Fortune Magazine does a daily newsletter and recently the lead article was about Unilever’s CEO and the observation that he has become the poster boy for responsible capitalism. The author claimed that this individual was clearly the most adamant corporate leader in insisting his company operate for the good of society, not just shareholders. The Fortune writer pointed out that this Unilever leader, and his social-program focus, will be the feature story in the upcoming issue of Fortune Magazine.
The writer went on to point out that this CEO’s primary focus was fighting global warming and ending childhood malnutrition. But, the social-good efforts don’t stop there; in fact, the company’s official “Sustainable Living Plan” includes a dizzying array of 50 goals, ranging from stopping nonhazardous waste going to landfills to decreasing by 50% the waste water in Unilever plants.
After all the praise the writer heaps on this individual, he does point out that Unilever shareholders are not necessarily in the boat on all these efforts on social issues. He finally fesses up to the fact that over the past two years, Unilever stock has seriously declined (-14%), while the S&P 500 has registered a healthy gain (+12%); to the point where the financial analysts are talking about the need to replace this CEO. As one analyst pointed out, “Many investors I speak with don’t give two hoots about Unilever’s Sustainable Living Plan.”
Much to the embarrassment of the writer of this daily Fortune newsletter, as well as the editor of the upcoming issue of Fortune Magazine which features this CEO, a couple of hours after the newsletter praising the CEO was sent to the in-boxes of Fortune subscribers, it was announced by 3G, the big private equity firm, that it was making a bid of $143 billion for the struggling Unilever. In the past couple of years, 3G had picked up the weak-performing H.J. Heinz (ketchup) Company, followed by the acquisition of the bloated and declining Kraft Foods. In each case 3G quickly went to work, massively cutting cost and streamlining operations. 3G stated that they planned to do the same thing to Unilever as they merged it with Kraft Heinz.
Within days of the 3G bid, the Unilever CEO convinced his board that the proposed price undervalued the company and the cost cutting would spoil their responsible-capitalism approach, resulting in the board turning down 3G’s bid. Whether that is just the end of round one of a long battle, or whether 3G will go away, is an open question.
The lesson here is quite clear. If you are a publicly traded company, putting the financial interests of your shareholders at a second priority is a big mistake. All corporations need to be good corporate citizens, but they need to remember why they exist in the first place; to serve the shareholders whose money allows the company to exist!
Priority setting is critical for a leader; failing to do so puts everything at peril.