Unilever 2005 Annual Report Download - page 8

Report of the Directors
Unilever Annual Report and Accounts 2005 05
Chairman’s foreword
2005 was the first year when Patrick and I worked together as
respectively Group Chief Executive and Chairman. I've been
delighted with how successfully our combination has developed.
I’d like to congratulate Patrick and his Executive, as well as all the
staff at Unilever, for the progress made during the year. Although
there is still work to do to release the full growth potential of our
powerful portfolio of brands, the business has stabilised its
aggregate market share, a key objective in 2005.
To ensure the business has the best structure and governance
processes to deliver long-term shareholder value in the top third
of our peer group, I set myself three objectives at the start of last
year. These were reviewing Unilever’s dual NV/PLC structure,
evaluating its corporate governance procedures and preparing for
a series of Board departures over the next couple of years.
Dual structure strengths
The review of Unilever’s structure, which I led with the support of
two Non-Executive Directors, as well as a team of leading
independent financial and legal advisers, involved over six months
of hard work. As one independent adviser commented: “It was
one of the most exhaustive and thorough reviews that I have seen
undertaken”.
Three important principles guided the review. First, Unilever’s
commercial operations should be advanced and not prejudiced by
any change. Second, any change should have tangible benefits
for shareholders. Lastly, any change should improve transparency
and flexibility. These principles were designed to ensure that any
resulting structure serves the best interests of both the business
and our shareholders.
Based on these criteria and an in-depth analysis, the Boards
unanimously concluded that Unilever’s current dual structure, with
some important changes, meets the needs of the business for the
foreseeable future. While this conclusion might seem somewhat
unexpected in an age of constant change, it is totally consistent
with the review’s three guiding principles. The current structure
has been and still serves as a framework by which we can benefit
from the best of many cultures and influences.
Moving to a unitary structure would not only be costly and
disruptive to the business but in our case would not yield the
material advantages to justify it. As a result of changes made to
our Boards and leadership structures at the beginning of 2005,
Unilever already has operational and governance unity, with a
single Chairman, a single Board with a majority of Non-Executive
Directors, a single Group Chief Executive and one Executive team.
The current structure does not hinder the operation of the
business, its decision-making ability or organisational efficiency.
Unilever might also in moving to a unitary structure lose some of
the fiscal flexibility that it has under its dual structure.
Changes
This does not mean, of course, that we cannot improve our
existing arrangements. The Boards will be proposing to
shareholders at the May 2006 AGMs three changes to enhance
balance sheet and capital structure flexibility, as well as
strengthen elements of its corporate governance.
These include adapting Unilever’s constitutional arrangements to
allow greater flexibility for allocating assets between both parent
companies. This will ensure that the Group continues to be able
to return capital to shareholders and pay dividends in the most
efficient manner. To simplify the relationship between our NV and
PLC shares, and provide greater transparency, we also propose
establishing a one-to-one equivalence in their underlying value by
splitting the NV shares and consolidating the PLC shares. Finally,
we intend to allow shareholders the right to nominate candidates
to the Boards, taking into account the need to ensure the unity of
management. Details of all these changes are set out in the
Notices convening the AGMs.
Board succession
As I mentioned earlier, one of my objectives was to prepare for
Board succession. Three Non-Executive Directors will be retiring in
2006 – Bertrand Collomb, Oscar Fanjul and Hilmar Kopper. I
would like to thank them for their enormous contribution over
the years. This presents us with both a challenge and an
opportunity to re-populate the Boards with new members who
can build on our retiring members’ strengths and help take
Unilever forward.
After a thorough search I am pleased to announce the nomination
of four new Non-Executive Directors, all with extensive financial
and business experience, to take over from the Board members
retiring this year and Claudio Gonzalez who retired at the 2005
AGMs. These are Charles Golden, Executive Vice-President and CFO
of Eli Lilly and Company, Byron Grote, CFO of BP p.l.c., Jean-Cyril
Spinetta, Chairman/CEO of Air France-KLM S.A. and Kornelis (Kees)
Storm, former Chairman of the Executive Board of AEGON N.V.
We engaged the services of two highly reputable independent
search firms to help us in this task and they are also leading the
evaluation of potential candidates to succeed me as Chairman
in 2007.
Governance study
During 2005, we also commissioned a review of Unilever’s
governance arrangements to ensure that these were best in class.
The review was conducted by independent consultants who
concluded that our arrangements stood comparison with our
peers. A full report was made to the Boards in the first quarter of
2006, and a range of minor changes in terms of the day-to-day
operation of the Boards will be introduced during the balance
of the year.
A particular pleasure for me this year has been to work with our
social and environmental partners, for example with UNICEF’s
Child Nutrition programme and the World Business Council for
Sustainable Development. Ensuring the vitality of the societies and
environments in which we operate is essential for Unilever to
sustain its long-term growth.
It is good to see that the many changes that were initiated over
the last 12 months have not impeded the progress of Unilever in
the market place. All this progress would not be possible without
the commitment and the hard work of all our 206 000
employees. Without their dedication we could not add vitality to
the lives of our consumers across the globe. On behalf of the
Boards I would like to convey my thanks to all of them.
Antony Burgmans
Chairman