Corporate Governance of Unilever

Corporate Governance of Unilever

“I believe that nothing can be greater than a business, however small it may be, that is governed by conscience; and that nothing can be meaner or more petty than a business, however large, governed without honesty and without brotherhood.”

William Hesketh Lever

Transparency and accountability are the two basic tenets of Corporate Governance. Responsible corporate conduct is integral to the way Unilever do business. Its actions are governed by its values and principles, which are reinforced at all levels within the Company. Employees at Unilever are committed to doing things the right way which means taking business decisions and acting in a way that is ethical and is in compliance with the applicable legislation. Its Code of Business Principles is an extension of its values and reflects its continued commitment to ethical business practices and regulatory compliance. Unilever acknowledge its employees individual and collective responsibilities to manage their business activities with integrity.

To succeed, Unilever’s employees believe, requires highest standards of corporate behavior towards everyone they work with, the communities they touch and the environment on which they have an impact. This is their way to sustainable, profitable growth and creating long term value for its shareholders, its people and its business partners. The Board of Directors (‘the Board’) of Company is responsible for and committed to sound principles of Corporate

Governance in the Company. The Board plays a crucial role in overseeing how the management serves the short and long term interests of shareholders and other stakeholders. This belief is reflected in Unilever’s governance practices, under which we strive to maintain an effective, informed and independent Board. Unilever keeps its governance practices under continuous review and benchmark itself to the best practices across the globe.

Employee Involvement:

Unilever’s people share the Company’s passion towards sustainable development which is encouraged by volunteer programs. Employees contribute to various organizations throughout the year in the form of monetary support and skill development. Contributions through the payroll program for Aga Khan University Hospital, The Citizens Foundation and UN World Food Program resulted in a collection of over Rs. 2 million. Employees also participated in an internal campaign called ‘Red Balloon Day’ to support child health care programs run by Save the Children and raised Rs. 300,000 in a day. Additionally its employees also spent time with TCF students to educate them about hand washing on ‘Global Hand washing Day’ and other TCF volunteer programs. Over 400 employees participated in one or more activities during the year.

Code of Corporate Governance

The management of the Company is committed to good corporate governance and complying with the best practices. As required under the Code of Corporate Governance, the Directors are pleased to state as follows:

·         The financial statement speared by the management of the Company present fairly its state of affairs, the result of its operations, cash flows and changes in equity.

·         Proper books of account of the listed Company have been maintained.

·         Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment.

·         International Financial Reporting Standards have been followed in preparation of financial statements and any departure there from has been adequately disclosed.

·         The system of internal control is sound in design and has been effectively implemented and monitored. The Audit Committee includes two non-executive directors including the chairman of the committee.

·         There are no significant doubts upon the Company's ability to continue as a going concern.

·         There has been no departure from the best practices of corporate governance, as detailed in the listing regulations.

·         Statements regarding the following are included in this annual report:

·         Number of Board meetings held and attendance by directors.

·         Key financial data for the last six years.

·         Pattern of shareholding.

Subsidiary Companies and Consolidated Financial Statements

The financial statements of the under-mentioned subsidiaries of Unilever Pakistan Limited are included in the consolidated financial statements. None had any significant or material business transactions during the year.

·         Lever Chemicals (Private) Limited

·         Levers Associated Pakistan Trust (Private) Limited

·         Sadiq (Private) Limited

Holding Company

Through its wholly owned subsidiary, Unilever Overseas Holdings Limited (UOHL), UK, Unilever PLC, a company incorporated in the United Kingdom, is the holding company, owning 75.07% of the shares in Unilever Pakistan Limited.

Auditors

The Auditors, Messrs A. F. Ferguson & Co., Chartered Accountants, retire at the conclusion of the Annual General Meeting. Being eligible, they have offered themselves for re-appointment.

General Meeting of Shareholders

The Annual General Meeting of Shareholders (AGMS) is the Company’s highest governance body. It has the authority to appoint and terminate the Commissioners and Directors, and decides on other critical matters pertaining to the Company’s business and operations including the amount of the Directors’ and Commissioners’ remuneration, the payment of dividends and distribution of profits, the approval of the Annual Report, the appointment of the independent auditor, amendments to the Articles of Association, and the delegation of authority to the Boards to follow up matters discussed and agreed at the AGMS. 

