Coventry University

5012ACC - Governance and Ethics in Finance

Analysis of Unilever's Corporate Governance

Yanfei Gu(12461709)
Yunan Fan(12461684)
Rui Zhang(12732643)
Tasnia Tabassum(12903036)
 Contents
Introduction........................................................................1
Corporate governance ....................................................... 2
Board of directors ..............................................................5
The board of directors' structure .......................................5
Board diversity of Unilever .............................................. 7
Discussion on Unilever's corporate governance .............. 9
Conclusion .......................................................................12
Reference lists ................................................................. 15
 Abstract

In today's society, corporate governance is crucial. Corporate governance addresses

the relationship between owners and operators, and drives efficient operations and

value creation. This research study begins with a basic introduction to Unilever and

discusses its corporate governance principles and corporate strategy. Next, the

structure and composition of Unilever's board of directors are described, as well as the

different responsibilities of the different committees. The advantages and

disadvantages of board diversity are then explored in the context of Unilever's board

diversity. Finally, the corporate governance of Unilever is critically discussed.

Unilever has established strict business guidelines and has continued to reform and

rationalize its corporate governance system, and has achieved a degree of diversity on

its board of directors to its advantage. However, the diversity of the board also has

some drawbacks. Unilever has also had problems with conflicting views of the board,

which has led to inefficient corporate governance.

Key words: Unilever; Corporate Governance; Board structure; Board diversity

Introduction

Corporate governance is a core element of a modern enterprise system and is the basis

for the sustainable and healthy development of a company. Good corporate

governance not only promotes the achievement of the company's business objectives

but also helps to optimize the shareholding structure and protect the interests of

shareholders and stakeholders. Appropriate corporate governance principles also play

a large part in guiding the way. Nowadays, there is no doubt that if a company wants

to have long-lasting development, it must pay attention to corporate governance,

recognize the important role of the board of directors in corporate governance and

follow specific governance principles in order to build a good corporate management

structure and improve corporate performance. Naciti, V. (2019) suggests that the

board of directors is an essential part of the corporate governance structure and is

responsible for the strategic management of the company as well as major operational

decisions. A diverse board is an important feature of modern corporate governance

and can be effective in enhancing disclosure and transparency, thus facilitating

investors and stakeholders to make appropriate assessments of Unilever.

Unilever is a British multinational company and the second-largest manufacturer of

consumer goods in the world. Its products are exported to more than 190 countries,

and more than 3.4 billion consumers use Unilever's products every day. However,

Unilever was once at a disadvantage in the competition with Procter & Gamble.

Therefore, it undertook a series of reforms in corporate governance, board structure,

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customer value, industrial form and business model to save its competitive position in

the global consumer goods market. In addition, Unilever's corporate purpose is to

treat employees, consumers and society with the highest standard of corporate

behaviour and to safeguard the interests of its stakeholders.

This essay first aims to introduce the principles of corporate governance and

emphasize the significance and importance of companies following specific corporate

governance principles through the case of Unilever. Secondly, it introduces the

changes of Unilever's board structure and analyzes the diversity in its board of

directors in many aspects. Finally, make an objective and critical evaluation of

Unilever's corporate governance in terms of whether it follows corporate governance

principles, board structure and it's board diversity.

Corporate governance

The Corporate Governance (2019) summarized the definition of corporate governance

as "simply the system of directing and controlling a company". The good principles of

corporate governance can help companies to be governed more effectively and

prudently, leading to sustainable and stable growth. Regarding the principles of

corporate governance, Yu, F. (2022) suggests that corporate governance principles

broadly include reports, recommendations, guidelines and best practices. Narrowly

defined refers to the criteria for the arrangement of corporate governance structures. It

not only defines the distribution of responsibilities and rights of the participants in the

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company but also describes the rules and procedures that should be followed when

making decisions about the company's affairs. Fundamentally, it is a standard and

policy for improving corporate governance and a practical principle at the corporate

management level. In the UK Corporate Governance Code, Liu,R. (2019) states that

the principles of corporate governance are to build the relationship between the

company, shareholders and stakeholders, and good corporate governance principles

can contribute to the long-term sustainable growth of the company's economy.

