Unilever: Paul Polman has a revolutionary idea. Look after the customer, the Unilever chief executive says, and the shareholders will prosper. His own major customers, the world’s retailers, know that instinctively. Supermarkets can boost profits for a little while by raising the price for Unilever’s Dove soap, but they eventually face the expensive task of wooing back disgruntled customers. Punishment is not always swift. Many bosses know they can, as Polman told the Financial Times, “get tremendous results very short term, get that translated into compensation and be off sailing.”
Some industries are really long-term. Rolls-Royce spends heavily today for the distant prospect of profits. The logic of shareholder value suggests that developing new aero-engines is probably not worth while in the long term. Better to fire the engineers and simply service the existing fleet.
That way cash would pour in, and it would take decades for the business to run down from world leader to insignificance. Shareholders would prosper for a while, at the expense of customers, workforce and the rest of us.
Doctrinaire pursuit of shareholder value has led boards to endorse some barmy ideas, like the notion that pubs should be split from the business of running them. That did terrible damage to Mitchells & Butlers, Britain's second-largest chain.
It would be easier for bosses to identify with the interests of shareholders if more of them were willing to stick around. But the average holding period for a NYSE-traded stock has fallen from six years in 1975 to six months today, a phenomenon described by behavioural economist James Montier as a form of attention-deficit hyperactivity disorder (ADHD).
Short-term holders press relentlessly for short-term stock performance. If earnings guidance is missed, punishment in the market is swift and brutal. When Polman said he was scrapping such guidance, the Unilever share price fell 6 per cent.
Chris Haskins, who ran Northern Foods, a second-division UK rival, for 16 years with only moderate success, finds the idea of Unilever working for the customer "bizarre". Odd, then, that so many more successful companies seem to disagree. For the long term, of course.