CNBC: The Battle for the Soul of Capitalism Explained in One Hostile Takeover Bid

Last month's quickly aborted bid by Kraft Heinz (KHC) to take over Unilever brought into sharp relief the ongoing war between two different philosophies of capitalism. On one side Unilever CEO Paul Polman champions sustainable growth in earnings to raise long-term shareholder value. On the other side KHC and its Brazilian owner 3G advocate maximizing short-term earnings to increase near-term valuation.

Long-term investors' perspective

CEOs of companies aiming for sustainable growth in shareholder value know they must achieve short-term results while they continue to invest in R&D, capital expenditures, global expansion, and people development to sustain their growth. During economic downturns, this can be a difficult balancing act, but nothing less is required.

These long-term value creators use compound growth in revenues, earnings per share, and return on capital invested as measures of longer-term performance. The great value creators of recent decades like Berkshire HathawayJohnson & Johnson, and Disney have mastered the ability to achieve these long-term metrics as well as their near-term goals, thereby sustaining growth in shareholder value.

But this doesn't protect them from activist investors seeking immediate returns.

Traders' perspective

Traders seek immediate gains in stock values to demonstrate above market returns to their investors, with little regard to the long-term future of the companies.

In recent years, fund managers have shifted their focus to cash flow available for shareholder distribution, either through dividends or repurchase of shares, with growing pressure on companies to increase share buybacks. However, there is scant evidence that buybacks produce sustainable increases in shareholder value.

Corporate leaders are thus faced with ongoing tradeoffs between using their cash flow for internal expansion and acquisitions versus increasing dividends and buybacks

Latest battle: Anglo-Dutch Unilever versus Brazilian 3G

Last month's proposed takeover of London-based Unilever by Brazilian private equity firm 3G provided a real-time example of how these conflicting objectives collide.

Unilever's roots date to 1872 with the founding of Margarine Unie and 1885 founding of Lever Brothers. Their 1930 merger as Unilever created the first modern multi-national company with equal roots in Britain and the Netherlands. When Dutchman Paul Polman took the helm in early 2009, he declared bold goals to double Unilever's size from 40 billion Euros to 80 billion by 2020, and generate 70 percent of revenues from emerging markets.

"The larger issue at stake here is not just the fate of a single company, but the fate of capitalism itself."


Polman has transformed Unilever into a growth-oriented global competitor that has more deeply penetrated emerging markets than any other consumer products company. To date, Unilever has made significant progress toward Polman's goals, with 2016 revenues of 53 billion Euros, including 57 percent from emerging markets. He takes justifiable pride that Unilever has increased its dividends 8 percent per annum for the past 36 years. Polman has used "sustainability" as the company's unifying force, introducing the Unilever Sustainable Living Plan in 2010 with dozens of metrics to measure progress. For his advocacy of environmental sustainability, Polman received the UN's "Champion of the Earth Award."

Yet, some investors worry that Polman's commitment of Unilever resources to sustainability is detracting from its financial performance.

Unilever's track record attests to Polman's success: in his eight years as CEO, Unilever's revenues have grown 32 percent, averaging 3.8 percent the past four years, making it one of the top performers in consumer products. Its stock price is up 144 percent, with a total return to shareholders of 214 percent.

3G attacks

3G is the brainchild of Jorge Paulo Lemann, a former investment banker who built Brazil's "Goldman Sachs." 3G's playbook is to buy moribund companies in need of shaking up, cut operating expenses 30-40 percent, including longer-term investments, replace the entire management team with hungry young Brazilian managers, and rapidly increase earnings and cash flow. With its aggressive, "take no prisoners" style, 3G uses the cash it generates to pay down debt and buy additional companies. 3G has successfully applied this formula to the retail, beer and fast food industries.

In 2013 3G saw the opportunity to shake up old-line food companies whose iconic products were out of favor with Millennials. It purchased Pittsburg-based Heinz with Warren Buffett's Berkshire Hathaway as co-investor, and immediately applied its cost-cutting formula. Initial success led 3G to buy a failing Kraft Foods in 2015 and merge it with Heinz as Kraft Heinz (KHC).

