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The Magnum’s opus

The Magnum’s opus

If companies that prioritise sustainability are undermined by their shareholders then it sends a signal to other corporates that it isn’t worth their time. But while these investors claim to be speaking out in favour of the free market, they’re not doing it – or the rest of us – any favours


Is the City reverting to type? Is ESG – environmental, social and governance metrics for investment – a systemic act of greenwash? When push comes to shove, are investors incapable of counting anything other than the financial return? 

I’m James Harding, I’m the editor and co-founder of Tortoise, and, in this week’s Editor’s Voicemail, I want to talk about Unilever, its shareholders, the business pages and whether capitalism can ever really be about more than the money. 

If you haven’t been following the story, here’s a quick recap:

  • A couple of weeks ago, Terry Smith, an unusually outspoken, not to mention financially successful, fund manager, accused Unilever of having “lost the plot”. The makers of Magnum ice creams, Dove soaps and Domestos, he said, was run by people who put its sustainability credentials ahead of running the business. Smith is one of Unilever’s biggest shareholders, and he teased the company, which has encouraged each of its brands to articulate its purpose in the world by saying: “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).”
  • Then the following week, the Sunday Times revealed that Unilever had made a confidential approach to buy GSK’s consumer health business, which makes Advil painkillers and Centrum vitamins. At that moment, more shareholders dumped on Unilever. They didn’t like the secret bid or, in fact, the price Unilever was proposing to pay. As a result, the Unilever share price slid; and the company promptly ditched its effort to buy that chunk of the GSK business. 
  • And then last week, it emerged that Nelson Peltz, one of the world’s most famous activist shareholders, had quietly bought a stake in Unilever. Neither he nor the company would confirm. But Peltz had previously weighed in on the Proctor and Gamble share register a few years ago, and then pushed the management to restructure that business, to cut costs, to focus on high margin products – and the P&G share price doubled. As P&G is its direct rival, people assume Peltz has a similar playbook planned for Unilever. 

As all this happened, I’ve been struck by two things:

  • First, no shareholder, no pension trustee and no fellow CEO has come out and taken Terry Smith head on. (In fact, Tim Martin, the boss of the Wetherspoons pub chain, chimed in to support Smith’s attack on Unilever and “wokery” in the boardroom in general: “There is too much virtue signalling and too little attention to more important fiduciary duties, which require directors to put the company’s interests first” – that’s what he told the Mail on Sunday.)  
  • And then second, it struck me too that the media was much the same. The business pages, from what I saw of the FT, the Times, Bloomberg etc., didn’t challenge Smith; the reporting was generally sympathetic to the institutional investors’ rejection of the GSK bid; and the commentary has overwhelmingly welcomed Peltz and the promise that an activist shareholder can improve financial returns. No doubt, I’ll have missed a column, a quote or a tweet, somewhere. But for all the gallons of ink spilt and all the boardroom talk of companies having a role in society and a responsibility to the planet in the past few years, it was striking that both the investment world and the business press have, in the past couple of weeks, been strikingly reflexive and traditional: fiduciary responsibility – otherwise known as maximising the financial return to shareholders – still seems to matter above all. 

For what it’s worth, I think Terry Smith is wrong, that the GSK bid was – and remains – the right thing to do and that Nelson Peltz has a case to prove in what he’ll bring to Unilever. Here’s why.

No doubt, Unilever’s share performance – down 10 per cent last year – is disappointing. It’s disappointing to investors. To the company’s 150,000 employees (many of whom are rewarded with shares and options) and to the 3 million or so people who work in businesses that, in one way or another, supply or work with the company. And, of course, it must be disappointing to Alan Jope, the chief executive of Unilever.

Let’s be clear, there’s been a lot of pious and performative BS from companies in the last couple of years about how they’re saving the planet and improving the world. And many people will wish there were more like Smith speaking truth to “purpose”. 

But here’s the point: Smith’s aim is off and argument short-sighted. Alan Jope’s vision for Unilever – namely proving that a business with ambitious social and climate commitments will attract the best talent, build consumer loyalty, open new markets and then deliver a greater financial performance over time – is better for the company, not to mention confidence in capitalism, than Smith’s formula, which itself pits planet against profit and dismisses sustainability as PR. (If only, you might think, institutional investors were doing the opposite of Smith, if only they – beyond their ESG teams – were really leaning sufficiently on Unilever on the reality of its social and climate performance.) 

Then, the bid. Strategically, the Unilever approach to buy the GSK consumer health portfolio and expand into this higher growth, higher margin sector also seemed to make sense, given that part of Unilever’s problem is that some of its food and home care businesses are in sectors where it’s hard either to increase sales or raise prices. Investors may have spat the dummy on the deal because they didn’t like the price; but it would hardly have been lower if the company had talked about it in advance. And the strategy was smart – don’t be surprised if Unilever’s shareholders look back on it as a missed opportunity.

And then finally, the question for Nelson Peltz is this: is your interest solely financial? Alan Jope is certainly no woke hipster; he’s an off-road motorbike enthusiast, started out driving a butcher’s van and played central defender for Shanghai Emerald FC when he was based in China for Unilever. Heaven knows, he’s an ardent believer in the profit motive. If you ever interview him – and I have – he goes to the numbers first. Since he succeeded Paul Polman in 2019 and taking over a company that, for years, has been famously bureaucratic and layered, his chief business imperative has been growing the bottom line – i.e. raising overall revenue growth in a fast moving consumer goods sector where, across the board, things have slowed. But he has done it in lockstep with a push to improve the company’s record on fairness and the environment. The question for Mr Peltz is whether he’ll do the same or relegate sustainability in the interests of shareholder return.

At Tortoise, we have a small dog in this fight. When we got started in 2019, we launched the Tortoise Responsibility 100 Index, which tracks the FTSE 100 companies against the UN’s Sustainable Development Goals. It was an attempt to chart whether businesses walk the talk. Whether the promises of sustainability and social purpose are guff or real. In our Responsibility 100 Index, Unilever came top, and has been there, or thereabouts, ever since.

If a company that is widely admired as a leader in sustainability is undermined by its own shareholders, then it will surely deter other companies from taking the time, energy and resources to improve their social and environmental footprints too. It’ll be back to Milton Friedman; it’ll be all about shareholder return. 

And what happens then? What happens if, as with last year’s ouster of Emmanuel Faber, the environmentally active CEO of Danone, who was pushed out of the French foodmaker by shareholders, what happens if that kind of thing signals a return to the old normal? 

Well, the short-term interests of investors might be served, but, as people lose faith that business really “gets it” on climate, public trust of big business will sink further. That, in turn, creates the political conditions for governments to make punitive tax raids on corporates. And you can see it now in the UK, whether it’s talk of levying a tax on oil and gas companies to pay for rising heating bills, or big property companies being asked to pick up the tab for cladding. It also strengthens the case for more regulation, more mandatory reporting and government-set targets.

And it deepens the strength of opposition to capitalism itself, deepening divisions about opportunity and our sense of society. (If you want to hear one alarmist version of this future, then do listen to the ThinkIn from a couple of weeks ago with Ray Dalio, the world’s wealthiest hedge fund manager who fears that inequality and economic insecurity make for the increasingly likely prospect of civil conflict in the US and the West.)

Of course, the future of the free market doesn’t sit on the shoulders of a single soapmaker. But, if there’s a lesson to the Unilever story, it’s the old journalistic saw: follow the money. We need greater scrutiny of the owners of companies and a more open debate about their real ambitions for business. Because, a couple of months after Cop26, it’s hard not to notice a certain climate fatigue in the air.