[Annotated] The parable of St Paul

Unilever is the world's biggest experiment in corporate do-gooding^[각주:1]

Paul Polman runs Europe's seventh-most valuable company, Unilever, worth $176bn, but he is not a typical big cheese^[각주:2]. A Dutchman who once considered becoming a priest, he believes that selling shampoo around the world can be a higher calling^[각주:3] and detests^[각주:4] the Anglo-Saxon doctrine of^[각주:5] shareholder primacy^[각주:6], which holds that a firm's chief purpose is to enrich^[각주:7] its owners. Instead Mr Polman preaches that^[각주:8] companies should be run "sustainably"^[각주:9] - by investing, paying staff fairly, and by making healthy products with as little damage as possible to the environment. This is actually better for profits in the long run^[각주:10], he argues: society and shareholders need not be in conflict^[각주:11].

Mr Polman's beliefs were tested in February when Unilever received a bid from^[각주:12] Kraft-Heinz, a ketchup-to-hot dog gorilla controlled by Warren Buffett and 3G Capital, a fund known for ripping costs out of multinationals^[각주:13]. If, in its own mind, Unilever is a good corporate citizen^[각주:14], then it sees Kraft as an angry American with no interest in the planet, heavy debts, no growth, very little foreign presence, and an obsession with self-harming^[각주:15] cost cuts. 

Kraft's bid fizzled^[각주:16] when Mr Buffett got cold feet^[각주:17], but the clash of ideologies is not over. For one thing, Unilever seems to have been pressured into adopting some 3G-style tactics^[각주:18]. In April it promised to lift operating margins by^[각주:19] 3.6 percentage points by 2020, to carry out a share buy-back^[각주:20] and to exit^[각주:21] its poorly performing margarine business. Its investment in brands and plant and equipment^[각주:22] is expected to be flat^[각주:23] in 2017, having risen in former years. 

After a "cooling off^[각주:24]" spell required by British takeover rules, Kraft can now bid again. Inspired by 3G, activist hedge funds^[각주:25] are stalking two rivals^[각주:26], Nestle and Danone, and other peers are slashing costs^[각주:27]. Mr Polman will probably stand down within^[각주:28] two years - he wants his successor to be a Unilever insider^[각주:29] - raising the question of whether his vision is coherent^[각주:30] and will endure^[각주:31].

There are two key tests. Has Unilever really been socially virtuous while creating lots of value for its owners? And does the market for corporate control function as it should, so that such a firm can survive? Start with the question of virtue. Since early 2009, when Mr Polman took over, emissions, water usage and waste have fallen by 43%, 38% and 96% respectively^[각주:32], per unit of production. Investment (including capital spending^[각주:33], research, branding^[각주:34] and marketing) has risen^[각주:35] to 20% of sales, from 18%. Tax payments^[각주:36] have risen from 25% to 30% of underlying profits. 

So far so good. But Mr Polman has not been as nice to staff as you might expect. Their numbers have stayed at 170,000 (Kraft meanwhile has cut its workforce by^[각주:37] 20% since 2013) but pay as a share of the firm's output^[각주:38], or its "gross-value-added", has fallen from 46% to 39%. Unilever's pay per employee has been flat in dollar terms^[각주:39] even as its top few managers have got 24% more on average^[각주:40]. Mr Polman received $9m last year, a third more than his predecessor got (though less than his American peers).

He argues that sustainability^[각주:41] is good for shareholders because investment creates growth. Consumers, staff and regulators^[각주:42] are attracted to firms that exhibit good conduct^[각주:43]. For shareholders the clearest sign of success is Unilever's global market share^[각주:44], which has risen from 16% to 18% since 2008, according to Alliance Bernstein, a brokerage^[각주:45]. That is impressive given that local firms are gaining ground^[각주:46] from multinationals in the emerging^[각주:47] economies where Unilever makes almost two-thirds of its sales. 

