How Junk Food Giant PepsiCo Is Buying Up High-Ranking Experts to Look Like a Leader in Health and Nutrition

Pepsi's strategy: Create a research environment so scientists and public health experts don't feel out of place at the corporate HQ of sugar, salt and fat.
By Michele Simon, AlterNet
Posted on August 5, 2010

Last month PepsiCo set off a firestorm among angry bloggers when the company attempted to buy its way onto the popular ScienceBlogs (run by Seed Media Group) with its own offering called Food Frontiers. Apparently, the actual scientists didn't appreciate having their space invaded by PR flaks. One blogger put it succinctly, "I don't care how many PhD scientists they hire, PepsiCo is a corporation, not a research institute, for crissakes!" Within two days, ScienceBlogs apologized and pulled PepsiCo's plug, but not before some disgusted bloggers quit altogether. (Food Frontiers continues to live on PepsiCo's corporate Web site.)

While this story illustrates a victory in the battle against one corporation's attempt to control scientific discourse, in the bigger picture, PepsiCo appears to be winning the war.

PepsiCo Picks off Public Health Experts One by One

Ask anyone who's been in the public health field for at least 10 years if they've heard of Derek Yach, and the response is likely to be: "Of course, he's a public health hero." If you ask for a response to Yach's decision to go work for PepsiCo, the reaction will be head-shaking. "Shocked," "deeply disappointed," "a blow to public health," were all phrases I heard when the news came, in 2007, that one of the world's most respected public health experts went over to the dark side.

Derek Yach's story even plays a prominent part in a graduate-level food policy class at NYU that dedicates an entire class session to industry co-optation, because of its current impact on the nation's debate over the obesity epidemic.

It was a personnel coup for the nation's largest food company and purveyor of such notoriously unhealthy products as Mountain Dew and Cheetos. PepsiCo's new "director of global health policy" came with a pedigree the company must have been salivating over.

A native of South Africa where he did his medical training, Yach established the Center for Epidemiologic Research at the South African Medical Research Council. But he earned his global health hero reputation as Representative of the Director General at the World Health Organization. There, he helped cement the Framework Convention on Tobacco Control, an unprecedented global treaty that pitted Yach against the world's most powerful tobacco industry leaders.

While at WHO, Yach also became embroiled in food issues, at times finding himself at odds with Big Food. I first interviewed Yach back in 2004 for an article about how the United States government was obstructing a critical WHO document on nutrition policy and was impressed with his straight-shooting style. Indeed, his willingness to speak out about food politics ultimately led to his downfall at WHO, which only furthered his public health hero status to the rest of us.

Ironically, though, it was when he later joined Kelly Brownell's team at the Rudd Center for Food Policy and Obesity at Yale University that things went downhill. Yach left Rudd for a brief stint at the Rockefeller Foundation before joining PepsiCo in 2007.

New York University Professor Marion Nestle, author of Food Politics, offers her take on what happened:

I first met Derek Yach when he was a public health hero at WHO for his efforts to get food companies to stop marketing junk foods to kids and to stop lobbying against proposed WHO advice to restrict sugars. He lost on both counts, but not for lack of trying. He must have decided that outside advocates can't get anywhere with food companies and that change has to come from within. I'm dubious that meaningful changes from within are possible for a company that makes most of its money selling sodas and potato chips, but that's just me.

I encountered Yach again in March after I blogged about how Yale Medical School had entered into a partnership with PepsiCo to fund a research lab and fellowship. I was upset both personally and professionally because my public health degree is from Yale.

I read the news in my alumni magazine, which included a photo of smiling Yale faculty members and PepsiCo executives, including Yach. The morning after my blog posting, I got an email from Yach. It seemed he wanted to explain himself to me and defend PepsiCo in the process. But even after a 30-minute phone call, I remained unconvinced that his role at PepsiCo was anything more than a well-orchestrated PR move to position the company as being on the cutting edge of health and nutrition.

PepsiCo has placed other health experts on its payroll for similar reasons.

Just a few months after Yach was hired, PepsiCo tapped Dr. Mehmood Kahn also for the newly created position of "Chief Scientific Officer." Here is how Yach described Kahn in a 2008 talk at Yale, to make the point that PepsiCo is serious about doing legitimate research:

[Kahn] like me comes from a medical background. Born in Pakistan, trained in England, a few years at the Mayo Clinic where he was involved in heading endocrinology and metabolic research and then headed Takeda Pharmaceuticals Worldwide R&D for a number of years, before coming to PepsiCo.

