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
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.
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.
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.
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.
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.
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