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Bill George

Harvard Business School Professor, former Medtronic CEO

Fortune: Responsible Capitalism Will Be The U.S.’s Saving Grace

Last Thursday, Kraft Heinz announced a $15.4 billion write down of its mega-brands and disclosed an investigation by the U.S. Securities and Exchange Commission of its accounting practices. Consequently, its stock dropped 27% the next day and is down 62% from its peak two years ago. One more short-term cost cutter bites the dust.

Kraft Heinz is getting criticism from all directions for its cost-cutting methodsand deservedly so. Far-left Democrats and far-right Republicans will likely use Kraft Heinz as an example of capitalism run amok—that the actions of 3G Capital (its Brazilian owners) and Kraft Heinz executives left thousands of employees without jobs and potentially harmed the legacy of household brands Heinz and Kraft.

And did all this cost-cutting benefit its shareholders? Hardly. The biggest losers are shareholders who bought into Kraft Heinz’s myth of making draconian cost cuts and using the cash generated to buy more companies. Two years ago, Kraft Heinz reached a peak valuation of $110 billion, emboldening 3G to make a sudden offer to acquire Unilever for $143 billion. Although it withdrew the offer two days after Unilever’s firm objection, the writing was on the wall: Kraft Heinz could not sustain its business without major acquisitions. As Kraft Heinz’s cost-cutting methods ran out, and its sales declined, its stock price plummeted and large acquisitions became impossible. Its stock value has now shrunk to $43 billion, a 62% loss for shareholders.