Why two beats one at Unilever
SHAREHOLDERS own companies and executives are hired guns, paid to run them. Sometimes they have to be reminded of their place. And so it has been in recent weeks with the chair, chief executive and board of Unilever – custodians of that vast array of brands we all use in our daily lives: Persil, Marmite, Radox, Vaseline – the list is extensive.
The company has been on an extensive PR campaign to try to win over shareholders for its plan to end an agreement, signed in 1929 when Lever Brothers and Margarine Unie merged to create a UK and Dutch consumer group with headquarters in both countries.
What had been good enough for the past 89 years wasn’t good enough now. The single HQ was to be in the Netherlands. On Friday, the board retreated – but only when a string of large UK shareholders declared they would vote against it and it became clear that it probably could not win a sufficient majority to get it through. This shatters the board’s authority, and it raises two questions. How on earth could they get things so wrong? And what happens now?
For the first, there is a puzzle. On the face of it the board ticks all the boxes. It has a Dutch chief executive but one with long experience in the US. It has a gender balance, with nine women among the 23 people billed as ‘our leadership’. It has a nationality balance, with a mix of Europeans, Americans, Asians and Africans.
The trouble is that despite this apparent variety, it clearly was a group of people who thought alike. Either no one was prepared to stick their head above the parapet and say this might not be a great idea, or they were simply too disconnected from their shareholder base to realise what asses they were about to make of themselves. It is a classic problem of decision-making, highlighted recently in a speech by Andy Haldane, chief economist of the Bank of England, popularly known as ‘groupthink’.
What happens next? Well, there will be a takeover bid. It just managed to fend one off from Kraft Heinz late last year, thanks in part to the staunch support from the very shareholders that rejected its move to the Netherlands now. It can expect less loyalty in the future.
There is, however, one way through. The logic of the board, that the dual structure was cumbersome, was right. It picked, however, the wrong solution. The obvious fix would be to split the company back into two: a Lever Brothers based in London and a Margarine Unie (perhaps under a more userfriendly name) in Rotterdam.
Unilever is just a collection of brands. But some of those brands play naturally in the Englishspeaking world, while others are more attractive in Continental Europe. Thus Ben & Jerry’s, the ice-cream maker based in Vermont, works fine in the US and UK, but doesn’t ring quite so well in Paris or Rome. And while Knorr stock cubes are useful to pep up a soup, they would more happily sit in a Continental stockpot of European brands.
Result: instead of one wounded and vulnerable giant, there would be two vigorous competing entities. What’s wrong with that? IF YOU own a Tesla car – lucky you – enjoy it. If you own Tesla shares it might be time to trade them in. In fact, it would have been better to have traded them in the summer when they were 30 per cent higher than now. They were down sharply on Friday following another tweet from Elon Musk, this time attacking the Securities and Exchange Commission which had fined him and the company $20 million (£15 million) apiece.
But Tesla is still worth $45 billion, almost as much as General Motors at $48 billion, and more than Ford, $37 billion. Clearly it is valued as a technology company rather than a car-maker.
That must be wrong. The other manufacturers are gearing up to crush Tesla. They know a lot about building luxury cars. Jaguar is already there. When every producer makes fully electric cars, the first-mover advantage of Tesla evaporates. It will become an interesting niche company. Sounds more like a $10 billion enterprise – bigger than Aston Martin, smaller than Jaguar Land Rover – than that $45 billion it is worth today.
Instead of one wounded giant, create two vigorous competing firms