Lest Unilever Forget, Profit Is the Sole Purpose of a Business
While helping my daughter run her first lemonade stand, a nice neighbor approached and asked what charity we were raising money for. But, we weren’t raising money for anything. My daughter had just started her first business, and I was proud of her for that. So, I looked at the neighbor and said that we were working for profit, not charity. Given the recent controversies surrounding Unilever’s CEO, Paul Polman, maybe they should consider consulting my daughter about the value of profit seeking as the company conducts its comprehensive review.
The value of profit is often overlooked by the chattering class in the media– not so much investors or stockholders –yet the media’s outlook has changed the way that the rest of us perceive companies and the individuals that run them.
Businesses are about making profit. Charity can be a tool in that process – although likely not an effective one. But, charity can also be done right; Bill Gates one person who is doing it right. He and his wife Melinda have set up an incomparable foundation that does amazing work throughout the world. However, it was only after he personally amassed wealth that the foundation became particularly active.
Even more importantly, he isn’t using Microsoft as his charitable outlet. Microsoft has made Bill Gates billions with a product whose marginal cost is almost $0. That isn’t charitable, but the world is orders of magnitude better off because of his innovations – and that should be celebrated.
Some business leaders don’t understand this concept. They mistake the marketing advantage of company charities, and do-gooding, as the company’s mission. This form of headline-chasing “leadership” is a recipe for disaster and a nightmare for stock holders. The current shenanigans at Unilever are a case study on corporate charity, and in this case it isn’t going well.
There are lots of ways to make money in a business as large as theirs – the company has its fingers in so many pies (both figurative and literal) it’s almost impossible for them not to make money. However, under Polman’s leadership Unilever seems to have morphed into a fourth option: a mega-corporation with the mission of a non-profit charity – they even have a website promoting their new strategy. And, because of his outspoken opinions on capitalism and the environment, Polman has been heaped with predictable, eyeroll-inducing praise from the media.
Of course, these vanity projects cost money.
For instance, Polman directed the company to commit $25 million to plant trees in the developing world, which might be a noble goal for a non-profit, or a privately owned company, but at a for-profit, publicly traded corporation, that money came from shareholders’ pockets. Interestingly, that money likely came from profits derived from fees raised in the developing world. In 2013 royalty fees from its Indian partners were doubled, and in 2015 fees to local partners in South Africa were tripled. Praise from these actions has helped to spur Polman on, but the praise hasn’t been from his shareholders, because the mission of the company that they invested in was to profit. And that mission has been lacking.
Unilever recently hit a five-year low in sales growth. From February 2016 to last month, the company’s stock has slipped by more than 2 percent while the S&P 500 has soared 25 percent; and analysts forecasts for the next 12 months have Unilever's stock price down 4.1 percent. Last month, hostility from Unilever caused Kraft Heinz to pull its $143 billion purchase bid; a majority of Unilever shareholders who would have benefited significantly from the merger are unhappy with this maneuver by Polman, according to a recent survey.
I am sure that Paul Polman is a nice guy, and the media certainly agree, but running a business is not about being nice. Running a business also isn’t about being mean. And, running a business also isn’t about polluting or exploiting anything or anybody. Running a business, running a large mega-corporation, is about making money.
Just ask my daughter – or that neighbor that ended up purchasing a glass of lemonade and a cookie. (The margins are higher for the lemonade, in case you’re wondering.)
