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CNN LIVE EVENT/SPECIAL

Fortune 500 Marks 50th Anniversary

Aired March 27, 2004 - 13:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


ANDY SERWER, HOST: Welcome to this special program marking the 50th edition of the "Fortune 500" list. I'm Andy Serwer, editor at large at "Fortune" magazine.
Over the past 50 years the "Fortune 500" has defined American business and been defined by it. Coming up, the road to riches. We'll tell you why America's interstate highways helped build the companies that built the country's economy. Plus, the little card that changed big business. Find out how the plastic in your wallet is shaking up Fortune's list of America's hottest firms. And the Fizz Biz, where consumer taste goes, Pepsi follows. See how it gave shareholders what they like by giving people what they want.

Fortune magazine started compiling its list of America's biggest revenue-producing companies back in 1955. But these days Fortune 500 is not just a list, it's become short-hand for money, power and prestige. And like any good American journey, our trip through the life of the Fortune 500 starts with a long stretch of wide open road. It's America's interstate highway system and it transformed the way we do business.

(voice-over): Americans have always had a love affair with the car. But with a poor network of roads, the idea of driving across the country or even the state was still a distant dream.

DWIGHT D. EISENHOWER, LATE PRESIDENT OF THE UNITED STATES: And I will faithfully execute...

SERWER: That all changed when Dwight D. Eisenhower became president.

JUSTIN FOX, EDITOR AT LARGE FORTUNE MAGAZINE: Eisenhower had been involved in this infamous attempt to drive a bunch of military vehicles across the country back, I guess, around World War I. So clearly he had this sense of the inadequacy of the nation's roads.

EISENHOWER: Now we are building 41,000 roads of these avenues of commerce.

SERWER: In 1956, under the shadow of the cold war, President Eisenhower signed the $25 billion national system of interstate and defense highways.

KENNETH JACKSON, URBAN HISTORIAN: Ironically, the American companies, officially, it's also about national defense, it's not about people moving to the suburbs or companies moving out or anything else. It's about, we were worried that we would be attacked, probably from the air, we needed to evacuate cities quickly.

SERWER: The interstate highways were built at a fast and furious pace. By the mid 1970s, Eisenhower's bill had funded over 42,000 miles of highway pavement from Los Angeles to New Jersey. The super highways moved American life out of the cities and into the suburbs, and transformed the American economy.

UNIDENTIFIED MALE: Building the interstate highway system that linked the country together, turned out to be extraordinarily productive for the U.S. economy. It gave producers much more flexibility in where and how they produced.

SERWER: Companies had much more to gain by using trucks rather than trains to ship their goods.

UNIDENTIFIED MALE: One of the main ways it changed the way firms did business is that they did not have to be located in densely packed areas near major train lines. So, they could locate near interstate highways throughout the country and still serve their customers.

SERWER: The interstate highway allowed older businesses to grow and new ones to make their debut.

Over the last 50 years, Fortune's 500 list has tracked the changes.

FOX: It turned out to be great for some of the innovative chain retailers like a McDonald's, especially, or chain hotels like Holiday Inn.

SERWER: Today's Fortune 500 list also shows how crucial interstate highways were to the businesses in the south.

FOX: So that had a huge impact, I think, in bringing manufacturing to the south and also enabling companies that were based in the South like Wal-Mart or Fedex or Home Depot to succeed in a way they couldn't have back before the interstate.

SERWER: Home Depot, based in Georgia, first made the Fortune 500 list in 1995 coming in at number 77. Today it is ranked number 13. Coca-cola also based in Georgia placed 126th on the first Fortune 500 list in 1955. By 1987, Coke had grown big enough to earn the 38th spot and has since placed in the top 100.

FOX: Companies that use the interstate system well moved up in the 500. People who were savvy about it, like a Wal-Mart thrived.

SERWER: In 1995, Wal-Mart placed fourth on the fortune 500 list but in less than a decade it scooped the top spot from big industrials like GM and Exxon Mobil for the last two years in a row.

(on camera): The interstates helped to shape one of the biggest names -- General Motors. But as Ceci Rogers reports, the company hit a few bumps along the way.

CECI ROGERS, CNN CORRESPONDENT (voice-over): It's cars like the sleak and sporty Corvette that have kept General Motors engine running and helped it secure a spot every year in the top three companies of the Fortune 500.

But the road has not always been smooth.

UNIDENTIFIED MALE: We kind of own the boulevard in the '50s and going into the '60s.

ROGERS: A buying spree in the 1920s brought Chevrolet, Oldsmobile, Pontiac, Buick and Cadillac all under the same roof. By 1931, GM was the No. 1 automaker in the world. For the next 40 years.

GM's executives were riding so high on the company's success they didn't see the looming threat from Japan. Former GM chairman Jack Smith did. He visited a Toyota plant in Japan when he was working in the overseas division and learned they could build a car with half the number of people. As Smith brought back the news, the old guys, and there were a bunch of old guys sitting around, said we don't believe you.

UNIDENTIFIED MALE: The Japanese took the U.S. by storm and GM with its high cost and gas guzzling cars, watched its 50 percent share of the market decline to just under 30 percent.

UNIDENTIFIED MALE: Then in the '80s, when the whole yuppie phenomenon came about and this area of affluence, where you had two- income households, General Motors then basically gave away the luxury end of the market to the Europeans.

ROGERS: Loaded and virtually asleep at the wheel, GM faced possible bankruptcy in the '90s. That's when its board of directors whiped the slate clean and put Jack Smith in charge.

(on camera): So the slumbering giant woke up. And with Jack Smith at the helm, GM soon underwent what you might call an extreme makeover.

(voice-over): The five competing brands and divisions were killing GM. So Smith set about bringing the warring factions together.

UNIDENTIFIED MALE: We're not going to have 25 different product development processes around the world, we're going to have one. We're going to have one GM manufacturing process.

ROGERS: Simple, it would seem, but it took a decade of change that had just started to show results. GM is now the lowest cost U.S. automaker and the first in quality in the U.S. it's No. 2 only to Toyota in productivity.

Some of its new cars, such as like the Cadillac Escalade are hitting home runs, but GM's Calgar (ph) says, that's at the heart of the turnaround, introduce as many new models as you can, it's planning 44 over the next three years, until you get a winner.

UNIDENTIFIED MALE: Can GM get a portfolio out there that has nothing but got to have exciting products? And the answer to that is yes.

ROGERS: Some challenges remain. Among them, pension and health benefit costs that add $1200 to the cost of every car. And a relentless Toyota that surpassed Ford for the first time last year to take the No. 2 spot in the U.S. right behind GM. Ceci Rogers, CNN, Chicago.

SERWER (on camera): There's much more ahead on our history of the Fortune 500. Up next, the powerhouse in your back pocket. Every time you use your credit cards you are changing the landscape of American business. We'll tell you why.

And later, Pepsi gets a workout. Find out how the brand is remaking itself for a country out to eat healthier.

Plus, bull bait. We'll look at how watching Wall Street turned into a form of entertainment and what that meant for Fortune's biggest lists.

(COMMERCIAL BREAK)

SERWER (on camera): It's easy to take your credit cards for granted until they get you out of a jam that is. In fact, the first credit card was created because a couple of rich guys found themselves facing a bill without enough cash on hand. Since then plastic has changed the way we spend and altered the face of the Fortune 500. Ceci Rogers, once more, from Chicago.

CECI ROGERS, CNN CORRESPONDENT (voice-over): These days, just about anything can be paid for with some type of credit card. And Americans are taking full advantage of it.

UNIDENTIFIED MALE: I have two credit cards.

UNIDENTIFIED FEMALE: I had 12. And I now have two.

UNIDENTIFIED FEMALE: 20 or 15.

UNIDENTIFIED MALE: More than ten.

ROGERS: But it has not always been that easy.

UNIDENTIFIED FEMALE; Membership used to be a privilege. People used to walk around showing how many they had to prove how affluent they are. We now have -- credit is a right in this country.

ROGERS: Swann (ph) called the Democratization of credit. Just about anyone can get a credit card, and that has transformed economic life in the U.S.

UNIDENTIFIED FEMALE: Just this last year, the growth in the usage of plastic in the form of credit and debit has been larger and more significant than people using cash or using checks.

ROGERS: Americans use plastic to buy $2.5 trillion worth of goods and services last year, that's more than double the amount five years ago. The numbers are huge, considering the charge card was born just a half century ago in Manhattan. Alfred Bloomingdale of department store fame was having lunch with his finacier friend Frank McNamara.

UNIDENTIFIED FEMALE: When the check came they realized they didn't have enough cash to cover lunch. And I think what ultimately happened was McNamara's wife had to come down with a wad of cash and cover lunch for them. So from that moment it was one of those light bulb moments.

