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CRITICAL ANALYSIS OF CORPORATE GOVERNANCE AND ETHICS OF UNILEVER PLC
In the world of business, there are large and small organizations doing business which have a common goal-to make profits. When a considering a small family-owned business such as a grocery store, the principal requirement is for the business to generate sufficient earnings so that the supplies are paid for and also to see that daily and monthly expenses of the family are met through the net earnings. In addition, the continuation of the business is also important for which grocery owner will be concentrating and thus cash inflow and outflow will be managed. When considering big businesses, the same principal will apply, however in this case the ownership and management maybe different and hence objectives and goals may differ. This requires rules and regulations to be followed with maximization of shareholder wealth while business is sustained with proper rules and regulations required to meet this purpose which has given rise to Corporate Governance.

Following are the main principles under the UK Corporate Governance Code published in 2018 by The Financial reporting Council had 5 key areas for consideration;

1.     Board Leadership and Company in effect the responsibility of the Board in managing the interests of the shareholders, stakeholders and ensure that the entity is managed efficiently and that all interests are met in accordance with requirements.

2.     Division of Responsibilities-There should be clear division of responsibility with the Chairman heading the Board, A Chief Executive and an appropriate number of Executive and Non-Executive Directors to maintain a balance in decision making purposes and a Company Secretary.

3.     Composition of the Board, its Succession and Evaluation-All appointments should be after a comprehensive evaluation of candidates and the performance to be reviewed each year in a transparent manner. Diversity rules should also apply when deciding on composition.

4.     Audit, Risk Analysis and Internal Controls-Proper guidelines to be put in place to ensure all financial and non-financial matters are handled efficiently and in a transparent manner and in this regard internal and external audits to be carried out independently. Such controls will ensure that all processes function in the requisite manner and contribute to growth of the organization and create investor confidence.

5.     Remuneration-Should be in line with company’s objectives and long-term sustainability. The process should be transparent and no Director should have the ability to decide on their own remuneration.

The above principles are to be either complied by listed company’s or in the event that same is not complied, sufficient explanation to be provided for the reason justifying the non-compliance.

In line with the general good governance principals set out by the Financial Reporting Council following information is based on a case study on one of the leading Fast Moving Consumer Goods suppliers in the world -Unilever PLC.

Unilever was established in the 1930’s with 2 parent entities with one in UK and the other in the Netherlands and operated under a foundation agreement where the role was to operate as one, despite different shareholders listed on 2 different stock exchanges. The company completed a unification process of the group with creating one single class of shares and one pool of funds for the entire organization which will assist the company to have one point for decision making for all markets being serviced. In addition, the common point of decision making has also assisted to take decision on the mergers/acquisitions of popular brands.

The Board membership consists of 12 individuals from a variety of background of which only 2 are Executive Directors-CEO Alan Jope and CFO Graeme Pitkethly, which is meeting the FRC’s guidelines on gender with 5 of those being Females. In addition, the Directors are from Denmark, Britain, USA, China, Italy, Zimbabwe, Austria, Canada and the Netherlands reflecting diversity in its composition. The 4 committees established under the supervision of the Independent Directors are Audit, Compensation, Corporate Responsibility and Nominating and Corporate Governance Committees. All these committees are headed by Non-Executive Directors’ who mainly oversee that the processes are being followed as per the company.

Sustainability

The company announced in Dec2020, its intention of submitting climate transaction plan to its shareholders for approval, which will assist the organization to meet the growing awareness and concern on impact of emissions on the environment both from the level of the entity and the supply chain. The company has announced a net zero emission target to be achieved by 2039 from source to point of sale. Carbon Dioxide (CO2) emissions have been reduced by 75% since 2008 and 2020 was the first year of operating the manufacturing facilities with 100% renewable energy sources. World population stands at 7.8 billion (World Population Data Sheet 2020) and with the ever-increasing population, scarcity also increases and hence the need for sustainable use of resources. Higher the population, higher the demand and hence prices of essentials also are on the increase, giving poorer societies less opportunities to obtain their day-to-day requirements.

Plastics are the key pollutant and environment concern due to high demand for packaging by use of plastic and related material and is a stakeholder concern and an important topic related to the environment. Climate change has been principally attributed to increase in global temperature’s due to green house emissions and this in turn can cause change in weather patterns resulting in disruptions to manufacturing process and supply chains and resulting in increase in prices making it unaffordable to consumers and ultimate drop in demand for company products over the long run.

Green House emissions have reduced by 30% and 37% in both Foods & Refreshment and Home Care respectively since 2010, however emissions increased by 10% over the same period in the Beauty & Personal Care division due to acquisition of consumer products which use hot water including hair and bath products. However, company has set-up a Climate & Nature Fund of Euro 1 billion for removing carbon from manufactured products and in use which will reduce pollution of the environment and also reduce landfills. Company has also committed an additional Euro 1 billion to completely carbon emissions from Cleaning & Laundry products and replace same with 100% recyclable carbon over the next 10 years. The group has also joined 1.5C Supply Chain Leaders initiatives to support the supply chain to be completely in line with zero carbon emissions by 2050. These initiatives have been taken with a focus on long term objectives of sustainability and the entity has also evaluated the impacts of both a 2 and 4 degree rise in global temperature on the sustainability of the limited resources by 2100.

Addressing adverse effects of deforestation is also another key area the company is focusing on and in this context a deforestation free supply chain target has been set for 2023 with principal focus on high-risk crops such as palm oil, soy, paper and board, tea and cocoa. Reducing the no. of source points also helps in better management of the inputs and hence group is envisaging reducing no. of palm oil mills from 1,600 to 500 by 2023. In the current year group is launching the Regenerative Agricultural Principles in collaboration with suppliers. The intention is to use these pilot projects to improve soil health, bio-diversity, water quality and climate stability.

Corporate Social Responsibility

In 2020, the Corporate Responsibility Committee infused provisions where a minimum living wage is paid to the company’s employees, ethical use of information and also a greater focus on the mental health of employees in addition to the safety at work place principals already being practiced. These factors are relevant to current work ethic and also important for the good reputation of the group.

The group had ended a Unilever Sustainable Living Plan in 2020 with a new Compass Strategy from 2021 involves aligning group targets with societal requirements, where both organization and society benefits and the long run profits are dependent on what the group outlines and formulates for the benefit of society.

The committee monitors all the CSR obligations at each meeting and has to decide on how each aspect can be dealt with in a manner that the targets can be met in a transparent manner.

The Group managed financial performances of Euro 50.9 billion for the financial year ending 31/12/2020 which was a drop of 2.4% in comparison to 2019, due to pandemic situation the world was embroiled in during the majority of 2020 and also currently facing with the on-going 3rd wave of the pandemic, creating insecurity, job-losses, large scale lockdowns the world over specially with regards to the poorer nations with lower reach of vaccines.

Despite all the challenges faced globally, Unilever Group has strived to meet these challenges with comprehensive long-term focused strategies which are in line with the objectives of the organization and thus managed to provide a framework for other organization to follow in order to be successful while being sustainable and profitable.