Since then, revenues have fallen by 4-5 percent per year, raising questions about whether KHC can sustainably grow earnings without further investment or acquisitions. Most security analysts predicted 3G would tack on additional acquisitions, with food company targets like MondelezCampbell Soup or General Mills. Few suspected KHC would attempt to take over a top performer like Unilever, whose business is 60 percent personal care and home care.

KHC launched its attack by offering $50 per share, 18 percent above Unilever's stock price. This was equivalent to its price last fall before it fell in sync with the weakening Euro, making KHC's low-ball offer easy for Unilever's board to reject. According to British press reports, KHC's executives were taken aback by the ferocity of CEO Paul Polman's rebuff, along with its cold reception from the British government.

"Those of us who believe capitalism is a great long-term value creator must care about the fate of great companies that are role models for the way capitalism should work."


Consequently, KHC withdrew its offer just 50 hours after the takeover was launched. Many suspect that Buffett, who has always opposed hostile offers, told Lehman he wasn't willing to fund a war between Unilever and 3G. Although the war ended as quickly as it began, it sent shock waves through Unilever's organization and the British investing community.

. . . and Unilever responds

In response, Unilever's leaders mobilized, recognizing KHC's offer was "a shot across the bow," and the battle is far from over. Immediately following KHC's withdrawal, Polman met with his board and announced that Unilever will undergo a complete assessment by April of its product portfolio, cost structure and balance sheet in order to enhance near-term shareholder returns.

It is likely that Unilever will consider leveraging up its balance sheet and announcing stock buybacks rather than letting an aggressor buy the company using its own balance sheet. More cost reductions may be in order going forward if the softness in the consumer packaged goods market continues. Also on the docket is the analysis of Unilever's vast product portfolio, which may trigger the sale of declining brands and categories, or even breaking the company in two by spinning off its foods business.

Reflections on this battle

Nevertheless, the question remains: why did 3G choose to attack 145-year old Unilever, a top performing company with aggressive leaders that are creating great value for shareholders as well as customers, employees and society at large through sustainability initiatives?

3G's attack on Unilever raises important concerns about these competing models of capitalism. Those of us who believe capitalism is a great long-term value creator must care about the fate of great companies that are role models for the way capitalism should work.

Sustainable enterprises that prosper for many decades – General Electric, Procter & Gamble, IBM, Ford, and Exxon, just to name a few – have created enormous value for everyone involved, from employees to shareholders. If a top performer like Unilever can be attacked, then no company is safe from hostile takeover.

The larger issue at stake here is not just the fate of a single company, but the fate of capitalism itself. In a world increasingly concerned with disparities between the haves and have-nots, the voters that chose Brexit and elected President Trump are expressing deep feelings of powerlessness in a world dominated by wealthy elites. Unconstrained capitalism focusing strictly on short-term gains can cause great harm to employees, communities and the greater needs of society. In this case capitalism will face the wrath of democratic nations as their citizens demand significant constraints on all companies that limit their freedom to operate.

If this happens, we will all be worse off.

Commentary by Bill George, a senior fellow at Harvard Business, former Chairman & CEO of Medtronic, and the author of "Discover Your True North." Follow him on Twitter @Bill_George.

This content was originally posted on on 3/24/17.

CNBC: If AHCA Bill Passes, It Will Be Negative for Hospital Stocks

Watch Bill discuss the House vote on the GOP's Affordable Healthcare Act, starting at 2 minutes and 15 seconds: 


This content was originally posted on on 3/23/17.

CNBC: GOP Plan Puts the Whole Insurance Market At Risk

This content was originally posted on on 3/7/17. 

CNBC: Economic Growth Can Only Cure Some Of Our Budget Problems: Pro

Bill George, former Medtronic chairman & CEO, and Jim Nussle, Credit Union National Association president & CEO and former OMB director, discuss the president's views on growth.


