7 months ago| article
Clockwise from top left: Willan, Unilever, Chauvet, Essen, Harrison, Feldwick
Major shareholder attacked the FMCG giant’s sustainability strategy
Jan 20, 2022 04:45:00 AM | Article | Gemma Charles Share -
Fund manager Terry Smith sent shockwaves through the purpose industry and beyond last week when he turned his fire on Unilever’s high-profile sustainability strategy.
In his annual letter to investors, the FundSmith founder pulled no punches. He claimed the FMCG giant seemed to be “labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business”.
Unilever shareholder's attack on sustainability messaging 'flawed', experts say
Smith continued by taking aim at ice-cream brand Ben & Jerry’s refusal to supply the West Bank but reserved his most pointed criticism for Unilever’s work on Hellmann’s.
“A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot,” he wrote.
“The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert – salads and sandwiches).”
Fundsmith is one of Unilever’s top 10 shareholders, which is why the criticism piqued interest, alongside the fact that Unilever’s shares have indeed fallen by about 9% over the past 12 months.
Unilever declined to comment, citing a closed period, but given the emphasis it has put on sustainability, Smith’s missive will have irked top brass. Its management team has – for some time now – said its best-performing brands are those with a purposeful positioning, so it will have smarted to see its longstanding philosophy trashed in this way.
While Unilever may be keeping schtum, others have sprung to its defence. In a LinkedIn post, Andy Last, chief executive of specialist purpose agency MullenLowe Salt, which counts Unilever as a client, pointed out that Smith had said he would hold on to his Unilever shares as its strong brands and distribution would “triumph in the end”.
“And that’s the point, isn’t it? Unilever’s fundamentals are its strong brands and distribution. Strong enough that two-and-a-half-billion people in 190 countries use those brands every day. Those two-and-a-half-billion people make up society and all of them live on this one planet. Which makes purpose and sustainability fundamental to business performance, rather than a distraction,” Last argued.
What is more, brands such as Hellmann’s stay strong when they are able to elevate themselves above other commodity products, he added.
So was Smith off target with his remarks or should companies such as Unilever get back to basics and think again about their purposeful activities?
It’s not just advertisers – it seems like the whole world is suddenly more aware of its social responsibilities. But why now? Psychologists have identified two key drivers behind an increase in people’s sense of social responsibility. First, people become more socially conscious the more socially connected they are. Social media use continues to grow 12% year on year – with a pandemic-fuelled 40% spike that coincided with the largest social justice movement in US history. Second, societies become more socially aware in crisis situations – such as a health, humanitarian or climate emergency. These are macro global trends that go way beyond advertising. And any investor or marketer who wants to wind the clock back on purpose is going to struggle to while these trends continue in this direction.
Having worked closely with Unilever for many years, I respect its genuine commitment to sustainability and social responsibility. But I have also seen far too often its tendency to over-intellectualise the management of brands in ways that verge on the absurd. The idea that a brand like Hellmann’s must have a "purpose" is a bit of nonsense, which both devalues Unilever’s real achievements in sustainability, and offers investors a stick to beat them with when things go badly for other reasons. But Terry Smith is probably right when he says its brands and distribution will win through anyway.
Companies like Unilever have not "lost the plot" by focusing on purpose. In fact, the notion that FMCG companies should be "focusing on the fundamentals of the business" rather than defining their purpose would be entirely counterproductive, as purpose defines the very reason for the brand to (continue to) exist.
Every brand should carefully balance purpose, business strategy and long-term equity growth to be successful because all these elements are intrinsically linked. Purpose should be prioritised as a leading business tool within any company, because when understood fully and implemented correctly, it can produce not only a better residual brand image, but informs innovation and can also improve other business functions such as employee relations, performance and, ultimately, profit.
Businesses must radically reinvent to address issues such as climate change and inequality. This will be driven by legislation and business leaders realising they have a responsibility, a moral obligation, to drive sustainable and inclusive growth. I don’t care whether FTSE 100 CEOs are turning the tap off to brush their teeth, driving an electric car or trying Veganuary. What matters is that this group of powerful people acknowledges the impact they can have and measure success by profit and purpose. It is not an either/or. Without profit there is no business, but without purpose there will be no planet.
The short answer here is no, but there’s also a bit of dangerous conflation of issues in this debate. In short, when [Paul] Polman decoupled Unilever’s growth from its overall environmental footprint and committed to improving its social impact through the Unilever Sustainable Living Plan, its focus on purpose was never intended to be at the expense of profit. Far from harming the bottom line, the strategy has been enhancing investor return. Short-term financial shortfalls need to be examined within their rightful context.
Additionally, it’s important to distinguish purpose at an organisational level versus individual brand level. As a portfolio of brands, purpose is embedded throughout Unilever’s business strategy, operations, and product range. This doesn’t mean that each individual brand must have specific brand-related purposeful communications or strategy. This distinction is crucial in countering the argument that advertisers have “lost the plot”.
(This artiecle first appeared on CampaignLive.co.uk)