ROGERS: And the Diner's Club card was born. A network of restaurant charge accounts in New York, catering largely to wealthy businessmen. That was in 1949.

It took another ten years before the first credit card, as we know it, was developed. The Bank Americard. On a hunch that Americans would quickly become addicted to plastic, if only they had a taste of it, Bank of America mailed out 60,000 credit cards to nearly every household in Fresno, California.

UNIDENTIFIED FEMALE: It was an extraordinary moment in kind of American business history, nothing else like this had ever been seen by anyone.

ROGERS: But credit cards were chronic money losers until the 1970s, When D. Hawk took over Bank Americard later to become Visa.

(on camera): The legendary Hawk knew from the start if credit cards were ever to make money they had to be faster. So he married the credit card to the computer and the industry was off and running.

(voice-over): The first electronic system was crude by today's standards, but it allowed Bank Americard to process 5,000 transactions in an hour. Today it takes only a minute to transact those same purchases. It is that speed and efficiency, as much as the credit card itself, that has transformed the Fortune 500.

UNIDENTIFIED FEMALE: The Internet, e-commerce, could not exist without the credit card.

ROGERS: Think Dell, which built its entire business around selling computers more efficiently than anyone else. Ebay, the online auction house, and Amazon.com.

UNIDENTIFIED MALE: If you have gone to buy something on amazon.com, probably the immediate thing you realize is that you cannot give them a $10 bill, you can't give them a coin. And while you probably could give them a check, that is not why you are going on amazon.com. You want it to be simple.

ROGERS: At leasting according to Swank (ph), the easier it is to make purchases, the more people will spend.

UNIDENTIFIED FEMALE: Businesses like McDonald's, when they take credit cards, people tend to spend more. ROGERS: And faster than you can say charge it, innovations keep rolling out: reward cards, smart cards, payroll cards and even embedded credit chips, all aimed at getting Americans to spend money in the future in ways we can imagine today. Ceci Rodgers, CNN, chicago.

SERWER (on camera): Still to come as we mark 50 years of the Fortune 500, the soft drink that just won't act its age. Pepsi rocketed up the Fortune list by thinking young. See how the brand is adapting to a country that's watching its weight.

And from the nifty 50 to the hot 500, Main Street's following Wall Street, but it wasn't always that way. We will look at what the switch meant for business.

(COMMERCIAL BREAK)

SERWER (on camera): Welcome back to our special look at 50 years of the Fortune 500. Pepsi went from a drugstore brainstorm to a global brand by giving consumers what they were looking for. For decades, that included using youth as a selling point. But these days Pepsico is up against a new challenge, convincing customers that the company is not just thinking young but thinking healthy. Fred Katayama has more.

FRED KATAYAMA, CNN CORRESPONDENT (voice-over): Pepsico, the hip young upstart to archrival Coca-Cola. But just as its pitch woman has transformed herself from a Mouscateer into a star, Pepsico is working to remake itself.

But for those who think health -- as Atkins diet fans eat burgers without buns, Pepsico faces a hefty task -- convincing consumers that the sugary junk food king can crank out products good for your health.

UNIDENTIFIED MALE: They have to be concerned about responding, not only to the consumer taste, which is clearly there, but also to the threat of litigation for not offering healthy alternatives.

KATAYAMA: Pepsico has a strong track record to adapting to changing tastes. What began as a rural cola brand has turned into a multinational with nearly $27 billion in revenues, spanning 200 countries. The company boasts 16 brands with sales of more than a billion dollars each.

Its cola dates back to 1898. Pharmacist Caleb Bradem concocted the beverage in his drugstore in North Carolina 12 years after Coke's debut. But his company went belly up after an ill timed purchase of sugar. It wasn't until the '30s that the soda really took off. Jolting sales, a revolutionary ad campaign, the first of many to come.

The first ever radio jingle recast Pepsi as a value brand. Twice as much cola as a Coke for the same price. Just the thing for depression-weary consumers.

Pepsi also scored a cold war coup in 1959. It asked then U.S. Vice President Richard Nixon a favor -- lure Soviet Premiere Nikita Kruschev to its booth at the Moscow trade fair. Kruschev sipped and smiled.

(on camera): The executive who arranged that photo op is honored here at this sculpture garden at Pepsico's headquarters just outside New York City. Chief Executive Donald Kendall transformed the beverage company in 1959 when he engineered a merger with the king of potato chips, Frito Lay to form Pepsico. His vision, snacks and soda go together like wine and cheese and should be marketed together.