CNBC: CEOs Shouldn't Be Afraid to Stand Up to Trump

President Donald Trump's actions are sending shock waves through the business community, but will CEOs have the courage to challenge him?

Publicly, most CEOs are declaring how pleased they are with the President's attention, which has been greater in the past three months from President Trump than it was in eight years under President Obama. Trump is promising them lower corporate taxes, fewer regulations on financial services, health care and energy, and improved infrastructure, while acknowledging business as the driver of economic growth. Every week the President is meeting with CEOs from major industries. Last week it was retailers; before that, airlines and automobiles.

Beneath these rosy promises, Trump's policies are setting off alarm bells in C-suites. Even before his inauguration, he shook business leaders with a series of tweets attacking such great American stalwarts as Ford, General Motors, Boeing, Lockheed Martin, and United Technologies, criticizing their global manufacturing plans, while threatening them with large tariffs for imported products.

Ford and United Technologies' Carrier division immediately offered compromises to avoid Trump's wrath. Concerned their companies might be the next recipient of a Trump tweet, the CEOs of Amazon, Fiat/Chrysler, and Sprint rushed to Trump Tower with offers to employ more Americans. In reality, they were just re-announcing previously published expansion plans. CEO Brian Krzanich told the President that Intel was restarting a $7 billion facility in Arizona, which was originally launched in 2011 under President Obama, and then postponed in 2014 due to lack of demand.

In a recent interview with Harvard Business Review, former U.S. treasury secretary Larry Summers called on business leaders to stand up to the Trump administration, asking, "If CEOs who employ hundreds of thousands of people are not in a position to speak truth to power, who is going to do so?" Rather than trying to curry favor with President Trump, business leaders need to advocate for their long-term needs, and challenge him when his actions will harm their long-term futures.

Since his January 20th inauguration, President Trump has signed more than 20 executive actions on issues including jobs, trade, immigration, national security, health care, and financial regulations. Most controversial to date was the 120-day travel ban, a move the State of Washington challenged as unconstitutional. The Washington court temporarily lifted the ban, which the Trump administration challenged in the Court of Appeals.

This represented a seminal challenge to technology companies that rely heavily on immigrants. With more than 5.5 million jobs going unfilled for lack of qualified applicants, they cannot afford to hire only American-born citizens. Thus, 97 technology companies including AppleGoogleFacebook, Microsoft, eBay, and Intel, stepped up by taking the unprecedented step of filing a joint amicus brief challenging the order, claiming it "threatens companies' ability to attract talent, business, and investment to the United States." They were joined by Coca-Cola, General Electric, Goldman Sachs, JPMorgan, Starbucks – more than 140 companies in all – marking the first time CEOs had actively challenged Trump. On February 8, the President had his most significant defeat when the Court of Appeals refused to reinstate the travel ban.

In addition to the travel ban, Trump's actions are shaking up leaders in other sectors. His proposed border adjustment tax on imports would adversely impact major apparel and electronics retailers like Walmart, Target, Best Buy, Nike, and Under Armour that rely on overseas production. A 20 percent border tax would lead to a 20 percent price increase for consumers, creating more strain on their wallets and threatening the jobs of 15 million retail employees. Trump's egregious tweet against Nordstrom accused the company of treating his daughter Ivanka unfairly for discontinuing her branded products.

Nordstrom defended its decision, citing declining sales of Ivanka's products.

Under Armour CEO Kevin Plank tried to curry Trump's favor, calling him "a great asset to America." He was forced to recant when Steph Curry, his firm's top sponsored athlete, responded he would agree if Plank removed the letters "et" from his praise. Plank acknowledged the border tax would hurt his firm's sales since "there are no apparel makers or textile companies left in America."

Trump's numerous executive orders are easy to issue but often vague or unclear about details, making their implementation complex and confusing. As Trump tries to repeal Obamacare, he is learning how hard it is to design a reasonable replacement. The same is true for reducing financial regulations by gutting the 2010 Dodd-Frank bill, since no one wants to risk a 2008-style collapse.

