Skip to 0 minutes and 1 second This whole question about fiduciary duty, what the directors of a company and the investors in a company need to do to make that company successful, is still critical, absolutely critical. And directors of companies have an obligation to ensure that they are managing the interests of their owners, of their investors, as their first set of responsibilities. It’s as big a set of responsibilities as the ones they have to the governments or the countries in which they operate. And that can be pretty harsh and pretty difficult. And the only thing a company can do is to demonstrate that from a shareholder point of view, the way they’re creating value, responsibly and sustainably, will work better for their investors over time.
Skip to 0 minutes and 44 seconds They have to make the case for long-term value creation rather than short-term maximisation of return. And you can see, as an example of this, what’s recently happened with Unilever, which has been a compelling and really deeply disturbing example. Because of all big, global companies, Unilever had made the case for long-term value creation more eloquently than any other company in the global economy. Then we see a very hostile bid coming forward at the behest of various hedge funds, nominally through Kraft and Heinz in America, but actually underpinned by hedge funds, which says, we will buy Unilever’s stock at a 30% premium.
Skip to 1 minute and 26 seconds And suddenly, everybody is having to think to themselves, do we owe it to our shareholders to sell this company at a 30% premium? If that was our principal obligation, we would. Fortunately, the board of Unilever dug in and said, this is not right for shareholders. This is contrary to the interests of shareholders in the longer term. And it became a hostile bid and therefore, Warren Buffett and his other hedge fund buddies gave up before it became too bloody. But it’s been a really shocking thing for Unilever because even though they’ve created roughly 200% uplift in value over eight years, that– in the eyes of some, that’s not enough.
Skip to 2 minutes and 7 seconds There’s no amount of money that’s enough for people as greedy and self-interested as that. So the whole model of shareholder capitalism is now fundamentally at risk until we begin to address this whole question of long-term value creation versus short-term profit maximisation in the interests of a tiny, tiny minority of obscenely rich people who basically need to be taxed back into their boxes.
The short-term vs long-term dilemma for business
The main building blocks of any economy is enterprise. A key part of moving towards a more sustainable, long-term vision of economic activity is over-coming the short-term pressures business has to adhere to today. How can businesses show that long-term value creation (both financially and more broadly) will work best in the long run?
We asked Jonathon Porritt about how businesses can think long-term whilst they are beholden to short-term pressures of profit maximisation for shareholders.
He emphasises the fact that many businesses, including Unilever, are making the case for a more long-term approach which over time will be more beneficial. Porritt suggests that this approach is better for everyone except a tiny minority of “obscenely wealthy people” who have a large amount of economic power.
In your experience, is there any evidence that the sustainable approach described by Jonathon Porritt is becoming more widely shared, or does profit maximisation at all costs still hold sway?