We urge stockholders to vote For Proposal #5. Thank you.
Indra K. Nooyi
Thank you, Ms. Freedberg, and thank you for making the trip to New Bern to share your thoughts with us. Let me take a minute to share with you our board's position on this matter as outlined on our Proxy Statement. Your proposal calls for the report on PepsiCo's political spending and lobbying policies and practices. PepsiCo's active participation in public policy matters, including participation in lobbying activities on topics of relevance to our business, is essential to our company. We understand that our engagement in public policy matters is an important issue for shareholders and agree that transparency and accountability are warranted.
As such, our shareholders can obtain very detailed information on PepsiCo's website about our policy and procedures -- and policy and procedures governing public policy matters, including lobbying activity. On the website, you will find disclosure of our annual expenditures on federal lobbying-related activities with a link to PepsiCo's quarterly federal lobbying reports. I note that PepsiCo follows all applicable campaign finance, disclosure and other rules, regarding both political giving and reporting on lobbying activities and has implemented internal controls to promote compliance with all these rules.
You will also find on our website a list of PepsiCo's key memberships in industry and trade groups, such as the U.S. Chamber of Commerce. We work with these groups because they represent the food and beverage industry and the business community as a whole on a wide range of issues that are critical to PepsiCo's business.
Because we do not always agree with all of the views that's passed by these organizations, we do not allow these groups to use our dues or similar funds for exceptional political expenditures without our prior consent. Note that we undertake an annual review of the benefits and challenges from our membership in each key trade association so that we can ensure that our continued membership is consistent with our strategic goals and objective.
It is important to note that our board has active oversight of PepsiCo's public policy activities through its Nominating and Corporate Governance Committee, which annually reviews and assesses PepsiCo's political expenditures and lobbying activity. We recommend that shareholders do not support this proposal, because PepsiCo already provides very detailed information to its shareholders on these matters.
The next item on the ballot today is the shareholder proposal submitted by Ms. Betsy Krieger, requesting that the board establish a Risk Oversight Committee of the Board of Directors. Mr. John Skinner, would you please present this proposal?
Kristin Urquiza
I'm not John Skinner, but I'm Kristin Urquiza. I'll be presenting the proposal. Thank you for the opportunity to speak here today. I also work with Corporate Accountability International and direct our Think Outside the Bottle Campaign. And for several years, this corporation has failed to respond to calls for more transparency in regards to water quality testing information for Aquafina bottled water. And our member and fellow share owner, Betsy Krieger, has decided to give voice to tens of thousands who've raised this concern with Pepsi by filing this specific resolution. So I'm honored here -- to be here to talk about that with you all today.
We have actually attended this corporation's Annual Meeting for the past several years to bring the voice -- people from across the country represented by the Think Outside the Battle campaign. And Pepsi was the first major bottler to respond to our campaign when it agreed to label the source of Aquafina's public water on the label. And this action, it set a standard for transparency and responsibility for the entire industry.
However, Pepsi has not responded with similar leadership on the further need for disclosure of water quality reports comparable to those of public water systems. And this public concern has actually raised this issue so high that the General Accountability Office for the federal government has taken on an investigation into to regulatory structures governing the bottled water industry, including Pepsi.
Following that investigation, Congress issued letters to major bottlers, 13 of them, including Pepsi, demanding to know more information, including these water quality reports about the water in the bottle. And the failure to issue these quality reports and breaches in quality has opened up Pepsi to unacceptable financial legal and social risks and is deceiving consumers.
For decades, the bottle water industry has marketed bottled water as pure and safe without releasing the testing information to back it up. Public water systems must release regular, periodic reports on tap water, including the source, treatment method and any breaches in quality or concern about water safety that have occurred over a selected time period. Additionally, these systems provide the media in complete disclosure of any health risks to the public in order to preserve public health.
Bottled water manufacturers like Pepsi are not required to adhere to the same standards, and quality information on Aquafina provided online offers little information about when, where and how the water is tested. More importantly, it provides no plan or guarantees that the corporation can and will properly and immediately notify the public if there are any breaches in water quality.
