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Paul Polman: A New Code of Ethics for Business

Paul Polman talks about how to make the best of capitalism

Published: May 16, 2012 06:50:28 AM IST
Updated: May 11, 2012 04:52:32 PM IST
Paul Polman: A New Code of Ethics for Business

Paul Polman
The Man:
A passionate mountaineer and a marathon runner, Polman took on the role of CEO of Unilever at the height of the financial crisis. He tells us how to hold on to the best in capitalism and do away with its destructive elements.

The Oeuvre: Initiated the ambitious 10-year Sustainable Living Plan, which aims to cut the environmental impact of Unilever products by half while doubling its revenues by 2020. Stopped giving quarterly reports and actively sought long-term investment funds.

X-Factor: He is in it for the long haul.

The Message: Sustainable living plan is our new business model.

The Hypothesis
Capitalism for all its faults, is still the best game in town. Over the last 50 years, it has lifted nearly half a billion people out of poverty. The challenge is to hold on to the energy, enterprise and creativity which characterises capitalism while doing away with its destructive elements.

So What?
First, take a long term perspective. The pressure to report back to investors every 90 days distorts behaviour and priorities. It is absurd for complex organisations to invest huge amounts of time preparing detailed income and margin statements every quarter. Second, reset business priorities. Our challenge is to provide good standards of living to seven billion people without depleting the earth’s resources or running up massive public debt. Consumers are demanding it.

It was Winston Churchill who famously said that “democracy was the worst form of government except for all the others that had been tried”. Much the same can be said for capitalism, particularly the form of capitalism that has been practised over the past 20 years.

Modern capitalism has resulted in huge extremes of wealth with too many left behind; reckless lending to both individuals and governments; the creation of financial instruments which have no social value at all and the unsustainable use of scarce physical and natural resources.

I could go on. The list is long.

However, just like democracy, the alternatives to capitalism have all been tried and all been found wanting—some, like communism, catastrophically so.

So capitalism, with all its faults, is still the best game in town. The task confronting the present generation of leaders is to improve it. To build on its strengths and eradicate its weaknesses.

Strengths it certainly has. Over the past 50 years or so capitalism has been directly responsible for lifting nearly half a billion people out of poverty, for revolutionising health and medical care and for the creation of digital technologies which are transforming the lives of people everywhere.

The challenge is to hold on to the energy, enterprise and creativity which characterises capitalism at its best whilst doing away with its destructive elements.

Addressing the weaknesses of capitalism will require us, above all, to do two things: Take a long term perspective and reset the priorities of business.

The short-termism which has characterised modern business has been described by Dominic Barton of McKinsey as “quarterly capitalism”. This is the treadmill on which the leaders of many public companies find themselves.

The requirement to report back to investors every 90 days distorts behaviour and priorities. It is absurd for complex multinational companies to have to invest huge amounts of time preparing detailed income and margin statements every quarter.

No other aspect of business is run on such a short term time horizon—certainly not R&D, capital investment programmes, buying contracts, even advertising. So why should financial reporting? As the leading management thinker, Roger Martin points out in his latest book Fixing The Game, for too many companies, quarterly reporting leads to expectation management instead of management of the business itself.

The priorities of business also need to be challenged. Since the 1980s we have all been worshipping at the altar of shareholder value. This is a doctrine which says that the principal purpose of business is to maximise returns to its investors. Although important, it cannot be the only purpose.

At Unilever, we have challenged both these precepts. We have abandoned quarterly reporting and stopped giving guidance to the market. We have also made it clear that our paramount goals are to satisfy the demands of consumers and customers and to serve the needs of the communities where we operate. I am convinced that if we do these things well we will deliver excellent returns to those who have purchased a stake in our company.

Only by taking the long-term view will business be able to start addressing some of the huge environmental and social issues which confront the world.

The great challenge of the 21st century is to provide good standards of living for 7 billion people without depleting the earth’s resources or running up massive levels of public debt. To achieve this, government and business alike will need to find new models of growth which are in both environmental and economic balance. Consumers are increasingly demanding it.

Paul Polman: A New Code of Ethics for Business
Image: Rupak De Chowdhuri / Reuters

As global temperatures continue to rise and natural resources deplete, business has to decide what role it wants to play. Does it sit on the sidelines waiting for governments to take action or does it get on the pitch and start addressing these issues? If we continue to consume key inputs like water, food, land and energy without thought as to their long-term sustainability, then none of us will prosper.

Unilever’s future success depends upon us being able to decouple our growth from our environmental footprint while at the same time increasing our positive social impacts. These are the central objectives of the Unilever Sustainable Living Plan which we launched in 2010.

The plan will result in three significant outcomes:

  • • Help more than a billion people to improve their health and well-being
  • • Halve the environmental footprint of our products
  • • Allow us to source all of our agricultural raw materials sustainably.

Underpinning these three broad goals are around 60 time-bound targets spanning our social, economic and environmental performance across the value chain—from the sourcing of raw materials all the way through to the use of our products in the home.

A year after its launch we have made a good start in delivering the plan. In India, in particular, our progress has been really encouraging. In 2011, two-thirds of our palm oil for the Indian market was being purchased from certified sustainable sources. We will reach 100 percent by the end of this year.

Our Pureit in home water purifier is delivering safe drinking water to over 30 million people. Lifebuoy’s hygiene education programme reached a similar number—many in remote rural areas. Whilst in our own factory network in India, we reduced in just one year CO2 emissions by 15 percent, water use by 22 percent and waste by 53 percent.

When people talk about a new code of ethics for business this is what we mean. For us it is a new form of business: One that focusses on the long-term; one that sees business as part of society, not separate from it; one where companies seek to address the big social and environmental issues that confront humanity; one where the needs of citizens and communities carry the same weight as the demands of shareholders.

This is why we have put the Unilever Sustainable Living Plan at the heart of our strategy. It has become our new business model.

But if we achieve our sustainability goals and no one else follows, we will have failed. Because of this we are working with other organisations such as the Consumer Goods Forum, the World Business Council for Sustainable Development, NGOs and governments to drive concerted cross-sector change.

This change can’t come quickly enough because the triple challenge of food, water and energy scarcity together with accelerating climate change are hurtling towards us.

Consumers are demanding solutions to these challenges, yet governments and international agencies are struggling to deliver. Responsible business has to step up and help fill that void.

That is what we are trying to do at Unilever. I hope others will do the same.

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(This story appears in the 25 May, 2012 issue of Forbes India. To visit our Archives, click here.)

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  • Dave

    Hi Paul - thank you for sharing. I think it's great to hear you (and hopefully many others to follow) recognize the damage that short term thinking sacrificing futures for profit in the present does. I'm impressed and happy that you're taking bold action against it, even against the norms of quarterly reporting. And I'm very glad to hear that you're working towards reducing Unilever's environmental impact by half. I wish you luck, and hope many others follow. They're bold goals, so I know you already have a challenge in front of you, but I hope you're also considering the next steps of really innovating to do even better. Here are a couple questions that come to mind: You say your palm oil is organic, and that's a good first step. But palm oil plantations are usually monocultures that deforest large chunks of land to plant only palm oil trees. It's profitable, so farmers have good incentives to do it even at the expense of wildlife, diversity and even weather patterns (as seen in Indonesia, for example). Have you and Unilever taken the next step to look at responsible forestry or perhaps alternate ingredients? What are your goals toward making all of your products biodegradable, without chemicals that can be harmful downstream from our sinks and showers?

    on May 16, 2012