Pepsi 2005 Annual Report Download - page 35

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Our Approach to Managing Risks
The achievement of our strategic and
operating objectives will necessarily involve
taking risks. Our risk management process
is intended to ensure that risks are taken
knowingly and purposefully. As such, we
leverage an integrated risk management
framework to identify, assess, prioritize,
manage, monitor, and communicate
risks across the company. This framework
includes:
• the PepsiCo Executive Risk Council
(PERC), comprised of a cross-functional,
geographically diverse, senior manage-
ment group which identifies, assesses,
prioritizes and addresses primarily
strategic and reputational risks;
• Division Risk Committees (DRCs), com-
prised of cross-functional senior manage-
ment teams which meet regularly each
year to identify, assess, prioritize and
address division-specific operating risks;
• PepsiCo’s Risk Management Office,
which manages the overall process,
provides ongoing guidance, tools and
analytical support to the PERC and the
DRCs, identifies and assesses potential
risks, and facilitates ongoing communi-
cation between the parties, as well as to
PepsiCo’s Audit Committee; and
• PepsiCo Corporate Audit, which confirms
the ongoing effectiveness of the risk
management framework through periodic
audit and review procedures.
In 2005, we continued our effort to
drive risk mitigation focus to where risks
can be most efficiently and effectively
managed and reinforced ownership and
accountability for risk management within
the business. Some highlights include:
• With respect to product demand, we
continued to focus on the development
of products that respond to consumer
trends, such as comsumer health con-
cerns about obesity, product attributes
and ingredients, including reformulating
products to lower sugar, fats, and
sodium; adding ingredients that deliver
health benefits; and expanding our
offering of portion-controlled packages.
Smart Spot eligible products continued
to be the fastest growing part of our
North American product portfolio. We
continued to focus on marketing our
products in ways that promote healthier
lifestyles. We helped create and
endorsed the American Beverage
Association’s new schools policy, which
defines the types of products that may
be sold in schools. We actively promoted
healthy energy balance through our
national sponsorship of America On the
Move, a program designed to help families
take simple steps to maintain a healthy
energy balance.
• We enhanced the coordination of our
Division-led product integrity efforts
through the creation of the PepsiCo
Product Integrity Council (PPIC), a
cross-functional forum to share leading
practices and confer about areas of
potential risk.
• We continued to enhance our internal
IT infrastructure, by consolidating and
updating technology and retiring older
technology, as well as improving our
information security capabilities.
• We continued implementation of our
BPT initiative, which we believe will
enable us to remain in step with the
changing needs of our customers.
Overall BPT project governance is
provided through steering committees
headed by senior executives and a team
is in place to drive effective risk man-
agement and quality processes and to
build an internal control environment
compliant with the Sarbanes-Oxley Act.
• We continue to assess our capability to
mitigate potential business disruptions
and evaluate an integrated approach
to business disruption management,
including disaster recovery, crisis
management, and business continuity.
• We established a compliance and ethics
leadership structure, appointing an SVP,
Deputy General Counsel who is focusing
on business practices and compliance,
prioritizing projects to enhance the
effectiveness of our compliance and
ethics program, including developing a
multilingual Code of Conduct training
program that will be rolled out in 2006.
• We have implemented human resource
programs which focus on diversity and
inclusion, leadership development, suc-
cession planning, and employee work-life
flexibility, and are aimed at hiring,
developing, and retaining our talented
and motivated workforce.
Forward-Looking and Cautionary Statements
We discuss expectations regarding our
future performance, such as our business
outlook, in our annual and quarterly
reports, press releases, and other written
and oral statements. These “forward-look-
ing statements” are based on currently
available competitive, financial and eco-
nomic data and our operating plans. They
are inherently uncertain, and investors
must recognize that events could turn out
to be significantly different from our
expectations. We undertake no obligation
to update any forward-looking statement.
The above discussion of risks is by no
means all inclusive but is designed to
highlight what we believe are important
factors to consider when evaluating our
trends and future results.
Smart Spot eligible products
continued to be the fastest
growing part of our North
American product portfolio.
We established a compliance
and ethics leadership structure
in 2005.
In 2005, we continued our
effort to drive risk mitigation
focus to where risks can be
most efficiently and
effectively managed.