Such measures are important, and they're important when consumers are considering tap water versus bottled water. But they're also important when there are possible grade health risk from contaminated bottled water. While Aquafina may be sourced from tap water that is indeed safe, it goes through a complicated process of further treatment and bottling that can compromise quality. And even so-called perfect systems can be subject to human error and malfunction.
For example, in 2004, Coke's Dasani had to withdraw every single product from the United Kingdom because of a breach in water quality. And there have been several other instances of bottled water contamination in the U.S., including in cases of bottled water to victims of tornadoes that we saw recently in the Midwest. So without this proper disclosure standard, it is impossible to know how many more of these breaches happen every year, putting the public at risks.
Now this resolution is a reaction to the management team's failure to follow through on a commitment to adequately address the issue. It calls for the creation of board level committee to handle risk oversight and accountability. And at the management level, oversight of these risks is assigned to a management committee on risk management.
However, our organization has brought these concerns to CEO Nooyi, along with several other members of the corporation's executive team, without proper action. We even toured Aquafina bottling plant where we should resolved in our call for more disclosure, and we have, again, been met with inaction.
So faced with this situation, we are engaging the Board of Directors to adequately address the need for proper water quality report disclosure, and this resolution creates a board level committee that is tasked solely with managing risks for the corporation. And while the Audit Committee is currently charged with risk assessment duties, this separate committee will be better able to dedicate the necessary resources to making sure that important concerns about risks are properly addressed.
This committee will serve all shareholders as the corporation faces many substantial financial and public health risks due to the nature of its business, but will specifically be prepared to address the concern for action around transparency practices for Aquafina bottled water. And the resolution is a key reform to make sure that this corporation continues its commitment of responsibility to the public and its obligation to [indiscernible] shareholders.
So with that, we strongly urge your consideration. Thank you.
Indra K. Nooyi
Thank you. I don't even know where to begin. First, let me start off by saying, we have the greatest respect for your organization, and we've had a long relationship with you. You visited us many times, and you visited with our plants. This proposal was about the Risk Oversight Committee, so I want to come back to that.
But I don't want to lose your points on Aquafina. You visited our plant. Aquafina is the cleanest water available in the market. We care for our reputation enormously. All of us drink Aquafina. I want everybody to know that when you drink a bottle of Aquafina, PepsiCo stands by the quality. So there is absolutely no quality issue in Aquafina and never will be. And if anything is a problem, we'll catch it before it reaches the market. You gave us some suggestions to post water quality reports, we'll look into that. But I do not want any hints of suggestion that there might be a problem with Aquafina quality. Let me [indiscernible] aside.
Let me now come to our perspective, our board's perspective on the matter of the Risk Oversight Committee. Our board has ultimate responsibility for risk oversight under PepsiCo's integrated risk management framework. In carrying out this oversight responsibility, the board has delegated certain elements of its oversight function to committees of the board. These committees report to the board regularly on matters relating to their specific areas of risks the committees oversee.
In addition, throughout the year, the board and the relevant committees receive updates from management regarding various enterprise risk management issues, and they dedicate a portion of their meetings to reviewing and discussing specific risk topics in greater detail.
In light of the robust procedures already in place, our board believes that establishing a separate Risk Oversight Committee is unnecessary. We recommend that shareholders do not support this proposal.
The final item on the ballot today is a shareholder proposal submitted by Mr. Kenneth Steiner, requesting that the board adopt a policy, the Chairman of the Board shall be an independent director. Mr. Anton Washington will present the proposal on behalf of Mr. Kenneth Steiner. Mr. Washington?
Unknown Shareholder
Shareholders request that our Board of Directors adopt the policy that, whenever possible, the Chairman of our Board of Directors shall be an independent director, who has not previously served as an executive officer of our company. This policy should be implemented so as not to violate any contractual obligations in effect when this resolution is adopted.
The policy should also specify how to select the new independent chairman if a current chairman ceases to be independent between annual shareholder meetings. To foster flexibility, the proposal gives the option of being phased in and implemented when our next CEO is chosen. This proposal topic won 50%-plus support at 4 major U.S. companies in 2011. The text of this Proposal 7 is on Page 72.
Thank you.