Unilever’s most recent AGMS was held on 29 May 2012. The AGMS ratified the audited financial statements and approved the Annual Report for 2011; approved the payment of the final and interim dividends for 2011; approved changes in the composition of the Board of Commissioners and Board of Directors; authorized the President Commissioner to determine the remuneration for the members of the Board of Commissioners and Board of Directors for the year 2012; authorized the  Board of Commissioners to designate a registered form of accountants to audit the Company’s financial statements for the year ending 31 December 2012. 

Board of Directors

BoD is responsible for the management and setting the strategic direction of Unilever, and for managing, utilizing and maintaining the Company’s assets in a manner consistent with the Company’s objectives. The BoD is also authorized to represent the Company on any matter, including in a Court of Justice; to bind the Company to other parties and other parties to the Company; and to perform any and all actions, pertaining both to management as well as other affairs, within the boundaries set by the Articles of Association. 

Audit Committee

Unilever’s Audit Committee supports the oversight function of the BoC by reviewing and providing assurance on the integrity of Unilever Pakistan’s financial statements; risk management and internal control; compliance with legal and regulatory requirements; the external auditor’s performance, qualifications and independence; and the implementation of the internal audit function. The Audit Committee coordinates closely with the Internal Audit Unit and the External Auditor. 

The responsibilities of the Audit Committee are articulated in the Audit Committee Charter, and include the following:

·         Reviewing the financial information that the Company intends to disclose;

·         Reviewing the Company’s compliance with capital market laws and other relevant regulations;

·         Reviewing and evaluating the audits performed by the internal audit;

·         Reviewing the Company’s risk exposure and the implementation of risk management and internal control arrangements by the BoD;

·         Reviewing and reporting to the BoC any complaints about the Company;

·         Overseeing relations with the external auditors and consulting regularly with them during the course of the audit; 

·         Reviewing and updating the Audit Committee Charter when necessary. 

Corporate Secretary & Investor Relations

The Corporate Secretary is the principal liaison between Unilever and its shareholders, the capital market authorities, investors, analysts and the public, and has a central role in ensuring transparency in the Company’s disclosures and communications, both internal and external. The Corporate Secretary’s responsibilities include: 

·         Monitoring the Company’s compliance with the Company Law and other relevant laws and provisions, the Articles of Association, and capital market rules and related statutory regulations, in close coordination with the Corporate Legal Services Department;

·         Maintaining regular communications with the capital market regulatory agencies,  on all matters pertaining to governance, corporate actions and material transactions;

·         Ensuring that shareholders, the media, investors, analysts and the general public are kept regularly informed about the Company’s actions, financial position and other material matters;

·         Attending all Board meetings and recording the minutes of the meetings;

·         Ensuring that the Boards are kept up-to-date with any relevant regulatory changes and understand their implications. 

Delisting

The majority shareholder of the Company, Unilever Overseas Holdings Limited (UOHL) made an announcement on November 28, 2012 of its intention to acquire all of the ordinary shares held by the other shareholders of the Company at a proposed share price of Rs 9,700 per ordinary share, and to seek the delisting of the shares of the Company from the stock exchanges in

Pakistan, in accordance with the voluntary delisting provisions of the Listing Regulations. Consequently, the Board of Directors of the Company at their meeting held on December 3, 2012 considered and resolved to accept the proposal made by the majority shareholder.

Thereafter the Company submitted the formal application for delisting and the required information to the stock exchanges vide its letter dated January 24, 2013 and February 13, 2013. The said delisting application is currently under consideration with the Karachi, Lahore and Islamabad Stock Exchanges.

Business Risk and Future Outlook

Profitable, consistent and competitive growth requires reshaping the business. Addition of new categories and brands will entail a period of sustained investment with consequent impact on profit. Growth of both, new and existing categories is impacted by inflationary pressure, economic and political uncertainty, power shortages and volatile law and order conditions. The highly competitive nature of the Fast Moving Consumer Goods (FMCG) business will require higher advertising spends than hitherto. Counterfeiting remains a challenge as brands become more popular. Evasion of taxes in tea, which represents a third of our business, remains an issue particularly with the increase in sales tax in February 2013.

Faced with these challenges, we continue to focus on our agenda of strengthening our market leadership through continuous innovations, increased consumer focus, deepening the distribution and a strong performance culture within the organization. Our people remain crucial for the continued growth of the business.

Its because of Unilever’s Corporate Governance that make it compete in the market with unique strategies and policies. It CG help it maintain its customers loyalty, brand name, employees satisfaction and to maintain its competitive position in the market.