Unilever once adopted the rare dual-chairman structure of multinational corporations,

also known as the "co-chairman" system. However, Unilever is currently facing a

decline in its competitive position in the global consumer goods market, and the

drawbacks of the co-chairman system have gradually emerged. Therefore, Unilever

has reformed its own corporate governance system, such as advocating the "One

Unilever" strategic change, which has transformed the original dual-headquarters

structure, also known as the Anglo-Dutch company structure, into a single parent

company and set up the only global headquarters in London. As Steve Smith (2009)

said, Unilever, as a large consumer goods company, needed to adopt a new execution

strategy to reverse the declining trend in sales and profits. The successful

implementation of the "One Unilever" strategy can enable the company's sales

Increased growth, productivity, profitability and cultural cohesion. Unilever's

transformation has the following two benefits. Firstly, it enhances Unilever's

decision-making and strategic flexibility in investment, and secondly, it eliminates the

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complexity of the company and can further strengthen corporate governance

capabilities to maximize shareholder value.

Different countries have different corporate governance codes, so it is extremely

important for companies to abide by local special corporate governance codes for

their own development. According to Adewale (2013), while corporate governance

codes vary from country to country, most countries have codes that provide expected

corporate governance practices. In the 1980s and 1990s, Britain was affected by many

corporate scandals, so it had to formulate a series of corporate governance guidelines

for British companies and carry out large-scale reforms for British listed companies.

Since the Cadbury Report in 1992, the UK has continued to update corporate

governance guidelines in response to new issues emerging in corporate governance. In

addition, the United States also attaches great importance to the impact of corporate

governance on enterprises and the economy. In 2021, the financial fraud scandals of

Enron and World Com in America shocked the world and made people realize the

importance of the independence of auditors. As a result, the United Kingdom actively

reflected on its corporate governance model and made separate investigations on the

role of non-executive directors and the Higgs Report on effectiveness and the Smith

Report on the role of the audit committee. According to Adekoya (2011), the typical

approach in most countries to ensure effective corporate governance reform is

corporate governance norms that complement existing corporate law. Unilever

currently has its only headquarters in the UK, so it must abide by the special corporate

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governance code formulated by the UK, and constantly follow up its own corporate

governance model in accordance with the British corporate governance guidelines that

keep pace with the times to make Unilever stable development.

Board of directors

The board of directors' structure

Due to its extensive network of worldwide consumers, Unilever has long recognized

the value of diversity in the workforce. This starts with the Board and moves all the

way up through the organization. With regard to Unilever's size, portfolio, culture,

geographic dispersion, and listing status, the Board's makeup and calibre should be

commensurate. The Unilever Board, however, is of the opinion that while gender and

ethnicity are significant components of diversity.

The Audit Committee is an important part of Unilever's board structure, with three

non-executive directors required to make up the committee. The Committee is

responsible for overseeing financial reporting, management of corporate risk controls

and compliance with relevant legal regulatory requirements. (Bayer et al., 2021). The

committee also recommends external auditors to the board and reviews their

compensation (Unilever, 2020).

The Compensation Committee is also an important part of Unilever's board structure,

with three non-executive directors making up the committee. The committee is

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responsible for reviewing and approving the compensation of the executive directors

and the Unilever Leadership Executive, and for making recommendations to the board

on the compensation of the non-executive directors (Unilever, n.d.).

The Corporate Responsibility Committee is another important part of Unilever's board

structure, with at least two non-executive directors making up the committee. The

committee is responsible for monitoring Unilever's corporate citizenship and

reputation as a good corporate citizen (Bayer et al., 2021). The committee also

oversees sustainability initiatives and ensures that Unilever's business practices are

ethical and responsible (Unilever, 2020).

The Disclosure Committee consists of several executives, including the EVP

Financial Control, the EVP Finance Markets and Group Performance Management,

the EVP Corporate Strategy and M&A, the EVP Tax and Treasury, and the PLC

Deputy Secretary. It is the committee's responsibility to ensure that Unilever discloses

all necessary financial and other information to the public in a timely, complete, and

accurate manner (Bayer et al., 2021).

Board diversity of Unilever

Unilever values diversity and inclusion and has made it a fundamental part of its Code

of Business Principles. In general, the percentage of women and ethnic minorities on

boards increases as the size of the enterprise and the board increase but declines as the

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number of insiders decreases, which from David A. Carter, Betty J. Simkins and W.

Gary Simpson (2003) view. The company's extensive presence in various countries,

cultures, consumers, employees and stakeholders, allows them to take fully advantage

of diversity.

