Unilever Boss: Happy Customers Mean Happy Investors

Last Updated Apr 8, 2010 1:14 PM EDT

It may sound like Unilever's Paul Polman has invented a new business model in saying shareholder value is a misguided target, but he has just turned the traditional model upside down. Investor returns are not the starting point of management but the end. They are the result rather than the means, and many directors â€" and most investors â€" have forgotten that.

The chief executive of the food and household goods conglomerate has shown the traditional model from a new perspective in declaring that he works for the customer, not the shareholder. But it ought to be obvious. No revenue means no profit and thus no dividend.

But businessmen in pursuit of a new business ethic must not confuse Polman's emphasis on consumers with an objective of revenue maximization. That is the policy of companies wanting to be big for the sake of size and encourages directors to chase sales until marginal profit disappears â€" or turns into loss.
Nor does a policy of keeping the consumer satisfied mean that the customer is always right. Unilever is as good as any company in introducing new products to shoppers that they did not know they wanted and weaning them away from low-margin lines they like. But it makes sense to keep the clients happy and Tesco has proved how that is the first step to both growth and shareholder value.

Indeed, what is the alternative? Leaving customers unsatisfied? Only a monopoly supplier of essentials can do that.

Polman is not the first management giant to reject the old religion of shareholder value.

Former head of GE, Jack Welch, declared last year that shareholder value is the dumbest idea in the world. He said the job of a business leader was to deliver on short-term commitments to a panopoly of stakeholder and shareholders are satisfied as a consequence of delivering to others, such as customers.

That may sound like General Electric's old capitalist warhorse going soft, adopting paternalist management techniques, but it is a way of saying that if you look after the customer, the profits look after themselves. Rather than aim for profit and trample over the clients to achieve it, concentrate on the consumers and let them provide the returns.

Polman is likely to find an audience for his message among those managers looking for new business models, but as head of Unilever, his bigger task is to convince the investing institutions whose only interest is what the company earns, rather than how it earns it. He needs to spell it out simply â€" you can't have a bottom line without there being a top line. Profits are important but, by definition, they come after sales.

(Pic: World Economic Forum cc2.0)