Kahn also served as division chief of endocrinology, metabolism and nutrition at the University of Minnesota Medical School.

But PepsiCo didn't stop there. PepsiCo plucked its latest plum from the tried and true depository of scientific experts: the U.S. government. In late 2009, Dr. George Mensah became PepsiCo's "Director of Heart Health and Global Health Policy." Previously, Dr. Mensah (a native of Ghana) spent nearly a decade with the U.S. Centers for Disease Control and Prevention, helping lead the federal agency's efforts to fight strokes, heart attacks, heart disease and colorectal cancer. But his government career got trumped by Cheetos.

In a May interview, Dr. Mensah explained his decision to work for PepsiCo: "The real role we play is to use the best science available to make sure everything we do supports our customers. I don't feel like I've left public health." And why should he, when he's surrounded by other doctors? Great strategy: Create a research environment so scientists don't feel out of place at the corporate HQ of sugar, salt and fat.

It's also no accident that all three hires have significant international experience and are not natives of the U.S. A global corporation for years, PepsiCo is increasingly expanding into the developing world. Last year, the company surpassed Nestlé in India sales.

To recap: Since 2007, PepsiCo has hired at least three noted international experts in medicine, science and public health. Their pedigrees span the world's premier public health organization, America's top public health governmental agency and the most respected medical and research academic institutions. Not bad HR recruitment.

According to an article published earlier this year in Business Week ("Pepsi Brings in the Health Police") over the past two years, PepsiCo has hired a dozen physicians and PhDs. What are they up to exactly? Kahn explains that the goal is "to create healthy options while making the bad stuff less bad."

In my interview with Yach in March, he used similar corporate-speak. The example he uses is how the R&D team is hard at work trying to make Cheetos lower in fat and sodium, with smaller portion sizes. He predicts that within five years, the product's artificial coloring will be gone. But does any of this matter? Should people be eating such pseudo-foods in the first place? Yach rationalizes in his response: "While we are not likely to become a fresh fruit and vegetable company, we have made public commitments to increase the use of fruits, vegetables, nuts and whole grains in our products. A major challenge involves ensuring that we do so in ways that maximizes the full nutritional equivalence of whole foods in our future products."

Full nutritional equivalence? I don't recall seeing that in the U.S. dietary recommendations: "Eat foods with full nutritional equivalence." But what else can you aspire to when your food products don't fit into any actual food groups?

Just where is all this alleged desire to improve the product portfolio coming from? Dr. Mensah waxes sentimental about PepsiCo's CEO (which Yach does as well):

It's coming from the very very top. Indra Nooyi, if you didn't know her, you would think she was a public health specialist. There is real passion at the top. ... Indra Nooyi wants PepsiCo to be part of the solution.

Of course she does, because otherwise she'd be part of the problem.

CEO Indra Nooyi Inserts PR into Annual Obesity Report

CEO Nooyi has certainly made her intentions to position PepsiCo in the midst of the nation's discourse about obesity loud and clear. In addition to her hiring spree and endless speeches on the corporate "Performance with Purpose" tag line, Nooyi recently succeeded in infiltrating one of the nation's most respected annual reports on obesity.

For the past seven years, a nonprofit called Trust for American's Health (TFAH) has published a report called F as in Fat, which updates the grim obesity statistics from around the nation, culling information mostly from respectable government sources.

In this year's edition, released in June, smack in the middle of the sobering data and potential policy solutions came an unexpected new entry: a two-page missive penned by Indra Nooyi herself. As you might expect, it reads more like a press release than scientific analysis: "We firmly believe companies have a responsibility to provide consumers with more information and more choices so they can make better decisions," Nooyi wrote.

Even more troubling, this report is co-published by its funder, the Robert Wood Johnson Foundation (RWJF), the nation's largest health care foundation. One of RWJF's most ambitious goals is to "reverse the childhood obesity epidemic by 2015."

So how did the nation's largest health care funder and a prominent public health organization let the nation's largest food company get airtime in their annual obesity report? Good question.

Reporter Melanie Warner, who published an excellent piece about this at BNET ("Obesity Report Chronicles the Sad State of America -- and Tells Us How Great PepsiCo Is"), asked TFAH to explain itself. Here is what she learned:

Laura Segal, spokesperson for the Trust for America's Health, says that having Nooyi's comments in the report was an innocent attempt to have the "industry perspective" and not the result of any shady financial relationship. "We reached out to a number of companies and Pepsi was the first one to respond. We want to represent a range of opinions and the industry segment is a significant component of dealing with obesity," says Segal.

