tv Leaders with Lacqua Bloomberg October 30, 2015 10:00pm-10:31pm EDT
♪ francine: welcome to leaders with lacqua. pearson is an international publishing company with its biggest businesses in education and books. earlier this year, pearson sold two of its most well known brands. in an exclusive interview, i speak with the group's ceo, john fallon, about the impact of selling those established brands. john fallon, thank you for speaking to bloomberg.
we have been talking about the sale for as long as i can remember. when did you decide it was for sale? john: there wasn't a single moment. i think it was a progressive process really that i have said all along, and has been important to me, to ask ourselves honestly are we the best owners of the "financial times" for the longer term. pearson have been fantastic owners for 50 years. i think we have been great guardians of the editorial integrity and quality of the journalism, but we also helped the "ft" to become global, to make the initial shift from analog to digital. but "inflection point" is a greatly overused word, but in this case i think it is entirely relevant and appropriate. because increasingly we are now seeing more and more people accessing news analysis, journalism through social media, through twitter and facebook and all sorts of other new emerging channels and we're seeing more people making the shift from desktop to mobile.
that is a huge opportunity for the "financial times." it means it can reach its journalism to more people than ever before in its history. but it is a great challenge as well, in that it has to remake and rethink how it makes itself in this journalism. that requires absolute attention and focus. i think it requires scale as well. in reality, the "ft" is a 300 million pound journalism business in a 5 billion pound education business. it was going to be increasingly difficult, not to much from an investment point. investment we could have dealt with.
but to bring the focus, the clarity, additional insight and expertise, and the scale that is required by that focus on being the very best of journalism. francine: it is difficult to make money because of social media. it is becoming harder? john: i think the "ft" does make money. as everybody knows, it was a lush year in profits. last year profits of 24 million pounds on sales of 300 million pounds. i very much believe the "ft" has a sustainable and profitable future, but the best way of ensuring it can maximize that is by being part of a company that is completely and actually focus -- absolutely focused on journalism. that is what nikkei brings. i've been in the business of global journalism, it is a great thing to be in. really important, a white social purpose.
-- wide social purpose, and being in the business of global education, likewise, important to the future of the world and a great opportunity to grow but those are two quite different horses and you cannot ride them both simultaneously. francine: was there any moment in the negotiations where you thought actually, it is such a big brand we shouldn't be letting it go? john: personally, a hugely difficult decision for me. when i joined pearson in 1997, its ownership of the "ft" was one of the things that attracted me. ironically, the synergy between the "ft" and the rest of pearson are greater now than any time since 1997 in all the time i have been with pearson. they are synergies they can be achieved through partnership, and one of the ways we got to know nikkei was through the partnership we formed with them around english language teaching to the corporate sector in japan
over the last few years. so personally, emotionally, a difficult decision for me, difficult decision for the board. was not one we took lightly. it was a year or more of deliberate process of making sure we evaluated work through the different factors. and one that was taken after extensive consultation, not just relying on barber, but engaging the leadership of the "ft" as well and unmistakably reaching this conclusion that this is a time when journalism is being rethought and reinvented and my job was to get "ft" the best crack edit emerging from that in better shape than ever before. francine: the final contract with nikkei, i don't know if you buy getting lawyers involved, but you preserve the independence of the "ft"? john: my view is that what is
most important is to find the right owner. you judge the right owner in terms of the culture, the values, the leadership and the track record. everyone would acknowledge that pearson has been a good owner of the "financial times." there is not a word set down anywhere. there is no constitutional pact. there is no governance. there is no structure. when i took over from a predecessor there was no document that says it is there because it is an innate part of the culture. and when we were thinking about the best future owner of the "ft," that was the way that we approached it. i think you can put in place any sort of document or constitutional arrangement but frankly i think people, culture, values matters more. i do think there is that real commitment to editorial independence.
i think they value the "ft." there was a letter sent to "ft" staff, a public document, it sets out far more clearly than any sort of constitutional sort of working party or steering committee could. francine: coming up, education, digital content, and technology are big drivers shaping the pearson business. john: technology is much more about how do you make the teaching and learning much more effective, engaging. francine: back with more on that exclusive conversation with pearson ceo john fallon. ♪
♪ francine: the publishing industry had been impacted by the rapid growth of digital technologies. john fallon tells me exclusively how he adapted the business to thrive in this ever-changing environment. john: in education, technology is much more about how do you make the teaching and learning much more effective, engaging, how you provide greater insights.
let's take a starbucks employee who has sat down, and they get stuck on a problem. are there adaptive programs, perhaps it will make it easier to build their confidence up, help them through with the problems they are doing online. if they are finding it easy to do, maybe getting bored we push them onto something more challenging. if we see they are trying to master a concept, do you want help here and now? it could be someone in india, they pop up in chat or on skype. it is much more adaptable and driven by the needs of the students. you are using the technology, you're making better use of data analytics. it is obviously much more scalable and affordable as well.
what we do in that example, we can help the 22-year-old graduate in china who has a great grammar in english but lacks the fluency to get the job with a global corporation. in another way we can help the parents in a poor country in africa, who knows, that left to their own devices there is a 50% chance after five years of schooling the child will not master basic literacy. and we can apply technology to help those life challenges as well. francine: you've lost some contracts in the u.s. are you looking at emerging markets?