But currency weakness has been a drag^[각주:48]. Free cashflow^[각주:49] per share^[각주:50] has risen by 65% in dollar terms - a fairly^[각주:51] average performance compared with a basket of^[각주:52] ten Unilever rivals. Total return^[각주:53] (share price^[각주:54] appreciation^[각주:55] plus dividends^[각주:56]) was 138% in 2008-16 in dollars, behind the average for the peer group^[각주:57], although not by much. Mr Polman's boldest claims about his firm are over the top^[각주:58], but broadly^[각주:59] speaking Unilever has been run in a fairly sustainable^[각주:60] way and delivered reasonable results for its owners. 

What about the second question - whether such a firm can survive with a fragmented^[각주:61] base of shareholders, some of whom may be out for^[각주:62] a fast buck^[각주:63]? Takeovers should happen only when the target is badly run or if combining two firms will yield synergies^[각주:64]. But Unilever is well managed and Kraft's probable^[각주:65] changes - more debt, and cost-cutting^[각주:66] - it can do itself.

Kraft is a "roll-up^[각주:67]", a firm that relies on acquisitions^[각주:68] and cost cuts to mask^[각주:69] low growth^[각주:70]. Its sales have declined for^[각주:71] the past nine quarters. Roll-up strategies usually end badly for investors. Still, cheap debt means that, while such firms remain on a winning streak^[각주:72], they can operate on a vastly^[각주:73] greater scale than before (a combined Kraft-Unilever might have had as much as $120bn of debt). Many bosses, including, probably, Mr Polman, think normal firms need protecting from^[각주:74] them. Britain could adjust^[각주:75] its takeover rules in favor of target companies. More countries could alter their fiscal codes to stop tax breaks for^[각주:76] leveraged buyers^[각주:77] or they could copy France's "Florange" law, which limits the voting rights of^[각주:78] short-term shareholders^[각주:79]. 

Society v shareholder value

In fact, Unilever's close encounter with^[각주:80] Kraft suggests the jury is still out on whether capitalism is too myopic^[각주:81] to allow firms to operate virtuously^[각주:82]. The outcome so far broadly shows that markets work. Unilever's shares were undervalued^[각주:83]. Some of the changes that it has made were actually in the pipeline^[각주:84] anyway (for example, in 2016 Mr Polman said margins would rise by up to 3.2 percentage points by 2020). Kraft's bid forced the company to fine-tune^[각주:85] its strategy and articulate it better^[각주:86]. As a result Unilever's total return is now almost at the top of its peer group.

But much depends on the next 24 months. Kraft could bid again. An activist may attack Unilever. Mr Polman's successor could repudiate his approach^[각주:87]. Mr Polman is no saint, but his legacy^[각주:88] is to have made one of Europe's biggest companies a test case of how far shareholder primacy should go. If Unilever can't keep half an eye on the greater good, no firm can. Watch it closely^[각주:89]. 

