Unilever CEO Paul Polman put a brave face on it. Announcing a wide-ranging revamp of the Anglo-Dutch consumer goods group six weeks after the aborted $243bn takeover offer from Kraft Heinz, Polman restated the multinational’s commitment to sustainability and a long-term growth model and emphasized that some of the announced measures had already been on the cards. But he admitted that the ‘short-lived and opportunistic’ bid had been energising and raised expectations.
That’s one way of putting it. But the price Unilever is in effect paying for the privilege of maintaining its lonely long-termist stance is high. Shareholder-pleasing initiatives include doubling leverage, spinning off margarine and spreads (one of the group’s founding businesses), bumping up cost cuts by €2bn to 2020, buying back shares to the tune of €5bn and hiking the dividend by 12 per cent. Further down the line, the company is considering streamlining its Anglo-Dutch legal structure, possibly merging the twin headquarters in London and Rotterdam and doing away with one of the London and Amsterdam share listings.
All these measures are shareholder-friendly and fashionable. But whether they advance the long-term interests of the company is less certain. Of course all companies need to use their resources efficiently, and shareholders should be adequately rewarded. But while not a sprinter, Unilever’s historic performance is more than respectable. Financial conservatism is one reason for its long life and sound health, and it’s not clear how doubling leverage will improve those. Likewise, Warren Buffett, a backer of the Kraft Heinz bid, maintains that share buybacks can be a good investment when prices are low – but at £40 Unilever stock is riding high, a fifth up since the aborted bid. Together with the dividend hike, that is an expensive bribe to shareholders with a corresponding reduction in its ability to invest in long-term growth.
Unilever’s reorganisation is a graphic illustration of the strong headwinds faced by well-intentioned public companies that try to row against the tide of short-termism and act in what they believe is their own best interest. It also explains why so many new companies prefer to remain private or follow the Silicon Valley example of going public with voting structures that preserve the founders’ control. Cynical they may be – in Snap’s successful recent IPO investors received shares with no vote at all – but such upstarts have a point. Under financialisation, life as a public company is likely to be nasty, brutish and short. And judging by the stock performance of founder-controlled companies such as Facebook, Google and (so far) Snap, shareholders don’t appear to care much about such disenfranchisement anyway – which rather undermines their claims to have the last word over the company’s activity in the first place.
But there are other pressures, too. On the day that Polman made his announcement, Nestlé’s new chairman Ulf Mark Schneider commented to his shareholders: ‘Many companies are focusing on radical cost-cutting to deliver higher profits in the short term. That approach is not sustainable.’ One of those pressures comes from what one might call ‘new economy’ firms that are taking full, or more than full, advantage of the ability of technology to help them offload the burden of employment costs. By cutting the transaction costs of hiring labour on a temporary basis, technology, in the words of the FT’s excellent Sarah O’Connor, ‘is shifting the borderline between a central core of employees and a periphery of not-quite-employees who can be picked up and put down at will in the open market.’ Disputes over that borderline are currently pitting riders and drivers against Deliveroo and Uber respectively, claiming that their lack of control over their working conditions effectively makes them employees of the firms, with entitlement to sickness and holiday pay and other employment rights, rather than ‘independent contractors’, as the companies counter-claim.
This matters not just for the inequality and the security of individuals. The gig economy is just the current end point in the steady dissolution of the traditional basis of the employment relationship from career to job to temporary job – via downsizing, outsourcing, casualisation and now the platform – until all that is left is the task. And the employment borderline is still drawing inwards towards the centre: a recent Fast Company article describes AI-run ‘flash teams’ that
‘use software platforms to break down complex work that requires collaboration, such as engineering and web design, into modules of specific tasks that the network hands off from freelancer to freelancer, in a virtual assembly line. Once the work is complete, those teams are dissolved, but they can potentially be recombined for other types of work in the future.’
The significance of these developments for old-line companies like Unilever that still provide the full-time, well paid jobs that most people really want, can hardly be overestimated. Under pressure on one side from the capital markets to increase returns, on the other to cut costs from start-ups whose one competitive advantage, when it comes down to it, is undercutting employment rights, they – for which read ‘we’ – may find themselves in a position where the long-term model breaks down. In a recent report, stakeholder analysis by Tomorrow’s Company found that while consumers are benefiting from today’s cost-cutting trends, as workers, suppliers and shareholders we were losing out. This is as sustainable as a shark devouring its own tail.
Coming back to Unilever and its threatened ilk: they won’t be saved by a national interest test to prevent opportunistic and predatory takeovers, which can be fudged with ease and in any case tackles only half the problem, nor even an industrial policy. What’s needed to level the playing field and disqualify unfair competition from corporate tax and employment-rights evaders is a revised and unambiguous statement of a company’s equal responsibilities to its employees and other constituents as well as shareholders. As another terrific FT writer, Izabella Kaminska, pithily remarks: ‘If it looks like an employee, operates like an employee and is controlled like an employee, it most likely is an employee, irrespective of what the contract says’. When doing the right thing undermines it, sustainability itself becomes unsustainable.