Given the chaos in Washington, how should business executives lead in the Trump era? Will they have the courage to step up to these new challenges? My advice is to stay focused on their business, while not letting the president's machinations throw them off course and speaking out whenever required.

Here are five recommendations for business leaders:

  1. Focus on True North. Stay focused on realizing your mission despite the uncertainty. Do not deviate from the core principles that define your company for fear of retaliation from the Trump administration. Staying on track will deepen the loyalty of customers and employees – the people who matter most.
  2. Build on your strengths. Develop a clear vision of how your company will win by strengthening unique differentiators setting you apart from competitors, and leveraging these strengths to gain competitive advantage.
  3. Adapt your tactics, not your strategy. Continue with strategies established before Trump took office, but rapidly adapt tactics to this era of extreme volatility. Encourage employees to stay agile and think creatively about different ways of achieving their goals, despite roadblocks they face. You may be forced to make tactical adjustments, but pursue your strategy with laser-like focus.
  4. Don't abandon globalization. Globalization is a reality that will continue despite the administration's recent efforts to halt it. An "America First" mentality limits your growth potential, so continue to build your global business without backing away from expanding overseas. Embrace globalization by targeting new foreign markets, hiring diverse employees, and building overseas operations. At Medtronic we hired three Americans for every job created overseas as the company expanded from 4,000 employees in 1989 to 85,000 today.
  5. Prepare for the jobs of the future. Speak out publicly to encourage Trump to address the real jobs issue: the skills gap created by the lack of lifelong training and education. Prepare your workforce for jobs of the future instead of protecting antiquated jobs as Carrier agreed to do. Take a cue from Amazon, General Electric, and SAS, whose programs enable employees to develop skills required for tomorrow's world.

Business leaders have a responsibility to step up to the challenges presented by Trump's administration and lend their voices to shape a better country. By building their businesses for the long-term, they will strengthen the economy and the nation.

Commentary by Bill George, a senior fellow at Harvard Business, former Chairman & CEO of Medtronic, and the author of "Discover Your True North." Follow him on Twitter @Bill_George.

This content was originally posted on on 2/24/17.

A Strategy For Steady Leadership in an Unsteady World


With the events of 2016—Brexit, the election of Donald Trump, threats from terrorists and cybercriminals, climate change—business leaders have entered a new era requiring new ways of leading. Traditional management methods seem no longer sufficient to address the volume of change we are seeing. I label this VUCA 2.0.

In a 1998 report designed to train officers for the twenty-first century, the United States War College presaged a world that is “volatile, uncertain, complex, and ambiguous” —VUCA, for short. VUCA describes perfectly what is happening in the global business world today.

Business is not running as usual. Leaders must deal with growing uncertainty, complexity, and ambiguity in their decision-making environments. CEOs have little idea what to expect in terms of health care policy, financial transactions, national security, and global trade—all of vital importance to themselves, their employees, and their stakeholders.

Managerial training in the classic techniques of control systems, financial forecasting, strategic planning, and statistical decision making have not prepared them for this amount of flux in the environment.

In short, these rapid-fire changes are putting extreme pressure on business leaders to lead in ways not heretofore seen.

The VUCA manager

Now is the time for authentic business leaders to step forward and lead in ways that business schools don’t teach. Let’s examine these different ways of leading comprising VUCA 2.0:

Vision – Today’s business leaders need the ability to see through the chaos to have a clear vision for their organizations. They must define the True North of their organization: its mission, values, and strategy. They should create clarity around this True North and refuse to let external events pull them off course or cause them to neglect or abandon their mission, which must be their guiding light. CEO Paul Polman has done this especially well by focusing Unilever’s True North on sustainability.

