Unilever and Profitability - Case Study Example

Unilever and Profitability Name: Institution: Course Title: Course Lecturer: Date of Submission: Introduction Unilever’s main business objective is to enhance sustainable living throughout the world through provision of consumer goods and its commitment to social and environmental responsibilities. The company launched an ambitious sustainable living plan in 2010 under the leadership of its CEO Paul Polman. This plan is the company’s strategic plan for long term growth with anticipated revenue increase to double figures and reducing by half its environmental impact by 2020 (Saunders, 2011). This paper looks into a number of issues related to the company’s sustainable living plan and its relationship with stock holders. These issues include; the company’s business model and how it helps to become more environmental and socially oriented. It also looks at how the sustainable living plan affects the relationship of the company with its diverse stock holders. Unilever’s business model and how it seeks to be responsible to society and to the environment According to Boyle and Jarvis (2014), Unilever’s business model is structured around making a positive impact to the society through its brands, its operations and relationships commercially, voluntary contributions and through its overall engagement with the society. The company also seeks to carry on with its commitment towards improving its environmental impact management, along with its long term goal of building a sustainable business. To achieve this, the company has in place a ten year plan for sustainable living launched in 2010, through which it calls for other business leaders and politicians to embrace the quest for tackling the world’s environmental and social challenges. This is contrary to most other companies that claim they have no say as their hands are tied by their fiduciary duty of maximizing shareholders profits in the short term, at the expense of worrying about social and environmental impacts they make. Unilever’s CEO Polman has accused such companies in the past as being over taken by time in terms of thinking and facing reality as the world has changed, hence the need to move on. He even went further to label their argument as a narrow model of Milton Friedman’s old thinking (Cave, 2009). It’s the hope of the company to maximize its revenue to double its current figures while also reducing its impact on the environment by half. This is in accordance to its plan for sustainable living. Through this the company intends to cut on fats, sugar and salt in its food stuffs so as to enhance quality. According to Boyle and Jarvis (2014), it also aims at taking on board a considerable number of distributors and small scale farmers from developing nations. The endeavors aimed at enhancing sustainability of the company’s agricultural sources as noted by Saunders (2011) would be beneficial to my home country in a number of ways. The fact that the company hopes to have a sustainable source in the long term means that it will source for raw materials and packaging supplies from locals in China. This will create employment while also bringing about new technology from other factories of the company around the world. The technology transfer will be important to China as it can be adapted to its other industries (Geoffrey, 2014). With the long term sustainable living plan, the company aims to grow as a business while also maximizing the shareholder’s wealth. Geoffrey (2014) further notes that the company’s operations in China will also benefit the country in that most of the cash value created by the company in China will remain in the country’s economy. The company would also create employment for distributors supplying their products as well as the retailers selling them hence improving the people’s livelihoods. According to its sustainable living plan, Unilever also seeks to drastically reduce the amount of carbon and waste produced in its Chinese factories. This would help in maintaining the ecosystem and a cleaner and fresher environment. This is in accordance to the triple bottom line theory of corporate social responsibility. It indicates that a company should not only measure its success by looking at its economic achievements but also its impact on the social realm and the environment (Eisingerich & Ghardwaj, 2011). Whether or not Unilever’s model is desirable to Stock holders With a long-term strategy, the company has its eyes set on the future hence protecting the shareholders wealth and interest in the foreseeable future while at the same time meeting its social and environmental responsibilities, aimed at improving their consumer’s livelihoods. It is for this reason that a company such as Unilever endeavors to attract shareholders that are comfortable with its long term strategy. According to Cave, (2009) This has led to the company’s insistence that it does not require speculative short term investors but long term investors who can align themselves with the company’s long term strategy. However, as noted by Albadera et al (2007), many investors seek to invest in companies that will give them more returns in the short term, they therefore tend to overlook the society needs and fail to comply with social responsibility in its supply chain which might then impact the business and the society negatively. Problem faced by Unilever as a result of Diverse Stock holders The problem the company faces is meeting the interests of its diverse stock holders. This is because some of them would wish the company to invest their money and get returns in the short term, while others have aligned themselves with the long term strategy of the company through social and environmental responsibilities. According to the stakeholder theory, the company ought to have put into consideration how this decision would affect its diverse stock holders that are, both the long term and short term investors. This is because, according to the theory, the stock holders have a right and obligation to direct the company (Sullivan &Steven, 2003). The conflict of interest by the short term and long term investors in Unilever is brought about by two things as noted by Saunders (2011). Through the long term focus of the business, the short term investors will not get as much returns as they would have anticipated had the business’s focus been short term. On the other hand, long term investors will be worried about the authenticity of their investments. That is in terms of the risk involved and the capability of the firm to deliver substantial returns in the long term. All the same, the long term strategy gives the company an opportunity to grow its business in the future. The company should not sacrifice its social and environmental commitments so as to be responsible to short term investors. This is because on top of satisfying the basic requirements with regard to price and quality, the company provides more in terms of social responsibility. This leaves it in a far better position that companies whose focus is only based on consumer satisfaction and short term profits as it becomes more loved by people hence securing its growth prospects in the future (London et al 2010). The company seeks to have a sustainable source for its raw materials particularly from the agricultural sector as part of its long term growth strategy. This gives the company an opportunity to grow while also taking care of the environment