1. do-good ; [형용사] [구어·경멸] (공상적인) 사회 개량을 꾀하는[지향하는]; 자선가인 체하는 ;; do-gooding으로 써서 명사형으로 활용한것을 확인 [본문으로]
2. cheese ; 3. 중요 인물, 보스(boss) [본문으로]
3. calling ; 1. 소명 (의식) 2. (격식) 직업, 천직 [본문으로]
4. detest ; [동사] (진행형으로는 쓰이지 않음) 몹시 싫어하다, 혐오하다 [본문으로]
5. doctrine ; 1. [C , U] 교리; 신조; 정책; 주의 [본문으로]
6. shareholder primacy doctrine ; 주주중심주의 [본문으로]
7. enrich ; 2. (더) 부유하게 만들다 [본문으로]
8. preach ; (특정 종교・생활 방식・체제 등을 남이 받아들이도록) 전하다, 설파[역설]하다 [본문으로]
9. sustainably ; [부사] 지속[유지] 가능하게; 환경 파괴 없이 지속될 수 있게. [본문으로]
10. in the long run ; (앞으로 길게 보았을 때) 결국에는 [본문으로]
11. be in conflict with ; ~와 충돌하다, 싸우다 [본문으로]
12. receive a bid ; 합병제의를 받다 [본문으로]
13. multinational ; [명사] 다국적 기업 [본문으로]
14. corporate citizen ; [명사] 기업 시민(기업의 사회적 책임과 역할을 강조한 말). [본문으로]
15. self-harm ; [U] 자해 ;; self-harming 으로써서 형용사로 활용한것을 확인 [본문으로]
16. fizzle ; [자동사][V] (특히 불에 타고 있는 것이) 쉬익쉬익 하는 소리를 내다 [본문으로]
17. get[have] cold feet ; (계획했던 일에 대해) 갑자기 초조해지다[겁이 나다], (구어) 용기를 잃다, 무서워하다, 주눅 들다 [본문으로]
18. tactics ; 2. [복수 취급] 작전 행동 3. [단수 취급] 술책, 책략 [본문으로]
19. operating margin ; [명사] 영업 마진 [본문으로]
20. share buy-back ; 주식환매, 주식 되사기 [본문으로]
21. exit ; (참고: exeunt) 1. (격식) 나가다, 떠나다; 퇴장하다 ;; 문장에서는 타동사로 활용한것을 확인 [본문으로]
22. plant and equipment ; [명사] 유형고정자산 ;; 동의어 ; longlived asset, property [본문으로]
23. flat ; 8. BUSINESS | (매출 등이) 저조한 [본문으로]
24. cool off ; 1.to become less interested or enthusiastic 2.to become less angry or excited [본문으로]
25. hedge fund ; (미 금융) 헤지 펀드 ((국제 증권 및 외환 시장에 투자해 단기 이익을 올리는 민간 투자 자금)) [본문으로]
26. stalk ; 1. <사냥감·사람 등에> 몰래 접근하다; 가만히 뒤를 밟다; <이성에게> 집요하게 추근대다 [본문으로]
27. slash ; 2. [흔히 수동태로,흔히 신문에서] 대폭 줄이다[낮추다] [본문으로]
28. stand down ; 1. ~ (as something) (직장·직책에서) 물러나다[사임하다] [본문으로]
29. insider ; [명사] (조직・단체의) 내부자 ;; 참고 ; outsider [본문으로]
30. coherent ; 1. (생각・주장 등이) 일관성 있는, 논리[조리] 정연한 [본문으로]
31. endure ; 2. [자동사][V] (격식) 오래가다[지속되다] [본문으로]
32. respectively ; [부사] 각자, 각각, 제각기 [본문으로]
33. capital spending ; [명사] 자본지출, 설비투자 ;; 동의어 ; capital expenditure [본문으로]
34. branding ; [U] 브랜드 명[제품 이미지] 부여 작업 [본문으로]
35. risen ; 발음주의 ;; US·UK [rízn] [본문으로]
36. tax payment ; (세무) 납부(納付) [본문으로]
37. workforce ; [C+sing./pl. v.] 1. (특정 기업・조직 등의) (모든) 노동자[직원] [본문으로]
38. output ; [U , sing.] 1. 생산량, 산출량 [본문으로]
39. in dollar terms ; 달러로 환산하면 [본문으로]
40. on average ; 평균하여; 대체로 [본문으로]
41. sustainability ; [명사] 지속[유지] 가능성; 환경 파괴 없이 지속될 수 있음. [본문으로]
42. regulator ; 1. (산업・상업 분야의) 규제[단속] 기관[담당자] [본문으로]
43. good conduct ; [법] 적법 행위; 선행 ;; 동의어 ; good behavior [본문으로]
44. market share ; [U , sing.] (상업) 시장 점유율 [본문으로]
45. brokerage ; [U] 1. 중개업 [본문으로]
46. gain ground ; 더 강력해지다[성공하다], 입지를 강화하다, 경쟁력을 높이다 [본문으로]
47. emerging ; [형용사] 최근 생겨난, 최근에 만들어진 [본문으로]
48. drag ; 2. SB/STH STOPPING PROGRESS | [sing.] a ~ on sb/sth (비격식) ~에 대한 장애물[방해물] [본문으로]
49. cashflow ; [C , U] 현금 유동성(한 사업체의 수입과 지출의 흐름) [본문으로]
