If Unilever Can’t Make Feel-Good Capitalism Work, Who Can?

The $170 billion corporate empire has been trying to prove corporations can do well by doing good. Can the idealism survive in an age of cost-cutting?

Photographer: Jamie Chung for Bloomberg Businessweek; Typography: Justin Metz

At an open-air school assembly hall in the dusty southern Vietnamese village of Phuoc Thanh, the consumer-products colossus Unilever is implementing a high-powered strategy to sell more soap: the handwashing dance.

It goes like this. Rub your left palm with your right hand, then clap, now right, clap, up, down, thumbs, knuckles, clap. Then repeat, scrubbing vigorously. The 200 or so children present on a muggy May morning, ages 8 to 10, know the routine by heart. Dressed in tidy uniforms of white short-sleeved shirts, red scarves, and matching tartan shorts, they leap from their plastic stools to mimic the six teenage instructors up front with impressive precision, shimmying up and down. The choreography, part of a campaign developed with Unilever’s behavioral scientists, manages to be at once cute and corporate. On the way out, the students are encouraged to pick up free Lifebuoy soap and P/S toothpaste at the school clinic. Naturally, it’s all made by Unilever.

Featured in Bloomberg Businessweek, Sept. 4, 2017. Subscribe now.
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Few corporations can claim to have done more to shape consumers’ habits. The Anglo-Dutch conglomerate’s 19th century founders popularized the bar of soap. Unilever pioneered the fish finger, frozen peas, and the commercialization of margarine. The first-ever advertisement on British TV was for Unilever toothpaste. Today the company makes Hellmann’s mayonnaise, Ben & Jerry’s ice cream, Axe deodorant, and Dove soap, among hundreds of other products it says are used by 2.5 billion people every day. Virtually everyone reading this sentence has a half-dozen or more Unilever items at home right now.

It’s a $170 billion empire that would seem to encourage conservatism. What is formally known as the fast-moving (as opposed to durable) consumer goods industry is, actually, resistant to change. There are tight margins achieved by epic economies of scale, and for companies the size of Unilever, wins tend to be incremental: a catchy bit of marketing here, a better spot on the shelf there. And yet the handwashing dance is a small part of a vast experiment with few parallels in the recent history of business.

Under Chief Executive Officer Paul Polman, Unilever is seeking to espouse a trendy sentiment—that it’s possible to make more money by acting virtuously—on a global stage. That means selling environmentally friendly detergent, installing thousands of water pumps in African villages, even removing gender stereotypes from advertising. The initiatives are tied together by two arguments. First, that ethically discerning shoppers in the developed world—or, less charitably, Gwyneth Paltrow among the urban bourgeoisie—are willing to pay a premium for products that do less harm to the planet. And second, that encouraging health and happiness in emerging markets will turn millions of the global poor into consumers for the first time. In theory, they’ll be loyal to the brands that sought them out.

Such syrupy pledges of net-positive behavior are readily found in business these days, including “B corps” such as Warby Parker and the Honest Co. and so-called socially responsible investment funds. Startups repeating a “make the world a better place” mantra are a running joke on Silicon Valley, the HBO satire. But although plenty of organizations have built identities, or at least marketing plans, around the idea of doing well by doing good, Unilever is the first to attempt it at the greatest of industrial scales. It’s as if Etsy’s management team were to take over at Wal-Mart and mount a sincere rebuttal to the bottom-line-above-all demands of shareholder capitalism. “Too many companies are running their business into the ground, I would argue, by being myopically short-term focused on the shareholder,” says Polman, a burly 61-year-old Dutchman, in an interview at Unilever’s London headquarters, a spectacular neoclassical block on the banks of the Thames. “We’re going back to what it should be.”

Shareholder capitalism, alas, has other plans. Earlier this year, Unilever received an unsolicited, $143 billion takeover bid from the Kraft Heinz Co., the maker of the eponymous cheese slices and ketchup. Kraft Heinz is run by 3G Capital, a voracious private equity company whose billionaire Brazilian owners have torn through markets with a simple, investor-delighting strategy for the businesses they acquire—fire, sell, or eliminate anyone or anything that isn’t nailed down. The implicit message to Unilever was clear: Handwashing dances are nice and all, but your CEO is spending too much time keynoting climate change conferences when he should be finding ways to move more mayo.

