Also: L'Oreal, carbon offsets and a new supply crisis.
Good morning.
A new future Fortune 500 company hits the market today—Kyndryl, the spin-off of IBM’s IT services business (under Fortune rules, Kyndryl won’t officially be on the list until 2023). This is the very business former IBM CEO Louis Gerstner built up a quarter century ago to help “save” the 110-year-old computer maker. But today, salvation requires a different pivot—to the “hybrid” cloud that has become IBM’s focus. The elephant must keep dancing.
Martin Schroeter was called out of retirement to become CEO of Kyndryl. I spoke to him last week, and he said that while IBM’s IT services business has been shrinking, he thinks Kyndryl’s independence will give it the opportunity to build new customers and grow. “When you think about infrastructure services as a whole, it’s a growing industry,” he said. “Right now, we are overweight in the industries IBM worked with, but this will allow us to move to companies in the public cloud infrastructure.” He said he expects “2025 to be a pivotal year. It takes about three years to return to growth.”
The new company launches with 90,000 employees in 63 countries and revenues just under $20 billion. That should put it somewhere around the 150 mark in next year’s Fortune 500 list.
Separately, Fortune Editor-in-Chief Alyson Shontell and I had lunch yesterday with L’Oreal CEO Nicolas Hieronimus and U.S. CEO Stephane Rinderknech at L’Oreal’s offices at Hudson Yards. This was a post-pandemic first on several levels: Hieronimus’s first visit to the U.S. since becoming CEO, my first joint interview with Fortune’s new editor, and both of our first meal in a corporate dining room since before the pandemic. New York life is moving back towards normal.
Hieronimus talked about how the pandemic accelerated trends that the cosmetics company was already investing in: an increased focus on digitization of commerce and consumer engagement; an increased focus on health and safety; and an increased focus on sustainability. As a result, the company has seen its business grow at twice the rate of the overall market. At the moment, L’Oreal is benefitting from a boom in fragrances, to scent the return to real life.
On sustainability, L’Oreal has committed to reach carbon neutrality at all of its sites by 2025, and to rid virgin plastics from its packaging by 2030. When I asked him whether customers rewarded the company for that commitment, he responded:
“Today, consumers say they care, but it doesn’t always show in their actions. I think that will change over time. And I would say our employees care, massively.”
Asked about how L’Oreal balances financial goals and social goals, Hieronimus said:
“Today we have to run on two legs: financial performance and social performance. Any company that forgets the first one can’t help on the second one.”
More news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
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Covaxin approval
India's Covaxin has become the latest COVID-19 vaccine to gain emergency-use authorization from the World Health Organization, which means it can be included in the COVAX program for inoculating people in low- and middle-income countries. Its manufacturer, Bharat Biotech, says it can pump out 50-55 million doses monthly—not quite a gamechanger for achieving vaccine equality, but a welcome contribution nonetheless. Washington Post
Credit Suisse
Thanks to the Archegos omnishambles, Credit Suisse's prime brokerage business saddled it with over $5 billion in losses this year. Now the bank is mostly exiting the sector: in a newly-announced overhaul, it's consolidating its wealth management business and trimming its investment bank. Financial Times
Supply crisis
The auto industry may be emerging from the worst of the global chip shortage, but there's a new shortage to replace it: that of magnesium, a crucial ingredient in aluminum alloys. The problem lies in China, where power shortages have reduced the output of smelters. VW purchasing manager Murat Aksel: "We cannot forecast right now if the shortage in magnesium and aluminum, which will happen definitely according to planning, will be bigger than the semiconductor shortage." Fortune
Offset attack
Greta Thunberg and other environmental activists have laid into carbon offsets as a means of combatting the climate crisis, arguing that the mechanism gives "polluters a free pass to keep polluting." Without global standards and oversight, these greenwashing claims have some weight to them. Bloomberg
Holiday shopping: Establishing the next normal When determining where to conduct their holiday shopping, getting a great deal continues to be the top priority for holiday shoppers—but ongoing global supply chain challenges and inflation concerns are already having an impact on the holiday season. Explore key findings from Deloitte’s 2021 Holiday Retail survey. Read more
Inflation options
Fortune's Shawn Tully interviewed Florida Atlantic University economics professor William Luther about the Fed's two options regarding inflation: contracting credit so as to achieve its 2% goal (hello recession) or accept higher inflation as the new normal (hello higher uncertainty and perhaps goodbye Fed credibility). Fortune
U.K. sleaze
The British Parliament has become engulfed in a sleaze scandal that recalls the last days of John Major's government and the 2009 expenses fiasco. After a Conservative MP, Owen Paterson, was found to have engaged in "egregious" paid-for lobbying, Prime Minister Boris Johnson ordered his party to oppose Paterson's suspension, which had been called for by the parliamentary standards watchdog. Not only that, the Tories aimed to set up a new committee to change the standards rules—and opposition parties said they would boycotting it. These measures squeaked through in a vote, with a significant rebellion in Johnson's own party. And then, less than a day later, the government performed an embarrassing U-turn on the committee's establishment. Guardian
German finance
As Germany's coalition negotiations trundle on, the most likely pick for finance minister continues to be Christian Lindner of the liberal (in the European, center-right sense) Free Democrats. Two new pieces examine the Lindner and his suitability for the role: The Financial Times notes the deep unease outside Germany's borders over Lindner's hawkishness, while Politico also questions his qualifications for assuming such a crucial and powerful (second only to the chancellor) role.
Expertise and passion
Pursuing your passion as a business leader will enhance your expertise, but that in turn might make you feel less passionate about your decisions, which could damage your leadership. That's the finding of new research from Northwestern University's Kellogg School of Management. Management professor Loran Nordgren: "The irony is that in pursuing your passion, it might inhibit your emotional response." Fortune
This edition of CEO Daily was edited by David Meyer.
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