Unilever is under attack. Is it the ESG’s fault?

Activist investor Nelson Peltz appears to be positioning himself for a battle with the company’s management. Has the focus on sustainability made the consumer goods giant lose its way?

Unilever, one of the world’s largest consumer goods companies and a symbol of stakeholder capitalism, is under attack from disgruntled investors.

In the latest bid, hedge fund Trian Fund Management, owned by American activist investor Nelson Peltz, has just mounted a significant stake in the company to try to shake things up, according to the Financial Times on Sunday.

Investors complain about the company’s performance on the stock market. While rivals such as Procter & Gamble and Nestlé advance, Unilever shares are down 17.7% in 2021 (discounting dividends).

A few days ago, the company’s focus on sustainability and purposeful capitalism was put in the spotlight. One of the company’s ten largest shareholders, the British Terry Smith, said the giant was “lost”, more concerned with the luster conferred by the focus on ESG than with the direction of the business.

Owner of Fundsmith, popular with British retail investors, Smith used a statement by Alan Jope, CEO of Unilever, to make a bespoke, tart joke to go viral.

“In our opinion, a company that thinks it has to define the purpose of Hellmann’s mayonnaise is clearly lost,” he wrote in his annual letter to investors.

“The Hellmann’s brand has been around since 1913, so we would say that by now consumers have understood what it’s purpose is (spoiler alert – salads and sandwiches).”

Smith was referring to a comment made by Jope two and a half years ago, when he had just assumed command of the British giant.

In an attempt to combat what he called ‘woke-washing’, the social equivalent of greenwashing, Jope said Unilever executives would have to find the purpose of each of the company’s hundreds of brands.

But that directive eventually became an obsession with “public demonstrations of sustainability credentials, at the expense of focusing on what’s essential to the business,” wrote Smith, one of the company’s top 10 shareholders.

The episode in almost everything recalls the crisis faced by Danone, less than a year ago, which culminated in the dismissal of CEO Emmanuel Faber, one of the most vocal defenders of responsible capitalism. For many, Faber lost focus on the business while emphasizing sustainability.

In the ten years of management by the Dutchman Paul Polman, Unilever has become one of the main exponents among companies interested in making profits while helping to solve the world’s problems.

With Jope at the helm of the company for three years after Polman’s retirement, Unilever faces challenges on several fronts. One of them is finding new growth opportunities (another point in common with the Danone case).

Owner of global brands such as Ben & Jerry’s ice cream and Dove soaps, Unilever tried three times to acquire the consumer unit of pharmaceutical GlaxoSmithKline and products such as the pain reliever Advil and the Sensodyne toothpastes.

The most recent offer, worth $68 billion, was turned down by GSK — and Unilever shareholders, who slashed the share price by more than 10% last week.

Nelson Peltz has orchestrated campaigns against companies such as GE, Mondelez and Procter & Gamble. In the latter, he held a seat on the board of directors for four years, until August last year.

He pointed out two problems in the management of the American giant: bloated structure and lack of focus on younger consumers. But Peltz did not demand the resignation of then-CEO David Taylor, nor did he demand a division of the company into separate businesses.

Procter & Gamble made an internal reorganization, improved processes and the results showed. At the end of 2017, when Peltz won the board nomination, the company’s stock was worth about $92; on Monday, it was trading at $161.

non-binary response

The impact of the arrival of the “fox in the henhouse”, as one analyst put it, on Unilever’s sustainability policy will be closely watched.

Analyst Bruno Monteyne, from the manager AllianceBernstein, said in a recent interview that the response to the crisis should not be binary, that is, it is not simply a matter of choosing between focusing on ESG or shareholder return.

“There was no criticism of the ESG purpose, but rather a lack of urgency when it comes to growth and innovation,” he said. “What investors fear is that execution [das metas] ESG receives more energy and passion than the mission to stay relevant to consumers.”

As it moves in response to investor pressure for more growth and a focus on its core business, Unilever will also be pressured not to neglect sustainability.

Last week, a group of investors in the company, with $215bn in assets, submitted a proposal to be brought to this year’s shareholders meeting asking the company to correct what they see as a “crucial blind spot” in its strategy and establish ambitious goals to sell healthier foods.

Investors want the company to disclose the current proportion of sales of healthier products and create a goal to increase that share by 2030, with an annual review of progress.

For the group, in the face of increasing regulations around healthcare, failing to act now could affect its finances in the future.

With the crisis at Unilever still unfolding, the episode already serves as a warning about the need for leaders to seek a good balance between profit and purpose – and not neglect one while looking at the other.

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About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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