Unilever shares soared. Its managers were aghast, privately describing Kraft Heinz as something like a financial-engineering sweatshop with a side-hustle in cheese processing. Although Polman fended off the approach, Kraft Heinz is free to try again—a six-month cooling-off period mandated by U.K. takeover law expired on Aug. 19. The odds are strong that Kraft Heinz will return, because 3G’s business model depends on a steady flow of new acquisitions. Even if 3G chooses another target, its philosophy is fast becoming the norm, and there are plenty of hungry activist investors that could besiege Unilever with similar demands.

Proving a feel-good approach can deliver profits as well as plaudits is now an existential struggle for Unilever. Polman says he can do it. But he’s fighting some fundamental laws of the financial system. And if Unilever can’t make conscientious capitalism work, there’s little reason to believe anyone else can in numbers big enough to matter.

Polman in London.
Photographer: Laura Pannack for Bloomberg Businessweek

As Unilever’s executives travel the path to ethical-earnings nirvana, they sometimes exhibit an emotional intensity that seems out of whack with the ordinariness of the underlying shampoos, deodorants, and unguents. One example is Vaseline, a thoroughbred in Unilever’s stable. When Alan Jope, the president of Unilever’s personal-care business, gives presentations on the product, he always dreads one PowerPoint slide. It contains a video about a woman named Ntokozo, a South African community nurse who treats children with HIV. The virus can dramatically worsen eczema and other skin conditions; Vaseline comes in handy. “It’s almost bloody impossible not to well up when you see it, and I’ve seen it a dozen times,” Jope, a Scotsman, says of the video. In Vietnam boardrooms, executives tearfully recount their mandatory weeklong stays with poor rural families that might share one toothbrush among five people. And back at headquarters, Polman says he struggles to maintain his composure at the thought of migrants braving the Mediterranean to seek a better life in Europe.

The soulfulness is of a piece with the corporate ethos Polman has sought to instill since coming to Unilever in 2009 from archrival Nestlé, where he was passed over for the top job and had given every indication of being a middle-of-the-road executive. His Unilever tenure had an inauspicious start. To mark the handover, Polman and his predecessor met for dinner at Mumbai’s Taj Mahal Palace hotel on Nov. 26, 2008—the night a group of Pakistani terrorists stormed the building. The executives hid behind a door as gunmen rampaged through the dining area, ultimately killing more than 30 people. Polman, who escaped with his party through a window, has long declined to talk about the attack, though he said shortly afterward that it prompted him to see “a lot of qualities in people that I didn’t see before.” Only Polman knows whether the event transformed him, but for outsiders it’s difficult to separate his brush with death from his subsequent quest to wring more from life than marginal increases in deodorant sales.

As Polman settled in at Unilever, he began hacking away at corporate orthodoxies one by one, starting with a 2010 Financial Times interview in which he stated flatly: “I do not work for the shareholder, to be honest. I work for the customer.” He also scrapped the practice of reporting quarterly earnings guidance. At most companies, such a move indicates imminent financial trouble, but Polman seems to have done it out of a genuine desire to pursue long-term strategies. He announced a plan to halve Unilever’s environmental footprint by 2020 while doubling sales—shifting to sustainable ingredients for the former and courting emerging markets for the latter. The goal, according to a statement, was nothing less than to “decouple business growth from environmental impact.”

Thus began an uncynical effort to fight the perception that “corporate social responsibility,” as it’s known, is a gimmick to minimally compensate for the damages caused by companies’ operations. Polman banned the term, preferring to let the results speak for themselves. Energy use per metric ton of production fell by almost a quarter from 2008 and 2016, contributing to savings of more than €400 million ($472 million); water use is down by even more, again cutting expenses. Sanitation is another concern. Unilever staffers have fanned out across India and Africa to install toilets, access to which significantly reduces the incidence of infectious disease—and significantly increases sales of Domestos-brand toilet cleaner. The Vietnamese handwashing events are part of a broader initiative called Perfect Villages, in which 1,000 towns in the country of 90 million are inundated with Unilever assistance.

Polman has joined the likes of Bono and Richard Branson as a darling of the enviro-philanthropic elite. At development conferences, you can hardly squirt a recycled-plastic tube of Dove body wash without hitting him, hurrying from speech to panel to roundtable with the likes of actor Emma Watson. One morning at the 2017 World Economic Forum in Davos, delegates crammed into a tiny hotel lobby for a standing-room-only, Polman-led session on “double standards, unspoken rules, and unconscious biases that create gender inequality.” He’d already given a separate talk on the United Nations’ sustainable development goals, and later in the week he appeared alongside the prime minister of Norway and an indigenous-rights activist from Chad to stress the importance of combating deforestation.

