Unilever CEO's brave dismissal of short-termism

I posted here a few months ago on the obsession with short-terms results, calling it "The tyrany of growth".

Well, how refreshing to see Unilever's CEO Paul Poleman now speaking out against the short-termism of the stock market, at the Davos Summit. According to The Times he made an "impassioned plea to fellow business leaders yesterday to ignore the demands of short-term shareholders and lead from the front on sustainability and climate change."

What I love about Poleman's speech is that he pulled no punches. He told the audience that he didn't mind if hedge funds sold Unilever’s shares because of worries over short-term profitability. The quote of the day: “These hedge funds would sell their grandmother if they could make money. They are not people who are there in the long-term interests of the company.” 

This is is one of the rare business leaders who walks the talk. Many moan about the pressure of short-term reporting. Few have the courage to do what he did last year and stop providing earnings guidance to investors. This resulted in a short-term 6% fall in the share price.

 
Here's some more of what he proposed:

1. His job as CEO is to ensure long-term success, not to focus merely on shareholder value. Again, I like his boldness when he said: “We want to be in business for the next 500 years.”

2. This long-term focus required costly actions to ensure it had a sustainable business, for example in terms of palm oil supplies.

3. It's time to move beyond “shareholder value” as the guiding principle behind corporate leadership, requiring CEOs to have courage to move out of their “comfort zone”. Another Davos dude, SAP's CEO Leo Apotheker, later proposed the alternative of "stakeholder value”.

4. There were “socially aware” investors that companies could attract to replace the short-term hedge funds.

Hat's off to Poleman for doing what CEOs should do and leading the way to a better future. And extra marks for doing this in a ballsy, uncompromising way.

Unilever has for a long time not got the PR it deserved, given the many leading initiatives it has taken in corporate social responsibility, such as reaching 120 million people in India with an education programme about the importance of washing hands with soap. Perhaps Poleman's more outspoken style will start to fix this.

Comments

[asit]

Hiring Paul has been one of the best decisions taken by Unilever. There is a new energy at least if one goes by the amount of press coverage. Also they seem to be ahead in using social media and branded content compared to their peers. They were also not unafraid to dabble with crowdsourcing. Recent global media and digital pitches also indicate a focus on big thinking with a few partners. All in all, lots happening within the company most of it in the right direction.

What he is saying about looking beyond shareholder value in some ways similar sto what Sarkozy said about looking at GDP growth as an indicator of progress. Different scale and setting, public company vs country.

[andy]

I think that Paul Polman's greatest achievement so far in UL has been to get the winning mindset back - the dual focus on growth AND reducing our environmental footprint is the kind of vision that makes you want to come to work in the morning! And getting the short termists off our back gives us the space to deliver.

[Nick]

I agree David and shareholder value must surely be a major reason that so many large companies hit the skids. If Lehman hadn’t chased an $80+ share price, their whole strategy would’ve been very different.

It’s also the reason that so many British companies have been snapped up by foreign firms (Cadbury the obvious example). At the risk of being xenophobic, I’d prefer to see a more Germanic stock market that limits such exposure.

Common sense tells us mid- to long-term must overrule the next quarter’s results. I applaud Mr Poleman but fear it’s a change in mindset as unlikely in UK plcs as it is in the premiership.