Three months after Kraft Heinz’s £115bn takeover bid was defeated in a weekend, Unilever chief Paul Polman is still throwing punches. He’s jabbing in defence of his company’s “inclusive capitalism” business model. He is championing the returns Unilever shareholders have enjoyed during his eight years at the head of the Dove soap-to-Lipton tea consumer goods giant. “Better than Warren’s,” he says, in a dig at Warren Buffett, one of Kraft’s big backers.
And he is trying harder than ever to provoke a wider debate about the perils of short-termism in business.
Polman, 60, is approaching the end of his reign, and questions of legacy, succession and the solidity of Unilever’s long-term model hang in the air. The encounter with Kraft – and its “fast and ruthless” style, as Polman puts it – was a high-risk moment and one the company doesn’t wish to repeat.
There has been a whirr of activity as Unilever seeks to cement the loyalty of shareholders. It is reviewing its Anglo-Dutch corporate structure, and has put its margarines and spreads business up for sale, launched a €5bn share buyback and set a public target of achieving 20% profit margins by 2020. Those actions have boosted the share price by a fifth, which is the best defence against a bid, but Polman also wants to draw wider lessons – and among his intended audiences are governments.
“The financial market has changed and you need to be clear on what you want,” he says. “Do you want short-term forces – that work for a few people, and make a few more billionaires – to be the dominant force? Or do you want the system to work for the billions that need to be served? It’s a fundamental choice.”
Governments are listening. You won’t find the word “Unilever” in last week’s Conservative manifesto but the passage on reforms to rules on takeovers and mergers almost nodded at the Kraft saga, which illustrated the government’s lack of formal powers of intervention.
Theresa May’s party is now promising that deals driven by “aggressive asset-stripping or tax avoidance” will not be welcome. Under a new Tory administration, bidders will have to be clear about their intentions, their promises will have to be legally binding, and the government will be able to “require a bid to be paused to allow greater scrutiny”.
A similar debate is raging in the Netherlands. Polman is not asking for special favours or protections, he says. Nor he is arguing that governments should promote national champions – he insists he’s never described Unilever that way. Instead, he’s calling for a “level playing field” and a rethink about the definition of national interest. “What we have talked about with government is that it strikes me that the UK is not – and I put my words carefully – in an equal position,” he says.
The UK takeover rules are, he argues, more liberal than in the US or the Netherlands. “You have to have a discussion of why these differences are there, and whether you are putting yourself in a good position or a bad position, especially at the time of Brexit and many other things.”
Those other things include a weak pound, a strong dollar and the generally higher stock market rating of US companies. Then there’s the fact that debt remains extraordinary cheap, and thus tax-efficient for the corporate borrower.
With an obvious reference to Kraft, whose Brazilian billionaire backers at 3G have usually funded their takeovers with huge borrowings, he says: “To buy a company by overleveraging it, and having the taxpayer pay for it in deductions on income tax, doesn’t strike me as in the best interest of a country.”
He’s not impressed by the argument that the UK’s traditional open-doors policy on takeovers has boosted investment. “Some people say the UK has had a lot of inward investment. Well, the UK has been reducing its investment in research and development, which is a sign of not being headquartered. Because when your headquarters are not here, the R&D doesn’t come. When people say the UK has had reasonable foreign direct investment (FDI), a lot of that is companies being taken over. It counts as FDI, so I am not sure the statistics will give you the whole story.”
What would a more level playing field look like? Polman is full of suggestions: voting rights that favour long-term investors; tax reforms that examine disparities between capital gains and income taxes; and better transparency regimes to reveal beneficial owners.
He’s also not a fan of the UK’s shortened bid timetables – a reform that was actually introduced after Kraft’s takeover of Cadbury in 2010 to help defending companies combat lengthy “bear hug” bids. A 28-day timetable is not, he argues, long enough for defending companies to audit detailed cost-savings.
Behind his argument sit hotly contested questions about who really owns companies in today’s fragmented financial world, and the interests of non-shareholders.
“Hedge funds and others are not owners of companies,” he argues. “They are agents. They are middle men. So who are your shareholders? You ask that first. Second, what are the fiduciary duties of companies? Is it to someone who can come into your shares, who has never been there, and can decide that they can create some value in the short term?”
Polman’s view, obviously, is that companies serve a wide group of stakeholders. Unilever has, he points out, 10,000 direct employees in the UK but almost another 200,000 working indirectly in supply chains. Then there are the 80,000 Unilever pensioners in the UK and two research centres. Unilever is the second biggest filer of patents in the UK, he says, and runs projects with 10 universities.
“So the importance of a company like this is not a national test of security, but a national test of what sort of economy we want. I think more and more people are starting to discover that the economy needs to work for more people and needs to be more inclusive.
“Now that doesn’t mean – and I stress it again – that we need to have protection. It means asking what is the government framework to encourage a system that works for everybody, and to balance a focus on the shareholder with the other stakeholders?”
He says he could easily manufacture a higher share price at Unilever by cutting jobs, factories and research. It would be five years before the market noticed the underinvestment. “Graveyards are full of companies that have been cutting costs but ultimately not fulfilled their purpose to do anything useful for society,” he says.
Polman’s argument is that governments, like companies, should study the impact of the increasingly intense short-term demands of today’s financial markets. “We need to put the right group of people together who can put a recommendation to the government,” he says. “And Unilever is happy to be part of that. Right now, for Unilever, it would be an important decision in terms of where we would have our centre of gravity.”
Hold on – that sounds like a warning that the company could shift its focus to the Netherlands, where case law allows company boards to consider the interests of “stakeholders” and not just shareholders in hostile bid situations. And, note, the Dutch prime minister, Mark Rutte, worked for Unilever before entering politics.
No decisions have been taken, insists Polman. Even a Shell-style solution – a Dutch headquarters and a London stock market listing – hasn’t been ruled out. “We don’t have the answer yet,” he says. “If you have an HQ, you need to know what the movement of people is, the tax jurisdiction, the corporate governance code, the tax laws, and whether you can have a big enough shareholder base. These are not easy decisions. That is why it is absolutely important that we work together with the UK government and the Dutch government.”
Outsiders are obsessed with Polman’s exit from Unilever. He’s clearly not leaving while the company is still navigating the post-Kraft waves. “You don’t jump ship when you are not in the harbour,” he says. But, once safely in port, the board will have a look – “definitely in the next year or two, that’s the timeframe”.
Then he adds that he hopes his successor will be an internal appointment. So much for the popular idea that Dave Lewis, Unilever’s former head of personal care who is now chief executive of Tesco, will be summoned back. “We have a deep bench of talented people that stay with us, people who go through tougher times and better times,” says Polman.
It doesn’t sound like Lewis will be the next keeper of the flame.