Indra K. Nooyi
Thank you very much, Mr. Washington. Let me share with you our board's point of view on this topic as outlined in the Proxy Statement. We believe the board should retain the flexibility to determine the most effective leadership structure for PepsiCo. PepsiCo's governing documents allow our board flexibility to determine whether the roles of the Chairman and Chief Executive Officer should be separate or combined, based upon the company's needs and the board's assessment of PepsiCo's leadership from time to time. Our board carefully reviews PepsiCo's leadership structure on a regular basis, as the decision about who should lead the company is one of the most important responsibilities the board has to its shareholders.
I highlight to you that PepsiCo has strong corporate governance practices in place to provide for board independence and effective management oversight. For example, whenever the Chairman of the Board is not an independent director, the independent members of the board elect an independent director to act as the presiding director. The presence of an active and independent presiding director provides for independent oversight of management and meaningful coordination between the Chairman and the independent director.
We believe that it's critical for our board to retain the ability to choose the most effective leadership structure for PepsiCo because the board is in the best position to make this determination. We recommend that the shareholders do not support this proposal.
Are there any questions about any of the agenda items we just reviewed? As a reminder, in order to accommodate all of you who wish to pose a question, each question should be limited to 3 minutes. This is regarding the agenda items we talked about so far. To facilitate this process, you will hear a chime indicating when it's time for you to begin to finalize your question and remarks, a loud chime. Any questions on the agenda items?
Okay. Is there any outstanding ballots at this time, please raise your hand and we will collect. I please remind you to vote on each item.
[Voting]
Some more ballots?
Maura Abeln Smith
Any other ballots?
Indra K. Nooyi
We now seem to have all the ballots. And since all those desiring to vote have done so, I now declare the polls closed. Maura?
Maura Abeln Smith
Yes. The ballots and the proxies will be held in the possession of our Inspector of Election, Ginny Lee [ph] from Computershare share owner services. Ms. Lee's responsibilities as Inspector of Election is to tabulate the voting and shall begin to do so now while we take a brief break.
Indra K. Nooyi
And while the votes are being tabulated, we want to share with you a mini-movie created by our associates from the Greater China Region that celebrates the Chinese New Year and features Pepsi, Tropicana and Lay's, all of which share the same Chinese character for happiness in their local names. This was the most watched online video in China this year. And I'm not kidding, 700 million people viewed this video. 700 million people. This little movie is called Bring Happiness Home. So please watch.
[Presentation]
Indra K. Nooyi
Maura has the preliminary results of the balloting. Maura?
Maura Abeln Smith
Actually, I'm still waiting for the preliminary results. So we have another minute or so. Here they come.
Indra K. Nooyi
Do you have it?
Maura Abeln Smith
There we go. Let me report on the preliminary results of the voting. I remind everyone that the holders of our common stock and the holders of our preferred stock to -- vote together on all matters as a single class.
With respect to the nominees for directors, I'd like to report that all of the director nominees have been duly elected. Ballot item #2, the ratification of auditors, received approximately 98.97% of the votes cast in favor of KPMG continuing as our independent auditors. Ballot item #3, the advisory vote on executive compensation, received approximately 92.92% of the votes cast, thereby, approving such compensation on an advisory basis. Ballot item #4, the reapproval of the performance measures available under our 2007 Long-Term Incentive Plan received approximately 89.9% in support of the proposal. Ballot item #5, calling for a lobbying practices report, received approximately 7.12% of the votes cast in favor, and therefore, did not receive enough votes to pass. Ballot item #6, regarding the formation of a Risk Oversight Committee received approximately 3.78% of the votes cast in favor and did not receive enough votes to pass. And finally, ballot item #7, regarding the independent board chaired policy received approximately 44.67% of the votes cast in favor and did not receive enough votes to pass.
Again, I remind you that these are preliminary voting results, and the final results will be available after the votes have been certified by our Inspector of Election, and the company will file a Form 8-K with the Securities and Exchange Commission disclosing these results.
Indra K. Nooyi
Thank you, Maura. And this concludes the business portion of our meeting. And as the meeting is adjourned, we will open the floor to general questions. I thank you all for your attention today. The formal business portion of the meeting is now adjourned.
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