There was time when, most notably under its earlier CEO, Paul Polman, Unilever was a poster child for ESG, stakeholder capitalism, and their precursors, a task made possible by the company’s good share price performance (financial performance was arguably less impressive) while Polman was in charge, although how much that owed to stakeholder-capitalist ideas is debatable. However, as I mentioned in a Capital Letter in December, Polman left behind a corporate culture which, in the end, would be likely to undermine shareholder return, especially if a less capable executive were in charge. And that’s what happened.
Polman’s successor’s successor, Hein Schumacher, promised something of a rebalancing, although not, alas, a wholesale abandonment of “sustainability,” an empty word often filled with destructive meaning. But it would be unreasonable to expect the shareholder-unfriendly aspects of Polman’s legacy to be unraveled quickly. His ideas will have seeped right through the organization.
So, what’s happening now?
Unilever Plc plans to abandon or water down a string of environmental and social pledges against the backdrop of a growing backlash from investors, consumers and politicians against companies pursuing non-financial objectives.
The move by Hein Schumacher, Unilever’s chief executive officer, marks a major shift for the £95 billion ($118 billion) consumer group…which has built its business strategy on a bedrock of ESG policies for more than a decade. Seen as the corporate world’s biggest cheerleader for the idea that companies should do good in the world, the downgrading of some commitments will be watched closely by other businesses under shareholder pressure to reduce costs and boost stock market performance.
Well, good. But Bloomberg’s use of the term “water down” could do with some context, which can be found in a report in the Financial Times, in which Unilever’s CEO explains that the company had underestimated how hard it would be to meet some of its environmental targets. In some cases, it simply was not ready.
That explanation seems plausible. It is also an indictment of the management teams charge when these commitments were made. Their failings may have been a product of green zeal, but they may also reflect a neglect of financial discipline all too typical of a management turning its attention to areas divorced from the firm’s function as a commercial enterprise.
This raises a broader question. Should companies be making such commitments in the first place? Generally, no. They should respect environmental law just as they should respect any other law, but they should not voluntarily accept significant additional environmental commitments, unless there is some clearly quantifiable commercial benefit from doing so. And securing the applause of an NGO or industry climate group does not count as a quantifiable commercial benefit, other, than in the case of companies where greenery is a key to their business image.
Unilever’s Schumacher sees the company’s course correction, in part, as “cyclical”:
“When you have a huge drought for a number of months but everything else is going fine, the attention is on climate. These days it’s about wars and rightly so, that’s at the forefront.”
There’s something to that, even if it disregards the extent to which the apparatchiks of ESG/stakeholder capitalism will remain embedded within a company regardless of how the headlines change. On the other hand, cyclicality in the traditional economic sense may still matter. Once a downturn bites and starts squeezing margins, how much room will there be on the payroll for, say, a sustainability officer?
And there’s something else. The causes of the rise of ESG and stakeholder capitalism are varied (and many of them relate to the opportunities for profit and power they can represent). They also include the effects of a decade or so of interest rates so low that money was practically “free.” This contributed to the relaxation of financial control that helped create more room for ESG and stakeholder capitalism (luxury goods of a sort) than would otherwise have been the case.
Unilever had earlier ditched the idea of giving each of its products a “purpose.”
Purpose?
In 2019, [Unilever] pledged to develop a “purpose” for every brand, with everything from Domestos bleach to Vaseline “addressing an environmental or social issue,” Mr Jope said at the time.
This had earned Unilever derision from some investors, as I noted in a Capital Letter in January 2022. That criticism, made more intense by poor share price performance, continued, somewhat at odds with repeated claims within the ESG ecosystem that investors are thrilled by companies that do things such as putting a purpose on every brand. If those investors are investing their own money — or if they take their fiduciary responsibilities seriously — this is not so. It’s telling that the Unilever share price jumped on good results on Friday.
As mentioned above, Unilever still has quite some way to go in undoing the drift away from shareholder primacy of earlier years as, for example, can be seen from the company’s X feed, where it is flagging its updated Climate Transition Action Plan. Some of the plan can be justified as preparations for potential climate-related legislative or regulatory changes, but much of it appears to go further than that. It is also sad to see that Unilever still believes (or claims to believe) that global warming can be kept to 1.5°C above preindustrial levels, a target already viewed as highly unlikely.
Turn to page 34 of the plan to find a section on Unilever’s “wider influence on society,” much of which seems to consist of “advocat[ing] for [environmentalist] policies that support economy-wide transformation,” something which is quite literally none of its business.
Unilever pursues (at shareholder expense) this advocacy at least in part, with its corporatist pals:
We will pursue broader support for these objectives at an international level via forums such as the World Economic Forum’s Alliance of CEO Climate Leaders, We Mean Business Coalition, WBCSD, the Corporate Leaders Groups, The Carbon Pricing Leadership Coalition.