Some hard-nosed analysts say that Polman’s extracurriculars can be a distraction. Robert Jan Vos, who tracks the industry for the ABN Amro bank in Amsterdam, notes that Unilever has “postponed” some decisions to accommodate Polman’s agenda, including long-delayed plans to divest some struggling food brands. Still, Polman largely gets away with his ubiquity on the conference circuit because his strategy seems to be working. Since his first year at Unilever, annual sales have climbed from about €40 billion to a little less than €53 billion, and the company’s earnings margin is healthy, if unspectacular, at about 18 percent. Brands that Unilever defines as sustainable accounted for 60 percent of sales growth last year, expanding 50 percent faster than its other product lines. Excluding dividends, its shares have more than doubled in the past five years.

Those results have encouraged Unilever to aggressively acquire what it calls purpose-driven brands—a term that roughly works out to “stuff Whole Foods devotees pile in their carts.” Last year, Unilever bought Seventh Generation Inc., a Vermont-based manufacturer of eco-friendly detergent, and more recently took over condiment-maker Sir Kensington’s, a challenger in the vegan mayo wars. It also looked into buying the Honest Co., the mission-focused seller of diapers and home-cleaning products co-founded by actor Jessica Alba.

For decades, prices in the consumer-goods industry have been constrained by fickle shoppers, who would rapidly change brands to save a few pennies. But the people Unilever is targeting pay a premium for virtue. A 100-ounce bottle of Seventh Generation detergent is $12.99 at Target, one buck more than the same amount of Tide. “It’s not just emotion. The numbers play it out,” says Natasha Lamb, a managing partner at the ethical-investment company Arjuna Capital, of Polman’s methodology. The green-tinged end of the market is “where the growth is,” she adds, “and the demand, and the extra margin that you can charge.”

Still, sometimes Unilever can seem to be defining “purpose” down. Of the household names vying to join its roster of 18 “sustainable living brands,” a few have ethical credentials that are less than obvious, such as Tresemmé shampoo. Jope says, without apparent irony, that “the extra confidence a woman can get from that great-hair moment” will help empower China’s female workforce. Suave shower gel is favored because its quick-rinse formulation theoretically encourages bathers to use less water. But from a financial perspective, Unilever’s eagerness to imbue mundane purchasing decisions with a grander meaning isn’t ridiculous if modern shoppers are buying it. And they are.

One of the corporate doctrines Polman rejects is media training. In an age when most big-company bosses stick rigidly to their assigned talking points, his comments flow in all directions, like a Magnum-brand ice cream bar melting in the sun. In a May interview, his answer to an initial question about the scope of Unilever’s ambitions runs to an uninterrupted 924 words, traversing Milton Friedman, the savings rates of American workers, the discontent of the postindustrial middle classes, and the work of the Canadian astrophysicist Hubert Reeves. “Adam Smith wrote his book The Theory of Moral Sentiments 17 years before he wrote his book The Wealth of Nations,” he says. “You cannot get wealth if you don’t have morality.”

Polman is built like a rugby player, 6-foot-3 and bald except for a thinning gray crown. He wears a long camel blazer, a lightly striped shirt, and blue cuff links depicting Unilever’s logo: a stylized U made up of 26 symbols including a double helix, an ice cream cone, a dove, a snowflake, a sweater, recycling arrows, and a heart. In Polman’s telling, Unilever isn’t just finding new ways to sell chocolates and kitchen solvents. It’s also articulating an updated model of capitalism applicable to the global economy. “You can put yourself to the purpose of others, and in doing so, you can be better off,” he says. “There’s always the guy we remember from parties who never pays. But that doesn’t last, because then everyone turns around and says, ‘Screw you.’ It’s symbiosis. As a group of friends, we want to make each other better, and then you become stronger as friends. It’s the same with business. I see business as an ecosystem.”

The strategy is designed to appeal more to farsighted institutional investors than to the mercurial hedge funds that dart in and out of stocks after days or even seconds. The sovereign-wealth or pension funds of China, Norway, Japan, and California are all significant Unilever shareholders, and Polman calls short-term players “not our kind of investors.”

He delights in making the case that sustainability pays, sometimes even in the shorter run. Last year, Unilever announced it had succeeded in bringing the volume of garbage sent to landfill at more than 600 factories and offices to zero, thanks to aggressive composting, recycling, and reuse of industrial byproducts. Critics “said it couldn’t be done,” Polman says. Now, “people are happier working there, customer service is up, product quality is up, we’ve saved a s---load of money”—more than €200 million, according to the company—“because we don’t have to deal with waste,” he continues. “And the world is better off.” Meanwhile, efforts to cut carbon emissions by rigging manufacturing sites with solar panels and wind turbines, Polman boasts, are also helping them keep running during power cuts.

