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When Two Models of Capitalism Collide

February 21, 2017, 1:27 PM UTC
Key Speakers During COP21 Climate Summit Action Day
Paul Polman, chief executive officer of Unilever Plc, reacts during the action day at the United Nations COP21 climate summit, at Le Bourget, in Paris, France, on Saturday, Dec. 5, 2015. Frances energy and environment minister Segolene Royal yesterday said the fate of the United Nations global warming talks hinges on the willingness of richer countries to pay poorer ones more for climate-related projects. Photographer: Christophe Morin/Bloomberg via Getty Images
Photograph by Christophe Morin—Bloomberg via Getty Images

Good morning.

The quick collapse of Kraft Heinz Co.’s $143 billion bid for Unilever over the weekend has sparked lots of analysis about what went wrong. Some say Kraft, which is backed by the Brazilian private equity firm 3G and by Warren Buffett, was surprised by Unilever CEO Paul Polman’s vehement opposition to the deal. Buffett has a well-known aversion to hostile bids. Others cited cultural differences between the two companies.

I think Julian Birkinshaw of the London Business School has it right when he says this one represented not just a culture clash, but a clash of two distinctly different models of capitalism. The Kraft Heinz model focuses ruthlessly on providing profits to owners by slashing costs, as my colleague Geoff Colvin chronicled in this Fortune cover story last month. Polman believes his obligation is not just to owners, but to society as a whole, as Vivienne Walt showed in this story in the most recent issue of our magazine. Both stories are required reading for anyone trying to run a business in today’s world.


Which model is right? Birkinshaw argues we need both: “Take the 3G model to extremes, and people become narrow, short-term, and greedy. Take the Unilever model to extremes, and people become unfocused, comfortable, and complacent.” Polman can no longer afford to be complacent; he now faces the challenge of showing he can deliver shareholders greater value than the Kraft Heinz bid promised. That won’t be easy; the stock dropped 8% Monday after the bid collapsed.