Last week, Unilever rejected a £115bn takeover approach from Kraft Heinz. It persuaded its shareholders that such a deal was not in the interests of the company, especially its long-term interests. ‘Long term’ is the key phrase. Unilever’s purpose includes a commitment to sustainability. Not just environmental sustainability, but also economic and social sustainability. It wants to protect and grow local jobs in both its own businesses and those of its suppliers. It wants to nurture and grow brands that endure from generation to generation. And it is prepared to forgo bigger short-term profits in return for longer sustained returns. The BBC reported Unilever’s annual profits at 15% compared to Kraft Heinz’s 23%. Bigger profits and a £115bn down payment. What could be wrong with that? The answer, it seems, was the price that Unilever feared their employees and their customers might have to pay.
“Culture does not just eat strategy, it will also munch its way through shareholder value, if not properly respected.”When Kraft bought Cadbury, various promises were made that there would be no job losses, no price rises and the integrity of the much loved Cadbury brands would be maintained. 5 years later, factories have been closed, prices have risen and there is consumer backlash against the tampering with the chocolate content and format of Cadbury’s brands. Kraft Heinz has achieved a much higher profit margin but at a cost that some may believe is not worth it. It appears to be a ‘profit first’ company. Unilever is a ‘purpose first’ company. It seems that the Unilever board concluded that a merger with Kraft Heinz would be incompatible with that purpose and its values, never mind how astronomical the financial rewards would have been for themselves personally, their shareholders and their employees with stock options. Of course delivering value for shareholders is essential and Unilever have, since the withdrawn bid, quite rightly re-iterated their commitment to finding ways of increasing that value. Indeed Unilever’s case to its shareholders was reportedly founded on the very fact that its purpose led approach creates more sustainable returns. And it contrasted that with Kraft Heinz which, according to the BBC is “saddled with more than average debt” and would merely burn up more cash on another acquisition in time.
Sell on, don’t sell out
A principle isn’t worth anything until it’s costs you something. Bill BernbachI wonder how many other companies would put their purpose first in such a situation? That is not to say that selling your company to another is wrong or that the only purpose in selling is to enrich a few people. Many companies – especially tech companies in start-up or ‘teenage’ stage – will only be able to fulfil their potential and their purpose with the help of the financial muscle, distribution might or extensive existing customer base of a big multinational or a Private Equity house with deep pockets. Richard Reed one of the co-founders of Innocent drinks famously explained why they had sold their business to Coca-Cola. He cited Innocent’s purpose which is to bring the best food and drinks to the most people and places. How are we best going to achieve that? From a small factory in Chiswick, West London? Or through the biggest global food and beverage distribution network in the world? He also pointed out that Coca-Cola has a reputation for buying innovative businesses and letting them ‘get on with it’, respecting the culture that had made those businesses successful. Unilever has a similar reputation as its acquisition of Ben and Jerry’s shows.
So it’s not that selling on is wrong, it’s whether you are selling out your principles in the process.
Sacrifice purpose and pay the price
The joint press release issued by Unilever and Kraft Heinz contained just three sentences; the last and most telling of which was this, “Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever”. This is just as well. Repeated studies have shown that businesses which are bought without any consideration given to the cultural fit between the buyer and the vendor, fail. In fact, collated research and a recent Harvard Business school report indicated that between 70% and 90% of mergers and acquisitions fail. Many of the reasons given are to do with purpose or insufficient attendance to it. Founders of businesses not involved properly in the process of integration; assumptions made about the value proposition to customers which are not grounded in an understanding of what each company stands for, and of course lack of respect for the existing cultures and a fantasist’s desire to create a new ‘culture’. A survey by Marsh, Mercer and Kroll and the Economist Intelligence Unit concluded, “organizational cultural differences and human capital integration issues [are] the two most significant transaction issues faced”. Culture does not just eat strategy, as Peter Drucker famously put it, it will also munch its way through shareholder value, if not properly respected.
In one of my favourite films, It’s A Wonderful Life, the hero George Bailey is offered a huge amount of money to give up the small Savings and Loans business which he is barely holding together and join the big bank in town. It’s a tempting offer, a life-changing sum – as tempting in its way as £115bn must have been to people at Unilever. But he rejects it, because although money is important, making lots of it at the expense of others is not his purpose. Pursuit of his purpose almost ruins him but is in the end the saving of him. How many of us would be prepared to walk away from a huge sum of money and think that a price worth paying in order to pursue our purpose?
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