How corporate purpose can ‘signal virtue’ but distract management

0

In my last article, I noted that management writing often pays little systematic attention to financial performance and often identifies a practice as “a success” without verifying the company’s financial condition. Nowhere is this more evident than in management’s writings on the purpose of the business, which often consist of “signals of virtue; that is, using worthwhile actions in one area to attempt to create an aura of virtue over the whole company, thereby distracting attention from more important issues.

Take the article “Use Purpose to Transform Your Workplace” in the next issue of Harvard Business Review on global company Unilever. The article describes Unilever’s elaborate life-purpose-focused training programs for employees and construction workers, enabling Unilever to “stay true to its mission to make sustainable living commonplace”.

You would never guess from the article that Unilever is a company in serious financial difficulty. Unilever has for many years performed below the average for S&P 500 companies and below similar companies in its industry, such as Procter & Gamble, as shown in Figure 1.

Even though he has trumpeted his commitment to sustainability, his income has remained stable for years, which is not expected to change in the next two years. See Figure 2.

Calls to break

Unsurprisingly, Unilever’s major shareholders are calling for a radical overhaul of the company, which has 149,000 employees and operates more than 400 consumer goods brands in Asia, Africa, the Middle East, Russia, Americas and in Europe. Unilever’s global mission is “to do good…together we can make sustainable living a commonplace”.

The shareholders are asking for a split into separate divisions for beauty, food and household products on the grounds that the needs of customers in these three sectors are very different. “Talking about synergies between different companies,” said chief investment officer Bert Flossbach, one of the top 10 shareholders, “is generally theoretical and designed to maintain the status quo, and less than the efficiencies you would get from ‘a split’.

Another top 20 shareholder for removing Unilever Chairman Nils Andersen and replacing him from outside the company to assess strategy.

In further signs of trouble to come, it was revealed several weeks ago that activist shareholder Nelson Peltz’s investment firm Trian Partners had built a stake in Unilever’s shareholding and could win a seat on the board of Unilever, as he did in his recent engagement with Procter & Gamble. Trian’s involvement is a concern for staff who fear further job losses.

Since then, Unilever has announced a major reorganization, cutting 1,500 management positions and splitting the company into five divisions.

‘Virtue Signaling’ before the performance

“Public display of climate and social benchmarks comes at a cost to the business,” says fund manager, Terry Smith of Fundsmith Equity Fund. “The maker of Dove soap, Hellmann’s mayonnaise and Magnum ice cream has set ambitious climate and social goals and is trying to prove that sustainable businesses drive superior financial performance.” However, in the absence of this superior financial performance, the broader social goals themselves are inevitably called into question.

“Unilever appears to be working,” Smith wrote, “under the weight of a management that is obsessed with publicly displaying sustainability credentials at the expense of focusing on business fundamentals.”

It’s not that life purpose training programs for staff and site workers aren’t worth doing. But their priority at Unilever must be seen in the context of all the other issues facing the company. When the overall performance is insufficient, the general social objectives can become suspect of being at the origin of the insufficiencies.

Smith added: “A company that feels it needs to define the purpose of Hellmann’s Mayonnaise has, in our view, clearly lost the plot. The Hellmann’s brand has been around since 1913, so one would assume consumers have now realized its purpose (spoiler alert – salads and sandwiches).

Digital Mayonnaise Management

Here, Smith has, perhaps inadvertently, hit upon a key part of the problem. Unilever is seen as selling a product your great-grandmother used to eat – 1913 mayonnaise – in 2022 and selling it the same way it was sold back then.

In fact, Unilever’s mayonnaise comes in several modern formats, including the original, extra creamy, light, olive oil, organic spicy chipotle, cholesterol-free and low-fat canola. The problem is that Hellmann’s mayonnaise is still seen and marketed as a century-old product, not something cool and exciting that adds value to customers’ lives.

Thus, there is little to no information on Unilever’s website about how mayonnaise could improve customers’ lives. There are no innovative recipes or answers to mayonnaise concerns.

It turns out that Americans have developed a love-hate relationship with mayonnaise. It’s the top-selling condiment in North America, but as a high-fat food, mayonnaise is considered by many to be unhealthy. It’s mostly oil. It’s high in calories and it’s easy for the calories to build up. Improperly stored mayonnaise can also be a breeding ground for bacteria. In the United States, mayonnaise is made with soybean oil, which many nutritionists consider unhealthy, due to its high content of omega-6 fatty acids. If insofar as these issues are correct, Unilever must either admit and resolve them or issue corrective information.

Unilever not only needs to communicate the answers more effectively, but also build an army of evangelists who deliver brand messages. Unless and until management positions and markets mayonnaise as a modern product of 2022, there is little that hired staff and site workers can do to help save it.

It’s about understanding the emotional and functional needs of clients every step of the way and helping them achieve their goals. Brands that improve the lives of their customers can build an army of evangelists who deliver their brand messages more effectively than traditional advertising.

The common thread of exponentially growing brands is that they have found an authentic and valuable place in the lives of their customers. Unilever needs to find out who its current customers are and find ways to enrich their lives with its mayonnaise.

The brand of Unilever’s 400 product brands

Mayonnaise is of course just one of Unilever’s 400 products. Each of their products has its own set of problems and opportunities. Obviously, Unilever’s senior management can resolve these issues on their own. It should be run as a business that regularly has this capability, either in its current form or split into multiple businesses.

Training gig workers and helping them find their own purpose in life isn’t bad. This could be part of the solution at Unilever. It’s just that Unilever needs to be committed first and foremost to adding value to customers’ lives, not just waving a flag of public virtue and declaring victory.

And also read:

Companies with a predatory social purpose

Why Companies Stick to Outdated Management Practices

Share.

Comments are closed.