and the people. For instance, With Lipton, the company achieved sustainable tea sourcing. This gives the company a sustainable source which will enhance its growth in the future. This does not only improve the quality of the tea, but also enhances competitiveness in its pricing. This gives the company an edge competitive wise while also meeting customer expectations and satisfaction. This future growth strategy cannot be achieved if the company’s focus is in the short term. Another reason why the company should not do away with its social and environmental responsibility is the failure by many governments to address these issues (Armstrong et al, 2010). This is because people are continuously looking for solutions hence leaving companies such as Unilever on the forefront of enhancing change and ensuring people live better livelihoods by advocating for a better cleaner and sustainable environment. According to the company’s sustainable living plan model, it aims to double its revenues by 2020. Hence for the long term investors, this would be a good return should the company be successful, however, should the company fail to deliver it would impact negatively on their investments. Manuel et al (2013) notes that, in its endeavor for corporate, social and environmental responsibility, the company discourages short term investments that are more speculative and tends to court long-term investors for their shares. This underlines the company’s focus in that it does not respond to shareholders demands and interests but rather seeks the right shareholders. With the company’s diverse stockholders, it is obvious that some of them would rather have their profits in the short-term. This is a challenge to the company as some of these shareholders assume that the company is risking their money in the long term. The company has to deal with the skeptics and the most appropriate manner is through delivering on its promise. Whether I’d invest in a company whose short term Profitability is lower due to social and environmental commitments Social and environmental responsibilities should be part and parcel of any business irrespective of its investment being long term or short term. However, the decision to invest in long term or short term is highly dependent on the risk tolerance of an individual and his or her desired returns (Sullivan & Steven, 2003). Personally i would invest in a company whose short term returns are minimal due to social and environmental commitments, but whose long term strategy will be beneficial to me in the long run especially with regard to returns. This is also because long term investments tend to acquire stability and show patterns of growth overtime brought about by having acquired stability in the market with regard to sustainable supplies, ready markets and other benefits associated with long term investments such as minimal taxes. Eisingerich and Ghardwaj (2011) note that, long term investments are also not affected by short term volatility in markets which tend to be high on daily basis but show patterns of growth in the long term. My decision to invest in a company despite short term revenues being minimal is also because long term investments are often undervalued as many markets have become dominated by short term investments. Long term investments enhances an individuals capacity to maintain the same level even through difficult periods as well as identifying opportunities that evaluate long term value of returns (Sullivan &Steven, 2003). Whether the society would be better if companies were committed to social and environmental issues The society would be much better off if more companies and governments were committed to social environmental issues. This is because through social and environmental commitments, a company assumes responsibility to encourage a positive impact to the environment, consumers, employees, investors and community (Porter &Kramer, 2011). While critics argue that these commitments detract a company from reaching its economic goals, it actually increases the long term profitability of a company. This is as shown by past studies that social responsibility commitments have neutral impact on financial outcomes of a firm. London et al (2010) suggests that, a company’s can be able to show its true worth through its activeness and involvement in social and environmental commitments. It is therefore important for businesses to ensure that the issues they set to tackle with regard to social and environmental responsibilities are linked to their business model and should remain focused on the chosen course (Albareda et al 2007). This is because a company’s objective should not be just about creating and maximizing the wealth of shareholders at the expense of other important aspects of the business such as social and environmental responsibilities as it would lead to a faltering company whose future cannot be clear. Conclusion As indicated by the company’s CEO Paul Polman, the firm strongly believes that, by putting their focus on improving the livelihoods of many people across the globe and having in place legitimate sustainable solutions, the company is more in line with its social and environmental responsibility which eventually results in good returns to the shareholders (Saunders, 2011). I believe it is important for the stock holders to align themselves to the company’s long term strategy and also for the company to embed its social responsibility in its operations. Its focus has resulted in job creations and transfer of technology which helps to eradicate poverty and improve the livelihoods of many citizens across the globe. It is important for other firms to follow suit by becoming more responsible socially and environmentally. According to Porter and Kramer (2011), this creates customer loyalty and enhances a company’s prospects for future growth. Through Unilever’s living plan, the company has set the tone for others to follow which would result in safer, healthier and cleaner environment in the future. References Armstrong, J., Scott, G. & Kesten, C. 2012. Effects of corporate social responsibility and irresponsibility policies. Journal of Business Research. Retrieved 28 October 2014 Albareda, L., Lozano, J. & Ysa, T. 2007. Public Policies on Corporate Social Responsibility: The Role of Governments in Europe. Journal of Business Ethics 74 (4): 391 Boyle, M. & Jarvis, P. 2014. Unilever Spreads Split Boosts Chance of Exit as Shares Gain. Bloomberg News. Cave, A. 2009. Paul Polman is taking a stand and delivering at Unilever. The Daily Telegraph. Retrieved 27 May 2015. Eisingerich, A & Ghardwaj, G. 2011. Corporate Social Responsibility: Does Social Responsibility Help Protect a Company's Reputation?. MIT Sloan Management Review. 52 (March): 18–18. Geoffrey, J. 2014. Unilever; A Case Study. hbs.edu. Retrieved 29 May 2015. London, T., Anupindi, R. & Sateen, S. 2010. Creating mutual value: Lessons learned from ventures serving base of the pyramid. Journal of Business Research 63 (2010) 582–594 Manuel, H., Gerry, J. & George, Y. 2013. Strategic Transformation: Changing While Winning. Palgrave Macmillan. Porter, M. & Kramer, M. 2011. The Big Idea: Creating Shared Value; How to reinvent capitalism and unleash a wave of innovation and growth. Harvard Business Review Saunders, A. 2011. The MT Interview: Paul Polman of Unilever. Management Today. Retrieved 27 May 2015. Sullivan, A.& Steven, M. 2003. 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