UNILEVER'S GLOBAL BUSINESS STRATEGY

Unilever’s Global Strategy

As one of the strong and healthy companies in the world with many successful brands, Unilever has an opportunity to expand into foreign markets that it is not yet operating in, in order to gain access to customers around the world. Supported by strengths of its four key global brands – Dove, Sunsilk, Rexona and Lux, Unilever firstly entered in foreign market to compete internationally by entering just one or select few foreign markets. Once successfully introduced its product in several market, Unilever expands its success brand to many other markets and starting to compete globally.

In entering and competing in foreign markets for its cosmetics and toiletries product, Unilever follows a global strategy, also called by a think-global and act-global strategy, The strategy using essentially the same competitive strategy approach in all country markets where the company has a presence (with only minimal responsive to local conditions), sells much the same products everywhere (make minor adaption to local countries where needed to accommodate local countries preferences), strives to build global brands, and coordinates its actions worldwide (centralized).

A global strategy used by the Unilever is preferable to localized strategies because Unilever can more unify its operations and focus on establishing a brand image and reputation that is uniform from country to country. It strategy implies to the Unilever success in building strong character brand such as Dove, Sunsilk, Rexona and Lux. Moreover, with a global strategy Unilever should coordinated its marketing, operational and distribution worldwide.

Unilever is increasing its efforts to build on its long-established local roots in developing regions. Through its well-established distribution network in both the traditional and modern retail outlets and with a good ability to adapt successful global brand concepts to suit local markets, Unilever is in a good position to be able to capitalize on the growth forecast in these regions.

Once Unilever became one of the most successful global companies in the world, it has many profit sanctuaries. By having multiple profit sanctuaries, Unilever has strong competitive advantage over its competitor with a single or few sanctuaries.

In the cosmetics and toiletries globally competitive industry, there are no doubt that Unilever’s major rivals over the next few years will be Procter & Gamble and L’Oréal, both of which give significant resources to new product development activity, and respond to changes in the market faster than Unilever. L’Oréal also has the benefit of being exclusively involved in cosmetics and toiletries, unlike both Unilever and Procter & Gamble which both have cross-industry involvement, such as in packaged food. Much the same group of rival companies competes in many different countries. Therefore, the competition pursues the company to be more innovative in developing its products and maintaining its brands. The following diagram shows the market performance of Unilever’s skin care and hair care market share:

To win customers and sales away from select rivals in country markets, Unilever employ cross-market subsidization. This offensive strategy is appropriate for Unilever which is compete in multiple county markets with multiple brands and wide variety of products. Finally in entering the emerging-country market Unilever prepare to compete on the basis of low prices. Unilever pursued this strategy because consumers in emerging markets are often highly focused on price, which can give low-cost local competitors the edge unless a company can find ways to attract buyers with bargain prices as well as better products.

All strategies executed by Unilever for competing in foreign market resulting in moderate 5% sales growth in 2006 – just above market performance – ensured that Unilever kept its position as third largest player in cosmetics and toiletries with a 7% market share. Second-placed L’Oréal fared a lot better, increasing the gap between the two companies in part thanks to its acquisition of The Body Shop. Market leader Procter & Gamble remained over five percentage points ahead of Unilever’s share. In 2006, Unilever remained comfortably ahead of Colgate-Palmolive in fourth place. Unilever decision to introduce its product on emerging market such as Asia-Pacific, Latin America and North America implies to the high contribution of Unilever total revenue by 26%, 21% and 16% respectively.

On January 1^st, 2013 Unilever released its results for the fourth quarter and full year 2012 which show good quality, profitable growth ahead of our markets. This underscores the good progress we are making in transforming Unilever into to a sustainable growth company. The past year performance of the company was as follows:

v  Turnover increased by 10.5% to €51.3 billion with a positive impact from foreign exchange of 2.2% and acquisitions net of disposals of 1.1%

v  Underlying sales growth 6.9% comprising volume growth of 3.4% and price growth of 3.3%

v  Emerging markets underlying sales growth 11.4% now representing 55% of turnover

v  Core operating margin up 30bps to 13.8%; gross margin up 10bps, advertising and promotions up €470 million at constant exchange rates

v  Core earnings per share increased by 11% to €1.57; free cash flow of €4.3 billion

ANALYSIS

Before analyzing the Unilever strategies for competing in foreign market, it’s important to identify company’s resource strengths and weaknesses and its external opportunities and threats, commonly known as SWOT analysis. This analysis provides a good overview of whether the company’s overall situation is fundamentally healthy or unhealthy. Therefore, for a company’s strategy to be well-conceived, it must be:

- Matched to its resource strengths and weaknesses

- Aimed at capturing its best market opportunities and erecting defenses against external threats to its well-being

SWOT Analysis of Unilever Cosmetics and Toiletries

 

Based on the SWOT analysis we can infer that the company has very healthy and strong condition in overall. Therefore, this condition provides high capabilities to the company and offers wide opportunities for the company to compete in foreign market. Based on this analysis, Unilever firstly entered foreign market in the year of 1950 by offering its product to European community.