In contrast, Harold Goldstein, executive director of the California Center for Public Health Advocacy, sees this incident as part of a disturbing trend:

There seems to be a growing interest among public health organizations to appear "unbiased" when discussing obesity prevention by providing a forum for industry. It would be the equivalent of providing a forum for the tobacco industry to espouse their "personal responsibility" message in reports on smoking-related deaths.

Harold Goldstein also notes what Nooyi conveniently left out:

She doesn't mention the highly sophisticated multimillion dollar national marketing and lobbying campaign they have undertaken to promote themselves as good corporate citizens and undermine efforts to establish state and local policies to reduce consumption of sugar-sweetened beverages, which have been the single leading contributor to the obesity epidemic.

In other words, when food companies such as PepsiCo (even when speaking through their own scientific experts) opine on a major public health problem, we are not about to hear the entire story, but rather one filtered through the corporate agenda, which by definition must promote its bottom line, and thus omit the less flattering aspects.

Finally, Marion Nestle had this to say:

By this time, research has clearly demonstrated that partnerships and alliances of health organizations with food companies benefit the food companies far more than the health organizations. The goals of public health and food companies differ. Food companies enter such alliances for public relations and to deflect public attention from the need to regulate their marketing practices.

That is why no matter how many MDs or PhDs the company hires, PepsiCo should never be looked to as an expert on anything other than what it does best: marketing and selling highly processed food and beverage products to the world.

'Experts' Failed to See Financial Fraud Collapsing Economy

James K. Galbraith to senators: "I write to you from a disgraced profession. Economic theory ... failed miserably to understand the forces behind the financial crisis."
May 15, 2010 |

Editor's Note: The following is the text of a James K. Galbraith's written statement to members of the Senate Judiciary Committee delivered this May.

Chairman Specter, Ranking Member Graham, Members of the Subcommittee, as a former member of the congressional staff it is a pleasure to submit this statement for your record.

I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis. Concepts including "rational expectations," "market discipline," and the "efficient markets hypothesis" led economists to argue that speculation would stabilize prices, that sellers would act to protect their reputations, that caveat emptor could be relied on, and that widespread fraud therefore could not occur. Not all economists believed this – but most did.

Thus the study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students. Economists have soft- pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now. At a conference sponsored by the Levy Economics Institute in New York on April 17, the closest a former Under Secretary of the Treasury, Peter Fisher, got to this question was to use the word "naughtiness." This was on the day that the SEC charged Goldman Sachs with fraud.

There are exceptions. A famous 1993 article entitled "Looting: Bankruptcy for Profit," by George Akerlof and Paul Romer, drew exceptionally on the experience of regulators who understood fraud. The criminologist-economist William K. Black of the University of Missouri-Kansas City is our leading systematic analyst of the relationship between financial crime and financial crisis. Black points out that accounting fraud is a sure thing when you can control the institution engaging in it: "the best way to rob a bank is to own one." The experience of the Savings and Loan crisis was of businesses taken over for the explicit purpose of stripping them, of bleeding them dry. This was established in court: there were over one thousand felony convictions in the wake of that debacle. Other useful chronicles of modern financial fraud include James Stewart's Den of Thieves on the Boesky-Milken era and Kurt Eichenwald's Conspiracy of Fools, on the Enron scandal. Yet a large gap between this history and formal analysis remains.

Formal analysis tells us that control frauds follow certain patterns. They grow rapidly, reporting high profitability, certified by top accounting firms. They pay exceedingly well. At the same time, they radically lower standards, building new businesses in markets previously considered too risky for honest business. In the financial sector, this takes the form of relaxed – no, gutted – underwriting, combined with the capacity to pass the bad penny to the greater fool. In California in the 1980s, Charles Keating realized that an S&L charter was a "license to steal." In the 2000s, sub-prime mortgage origination was much the same thing. Given a license to steal, thieves get busy. And because their performance seems so good, they quickly come to dominate their markets; the bad players driving out the good.

The complexity of the mortgage finance sector before the crisis highlights another characteristic marker of fraud. In the system that developed, the original mortgage documents lay buried – where they remain – in the records of the loan originators, many of them since defunct or taken over. Those records, if examined, would reveal the extent of missing documentation, of abusive practices, and of fraud. So far, we have only very limited evidence on this, notably a 2007 Fitch Ratings study of a very small sample of highly-rated RMBS, which found "fraud, abuse or missing documentation in virtually every file." An efforts a year ago by Representative Doggett to persuade Secretary Geithner to examine and report thoroughly on the extent of fraud in the underlying mortgage records received an epic run-around.



