5Jan2022
Paul Polman is the Co-Founder and Chairman of IMAGINE, a for-benefit company, and foundation that mobilizes business leaders around the UN Global Goals. He serves as Chair of the International Chamber of Commerce, The B Team, Saïd Business School, and Vice-Chair of the UN Global Compact. He is also a great Philanthropist.
Paul is known for his work demonstrating that business can and should be a force for good in the world. During his tenure as CEO of Unilever (2009-2018), Paul proved that operating a business for the long term through a multi-stakeholder model leads to financial success. During his time as CEO, Unilever was consistently a top-performing company in the sector.
Here, we give you Paul’s ideas on leadership, innovation, and sustainability that he shared in a discussion with Gary Hamel.
Why Purpose?
People often ask Paul why having a purpose is so important for businesses. He explained that the environment is changing rapidly, and as our awareness of the change is rising, it requires a different business model.
COVID-19 has demonstrated that we cannot expect to be healthy while living on an unhealthy planet, nor can we have infinite growth from finite resources. Paul shared that these trends are leading companies and individuals to question how we compete, given these restraints.
“Companies that drive to higher purpose and that operate under longer-term business models are companies that frankly do better.”
Paul noted that the world was looking to companies to play a more significant role in the solutions for our global challenges. He shared his personal belief that society should only keep businesses around that play a more prominent role than their immediate commercial remit. Companies with this more comprehensive multi-stakeholder outlook are typically the ones that do better. They attract better talent, a more engaged workforce, and better relationships, enabling them to be more innovative and profitable.
Paul noted that JUST Capital’s research looked at companies that operated under this multi-stakeholder longer-term perspective, with a strong purpose at the core. JUST Capital concluded that such companies consistently outperform others, even within their sector, by a factor of 30%.
The business case for having a clear purpose is compelling.
Are Companies and Other Bodies Holding Back?
Paul stated that he believes more people are coming round to this level of purpose-driven thinking, with data showing that 75% of people in the US expect organizations to bring solutions to societal issues. Paul stated that 25% of companies had made climate commitments ahead of government commitments in many cases. Governments and the financial markets are also waking up to the importance of these issues. The SEC and IFRS are moving to a broader definition of success and accounting, which Paul sees as a positive step forward.
However, Paul highlighted that the pace of the change is not fast enough. The reasons for this include:
- Global systems that do not value the environment or social capital.
- Financial markets that drive short-term thinking.
- Leadership that lacks a moral compass.
These scenarios lead to conditions that are not optimal for change, and global cooperation is also low.
Paul emphasized that many profitable solutions to be more socially conscious already exist. For example, he shared that in 60 to 70% of cases, we can decarbonize our global economies through existing solutions that have proven to be profitable. Only 30% or less typically need innovation. He noted that the world doesn’t lack solutions; it lacks courageous leadership to make the required changes.
Perceptions are Changing
Paul shared that when he was embedding the multi-stakeholder approach at Unilever over a decade ago, it was challenging to explain the model to the financial markets. The markets normalized companies using the creation of stakeholder value as their primary focus for action. Instead, Paul demonstrated that this multi-stakeholder long-term approach would ultimately deliver returns to shareholders even though they were not the primary focus.
Paul shared that perceptions have now changed. People accept that companies with gender-diverse leadership perform better and recognize that companies that consider climate change in their value chain are more resilient and better performing. Companies operating under the ESG (Environmental, Social, and Governance) principles have enjoyed a higher financial return, so the CEOs of today have an easier path to implementing ESG principles within their firms. Frankly, without those steps, CEOs risk the future of the firm.
Operationalizing the Change Across Organizations
Paul highlighted that the change has to start by setting clear ambitions backed up by targets. He shared the example of Unilever, which focused on making sustainable living commonplace, decoupling growth from environmental impact, and maximizing social impact. The company set 50 targets around these ambitions to drive focus and accountability.
Paul urged companies to take accountability for their total footprint in society, including the entire supply chain. He stated that cooperation and partnership are vital to driving bigger changes. Paul has witnessed millennials pushing the senior leadership to make changes in many companies, demonstrating how this generation wants to be part of the change movement.
The Cost of Not Changing
“The myopic focus on shareholders and the short-term has not served us very well.”
Paul reminded us that the focus on shareholders and the short-term has not worked. 95% of the profits over the last 15 years have gone to share buy-backs and CEOs, as opposed to reinvestment in businesses.
Paul shared that the average lifetime of a publicly-traded company had dropped from 67 years when he was born to 17 years today. At the same time, the average tenure of a large company CEO has fallen to 4.5 years, creating challenges for long-term approaches. Over the same period, there have been huge issues with climate change and inequality. Paul shared that he was appalled to see recent data on the salaries of US CEOs, which demonstrated that their packages have grown by 6% while their employees’ salaries dropped by 17%.
Paul highlighted that we have now reached the stage that the cost of not acting is higher than the cost of acting, so it’s firmly in a company’s interests to make change happen. Taking COVID as an example, he noted how much governments had spent on the global crisis response and considered what smaller amount could have been sufficient to invest in prevention.
Change Brings Commercial Opportunity
Paul noted that the work to make positive change brings commercial opportunities. For example, the UN has shared 17 Sustainable Development Goals to eradicate poverty more sustainably and equitably, which provides an opportunity of $12 trillion and creates 380 million jobs. Paul noted businesses that understand the opportunity are well-positioned for the future.
He urged policy-setters and governments to revisit policies on healthcare and energy and stated that spending to support economic recovery must be green in focus.
Concluding Advice for Leaders
Paul is encouraged to see more leaders starting to take action. For example, around 25% of the global economy through the private sector is making climate change commitments, often ahead of governments. The financial sector is moving faster than expected and supporting green investments.
Paul shared that the first step is for leaders to educate themselves and learn just how much is possible. For example, 60% of climate change is solvable with existing solutions, which provide immediate profitability. This knowledge offers a compelling case for action. Secondly, companies need an appetite to engage and a strong desire to play a broader role in changing economies.
In conclusion, Paul stated that change boils down to willpower and moral leadership because we already have the tools to change. He urged leaders to be human beings with a high level of empathy and compassion. Paul believes the leaders who succeed today are purpose-driven, know how to work in partnership, and think from a long-term perspective. He stated that the link between these traits and financial success is becoming clearer.
Paul reminded us that leaders need courage, which comes from the heart. Making the change all comes down to people.
This article is a summary of Paul’s keynote at our Online Bootcamp in April 2021. To read what the other speakers said about innovation and leadership in changing times, download the full written summary.
