There are good reasons why “Unilever” appears in the index for our Procurement with Purpose book more than any other commercial business. The firm has become a leader in the field of sustainable and purposeful business over the last 12 years, since Paul Polman as the then new CEO made bold commitments in a number of key environmental areas.
Polman was interviewed for the Sunday Times recently and it was well worth reading – it is behind the paywall unfortunately. He came over as an inspiring individual - but readers might also have got the impression that he could have been a challenging and perhaps quite “difficult” character at times!
He has co-authored a book, Net Positive, which I haven’t read yet, all about how companies can eliminate more carbon than they produce and “regenerate the world”. As The Times reported;
It’s not a book — it’s a movement we’re trying to create,” Polman says, almost as soon as he sits down. “This shareholder primacy that has crept in over the past 30, 40 years — people realise things are happening that cannot continue. You need to get them into a mindset that less bad is still bad. You need to get them into this net-positive mindset ... Optimising within the current system is what all companies do. And that system isn’t working any more.”
He was pretty brutal about Kraft Heinz, the firm that made an unsuccessful bid for Unilever back in 2017 and has struggled since.
They’ve destroyed the economy, they’ve destroyed jobs for people, they’ve under-invested in R&D, they’ve destroyed our natural habitat by discharging these negative externalities,” he says. “You find them at the bottom of any ranking — sustainability, human rights.
“If this is what people call the free market, I have my doubts. I am a capitalist, actually — I believe in markets — but when markets don’t always function, you have to put safeguards around them.”
More press coverage concerning Unilever was somewhat problematical for the firm. Terry Smith is a sometimes controversial figure in the financial world, but in recent years you can’t argue with the performance of the investment fund he runs, Fundsmith. It has grown 570% in 11 years, making it one of the very best funds around and way ahead of stock market “tracker” performance.
Smith holds some 0.8% of Unilever shares, which doesn’t sound a lot until you realise that is some £900 million worth, making him one of the largest individual shareholders. But in 2021, the shares were down 0.2% against a market rise of some 20%. So in his recent annual letter to investors, he criticised Unilever for their focus on sustainable and purposeful business, saying that too much emphasis was being placed on those issues to the detriment of shareholders. As he said,
“A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot. The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert — salads and sandwiches).”
He hasn’t sold his stake in Unilever, it should be said, and to declare an interest, I hold shares too in my SIPP pension fund. (I hold approximately 20% of 1% of 1% of Smith’s holding…) But he wants to encourage the bosses to focus on shareholder value, which is his job as a fund manager.
We are undoubtedly going to see some pushback and contrarian views over the increasing ESG focus in business. Some experts are probably rightly saying that if everyone turns away from businesses that don’t tick the right boxes, then there will be opportunities for investors who are prepared to support such firms.
The lesson here is really that whilst acting in a purposeful and sustainable manner may make CEOs – and all of us – feel better about ourselves, in a capitalist economy, there has to be a business case for doing so. Otherwise investors won’t be happy in the medium and long term. Maybe Unilever hasn’t explained well enough to investors why they are following this strategy?
In terms of Hellman’s, for instance, it is not the most fashionable product for younger consumers who may be more into kimchi, chili sauce, wasabi and salsa rather than a non-vegan, high-fat mayonnaise. So “purpose” needs to be translated into a product and marketing strategy that helps Unilever sell more product, basically.
Finally, here is a short extract from Procurement with Purpose - and there is more in the book on how to develop an appropriate procurement with purpose strategy that will satisfy stakeholders.
“Thinking about the strategy should always start with the organisation considering why it wants to implement procurement with purpose actions and approaches. It can be useful to think about this in terms of both risk and opportunity.
Smart organisations use these ideas to build reputation and performance by “doing the right things” in terms of sustainable business, including procurement and supply chain activities. That builds a position of strength with customers, staff and other stakeholders. So organisations should consider the benefits that can be driven through PwP activities. Many have built strong, credible brands in part through being seen as supporting wider purpose. There is also emerging evidence that companies operating with purpose simply perform better, and are valued more highly by investors.
Equally, organisations should consider the strategic risks that they face, and for most firms, much of their risk exposure today is generated from the supply chain and suppliers, rather than internally. A thoughtful PwP approach can counter many of those risks, reputational damage in particular, because risk issues such as pollution, human rights or provenance of raw materials often occur via supply chain activities.
There are many examples where supply chain risks connected with these issues have had a serious impact on businesses, from negative publicity connected with the treatment of workers in the apparel supply chain, to the “horsemeat in burgers” scandal.”