Unilever climbdown over relocation shows investors’ power when they join forces

Source:Global Times Published: 2018/10/10 19:28:40

A confident leader calls a vote to resolve a long-running debate. However, his campaign lacks punch. A growing number of voters declare their dissent. As the ballot approaches, the result is too close to call.

The parallels between Unilever's failed plan to shift its head office to Rotterdam and Britain's Brexit referendum are almost too neat. Chief Executive Paul Polman's belief that UK shareholders would meekly approve the plan echoes former prime minister David Cameron's hubris in promising a referendum on membership of the EU. Both were surprised by the force of the opposition, and failed to make a compelling case. The only difference is that the Anglo-Dutch giant's board on Friday withdrew its proposal, just three weeks before the vote.

The Bovril-to-Ben & Jerry's group's bungled move offers two broad lessons. First, it demonstrates the limited scope for multinationals to boss politicians around. Polman turned the choice of a global headquarters into a contest between governments in London and The Hague. Dutch Prime Minister Mark Rutte - a former Unilever human resources manager - helped swing the decision by promising to scrap the country's withholding tax on dividends. That sparked a parliamentary rebellion. Now that Rutte can no longer point to Unilever's arrival as a reason to approve the policy, he may have to perform a U-turn.

The second takeaway is that investors can exert their authority by joining forces. Some UK shareholders objected to Unilever dropping out of the benchmark FTSE 100 index, which would have forced them to sell their shares. Others worried that choosing Rotterdam would allow Unilever to shelter behind Dutch protections against unwanted takeovers, even though the company insisted it would not. But the biggest objection was that the $146 billion company offered few positive reasons for the change. A protest vote therefore carried little cost: Unilever's London-listed shares fell just 0.5 percent on Friday morning.

Unlike Cameron, Polman probably won't resign right away. But the Dutchman who has been CEO for almost a decade was already expected to step down next year. This setback will tarnish his legacy. Meanwhile UK shareholders - like Britons who voted to leave the EU - are unsure what to do next. The debate over Unilever's dual structure is unresolved. Another referendum seems likely.

The author is Peter Thal Larsen, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews. bizopinion@globaltimes.com.cn



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