Unsurprisingly, the protean “Davos” is there amid this collection of corporatist grandees, this time adopting the shape of “the World Economic Forum’s Alliance of CEO Climate Leaders.”
More about them here. As always, Davos prose is a source of strange pleasure:
The Alliance actively participates in corporate climate advocacy to shape a global enabling environment. By jointly connecting with world leaders and stakeholders through policymaker multilateral and open letters, Alliance members can move forward on their climate journeys.
Climate journeys.
The, uh, alliance wins a bonus point for using the word “stakeholders,” which in this context means that something post-democratic is going on (and, if the business world is involved, forthcoming bad news for shareholders).
I turned to the list of members expecting to see some familiar climate rent-seekers, and, sure enough, there they were, including Accenture, Bain, Boston Consulting Group, Deloitte, EY, KPMG, PWC, and, of course, McKinsey.
But back to Unilever:
In March 2024, we will propose amendments to our Remuneration Policy which, if approved by shareholders at the 2024 AGM, would result in a Sustainability Progress Index (including climate targets) with a 15% weighting for 2024 Performance Share Plan (PSP) awards onwards. The PSP will, if approved, apply to members of the Unilever Leadership Executive (ULE) and our senior managers (approximately 500 employees) from 2024.
Tying any element of a bonus to “sustainability commitments” ought, other than under very limited conditions, to be unacceptable to a company focused, as companies should be, on the bottom line. I looked at this issue in the course of a Capital Letter last year, when I quoted this from the Financial Times:
A growing number of blue-chip US companies are using environmental and social factors to decide bonuses for top executives, but investors are worried the metrics are being gamed to increase payouts.
Three-quarters of S&P 500 companies have disclosed that environmental, social and governance metrics contributed to executives’ pay, up from two-thirds of companies in 2021, according to data from The Conference Board and Esgauge, an ESG data analytics firm…
“We are sceptical of ESG metrics being used in compensation,” said Ben Colton, head of stewardship at State Street Global Advisors, which manages $3.79tn. “Oftentimes they are very subjective, fluffy and easily gamed.”
Or, if that’s not enough of a warning about such payment schemes, check out these paragraphs from the Harvard Business Review (February 7, 2023) (my emphasis added):
Global businesses have reached a sustainability inflection point. Stakeholder expectations and heightened investor scrutiny are putting organizations under pressure to articulate their societal roles more clearly, prioritize environmental and social objectives within their business strategies, and demonstrate progress to stakeholders. We also know that employees are prioritizing their employment decisions based on an organization’s purpose, culture, ESG goals, and diversity, equity and inclusion (DEI) priorities. Yet for the most part, corporations have been neglecting a powerful lever for advancing their sustainability agendas: executive compensation…
Quite how much investors (government sector apart) really care about companies articulating their “societal roles” is, shall we say, less than clear. And should companies that put their shareholders first (which ought to be almost all companies) have to demonstrate “progress” to, yes, stakeholders? No. It is not enough to neglect that “powerful lever.” It should be melted down.
But, however long a road Unilever may still have to travel away from its corporatist legacy, it has made some progress, and that is worth at least one cheer.
Meanwhile, Polman carries on, unrepentant.
Here he is writing for Forbes India:
We advise any executive thinking about where their company is on the journey to start with an honest answer to a simple question: Is the world better off because your business is in it?
The real question for that executive is whether his or her shareholders are better off because their business is in their portfolio. After all, that’s what the purpose of his or job is supposed to be. And, if enough executives focus on working toward that, the wealth that they will create will do more for the people of this planet than any amount of stakeholder capitalism.
The Forgotten Book
Capital Matters has a fortnightly feature, The Forgotten Book, which is written by National Review Institute fellow, the writer and historian, Amity Shlaes. We live in an age of short attention spans, and one of Amity’s objectives is to introduce readers to books or other primary sources that warrant a second look.
In her Capital Matters column, Amity dedicates herself to sharing with Capital Matters readers older, forgotten books, along with new books that aren’t getting the attention they perhaps warrant.
Her latest column can be found here. In it she discusses a playful little 1946 paper titled “Roofs or Ceilings” by Milton Friedman and George Stigler. The ceilings referred to rent-control ceilings:
Many who lost their homes simply left San Francisco. But tens of thousands remained, hunting for rooms, apartments, or shelter. To put it mathematically, as Friedman and Stigler tend to, the effect was that “each remaining house had to shelter 40% more people.”
