When the UK’s Lever Brothers merged with Margarine Unie of the Netherlands to form Unilever, western economies were approaching a precipice: it was September 1929.

The companies were joining forces not out of any great foresight; rather, the deal came merely because each had started to impinge on the other’s business, with the British moving into spreads and the Dutch into soap. But when Wall Street crashed the following month and prices of fats and oils tumbled in the Great Depression that ensued, the creation of Unilever helped the former family businesses survive the crisis.

As the decades passed, Unilever moved into ice cream, frozen vegetables, tinned food, tea, shampoo, deodorants and more, giving it thousands of different brands around the world. At one point, it operated in more countries than any other company. Now, with parts of the financial system imploding and the spectre of depression again in the air, it is the sort of basic consumer goods company to which investors look for shelter – and some believe it has just made another timely move.

Last month, Unilever appointed Paul Polman as its next chief executive, the first outsider to fill the role. The 52-year-old Dutchman – who arrives at the group’s London headquarters next week in preparation for taking over at the end of the year – has spent his career working for the group’s two closest rivals, Procter & Gamble of the US and latterly Nestlé of Switzerland, where he was chief financial officer.

The news came as a welcome surprise to investors used to complaining, as one puts it, of an “insular executive team” that ran the business “like the civil service”. It was even more startling to those who know the group from the inside. After years of underperforming its peers, had Unilever finally found the man to return it to its former glory? “What they have done is absolutely amazing,” says Michael Dowdall, a former Unilever board director. “I just can’t imagine P&G taking on someone from Unilever.”

For years, the Anglo-Dutch group has battled to produce the same kind of sales and profit growth as its main rivals. Successive management teams have come up with different restructuring plans to cast off its status as industry laggard. In the past decade alone there have been two – “Path to Growth” followed by “One Unilever” – but neither resolved its core problem: how to increase sales and profit margins simultaneously.

“There are two key metrics for consumer goods companies: margin expansion and sales growth,” says Julian Hardwick, food analyst at RBS. “At various points in time Unilever hit one or the other but not both, whereas Nestlé and Reckitt Benckiser or P&G in food and HPC [household personal care] respectively have managed to deliver both.” Last year, Unilever’s underlying sales growth of 5.5 per cent lagged behind European peers, while profit margins of around 13 per cent were in the middle of the pack.

Certainly, there are incremental ways Mr Polman can strive to improve Unilever’s performance when he takes over from the Frenchman Patrick Cescau at the end of the year. But there is also one radical option. Will he address the long-standing question of whether Unilever would do better to split its food brands, which account for slightly more than half of its €40bn ($55bn, £31bn) in annual sales, from its household and personal care products and put them in a separate company?

Having both categories under one roof is Unilever’s underlying weakness, argues John Welch, a professor at Harvard Business School. “The problem with Unilever is that it is caught in the middle – it is neither a food company nor a personal care company …so there is always tension between decentralisation and centralisation.”

Yet much the same is true of P&G, at least in terms of product mix. The difference, suggests another former Unilever executive, who went on to head a rival company, is one of culture: “Everything is about consensus and internally facing rather than looking outwards. P&G is externally focused and performance-driven. Polman is exactly what is needed.”

Investors also despair of Unilever’s obtuseness. “The problem with Unilever is that it hasn’t been very communicative,” says Tony Foster, investment director at Scottish & Widows Investment Partners. “When you ask: ‘What’s your rate of innovation?’ the reply is, ‘That’s a very difficult question to answer’.”

Christian Andreach, managing director at Manning & Napier Advisors, a Unilever shareholder, says of the group’s executives: “They need to execute and improve performance. This is a company with a turnover that is the same as it was a decade ago.”

Investors are also critical of Mr Cescau’s decision, made so he could hit financial targets, to cut the amount Unilever spends on advertising and marketing – something P&G has not done since A.G. Lafley took charge in 2000. “It’s not the right way to run a business,” says Eugene Kim, an analyst for TIAA-CREF, a US pension fund and Unilever shareholder. “In the short term it helps you make the numbers but in the long term it’s a very poor business decision.”

At Nestlé, investors liked Mr Polman’s willingness to take “bold actions” such as abandoning its triple-A credit rating in order to take on debt to fund a share buy-back. His openness was also embraced by investors frustrated by the Swiss company’s secrecy. Charlie Mills, a food industry analyst at Credit Suisse, says: “He gained a lot of friends in a very short space of time …but what I can’t say is that we saw a lot of him operationally.”