that looks to be where there is more growth potential. john: in america, in the first six months of the year, revenues were up 3%. the best growth we've had in the last few years. our competitive performance in higher education and large parts of our schools is strong. we did lose a couple of contracts in one small part of the company, but in the overall context of the business, performance is strong. america is two thirds of our business today. the biggest single growth opportunity for pearson is helping to make education much more accessible, affordable and effective for people in america in the way i have described. yes, we do see the big growth opportunities in china and brazil, india, across sub-saharan africa. obviously with the recent events over the summer, these markets
are challenged in many ways. they are finding the path to growth does not run evenly or in straight lines. but, there is still a large growing middle class who has great aspirations for their children and for themselves and for who better quality education training is an important part. yes, we do see big opportunities there as well. francine: given the emerging markets, are you worried about a global recession? is it something that worries you? john: clearly, it is something that the ceo of a global company should worry about. read the "ft" and everything else to get the best view that i can. i think it is important to focus on fundamentals in these times. a good example would be brazil. the country is in recession, times are difficult particularly in the public sector. we have a great management team there doing a good job of bringing together all pearson's different assets in a way that we think will improve the performance of the company and allow us to grow over the next
few years. as i say, alongside the challenges of the public sector in brazil, you've got a growing middle class that wants better quality education for their children and themselves and are willing to pay for it. and we can provide services that fulfill that need. francine: if you price it right, is education recession-proof? you have high unemployment, people may want to retrain. john: that is a good part of the story. and of the opportunity. certainly, if you look in america, in the last 60 years, higher education business is countercyclical.
in that enrollment goes up as unemployment rises. through these cycles, there is a systemic growth. but you tend to see faster growth in the early years of the recession. i think as somebody famous once said, do you think education is expensive? try ignorance. there is an understanding of education is the best investment you can make. if you look at that, in the united kingdom or the u.s., china or brazil, returns on investment and education for individuals is greater now than at any other time in human history. francine: one of the biggest shakeups in the the media world. "the financial times" and "the economist," two brands that pearson sold. after the break we talk acquisitions, strategy, and leadership. john: if we can find acquisitions that create value to shareholders and long-term sustainable opportunities as well, we will take them. francine: more from john fallon when we return. ♪
john: if we can find acquisitions that create value to shareholders and sustainable opportunities as well, we will take them. but we don't need to hurry or rush, and we will do that in the context of returning capital to shareholders. francine: do you worry about currency movements? john: we judge things at constant exchange rates. we are a u.k. listed company. clearly the most important exchange rate that our shareholders look at is the
pound-dollar exchange rate. over the cycle, we and most shareholders would look through that. clearly you look at events in brazil at the moment, that is not a place where it will be a priority for capital but we will see how things emerge. francine: we have talked about investments and acquisition targets. will you also sell your stake in penguin random? john: penguin random house is performing exceptionally well. we own 47%. we do have an established process in the shareholder agreement where we can put shares -- francine: and they are interested? john: we are at a point where as i said we have plenty of capital to deploy at the moment. penguin random house is performing well. we're in the process of combining the two operations in areas like warehousing, distribution, finance, and technology systems. we are probably a year away from achieving the peaks synergies. so while it is something that we look at, which i wouldn't rule out in the future, i don't think you should think it is an immediate priority.
francine: probably not 2015 or 2016. john: probably not 2016. no. as i say i think we are happy with the performance of the business. it is doing well. the decision we would make would be based on a view of what we saw the earnings and growth would be. against realizing the capital and growing art education business. it will be a view of what is best likely to deliver the highest returns to our shareholders and grow the business sustainably over the next three years to five years. francine: talk to me about john fallon the leader. who was your biggest inspiration? is there another ceo or figure in your life that you look for inspiration? john: one of the things that attracted me to pearson in the first place, my predecessor marjorie scardino always talked about the fact that every great company has to have a purpose.
the profits derived from doing something important and meaningful to society and doing it incredibly well. so, what is important to me and important to all 40,000 people in the company, who have the leadership roles to play in their different way, we have the opportunity to make the most important thing in the society and communities that we work alongside health and basic human needs. education, more available to more people around the world. so in a purpose-driven organization, it is understanding that profits are derived from doing something important and doing it well. francine: this is a catch 22. because this cradle comes from you. it is not a company.
john: it is a mutually reinforcing thing. because it is something that i learned and take from colleagues around the world each and every day. it is what every member of the board would think is important to the company. it is what matters to our customers. what matters to parents in communities in which we operate around the world. i think that since that holding yourself to that, that is what we talked to this thing about efficacy, those are all saying our purpose is to help people make progress through learning. it sounds fantastic but are you actually doing it each and every day? are you expanding accessibility, helping teachers and students to be successful? in the ultimate measure, are you translating that academic
success into a better life and a better career and enhanced employment prospects, or whatever it might be? that is the ultimate test. so combining the idea and reality with what you do each day is fundamental to the leadership of pearson. which comes not just from me but every person who works for the company. francine: is there advice you were given on being a leader? that you remember or hold dear? john: i think not taking yourself too seriously, but always taking the work seriously. i think it is important. i think a sense of perspective. and i think never losing sight of that purpose and why you exist. i think having that strong moral compass and trying to do the right thing for the right reasons is important.
on a personal note, probably the best bit of advice is from my kids and colleagues on a daily basis. try to be less grumpy, try to listen more effectively to people. probably quite good advice as well. francine: where do you see yourself in five years? less grumpy? john: where i see pearson in five years is what matters. i think there is an opportunity as the company to do something really important and to fulfill that potential. i think the ultimate measure of where pearson is in five years time, i think, are we helping more people around the world in the poorest members of society through to the emerging middle class, to the wealthiest economies in the world? here in the u.k. and america. are we helping more people to translate the promise of education into the reality of a better life?