(voice-over): Today, Pepsico is the world's largest maker of snacks.

UNIDENTIFIED FEMALE: Pepsico would never be the great company it is today if not for that deal. There were no national snack brands back then.

KATAYAMA (voice-over): Kendall also launched the ad campaign that defined and embraced the new age: baby boomers.

UNIDENTIFIED MALE; Positioning pepsi as the next generation is significant because that's the way you grow your brand, as consumers age you have to bring in the next crop of drinkers into your brand.

KATAYAMA: The next, getting the Me generation with the pop stars, including the king of pop. In the last decade, Pepsico tapped into America's growing concern over health. It swallowed juice maker Tropicana products and Quaker Oates and its Gatorade sports drinks.

But today, chief executive Steve Reinemund faces the ultimate Pepsi challenge, dishing out nutritious products for people obsessed with cutting carbs. Two thirds of Americans are obese or overweight. Problem is, Pepsico gets 60 percent of its revenues from snacks and drinks. And much of topicana's and Quaker's lineup is high in carbs, the cardinal sin among Atkin's disciples. Reinemund wants to get half of new product revenues from healthy goods which are more profitable.

STEVE RIENEMUND, CEO PEPSICO: We took all the transfats out of our Frito Lay salty snack products without sacrificing any taste at all. We made them healthier. But at the same time we are developing a whole collection of products that meets specific needs, whether it's low calorie, low carborhydrate, low sodium.

KATAYAMA: Being No. 2 in sodas has always pushed Pepsico to try harder.

RIENEMUND: It's always we have to do it faster, do it better. We have to do it more exciting.

KATAYAMA: Now -- then and in the Pepsi generations to come. Fred Katayama, CNN, New York.

SERWER: Stick around. There's more to come as we mark 50 years of the Fortune 500.

Up next, from geek to chic. See how Wall Street turned white hot and what that did to America's top corporations.

(COMMERCIAL BREAK)

SERWER: Just a few decades ago most people thought of Wall Street as a playground for the rich and a workplace for well-connected preppies. Then came the boom years of the 1980s, suddenly the stock market was everybody's business. And that lit a fire under the Fortune 500.

(voice-over): It wasn't always like this. The investor cult of watching every tick of a stock price like it was a live sporting event is a relatively new phenomenon.

Back when Fortune first started ranking the biggest companies, you would be hard-pressed to find anyone keeping tabs on the markets day-to-day gyrations.

John Herzog, who started on Wall Street in 1957, says back then noone was talking stocks.

JOHN HERZOG, STOCKBROKER: If I would go to a cocktail party and people would say to me well, what do you do? If I said I trade over the counter stocks, people blanked out totally. There wasn't -- their eyes would glaze over. There was no recognition.

SERWER: In fcat, the first Fortune 500 list didn't even list companies market capitalization. Their actual stock market value.

ANNOUNCER: No written contracts are exchanged. A broker's word is enough.

SERWER: And even when interest perked up in the 1960s and 1970s investors didn't play the market's pendulum swings, instead, they tucked their money into a few high-growth Fortune 500 companies like Coca-Cola, Gillette, Pfizer and held them for years.

UNIDENTIFIED MALE: If you bought a growth stock you never sold it. Only a fool would sell a growth stock. They were to be bought no matter what the price was and held no matter what the price went to.

SERWER: It wasn't until the '80s and the advent of the 401k that investors started watching their portfolios religiously. The 1980s also saw the rise of a new breed: the corporate raider.

MICHAEL DOUGLAS, ACTOR: Greed is good. Greed works.

SERWER: Legendary figures like T. Boone Pickens, Carl Icon and Saul Steinberg, armed themselves with junk bonds and took aim at companies they thought were undervalued.

UNIDENTIFIED MALE: Corporate readers did, probably a disservice in some people's minds, for taking advantage of low prices. The reality is, that for most people who had any exposure through their pension plans or 401ks or their IRAs, back then, they did a very beneficial thing.

SERWER: Fortune 500 companies are still feeling the heat. But now the pressure to fuel earnings growth is coming from pensions, activist shareholders and corporate boards.

(on camera): From Wall Street to interstate highways, the Fortune 500 has been part of America's economic history for the past 50 years. And the ride is not over yet.

Thanks for joining us for this special look at the Fortune 500. I'm Andy Serwer.

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