tv Leaders with Lacqua Bloomberg January 31, 2016 10:30am-11:01am EST
♪ francine: welcome to "leaders" with me, francine lacqua. pearson is an international publishing company with its biggest businesses in education and books. earlier this year, it sold two of its most well known brands, the "ft" and "the economist." in an exclusive interview, i speak with the group's ceo, john fallon, about his vision for the company and the impact of selling those established brands. john fallon, thank you so much for speaking to bloomberg. we have been talking about an "ft" sale for as long as i can remember. when did you decide it was for sale?
john: i think there wasn't a single moment. i think it was a progressive process, really. that i have said all along, and it has always 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 of the "ft" for over 50 years. i think we have been great guardians of the editorial integrity and the quality of the journalism, but we'd 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 and more people making the shift from desktop to mobile. and 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 and sells its journalism. that requires absolute attention and focus. and i think it requires scale as well. and in reality, the "ft" is a 300 million pound journalism business in a 5 billion pound education business. and it was going to be increasingly difficult, not so much from an investment point. i think investment we could have dealt with. but to just bring the focus, the clarity, the additional insight
and expertise, and the scale that absolutely is required by that focus on being the very best of journalism that it can be. francine: what you seem to be saying is it is difficult to make money in this because of social media. is it becoming harder? john: i think the "ft" does make money. as everybody knows, it was a lush year -- profits of 24 million pounds on sales of 300 million pounds. i very much believe that 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 absolutely focused on journalism. and that's what nikkei brings. and i think -- being in the business of global journalism is a good thing to be in. really important, wide social purpose. being in the business of global
education, likewise, really important to the future of the world and great opportunities 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, the "ft" is such a big brand that we shouldn't be letting this go? john: personally, a hugely difficult decision for me. when i joined pearson back in 1997, its ownership of the "ft" was one of the things that attracted me. and ironically, the synergies between the "ft" and the rest of pearson are greater now than at an any time since 1997 and all the time i have been with pearson. but they are synergies that can be achieved through partnership, and actually, 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 to japan over the last few
years. so personally, emotionally, a difficult decision for me, difficult decision for the board. was not one that we took lightly. it was a year or more of very deliberate process, of making sure we devaluated work through all the different factors. and one that was taken after extensive consultation, not just relying on barber, but engaging the senior editorial 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 the "ft" the very best crack at emerging from that in better shape than ever before. francine: so does it also mean that in the negotiations, i guess with the final contract with nikkei, you preserved --i do not know if you do a by clause or by getting lawyers involved -- but that you get the journalistic independence of the "ft"? john: my view of these things 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. i think 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 pack. there is no governance. there is no structures. when i took over from my predecessor, marjorie scardino, 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. because i think you can put in place any sort of document or constitutional arrangement, but frankly, i think people, values, culture matter more. and whilst nikkei, in a japanese
context, is different from the "ft," i do believe that there is that real commitment to editorial independence and integrity. i think they really value the "ft". they sent a letter the next day to all the "ft" staff, which is a public document -- i think it sets out far more clearly than any sort of constitutional sort of working party or steering committee could what is most important. francine: coming up after the break, education, digital content, and technology are big drivers that are shaping the pearson business. john: in education, technology is much more about how do you make the teaching and learning much more effective, much more engaging. francine: back in a few minutes with more on that exclusive conversation with pearson ceo john fallon. ♪
♪ francine: the publishing industry has been impacted hugely by the rapid growth of digital technologies. john fallon, the ceo of pearson, 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, much more engaging, how you provide greater insights. let's take a starbucks employee, 9:00 at night, sat down to do -- francine: which country? john: could be in america, in
this case. and they get stuck on a problem. ours are adaptive programs, so perhaps it will make it a little easier to build their confidence up, help them through with the problems they are doing online? if it is clear they are finding it very easy to do, maybe getting bored, we push them onto something more challenging. if we see that they are struggling to master a particular concept, we will say, "do you want help here and now?" a tutor somewhere in the world. it could be in america, it could be someone in india, they pop up either through chat or skype. it is more personal and adaptable, and it's driven by the particular needs of the students. it is more engaging. because you are using the technology, you're making better use of data analytics. so you are understanding specific movements in that student's understanding. but obviously, it is much more scalable and much more affordable as well.
what we do -- in that example, we can help the 22-year-old graduate in china who has got great grammar and vocabulary in english, but lacks the fluency in speaking and listening skills to get that job with a global corporation. and in another way, perhaps we can help the parents in a poor country in africa, who knows, that, left to their own devices, there is a 50% chance that even after five years of schooling, that child will not have mastered basic literacy and -- mastered basic literacy. and we can apply technology to improve their life chances as well. francine: you have lost a couple contracts in the u.s. the u.s. is your biggest market, but are you looking at emerging markets? that looks to be where there is possibly more growth potential. john: first of all, in america, in the first six months of this year, revenues were up 3% in an underlying basis. that's the best growth we've had in the last few years. our competitive performance in our higher education and large
parts of those schools business is actually very, very strong. we did lose a couple of contracts in one relatively small part of the company, but in the overall context of the business, the competitive performance is strong. america is 2/3 of our business today. the biggest single growth opportunity for pearson is helping to make education much more accessible, much more affordable, and much more effective for people in america in the way i have described. but yes, we do see the big growth opportunities in china and brazil, india, across sub-saharan africa. obviously, you know, with the recent events over the summer, these markets are challenged in many ways at the moment. they are finding the path to growth does not run evenly or in straight lines. but, there is still a large and growing middle class there who has great aspirations for their children and for themselves and
for whom better quality education training is an incredibly important part of their future. so yes, we do see big opportunities there as well. francine: given what we have seen in the markets in china, emerging markets, all the turmoil of the last two months, 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, yes, you sort of worry about. obviously, read the "ft" and bloomberg and everything else to get the best view that i can. i think it is important to focus on fundamentals in these times. so, a good example would be brazil. whilst the country is in recession, and times are difficult, particularly in the public sector, we have a great management team there who is doing a really good job of bringing together all pearson's different assets and opportunities in a way that we think will improve the performance of the company and allow us to grow over the next few years.
