I see statements in the press from Unilever's chief executive indicating that, for some of the company's brands, purpose is just a distraction that can prevent a true focus on results. It is understood that financial. In the mass consumption sector, multinationals market many brands with which they try to achieve leadership, from soap to mayonnaise. The executive's statements take place a few months after taking office and after a quarter in which the company has lost market share. Unilever also recently added Nelson Peltz, a veteran activist investor, to the company's board.
The news surprises me. Business purpose is usually not defined for specific brands but at the company level. In the consumer sector, however, marketing budgets are very important and companies want their brands to convey a message to customers. Sometimes they even talk about values! The news, in any case, reflects the competitive pressure to which companies in the sector are subject and how difficult it is to pursue business objectives other than pure short-term profitability.
A couple of years ago, Danone's chief executive already had to abandon his position and his idea of focusing the company on a non-financial business purpose, aimed at solving problems in the field of environmental sustainability. Activist investors believed that their rivals, Unilever and Nestlé, for example, were also achieving good results in this area but without neglecting the financial dimension.
For listed companies, whose ownership is dispersed among thousands of shareholders and institutional investors, the pressure is unstoppable. How are such a variety of shareholders going to agree on a business purpose other than profits? How can they prevent short-term-oriented shareholders from pressuring managers in the search for economic results?
For a company to maintain a purpose, or, in other words, a reason for existing that contributes to society and addresses unmet needs, it is essential that there is a hard core of shareholders who are clear about that mission. And that they know how to convince the rest of the suitability of that strategic orientation. For the purpose-driven company, benefits are essential. They are necessary to attract capital and adequately reward it, including the risk assumed. But profits are a means, without which the company does not exist, and not an end. They are not the purpose of the company.
Going public imposes discipline, which is welcome, and provides resources, which can also be very necessary. But it is prudent that the major shareholders, those who contribute patient capital, have a clear purpose. Capitalism needs companies that are not purely capitalist.