As part of Unilever's commitment to diversity, the board believes directors should

bring a wide range of experiences, backgrounds, skills, knowledge, and insight to the

table. Selection is required to follow strict objective criteria and there is no

discrimination on the basis of physical or personal attributes, because they are not

indicative of an individual's ability to perform as a director. In the view of Maretno

Harjoto, Indrarini Laksmana and Robert Lee (2015), gender, tenure and diversity of

expertise appear to be the driving factors for corporate CSR activities. The aim is to

improve decision-making, reduce risk, and promote innovation. Unilever currently

has 13 directors, including five women, and board members come from the United

Kingdom, Italy, Argentina and other countries. This diversity of directors, as well as

directors from different cultural backgrounds, has many advantages for Unilever.

Decision-making is improved by a diverse Board with a range of viewpoints, which is

advantageous for the long-term development of the business and in the best interests

of Unilever's stakeholders. This also applies to the Unilever Board of Directors: the

composition and competencies of the Board should be in line with Unilever's size and

geographic distribution, portfolio, culture, and standing as a publicly traded

corporation. In addition, with regard to the advantages of female directors, the level of

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decision-making can be improved in the first place, especially if there are female

directors in specific industries. About 80% of a family's purchasing behavior is

dominated by women. Therefore, it is desirable to have female directors in furniture,

retail, banking, clothing, catering, tourism and other industries.

Secondly, it is conducive to the standardization of business operations and the

reduction of business risk levels. Female directors are better able to understand the

concerns of some employees and customers. In addition, women directors will notice

and raise issues such as health, safety and environmental protection that affect the

company's reputation, thus enhancing the board's monitoring function. On the other

hand, women are more likely to encourage accountants and lawyers to play a greater

role, which would ensure the disciplined functioning of the board of directors. In

addition, women behave more cautiously in the face of uncertainty. Women's

risk-averse preferences can better help companies avoid and overcome financial crises.

Thirdly, it helps promote corporate innovation and improve investor relations. A

study by Bernile, G., Bhagwat, V. and Yonker, S. (2018) found that the participation

of female executives has a significant role in promoting enterprise technological

innovation, especially for enterprises in the technology and telecommunications

industries. In addition, increasing the participation of women directors not only helps

to expand customer and business resources but also improves relations with investors,

external groups, the government and other institutions.

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However, diverse boards also have disadvantages, such as conflicting opinions. The

results of Renée B. Adams and Daniel Ferreira (2009) show that mandatory gender

quotas for directors reduce the firm value of well-governed firms. Board diversity can

lead to different views and opinions, making it difficult to reach a consensus and

make decisions, and as diversity increases, conflicts and disagreements become more

evident, which can hinder corporate decision-making and slow down the efficiency of

corporate governance. To overcome these difficulties, companies need to develop

effective communication methods, conflict resolution methods, and techniques that

promote collaboration and teamwork. Unilever has handled this area well and has

largely minimized the downsides of its board diversity.

Discussion on Unilever's corporate governance

This section will critically discuss Unilever's corporate governance situation.

Unilever's existing corporate governance is relatively good. On the one hand, the

company abolished the traditional joint chairman system and strengthened the

centralization of power. To a certain extent, this solves the problems of unclear

responsibilities, slow decision-making, and low efficiency in governance in the past.

Second, Unilever adopts a combination of decentralization and centralization. The

CEO of Unilever holds the power of the company, which is conducive to the overall

operation and decision-making of the company. At the same time, three regional

divisions, two business divisions and two functional organizations are set up as

headquarters management for governance. Through decentralization, the pressure on

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the company's headquarters is effectively reduced.

Unilever has formulated a series of strict business ethics guidelines, and following

these principles has become the basic element of business success. Furthermore,

Unilever focuses on the interests of its stakeholders such as its shareholders,

employees, suppliers, customers and society. Greenley and Foxall (1997) pointed out

that the core of strategic planning is to face the different interests of stakeholder

groups. To some extent, if a company fails to effectively address the interests of

multiple stakeholders, the company's interests and performance may also be

negatively affected. Unilever believes that successful companies must have a

responsible attitude to have a positive impact on society, create and share the wealth

with the community, support local economic development, and actively assume the

social responsibility that Unilever should undertake as a world consumer goods giant.