and as i say, alongside the challenges that the public sector faces 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 are able to help to provide the products and services that fulfill that need. francine: if you price it right, is education also maybe recession-proof? you have high unemployment, then people may want to retrain. john: that is certainly a good part of the story. and of the opportunity. and certainly, if you look in america, for the last 60 years, our higher education business is countercyclical. in that enrollment go up as unemployment rises. through the cycles, there is a systemic growth. but you tend to see faster growth in the early years of a recession. as i think somebody famous once
you said, "if you think education is expensive, try ignorance." and so i think there is a real understanding that actually, and times of economic difficulty, investing in 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 time in human history. francine: one of the biggest shakeups in the media world. "the financial times" and "the economist," two brands that pearson sold. this year. after the break, we talk acquisitions, strategy, and leadership. john: if we can find acquisitions that create quick and immediate value to shareholders, and long-term sustainable opportunities as well, we will take them. francine: more from the ceo of pearson, john fallon, when we return. ♪
and immediate value to shareholders, and long-term, sustainable opportunities as well, we will take them. but, we don't need to hurry, we don't need to rush, and we will do that in ways in the context of returning capital to shareholders. francine: do you worry about currency movements? john: we look at, obviously -- we judge things at constant exchange rates. we're a u.k.-listed company. so clearly, probably the most important exchange rate that our shareholders look at is the pound-dollar exchange rate. i think, over the cycle, we and most shareholders would just look through that. clearly, you look at events in somewhere like brazil at the moment, that is not a place where in the current environment you are in an environment you would like to deploy more capital, but we will see how things emerge over the next year
or two. francine: we have talked about divestments and possible acquisition targets. will you also sell your stake in penguin random? john: penguin random house is performing exceptionally well. we own 47% of the business. our joint venture partner there is bertelsmann. we do have an established process in the shareholder agreement. whereby we can put our shares to bertelsmann. francine: and they said they are interested? john: i think we're at a point in the moment where, as i said, we have plenty of capital to deploy at the moment. penguin random house is performing well. we are still in the process of combining the two operations, particularly in areas like warehousing, distribution, finance, and technology systems and the like. we are probably a year away from achieving the peak synergies. so whilst it is something that we look at, and which i wouldn't rule out in the future, i don't think you should think it is an immediate priority for us. francine: so not 2015 and possibly not 2016?
john: not 2015 and probably not 2016 either, no. francine: what will it take for you to decide to sell? john: as i say, i think we are very happy with the performance of the business. it is doing well. i think the decision we would make would be based on a view of what we saw the earnings and future growth of that against realizing the capital and being able to redeploy it to our -- to grow our education business. so i think 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: john, talk to me a little bit 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: i think 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. and the profits derived from doing something important and meaningful to society and doing it incredibly well. and so, what is important to me, and it's important to all 40,000 people in the company, all who have a leadership role to play in their different way, is that 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, being a purpose-driven organization, and understanding that the profits, as i say, are derived from doing something important and doing it well, this is fundamental. francine: but this is a catch-22. because this credo 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 hugely important to the company. it is what matters to our customers. it is what matters to parents in the communities in which we operate around the world. and so i think that sense that really holding yourself to that, that is why we talked about this thing called "efficacy. co. because actually, 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? are you helping teachers and their students to be successful? and 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. and so, combining the sort of the idea and the reality with what you do each day, i think, is fundamental to the leadership of pearson, which comes, as i say, not just from me, but every person who works for the company. francine: on a personal level, is there a piece of 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 is important. i think a sense of perspective. and i think never losing sight of that purpose and why you exist. because i think having that strong moral compass and trying to do the right thing for the right reasons is really important. on a personal note, probably the
best bit of advice i get is from my kids and my colleagues on a daily basis. which is trying to be a bit less grumpy, try to listen more effectively to people as well. [laughter] probably quite good advice as well. francine: where do you see yourself in five years? less grumpy? [laughter] john: actually, it is where i see pearson in five years' time is what matters. i think there is an opportunity, as a company, as i say, is to do something really important. to fulfill that potential. so, i think the ultimate measure of where pearson is in five years' time -- are we helping more people around the world, from the poorest members of society through to the emerging middle class to the wealthiest economies in the world, here in the u.k. and in america? are we helping more people to translate the promise of education into the reality of a better life? we do that, then we will deliver great value to our shareholders over the next five years to 10
innovation of business. >> at the world economic forum in davos, switzerland, welcome to future proof in global finance. a panel discussion of technology in regulation and financial services. lacks we have a center, saved her, smaller industry. >> regulation has made the world more dangerous. in certain levels. moderated by bloomberg editor-in-chief, john nickel weight. ♪ john: thank you for coming here.