Has Unilever’s “obsession” with purpose gone too far?

GOOD’s Managing Director, Nilesha Chauvet, responds to Terry Smith’s recent open letter, criticising Unilever’s “obsession” with Purpose

This week, Terry Smith, one of Unilever’s top investors who controls the £28.9bn Fundsmith Equity Fund, wrote an open letter criticising the organisation’s apparent obsession with Purpose. He detailed that the multinational consumer goods company is “obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business.”

At GOOD we believe that the notion which suggests that to achieve Purpose, you must compromise on profit, is outdated and has been disproved, time and time again.

However you might regard Unilever’s commitment to sustainability and social impact, as a company they are exemplary. They haven’t, in our view, focussed on Purpose at the expense of Profit. They’ve always had a good sense of how both work synergistically, as it must, in any commercial business. They’ve been leaders in the field in that regard.

Unilever announced their intention to pursue a more sustainable business strategy in 2009 when Paul Polman committed to decouple Unilever’s growth from its overall environmental footprint and improve its social impact through the Unilever Sustainable Living Plan.

When Paul Polman left Unilever in 2018, his successor Alan Jope reaffirmed his commitment to that strategy. Smith knew that was their plan when he made his investment. So, it’s confusing why he would suddenly decide that it’s the wrong thing to do. The share price has fallen due to other factors – possibly a lack of preparation to enter and succeed in emerging markets, keeping up with changing consumer sentiments, the rising cost of raw material. Not necessarily because of its focus on Purpose.

At this stage in the journey, it would be wrong for Unilever to do a U-turn.

In regard to Smith’s comments and thoughts on Purpose, it’s probably worth highlighting the difference between a product purpose – in this case, for Hellmann’s (to enhance salads) and a brand purpose (to stand for something beyond its function).

The opinion that Unilever could be seen to be diluting the brand by focusing on Purpose shows a distinct lack of understanding of what is going on in society and in the wider environment. Smith seems to be unaware of the numerous examples of multi-national and national companies that have outperformed the index. There has been a significant and measurable shift in attitude, policy, and availability of resources. All of this means that those companies that don’t respond to changing business conditions are going to be left behind, struggling to make profit and to attract investment. The longer-term repercussions are far more serious.

Despite Smith’s view, Unilever is the perfect example of Purpose driving profit. Far from harming their bottom line, the strategy has been enhancing investor return, and it’s having a positive impact on society and the planet. That’s what purpose is, win, win, win.