When sub-prime mortgages were bundled and securitized, the ratings agencies failed to examine the underlying loan quality. Instead they substituted statistical models, in order to generate ratings that would make the resulting RMBS acceptable to investors. When one assumes that prices will always rise, it follows that a loan secured by the asset can always be refinanced; therefore the actual condition of the borrower does not matter. That projection is, of course, only as good as the underlying assumption, but in this perversely-designed marketplace those who paid for ratings had no reason to care about the quality of assumptions. Meanwhile, mortgage originators now had a formula for extending loans to the worst borrowers they could find, secure that in this reverse Lake Wobegon no child would be deemed below average even though they all were. Credit quality collapsed because the system was designed for it to collapse.

A third element in the toxic brew was a simulacrum of "insurance," provided by the market in credit default swaps. These are doomsday instruments in a precise sense: they generate cash-flow for the issuer until the credit event occurs. If the event is large enough, the issuer then fails, at which point the government faces blackmail: it must either step in or the system will collapse. CDS spread the consequences of a housing-price downturn through the entire financial sector, across the globe. They also provided the means to short the market in residential mortgage-backed securities, so that the largest players could turn tail and bet against the instruments they had previously been selling, just before the house of cards crashed.

Latter-day financial economics is blind to all of this. It necessarily treats stocks, bonds, options, derivatives and so forth as securities whose properties can be accepted largely at face value, and quantified in terms of return and risk. That quantification permits the calculation of price, using standard formulae. But everything in the formulae depends on the instruments being as they are represented to be. For if they are not, then what formula could possibly apply?

An older strand of institutional economics understood that a security is a contract in law. It can only be as good as the legal system that stands behind it. Some fraud is inevitable, but in a functioning system it must be rare. It must be considered – and rightly – a minor problem. If fraud – or even the perception of fraud – comes to dominate the system, then there is no foundation for a market in the securities. They become trash. And more deeply, so do the institutions responsible for creating, rating and selling them. Including, so long as it fails to respond with appropriate force, the legal system itself.

Control frauds always fail in the end. But the failure of the firm does not mean the fraud fails: the perpetrators often walk away rich. At some point, this requires subverting, suborning or defeating the law. This is where crime and politics intersect. At its heart, therefore, the financial crisis was a breakdown in the rule of law in America.

Ask yourselves: is it possible for mortgage originators, ratings agencies, underwriters, insurers and supervising agencies NOT to have known that the system of housing finance had become infested with fraud? Every statistical indicator of fraudulent practice – growth and profitability – suggests otherwise. Every examination of the record so far suggests otherwise. The very language in use: "liars' loans," "ninja loans," "neutron loans," and "toxic waste," tells you that people knew. I have also heard the expression, "IBG,YBG;" the meaning of that bit of code was: "I'll be gone, you'll be gone."

If doubt remains, investigation into the internal communications of the firms and agencies in question can clear it up. Emails are revealing. The government already possesses critical documentary trails -- those of AIG, Fannie Mae and Freddie Mac, the Treasury Department and the Federal Reserve. Those documents should be investigated, in full, by competent authority and also released, as appropriate, to the public. For instance, did AIG knowingly issue CDS against instruments that Goldman had designed on behalf of Mr. John Paulson to fail? If so, why? Or again: Did Fannie Mae and Freddie Mac appreciate the poor quality of the RMBS they were acquiring? Did they do so under pressure from Mr. Henry Paulson? If so, did Secretary Paulson know? And if he did, why did he act as he did? In a recent paper, Thomas Ferguson and Robert Johnson argue that the "Paulson Put" was intended to delay an inevitable crisis past the election. Does the internal record support this view?

Let us suppose that the investigation that you are about to begin confirms the existence of pervasive fraud, involving millions of mortgages, thousands of appraisers, underwriters, analysts, and the executives of the companies in which they worked, as well as public officials who assisted by turning a Nelson's Eye. What is the appropriate response?

Some appear to believe that "confidence in the banks" can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion.

But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead.

In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case. Thank you.

James K. Galbraith is the author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too, and of a new preface to The Great Crash, 1929, by John Kenneth Galbraith. He teaches at The University of Texas at Austin.