Unilever’s David vs Goliath battle was a victory for minority shareholders, but was it the best outcome?

Stephen Vines says while shareholders’ quest for short-term profit is understandable, the long-term well-being of the company, as well as the greater public good, could at stake

PUBLISHED : Wednesday, 10 October, 2018, 10:41am
UPDATED : Wednesday, 10 October, 2018, 10:41pm

Yet again, a victory for minority shareholders has been hailed as being a good thing. However, the recent rather significant “victory” of the minorities over the board of the Anglo-Dutch consumer goods giant Unilever raises as many questions as it answers.

Unilever’s board had been trying to streamline its complex corporate structure arising from the merger, 89 years ago, of a British soap maker and a Dutch margarine company. The aim was to consolidate the company in the Netherlands.

No one seriously doubts that Unilever’s current structure is clunky and that a dual structure complicates both acquisitions and disposals. Then there are, or at least there should be, headquarters’ cost savings and enhanced efficiency. Layered on top of this, albeit denied as a motivation by the company’s board, is the uncertainty that hovers over Brexit, suggesting that corporate headquarters in a European Union country is preferable to one in Britain.

It is not certain what would have been the outcome of a vote on the plan to move its place of domicile to the Netherlands because the board withdrew the proposal after its biggest shareholders indicated they would oppose the plan. Moreover, the regulatory obstacles to success are high, requiring more than 75 per cent UK shareholder and 50 per cent Netherlands’ shareholder approval. After the big institutions made clear their opposition, voices of smaller stakeholders were lost in the thunder so we will never know what they wanted.

However, it is highly likely that they would also have opposed the board’s proposal because it was pretty clear that minority shareholders would gain no financial advantage from the move because, unlike in a merger situation where a premium is customarily offered by the buyer, nothing of this kind was on offer here.

On the contrary, many of Unilever’s large institutional shareholders stood to make a loss if the company was obliged to depart from the benchmark FTSE100. This is because they have a mandate to track the index in some way or another, so a lot of major stakeholders would be forced to sell their shares, thus bringing down the price.

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It is entirely rational for shareholders to consider the profit and loss equation when making a decision on these matters. After all, shares are primarily bought for the purpose of moneymaking.

Sometimes, however, the pursuit of profit can be reckless as short-term shareholders get up to all sorts of tricks to make a quick buck at the expense of a company’s long-term well-being. That is not necessarily the case here but, as Elon Musk of Tesla has bitterly pointed out, regulations can easily be used to favour the interests of those who care little for the overall health of the companies. He used one of his Tweets to sarcastically rename the US Securities and Exchange Commission “the Shortseller Enrichment Commission”.

However, there is another important element here, one that has been championed, perhaps in retrospect for good reason, by Unilever’s chief executive, Paul Polman. He has been advocating what is known as a multi-stakeholder vision of private enterprise, which sees companies being responsible to their shareholders, the environment and the public good but not, significantly, for the interests of their employees, although this may well be lumped in the vague notion of the public good.

This may sound like another example of corporate-speak but when it comes to the running of large companies, particularly those operating on the kind of global scale that characterises Unilever’s operations, surely there is a wider range of responsibilities.

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As matters stand the capitalist model barely recognises this, yet there is a burgeoning world of corporate social responsibility. It is relatively new and mostly manifests itself in companies doing good work while not getting to the core of accountability questions.

However, the pendulum is swinging and large corporations are increasingly coming to realise that the adage “with great power comes great responsibility” is more than just a cliché to be ignored.

Regulators are already taking a view that pivots in the direction of wider responsibilities. Thus, mergers have been blocked on the grounds that they would create market dominance that is contrary to the public interest. Elsewhere, company predators with dubious backgrounds have been blocked from making acquisitions on national interest grounds and in some areas, such as the media, the views and political bias of would-be buyers of media companies have also been subject to scrutiny.

Thus, there are interests to be considered that go way beyond those of minority shareholders and although there is some satisfaction to be had from seeing minorities giving the big corporate bosses a bloody nose, it is hardly axiomatic that they do so for the best of reasons.

Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster