Bloomberg Businessweek - USA (2019-10-14)

October14, 2019
◼ DEBRIEF

Leadingtheglobalcoffeeempirestartedbyhisgrandfather

86 yearsagoinItaly,IllyspeakswithBloombergBusinessweek

EditorJoelWeberabouttradition,innovation,climate,and

sustainability—and whether or not to take milk with your coffee.

The two spoke at the Conduit’s Good Business Festival in London.

“If you are not sustainable

in business...you will have

reputational damage”

Andrea

Illy

Chairman,

Illycaffe SpA

Photograph by

Marton Perlaki

51

JOELWEBER:Therearefewbusinessesintheworldthathave

stayedinthefamilyformultiplegenerations.You’rethethird

generation.HowhasIllydefiedtheodds?

ANDREAILLY:Allbusinessesmoreorlessstartwith

family.Thenit depends:It staysinthefamilyoryougo

public.Typically,businessesgopublicbecausethefamily

wantstowithdrawfromtheday-to-daywork,orbecause

thecompanyneedstoraisesomeequity,orsomething

goeswrongand thecompanyhas tobesold.I think

therearefamilieswhoaregoodatmanagingthebusi-

nessandcanpreservecontrolforever,possibly.There

arebusinessesthathavebeeninthesamefamilyfor

10 generations.

Howdootherbusinesseslearnfromyou?Whatshouldtheyuse

tomeasureperformance?

I wassurprisedbytheskepticismandthemisinformation

withwhichmanypeoplereceivedtheBusinessRoundtable

declarationbychiefexecutivesthissummer[thatcorpo-

rationsshouldn’tfocusonlyonshareprices].Whatthey

listedwasa veryold-fashionedargumentsupportingthe

theoryofshareholdervalue,whichis,firstofall,increas-

ingvalue,notprofit.Valueis howmuchcashflowyougen-

erateovertime—10years, 20 years.Thenetpresentvalue

yougenerate depends on the cash flow you generate in the

long period ahead.

And it’s complete nonsense to talk about profits or

shareholder value without considering sustainability as a

main value creator. This wasn’t written in the press when

the CEOs made their declaration. I was surprised, because,

if you do a finance course, you’ll learn it immediately.

If you are not sustainable in business, then you will have

reputational damage that will make you sell less because

consumers buy less from businesses with low reputation.

If you aren’t sustainable, you’re going to have higher costs

because of liabilities. Then you have to pay liabilities, so

you’re going to diminish your cash flow. If you have an

unsustainable business, you’re going to be more risky, so

your cost of money is going to be higher. You’ll have fac-

tors which are worsening your net present value.

You’ve described your business model as a stakeholder model

rather than a shareholder model. What’s the difference?

The theory and culture of shareholder value is typical Wall

Street. Cash flow, profits, are for shareholders to increase

their wealth. In the stakeholder model, there are many more

parties involved. In our case, we have a hierarchy: consum-

ers and customers, then our business partners, then the

talented people who work for the company and create the

product, then our suppliers who produce the coffee beans.

Then, at the bottom of the pyramid, the shareholders.

In this case, that’s you.

Me, my son, my family, at the service of the company. Not

theotherwayaround.Sothemaindifferenceis thata stake-

holdermodelis abouttheshareholderservingthebusiness.

Sixtypercent of your business is now outside of Italy. How do you

take that model and keep your brand integrity while expanding

into new markets?

The dream of my grandfather, the founder, was to offer

the greatest coffee to the world. Offering is more than

producing or selling or distributing. It’s not about quality

or value. Greatness is beyond being the best; it encom-

passesthewayyoudothings.Ourmissionis aboutdelight-

ingpeople who appreciate quality of life all over the world

with the best coffee that nature can provide, enhanced

with the best technology. And beauty. Beauty is beyond