Unilever: In search of the good business

Monday, August 18, 2014

SLEEPING in the open on top of his mansion was a nightly routine for William Lever, founder of what is now Unilever, an Anglo-Dutch consumer-goods giant. When Paul Polman became chief executive of the soap-to-ice-cream-maker in 2009 (joining from a Swiss rival, Nestlé), the Dutchman spent a night in Lever’s rooftop bed as part of a total immersion in the history of his new firm. It helped persuade him, a year later, to launch a “Sustainable Living Plan”, the name for his attempt to make Unilever the pre-eminent example of how to do capitalism responsibly, just as it had once been under Lever.

Outdoing even the Cadburys of Birmingham and the Rowntrees of York, Lever had pioneered the Victorian model of paternalistic business. At a time when disease and malnutrition were widespread in Britain, his products were marketed for their health benefits. His employees were decently housed in a purpose-built company town, Port Sunlight, on Merseyside. Lever campaigned for state pensions for the elderly and even provided schooling, health care and good wages at palm-oil plantations in the Congo.

“Today, he would do the same things we are doing,” says Mr Polman. Like Lever, he insists that running the firm with close attention to its environmental and social impact is not an act of charity but of self-interest, properly conceived. The Sustainable Living Plan aims not only to reduce Unilever’s environmental footprint and increase its “positive social impact”, but also to double sales and increase long-term profitability. Milton Friedman’s view that business should focus on maximising shareholder value has been “interpreted way too narrowly”, Mr Polman argues. Under him, Unilever has again become the exemplar of the “good company”, the poster child of sustainability. If it cannot make the idea pay—with its deep pockets, long corporate history and determined boss—then perhaps no other firm can.

So far, Mr Polman’s efforts have earned rave reviews. A recent survey of “sustainability experts” by GlobeScan, a consultant, ranked Unilever first by a wide margin (see chart). The company is generally reckoned to have the most comprehensive strategy of enlightened capitalism of any global firm.

Unilever also stands out for the way it has tried to institutionalise its efforts, says Alice Korngold, author of “A Better World, Inc”, a book on corporate do-gooding. The board scrutinises the plan and executive pay is linked to its targets. In March, Mr Polman got a bonus of $722,000 for his efforts. Unilever says the plan has boosted employee satisfaction.

It may also have boosted the share price. Since the plan was unveiled in November 2010, Unilever’s shares have risen by more than 40%. And this was during a period when its biggest rival, Procter & Gamble of America, lost its way and ultimately its boss.

But Unilever seems to have reached a critical moment. Its recent annual results disappointed the markets and the share price recently dropped below what it had been a year earlier. Shareholders are cautious. “Unilever has built a strong niche position with investors who focus on environmental [matters],” says Martin Deboo of Jefferies, an investment bank. “But for mainstream investors it is a modest positive at most, and then only so long as it does not cost much.” So the big questions are: can the company achieve the targets set out in its sustainability plan? And if it can, will that help it in the long run (as the share-price rise of 2009-2013 suggests)? Or might it eventually cost Unilever dear in terms of market share and investors’ backing, as the recent downturn could imply?

The Polman Plan

Unilever defines sustainability broadly. It includes not just environmental factors but improving the lot of customers and workers—its own and those in its supply chain. It also aims to contribute to society as a whole. These goals are seen as necessary to maintain the firm’s “licence to operate” in an age when, Mr Polman believes, companies will be subject to increasing public scrutiny.

Source: The Economist (link opens in a new window)

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multinational corporation