One of the unlikelier expressions of Polman’s conviction that the right thing can also be the profitable thing is the transformation of the Axe line of deodorants, body wash, and other pungent products pitched to boys whose hormones have developed faster than their sense of smell. Around the turn of the century, Axe’s value proposition to this demographic was not exactly woke. One ad featured a stampede of bikini-clad women clambering through forests and over sand dunes, all because a young man on a beach sprayed his underarms with Axe. Another centered on a lanky male beachgoer whose choice of body wash left nearby women spellbound and clothing-optional. A slogan promised sex: “The Cleaner You Are, the Dirtier You Get.”

The secret of many consumer-product categories is that under the label, the ingredients are all basically the same, and so a resonant piece of marketing can make an outsize difference. By 2008, Axe became one of 13 Unilever brands with annual sales above €1 billion. If Polman had concerns about sexism, objectification, or misogyny, he kept them to himself. But by 2014, sales had stagnated, and women’s groups were stepping up criticism of Axe’s cringe-inducing ads. The marketing struck a particularly unwelcome contrast with Dove’s widely lauded “Real Beauty” campaign, which celebrates women of diverse shapes and sizes.

Unilever commissioned a study of 3,500 men in 10 countries to explore changing conceptions of manliness. The results fascinated Jope, whose personal-care division includes Axe. “The surprise was the level of stress and pressure that guys feel under to conform to an outdated version of masculinity,” he says. “Guys are asking questions—you know, ‘Is it OK to be a virgin? Is it OK to experiment with how I portray my gender? Is it OK to use skin-care products?’  ”

Unilever set out to revamp Axe with the help of 72andSunny, a Los Angeles- and Amsterdam-based marketing company. The brand’s new personality was introduced at the beginning of 2016, with a 60-second ad that’s been viewed on YouTube more than 10.5 million times. Women, clothed or otherwise, are peripheral characters. Instead, it depicts men in a range of unexpected identities. One twirls at a party in hot pants and high heels. Another spins on his wheelchair with a dance partner in his lap. Two flirty men lock eyes in a record store. The new slogan: “Find Your Magic”—that is, with a little help from a certain range of grooming products.

In commercial terms, Unilever says the Axe switcheroo is a success. The unit is again experiencing “a steady acceleration” in sales and is now “growing back at the level we would want our billion-euro brands to be growing at,” Jope says, declining to disclose precise figures. It’s also allowed “a corporate sigh of relief” by moving Axe into line with Unilever’s self-image, he adds.

Unilever announced in 2016 it would seek to eliminate “gender stereotypes” from marketing across all of its operations, depicting women more as professionals and less as housewives grateful for a new-and-improved detergent, for example. The impact on the global advertising industry could be significant, because Unilever spends more than €8 billion annually. As Polman puts it, “You have to use that size and scale as a force for good.”

One juggernaut that isn’t famed for using size and scale as a force for good, in the Paltrovian sense, is Kraft Heinz, which 3G Capital owns with Warren Buffett’s Berkshire Hathaway Inc. You won’t find the Chicago- and Pittsburgh-based food maker working with the World Bank to lessen the carbon impact of bovine flatulence in the Kraft Macaroni & Cheese supply chain, as one imagines Polman might if he had the chance, nor leveraging its Capri Sun juice line to address infrastructure gaps in water-stressed regions of Africa. At companies controlled by 3G—including Anheuser-Busch InBev, Tim Hortons, Popeyes Louisiana Kitchen, and Burger King—the overwhelming goal is to relentlessly juice profits. Usually that comes through reducing costs. One 3G partner has likened expenses to fingernails, saying, “They have to be cut constantly.” Another, upon eating his first-ever Burger King Whopper, quickly deemed it too whopping a portion for the price.

In early February, 3G CEO and Kraft Heinz Chairman Alex Behring met Polman for lunch at Unilever’s London offices. He’d come with a surprising proposal: a debt-fueled cash-and-shares takeover of massive proportions. Unilever is Europe’s seventh-largest company by market value, and the $143 billion deal would be the biggest in the history of the consumer industry.