Yet no great shortage alarm sounded; and no shortage emergency was declared. Indeed, Friedman and Stigler could not find the phrase “housing shortage,” or similar phrases, in the newspapers. The classified advertisements in the first edition of the San Francisco Chronicle printed after the disaster listed 64 places for rent and 19 houses for sale, with only five advertisements seeking housing.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and National Review Institute trustee, David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 164th episode, David is joined by his late father, Dr. Greg Bahnsen, who, although he passed away in 1995, left a legacy of material perfect for incorporating into a 2024 podcast. David went through 20+ sermons and lectures from his dad from the 1970s and ’80s to assemble a wonderful back and forth on work, and the power of Greg Bahnsen’s mentorship couldn’t be more clear!
The Capital Matters week that was . . .
Student Debt
Earlier this month, the Biden administration unveiled a plan to cancel hundreds of billions of dollars in student debt to garner votes in an election year.
The forgiveness plan is hardly serious, on both economic and legal grounds. Much like the 2022 Biden-administration attempt at forgiveness that was declared unconstitutional by the Supreme Court in 2023, the amount of student-loan forgiveness this time is extremely broad, aiming to provide some student-debt forgiveness to approximately 30 million people…
Tariffs
With both major-party candidates promising various forms of trade protectionism, it’s worth remembering why the U.S. over time has moved away from tariffs in its economic policy…
Net Zero
If there is a war against cars (there is), then one of its generals is London’s mayor, Sadiq Khan, who has been engaged in a campaign against motorists in the British capital since taking office. Now it seems as if the “race” to net-zero greenhouse-gas (GHG) emissions by 2050 may have given him an opportunity to torment them some more…
California’s regulations on gas-powered cars and trucks have gotten a lot of attention in the past few years. The state wants to phase out internal combustion engines on a very short timeline, claiming environmental benefits. But it has also pursued a rule on trains that is perhaps even crazier than the rules on cars and trucks. That rule is currently waiting for a waiver from the EPA to go into effect, and it has drawn opposition from just about everyone: railroads, locomotive manufacturers, business groups, farming groups, politicians around the country, regulatory experts, and even labor unions…
Adam Smith
“Altogether, an encounter with Vernon L. Smith — who rose from the Kansas plains to leave a mark on the world — is an encounter with intellect, practicality, and humane values. That earlier Smith, from Scotland, would smile.”
Tax
[N]o U.S. court, including the U.S. Supreme Court, has fixed the definition of income so solidly as to make it universal and applicable in all situations. In fact, that’s exactly the conclusion that the Ninth Circuit Court of Appeals came to in its decision in Moore v. United States (2022), which stated that the crisp definition provided in Glenshaw Glass was never meant to be a “universal definition, or even a broadly applicable test.” Instead, it was limited only to the facts specifically before the Supreme Court at that time…
Electric Vehicles
In the Soviet Union, consumers had to take the cars that the state might decide (if they were both lucky and very patient) to allocate to them, with the result that its cars were . . . nothing special. For now, however, drivers still have a choice, and are proving reluctant to buy EVs on the schedule set out by climate policy-makers and their accomplices/prisoners in the auto sector.
Banking
Without oversight or transparency, federal banking regulators at the Office of the Comptroller of the Currency (OCC) and FDIC are rolling out onerous new restrictions on bank mergers that will impede free-market activity and harm the financial system. Specifically, the new proposals scuttle certain expedited review procedures, eliminate the streamlined business combination application, and threaten to subject vital business decisions to expansive and vague bureaucratic discretion…
Labor
North America’s Building Trades Unions (NABTU) endorsed Joe Biden for president in yet another blow to the theory that stereotypically blue-collar unions might be political allies to conservatives…
The Dollar
Some of Donald Trump’s economic advisers are reportedly discussing ways to devalue the U.S. dollar should the former president be elected again this year. Chief among these advisers is Robert Lighthizer, who spearheaded the Trump administration’s trade war with China and could be Treasury secretary in a second administration. Proponents of the idea argue that making the dollar weaker against other currencies would make U.S. exports relatively cheaper, which would lead to a reduction in the trade deficit…
Advancing American Freedom, the advocacy group led by former vice president Mike Pence, came out against rumored plans among Trump economic advisers to devalue the U.S. dollar…
Intellectual Property
For decades, progressives have fought to weaken America’s world-leading protections for property rights. Conservatives have resisted this and mostly succeeded — including on the ideas, designs, and other “intellectual property” that are protected by patents…
Progressives, frustrated that previous efforts haven’t worked, are now turning to subterfuge. They’re hoping to trick conservatives into joining these attacks by recasting efforts to undermine intellectual-property protections as efforts to merely prevent anticompetitive abuses of patent law.
Healthcare
Warning: This is going to hurt.
Federal regulators have issued new rules that will terminate health insurance for sick patients mid illness, leave those patients uninsured for up to twelve months, and permanently increase the uninsured by 500,000 lives. The rules will enrich private health-insurance companies that urged the government to impose them…
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