50. cashflow per share ; (증권) 주당현금흐름 [본문으로]
51. fairly ; 1. [형용사・부사 앞에 쓰여] 상당히, 꽤 [본문으로]
52. basket ; 4. (경제) 바스켓 방식(여러 가지 통화를 조합해서 새로운 합성 통화 단위를 만드는 방식) [본문으로]
53. total return ; (경제) 투자총수익 [본문으로]
54. share price ; [명사] 주가 [본문으로]
55. appreciation ; 4. [U , sing.] ~ (in sth) 가치 상승 [본문으로]
56. dividends ; (회계) 배당금 [본문으로]
57. peer group ; [명사] (나이・사회적 신분이 같은) 또래[동배] 집단 [본문으로]
58. be over the top ; (of a person) do something in a wild, excited or extreme way; (of something) be unnecessarily extreme ;; over the top ; 과장된[지나친] [본문으로]
59. broadly ; 1. 대략(적으로) [본문으로]
60. sustainable ; 2. 오랫동안 지속[유지] 가능한 [본문으로]
61. fragmented ; [형용사] 분열된, 조직이 파괴된 ;; 흐름상 "서로 다른, 다양한 투자 목적을 가진" 정도의 의미 [본문으로]
62. be out for ; ~을 얻으려고[하려고] 하는[애쓰는] 중이다 ;; to be trying very hard to do something or to get something [본문으로]
63. fast buck ; (미·속어) 쉽게 번[벌리는] 돈 [본문으로]
64. synergy ; [U , C] (pl. -ies) (전문 용어) 시너지 효과, 동반 상승효과 [본문으로]
65. probable ; [형용사] (어떤 일이) 있을[사실일] 것 같은, 개연성 있는 ;; 참고 ; improbable [본문으로]
66. cost-cutting ; [U] 경비[비용] 절감 [본문으로]
67. roll-up ; a process used by investors (commonly private equity firms) where multiple small companies in the same market are acquired and merged. The principal aim of a rollup is to reduce costs through economies of scale. It also has the effect of increasing the valuation multiples the business can command as it acquires greater scale. Rollups may also have the effect of rationalizing competition in crowded and fragmented markets, where there are often many small participants but room for only a few to succeed. [본문으로]
68. acquisition ; 3. [C , U] (상업) (기업) 인수, 매입(한 물건) [본문으로]
69. mask ; [타동사][VN] (감정・냄새・사실 등을) 가리다[감추다] [본문으로]
70. low growth ; 저성장 [본문으로]
71. decline ; (참고: conjugate) 1. [자동사][V] 줄어들다, 감소[축소/위축]하다[되다] [본문으로]
72. winning streak ; (야구 등에서의) 연승 [본문으로]
73. vastly ; [부사] 대단히, 엄청나게 [본문으로]
74. need + ing 형태 확인 ; need to be protected 정도로 이해 [본문으로]
75. adjust ; 1. [타동사][VN] ~ sth (to sth) (약간) 조정[조절]하다 [본문으로]
76. tax break ; [명사] 세금 우대[감세] 조치 [본문으로]
77. leveraged ; [명사] 자기자본[주주자본]에 비해 높은 비율의 차입금이 있는 [본문으로]
78. voting right ; [명사] 의결권(주주가 주주총회에서 회사의 여러 사안 결의에 참가할 권리; 보통주 1주당 1표가 기본) [본문으로]
79. short-term shareholder ; (경제) 유동주주 [본문으로]
80. close encounter ; 1. (비행 중에 다른 천체·물체에의) 근접 2. (낯선 사람끼리) 가까이 만남 [본문으로]
81. myopic ; 2. 근시안적인 [본문으로]
82. virtuously ; [부사] 덕이 높아서; 정숙하게; 용감하게. [본문으로]
83. undervalue ; [타동사][VN] [주로 수동태로] 과소평가하다, 경시하다; 시세보다 싸게 평가하다 [본문으로]
84. in the pipeline ; (논의·계획·준비 등이) 한창 진행 중인[곧 모습을 드러낼 단계에 있는] [본문으로]
85. fine-tune ; [타동사][VN] 미세 조정을 하다 [본문으로]
86. articulate ; 1. [타동사][VN] (격식) (생각・감정을) 분명히 표현하다[설명하다] [본문으로]
87. repudiate ; [vn], (격식) 1. 거부하다, 물리치다 [본문으로]
88. legacy ; 2. (과거의) 유산 [본문으로]
89. watch closely ; 엄중히 감시하다 [본문으로]