Polman was staggered, according to people familiar with the deliberations at Unilever at the time, and set out to do everything he could to stop 3G. It would mean overriding many of his own investors. When news of Kraft Heinz’s offer leaked on Feb. 17, a Friday, the company’s shares climbed the most on record—more than 13 percent. What followed was remarkable even by the standards of contested acquisitions, in which the target has every incentive to play hard to get. Unilever’s public reaction was an unambiguous slapdown, a statement that said there was “no merit, either financial or strategic,” in a deal, nor any basis to even entertain negotiations. A private letter from Polman to 3G co-founder Jorge Paulo Lemann, Behring, and Buffett made similar points, and Unilever executives and advisers began working the phones to press an off-record case to journalists that a deal would destroy the company’s long-term-focused business model.

The contest continued the next day. To help find allies in Britain, Kraft Heinz had hired Finsbury, an elite London public-relations agency with deep political ties. But Finsbury is majority-owned by the advertising conglomerate WPP Plc, which handles much of Unilever’s marketing. Polman took this as a personal affront and fired off an email to Martin Sorrell, WPP’s CEO. Finsbury dropped its new client within hours. (WPP declined to comment on Finsbury’s role.) Meanwhile, politicians in Westminster were beginning to grumble that a takeover could strip the U.K. of an important part of its industrial base—not an idle concern under the leadership of Prime Minister Theresa May, who has pledged to intervene more forcefully in business than her hands-off predecessors.

By the end of the weekend, 3G knew it would be in for a bruising public battle. Lemann and Behring decided it would be best to withdraw, at least temporarily. Unilever remains a tempting target, with plenty of costs to annihilate and deep reach into emerging markets. And 3G has a history of grinding down opposition, as its directors’ Anheuser-Busch brewing group did when it reached a $104 billion deal to buy rival SABMiller Plc in 2016. To get there, it raised its bid four times, eventually piling so much pressure on SABMiller’s reluctant board that its members could no longer refuse to let investors reap the windfall. At Unilever, it’s shareholders’ votes—and not those of broader “stakeholders” such as customers, employees, or Vietnamese villagers—that determine whether the company survives.

Polman doesn’t take much prodding to unload on Kraft Heinz and its owners. He shares in the widely held perception that 3G companies’ main route to growth is through ever-larger acquisitions. “How long can you do that before a Ponzi scheme stops?” he says. “That’s what the world is waiting for.” Polman argues that cutting costs is comparatively simple, that anyone can “take out one-third of the people. That’s not really skilled management.” He notes that Unilever’s sales are growing steadily, while at Kraft Heinz they’re flat or down.

Kraft Heinz is trying to soften its image. In March it pledged $200 million toward an expanded corporate social responsibility program, focusing on malnutrition, supply chain impacts, and emissions reductions. The announcement came shortly after some Kraft Heinz investors made a series of sustainability-related proposals for its annual meeting that the company asked shareholders to reject, arguing they were redundant. In an August statement, Kraft Heinz said that “CSR has been and will continue to be a consistent component” of its operations. Efficiency improvements are made, it said, “so that we can invest in the growth of our brands and businesses—in ways that benefit our people, our customers, and our long-term profitable growth strategy.” Kraft Heinz declined to comment on any future bid for Unilever.

Even if 3G doesn’t come back for Unilever, its example is still drastically changing how the consumer goods industry is expected to behave. No one is exempt—activist investors have ongoing campaigns at Nestlé and Procter & Gamble—and Polman has had to make concessions. In April, Unilever announced a top-to-bottom overhaul of its operations, raising its cost-savings targets and promising shareholder-friendly measures such as stock buybacks. It’s even embracing “zero-based budgeting”—an accounting concept popularized by 3G in which managers start with a clean sheet of paper and have to justify every penny of cost, as often as each quarter.

If 3G or another pitiless force succeeds in changing Unilever to the core, it’s likely Polman would depart as CEO. Already, some of his statements have a valedictory quality. He’s significantly outlasted the average tenure of bosses at companies of a similar size. Given his public priorities, it’s unlikely he’d seek another corporate position if he left Unilever; plenty of global organizations are looking for leaders with private-sector credentials.

It’s impossible to say yet whether Polman’s legacy will be as a pioneer or an outlier. Fundamentally, that’s a question of which way the arc of economic history will ultimately bend. “Do we choose to serve a few billionaires, or do we choose to serve the billions?” he asks. “Over time, I think the billions will win.”

(Corrects credit for the lede image, and updates the 22nd paragraph with additional comments from Paul Polman on Unilever's renewable energy efforts.)