Understanding – With their vision in hand, leaders need in-depth understanding of their organization’s capabilities and strategies to take advantage of rapidly changing circumstances by playing to their strengths while minimizing their weaknesses. Listening only to information sources and opinions that reinforce their own views carries great risk of missing alternate points of view. Instead, leaders need to tap into myriad sources covering the full spectrum of viewpoints by engaging directly with their customers and employees to ensure they are attuned to changes in their markets. Spending time in the marketplace, retail stores, factories, innovation centers, and research labs, or just wandering around offices talking to people is essential.

Courage – Now more than ever, leaders need the courage to step up to these challenges and make audacious decisions that embody risks and often go against the grain. They cannot afford to keep their heads down, using traditional management techniques while avoiding criticism and risk-taking. In fact, their greatest risk lies in not having the courage to make bold moves. This era belongs to the bold, not the meek and timid.

Adaptability – If ever there were a need for leaders to be flexible in adapting to this rapidly changing environment, this is it. Long-range plans are often obsolete by the time they are approved. Instead, flexible tactics are required for rapid adaptation to changing external circumstances, without altering strategic course. This is not a time for continuing the financial engineering so prevalent in the past decade. Rather, leaders need multiple contingency plans while preserving strong balance sheets to cope with unforeseen events.

With external volatility the prevalent characteristic these days, business leaders who stay focused on their mission and values and have the courage to deploy bold strategies building on their strengths will be the winners. Those who abandon core values or lock themselves into fixed positions and fail to adapt will wind up the losers.

Bill George is senior fellow at Harvard Business School, former chair and CEO of Medtronic, and author of Discover Your True North.

This content was originally posted on on 2/14/17. 

CNBC: Japanese PM Abe Key Partner for US


This content was originally posted on on 2/10/17. 

CNBC: Risky For CEOs to Take Political Stances

This content was originally posted on on 2/9/17. 

Fortune: Trump’s ‘America First’ Policy Will Give China a Big Edge Over America

The world turned upside-down last week when, within just seven days, the United States and China each reversed a posture they held for the past 70 years. In his inaugural address, U.S. President Donald Trump announced his newest slogan, “America First,” which effectively withdraws the nation from its global leadership role. Meanwhile, China is stepping up as the new leader of world economic order as President Xi Jinping accelerates China’s efforts to do business with the world, albeit one where it writes the rules to its own benefit. The consequences of these sudden changes will be profound and far-reaching with uncertain outcomes.

Xi Jinping, the first Chinese president ever to attend the World Economic Forum at Davos, opened the annual gathering last week with a full-throated endorsement of globalization, free trade, and cooperation between nations. "It is true that economic globalization has created new problems,” he said, “but this is no justification to write economic globalization off completely. Rather, we should adapt to and guide economic globalization, cushion its negative impact, and deliver its benefits to all countries and all nations.”

Xi warned that populist approaches can lead to war and poverty. "Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, that dark room will also block light and air," he said. "No one will emerge as a winner in a trade war."

Meanwhile, Trump took precisely the opposite tack in his inaugural address. “From this day forward, it’s going to be only America first, America first. Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families,” he announced. “We will follow two simple rules: Buy American and hire American."

While other nations have long looked to America for global leadership, the new president has made clear he will pursue a level of isolationism not seen since Col. Charles Lindbergh and the America First Committee of 1940-1941. Demonstrating that he plans to follow through on his campaign promises, President Trump formally withdrew from the Trans-Pacific Partnership on Monday, which in turn, will force reluctant Asian nations to negotiate their own bilateral agreements with China.

During the World Economic Forum last week, I had the opportunity to speak privately with several dozen corporate CEOs from America, Europe, and Asia, all of whom are scrambling to adapt to these sudden changes in the global order. Many of them have invested billions in building up their businesses in China. Now, they fear their plans are in jeopardy. Major global manufacturers from the automotive, pharmaceutical, chemical, medical technology, and consumer products worry that Trump’s new policies could disrupt their global manufacturing plans, which have been carefully constructed to optimize the efficiency of their supply chains based on free trade policies.