Still, Mr Polman is known as a good communicator within an organisation as well as to investors. Mike Cleary, a former marketing executive with P&G’s European business, which Mr Polman ran until 2006, says the incoming Unilever chief “works very well with people in a very open, non-confrontational type of way”. People who worked with him at the time say he proved he could make tough decisions when he pushed through a restructuring of P&G Europe that involved closing factories and cutting jobs.

One former P&G executive, who now runs a consumer products company, says that Mr Polman has a lot of “managerial courage” and is not afraid to get rid of people who are not up to scratch. “If the public perception is that something needs changing, Paul will change it. I wouldn’t assume he is going to be a caretaker or satisfied with the status quo.”

Tackling Unilever’s corporate culture will require plenty of courage. The company has made great strides under Mr Cescau, with the scrapping of a dual chairmanship and several layers of management. Michael Treschow, a Swede, last year became Unilever’s first chairman to come from outside. A group where underperformers had been rarely forced to leave also underwent thousands of job cuts amid pressure from investors to boost profits.

John Spayne, a London-based banker who helped advise Permira, the private equity firm, on its acquisition of Unilever’s Birds Eye frozen foods brand in 2006, says the negotiations highlighted the “paternalism” of the Unilever culture. “One of the reasons they were willing to sell to Permira rather than other buyers was because Permira was committed to investing in and expanding Birds Eye/Iglo, working with the existing management team.”

Historically, Unilever has favoured a decentralised approach, giving local managers autonomy to make decisions. This works well in food companies because it allows local managers to adapt products to different tastes (Nestlé, for example, sells masala-flavoured instant noodles in India). It is less effective in household and personal care companies where the same products – nappies, toilet rolls, razors – can be marketed and sold globally.

P&G’s “command and control” management style is the opposite of Unilever’s. A handful of executives run the global business from its headquarters in Cincinnati and employees are dubbed “proctoids” for their supposedly conformist and systematic style. Those who underperform soon leave.

Confectionery spelt

Mr Treschow, who joined Unilever in his non-executive capacity after chairing both Ericsson and Electrolux, has suggested Mr Polman would not be revolutionary. The new chief would stick with Mr Cescau’s “One Unilever” cost-cutting programme, the Swede declared this month – perhaps increasing the pace of change but not the direction.

Still, although the prospects of a demerger have receded (see above), there is much else Mr Polman could do. “I would like to see him bring down the vast number of products,” says Douglas Ober, chairman of Adams Express, a US investment fund that is a Unilever shareholder. Divisions that investors would be happy to see sold are oral care, spreads and European laundry.

There are also strategic questions about how Unilever should run its brand portfolio. Does it carry on cutting regional brands – it has just 400 today compared with 1,300 at the turn of the millennium – to develop global brands, as P&G has done with Pampers, Gillette, Tampax and Tide? Andrew Seth, a former chairman of its Lever Brothers UK subsidiary, says Unilever has struggled to create global brands, particularly in food. “These days you have to have brands that cross borders,” he argues.

As he prepares to take over, Mr Polman will be aware that he was not everyone’s first choice. Many investors would have preferred to see Bart Becht, the Dutchman who runs Reckitt Benckiser, take Unilever by the horns. He has proved that he knows how to make money out of even the most basic products, such as household bleach. “Polman has never been in charge in the way that Becht has been,” says Andrew Wood of Bernstein Research, who has been a Unilever critic.

But although Mr Polman never became chief executive at either P&G or Nestlé, he knows how they work from the inside and can ask the hard questions his predecessors may have not known how to ask. “I can’t say Polman’s a superstar, it’s too soon to call that,” says Mr Wood. “But he has the raw material and the opportunity.”

UNILEVER’S NEW MAN AT THE TOP

Paul Polman (left) spent more than 20 years at Procter & Gamble, running businesses throughout Europe and in the US before resigning in 2006 to join Nestlé as chief financial officer. People who know him say he joined Nestlé with some expectations that he would have a good chance of becoming chief executive when Peter Brabeck-Letmathe stepped down last year, and was deeply disappointed when the job was given to Nestlé insider Paul Bulcke instead.

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