Leland LeCuyer shares some of his own insights around the already interesting story of the Kraft Heinz failed takeover of Unilever and the clash of cultures it would have entailed.
Originally shared by Leland LeCuyer
Two Models Of Capitalism
I just ran into this article on Forbes and immediately thought of this community. Julian Birkinshaw examines why the proposed merger of Kraft Heinz with Unilever was withdrawn. He sees it as not only a clash between widely different and possibly irreconcilable business cultures, but a between two distinct models of business. Kraft Heinz is a relentless cost-cutting, profit-maximizing machine aiming to enrich its shareholders; Unilever “exemplifies the view of a corporation as a force for good in society.”
Birkinshaw became all mushy at the end, arguing we need “a balanced diet” of capitalism — namely that there’s a need for both ruthless efficiency and social benefit. However, contrary to what Birkinshaw appears to be advocating here, these two visions of business cannot exist separately without inflicting terrible harm upon society and the earth itself. A company can be ruthlessly efficient at manufacturing disaster. Indeed the standard model of shareholder sovereignty has proven to be a recipe for precisely that, as evidenced not only by the usual suspects — tobacco and oil companies — but even in businesses that one would expect to provide socially beneficial services — food companies and hospitals. Too often the impulse to generate profit leads to decisions which undermine the very mission that the firm purportedly was established to fulfill.
I am more inclined to agree with Peter Drucker who claimed business enterprises “do not exist for their own sake, but to fulfill a specific social purpose and to satisfy a specific need of a society, a community, or individuals.” History supports Drucker’s observation, because long before shareholder supremacy became codified into law, all corporate charters required a specific goal and the corporation would dissolve upon fulfillment of that goal. Open-ended corporate charters, not to mention corporate “personhood” were not established until the railroad.
But I’m preaching to the converted. What about the other side of Birkinshaw’s thesis?
I can lay claim to the title of “World’s Worst Businessman,” thus I attest from experience that engaging to do good in the world also demands discipline — even (or especially) fiscal discipline. Being broke harbors a strange tendency to limit the good that one can do. It goes without saying that a modicum of ruthlessness is required even in the pursuit of good.
So permit me to channel someone who is widely regarded as a better businessman than me — Steve Jobs — and add “one last thing”: Even the most bottom-line oriented capitalist enterprise like Kraft succeeds at doing some good. At the very least it makes money for its investors. The problem isn’t whether or not it does some good; instead the problem is who benefits and the corollary who gets harmed. The problem with the bottom line is that it has been too narrowly defined.
Similarly, corporations like Unilever that strive to benefit society may be accused of defining their mission too broadly. How exactly does a firm benefit society? All of society? Like all things, there must be tradeoffs: benefits and harms. A good business seeks to benefit others in addition to themselves. It also seeks to mitigate whatever harm it induces. These are not easy things to do or to measure. P&L balance sheets do not exist to hold an entity to account for the impact it has upon the world.
In the end a business or an individual may only do so much. Like my grandmother taught, try to leave the world a little better than before.