Retailers like Walmart (WMT, -0.64%)Target (TGT, -0.69%), and Best Buy (BBY, -1.90%)—which import most of their clothing and electronic products from China, Korea, and other Asian countries—worry that Trump’s threats of tariffs on imported goods or House Speaker Paul Ryan’s proposal for a 20% border tax would force them to raise prices by that amount, thereby curbing consumer spending. Their greater fear is that Trump’s policies could set off a global trade war in which countries retaliate with restrictive tariffs of their own.

For all the sturm und drang over job losses caused by imports, the reality is that 85% of lost jobs from 2000 to 2010 were actually “outsourced” to technology, a point cited by Secretary of State John Kerry at Davos. Under an “America First” scenario, these losses will likely accelerate as more companies automate their manufacturing plants and also service operations.

The greater concern—if there are indeed trade wars—is the loss of international revenues and the jobs they have created. The Commerce Department reports that in 2014, U.S. trade with the countries in the now-cancelled Trans-Pacific Partnership created 15.6 million American jobs, and an additional 6.9 million with the European Union. Exports to Mexico and Canada in 2015 accounted for 2.2 million jobs—a number that has grown during the last five years. Collectively, the number of jobs created by exports exceeds the 7.5 million Americans who are unemployed.

American farmers are especially concerned. In 2015, they exported $133 billion in farm products, which accounts for more than one-third of their total production, much of it to Mexico and Canada. Also overlooked in the debate over globalization is the fact that 98% of the 300,000 U.S. exporters are small and medium-sized businesses, not just large, global companies.

There is no doubt that President Trump is getting his message across, as he meets directly with CEOs of major global companies and sends out tweets threatening those that move jobs offshore. His approach offers the carrot-and-stick: He promises incentives like reductions in corporate taxes and regulations, while asserting he will punish those that go offshore. CEOs—including Ford’s (F, +0.81%) Mark Fields and Amazon’s (AMZN, -0.90%) Jeff Bezos—have found it enticing to join hands with the new president. The leaders of foreign companies like Fiat Chrysler (FCAU, +0.90%), Alibaba (BABA, -1.33%), and SoftBank have also tried to appease Trump with promises of U.S. investment and job creation. Such moves may work in the near-term to ease the political pressure, but are unlikely to bridge the widening gulf between Trump’s policies and the rest of the world’s opportunities.

Automobile makers are in a particularly difficult spot. In recent years, they have optimized their global manufacturing footprint and supply chains to produce large, profitable vehicles in the U.S., while shifting small vehicles, where margins are paper thin, to the lower-cost markets of China and Mexico. With the U.S. auto market at its peak, they are unable to expand U.S. production, especially when the greater opportunities for General Motors (GM, -0.32%) and Ford are in China with its large and fast-growing market.

While Trump is gaining short-term reinforcement for his “America First” policies, in the longer term, basic economics will dominate the thinking of U.S.-based global companies. These companies can ill afford to pursue uneconomic decisions without loss of their international business, which in turn will create increased pressure from shareholders demanding improved earnings.

The larger concern is the U.S. retreat from its 70-year role as the leader in global trade. This leadership has largely enabled us to set the rules governing trading transactions. If the U.S. steps aside, it will enable China to aggressively fill this vacuum, setting its own rules. If this occurs, America’s global companies and their employees will be the biggest losers, ceding leadership of their industries to emerging Asian and European companies.

The Trump administration is still making its opening moves. Nobody can predict how these early efforts ultimately play out. However, if the Trump administration focuses entirely on U.S. domestic manufacturing under its new “America First” moniker, the U.S. will hand China the leadership reins in a new era for the global economy.

Bill George is senior fellow at Harvard Business School, former chair and CEO of Medtronic, and author of Discover Your True North. 

This content was originally posted on on 1/27/17.

CNBC: Bill George: Good Politics, Bad Economics

Discussing the Trump policy ideas around trade and taxation, with Bill George, CNBC contributor and former Medtronic chairman & CEO, and Gary Hufbauer, former U.S. Treasury deputy assistant secretary for international trade.