From the Unilever mission statement, we can conclude that the company expands into foreign markets in order to gain access to customers around the world. Unilever recognized that its product is commonly used for all people worldwide. The company’s objective to bring their wealth of knowledge and international expertise to the service of local consumer pursues the company to produce many nutrition, hygiene and personal care product with successful brands. Therefore, Unilever are moving rapidly and aggressively to extend their market reach into all corners of the world.

For its cosmetics and toiletries product, Unilever start to compete internationally by entering just one or select few foreign markets. Unilever launched Axe/Lynx/Ego deodorant body spray in the US and Canada in autumn 2002 and introduced Dove initially in Italy, France and Belgium in 2002. Once successfully introduced its product in several market, Unilever expands its successful brand to many other markets and starting to compete globally.

Through its successful growth strategy, Unilever has continued to build on the strengths of its four key global brands–Dove, Sunsilk, Rexona and Lux–and by doing so, created strong platforms for further growth in a number of cosmetics and toiletries sectors. This has been particularly evident in deodorants, men’s grooming products and bath and shower products, with strong growth for the Axe, Dove and Rexona brands. However, competition in the cosmetics and toiletries industry remains tough, and while the current strategy is providing results, greater product innovation and marketing support, as well as further development of functionality in products will be needed to keep up with the market. There are no doubt that Unilever’s major rivals over the next few years will be Procter & Gamble and L’Oréal, both of which give significant resources to new product development activity, and respond to changes in the market faster than Unilever. L’Oréal also has the benefit of being exclusively involved in cosmetics and toiletries, unlike both Unilever and Procter & Gamble which both have cross-industry involvement, such as in packaged food.

In a globally competitive industry faced by Unilever, much the same group of rival companies such as Procter & Gamble and L’Oréal competes in many different countries, but especially so in countries where sales volumes are large and where having a competitive presence is strategically important to building a strong global position in the industry. Therefore, a company’s competitive position in one country both affects and is affected by its position in other countries. In this case innovation plays an important role. Thus, in a market where innovation is often the key to growth, Unilever has invested in improving its research and developing procedure further including speeding up the process of getting new products to market. Through a mass-market positioning, much of the company’s organic growth strategy is to leverage the value of key brands by cross-sectoral brand extensions, thus taking advantage of customer brand recognition and loyalty, and creating marketing efficiencies. The Dove brand is one of the examples of a recognized soap brand being successfully extended into skin and hair care, deodorants, baby care and men’s grooming products.

Unilever’s marketing strategy for competing in foreign market

For its marketing strategy Unilever combines its strategy with social project in many countries. Educational campaigns have been important tools for raising awareness for Unilever brands such as Close-Up and Dove. The company’s partnership with the World Dental Federation has seen it become involved in oral healthcare projects in both developed and emerging nations, including Austria and Brazil. In 2006, Unilever developed a low-cost toothbrush, the Pepsodent Fighter, which retails at a price equivalent to just EUR0.20 and is distributed in India and Indonesia.

The company also has more directly brand-related programs, including Close-Up’s Project Smile in Nigeria, which used small kiosk outlets to showcase both its products and oral hygiene information, and the Dove Self-Esteem Fund, which has joined with organizations such as the Girl Scouts of the USA and the UK’s Eating Disorder Association to fund educational Body Talk programs in schools to improve body-related self-esteem.

Less directly, a Brazilian recycling partnership with Pao de Acucar, a major Brazilian retailer, not only helped employ more than 300 people in a local recycling co-operative, but also gave Unilever’s products greater in-store prominence as well as raising the profile of brands including Rexona by having their logos on point-of-sale information and educational materials.

The company’s successful brand innovation program is supported with a high level of marketing and advertising activities including most media. As there are many opportunities in the foreign markets but the tendency of threats is also same as opportunities. The powerful R&D, diversified and differentiated product line and market analysis are all important factors that make a company enjoy its potential and good market share in foreign market.