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