In addition, Unilever's board of directors is not limited to a single male leader and the

nationality of board members, achieving board diversity to a certain extent. Harjoto,

Laksmana and Lee (2014) studied seven different board diversity measures of 1,489

US companies from 1999 to 2011, and found that board diversity was positively

correlated with corporate social responsibility performance. This conclusion not only

supports stakeholder theory well but also serves to demonstrate the ability of board

diversity to enhance a company's ability to meet the needs of a wider range of

stakeholders. Additionally, the study noted that gender, tenure, and diversity of

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expertise appear to be drivers of companies' CSR activities. Darko, J., Aribi, Z. A. and

Uzonwanne, G. C. (2016) have researched and found that female representation on

the board of directors somehow promotes corporate governance and improves

corporate performance. In Unilever Leadership Executive, there are three female

leaders. In the Unilever Board, the number of female members reaches five. At the

same time, Unilever's leadership comes from different countries, such as India, China,

and the United Kingdom. This will also ensure that Unilever has the ability to adapt to

the policies and markets of different countries and further expand the proportion of its

products in overseas markets.

However, Unilever still suffers from a number of corporate governance deficiencies.

The fact that Unilever does not have a controlling interest in most of its joint ventures

indicates that there are problems with the internal management of the company. This

is an example of a poor shareholding structure in corporate governance. The absence

of a controlling interest would deprive Unilever of the right to exercise influence and

control over these joint ventures. The number of Unilever's joint ventures now

exceeds 14, and too many joint ventures can lead to the company being involved in

frequent disputes over disagreements. In terms of brand governance, Unilever has a

low level of brand engagement. Some brands spend up to 50% of sales on marketing,

which results in too many layers of brands and few international or recognized

'authority' brands, resulting in lower sales performance than other global brands. And

in the recent two years, a number of Unilever brands have been cited for safety

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hazards. In 2011, Lipton had problems with excessive rare earth content and stale tea,

etc. In 2020, the detergent brand Qing Yang was punished by the authorities for

failing to meet product composition standards, and in October 2022, a number of

Unilever's dry hair sprays were recalled in the U.S. market due to carcinogenic

benzene, reported by Li Z. (2022). In addition, Unilever has also experienced high

company operating costs and internal waste of resources internally. This is the same

inefficiency in decision-making mentioned in corporate governance.

In general, Unilever's corporate governance is excellent, with the systems and

guidelines expected of a large company, but there are local issues that need

improvement.

Conclusion

Through the previous discussion, we understand that corporate governance is the

mechanism that resolves the relationship between owners and operators, drives the

efficient operation of enterprises and creates value. Good corporate governance can

benefit a lot to the company. This essay firstly analyses the principles and importance

of corporate governance in the context of the corporate governance practices adopted

by Unilever. Secondly, we find that there are different corporate governance

principles in different countries and regions. Unilever is required to comply with the

UK's specific corporate governance code and to provide reasonable explanations to its

shareholders if it is in breach. In the board section, we explored the structure of

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Unilever's board. At the same time, we also learned that Unilever's Audit Committee

and Remuneration Committee both consist of three non-executive directors, while the

Corporate Responsibility Committee consists of two non-executive directors.

In the section on board diversity, we critically analyse the various advantages and

disadvantages of board diversity critically, especially in terms of gender diversity.

Research has found that women directors not only have a role in improving

decision-making, reducing risk and promoting innovation but also present a positive

image of the company to the outside world. On the other hand, with regard to the

disadvantages of board diversity, we have found that diversity somehow also leads to

various disagreements in the company and problems with teamwork. Finally, in the

section on Unilever's corporate governance, we critically discuss the situation of

Unilever's own corporate governance. Through continuous reform, Unilever now has

a rational distribution of power, reducing the pressure on its head office. In addition,

Unilever has a strict code of business ethics in place. This not only assumes social

responsibility but also effectively helps the company to diversify its board of directors

and take full advantage of the benefits that diversity can bring. In terms of joint

ventures and brand control, Unilever has been penalized for safety hazards with its

brands, so there are still issues that need to be addressed and resolved. All in all,

Unilever's corporate governance is successful and effective, but there are still some

areas for improvement. Unilever needs to continue to optimize its corporate

governance and weaken the issue of board diversity in order to look for better growth

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in the future.

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Student Name Student ID Contribution (score out of

25%)
Yanfei Gu 12461709 25%
Yunan Fan 12461684 25%
Rui Zhang 12732643 25%
Tasnia Tabassum 12903036 25%

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