Any discussion of the stakeholder capitalism movement of the last several years has to include Paul Polman.
Over his decade-long tenure as CEO of Unilever, Polman spearheaded the London-based consumer giant’s Sustainable Living Plan, integrating sustainability and human rights into its global business strategy. He ditched quarterly reporting and guidance after taking charge in 2009 and was vocal about exchanging a short-term outlook based on the theory of shareholder primacy for one that created more robust growth over the long term. His style won him critics as well as fans, but by the time he handed over the company to Alan Jope in January of 2019, Polman had generated 290% shareholder return and expanded Unilever’s global market share. And in 2017, he also famously prevented a hostile takeover by Kraft-Heinz, a company whose leadership was in ideologic opposition to what Polman had built.
By the time he stepped down, Polman had proven that a corporation built on creating value across its stakeholders could both reduce its negative impact on the environment and society while creating higher returns for shareholders than competitors.
Now he’s out with a new book, “Net Positive: How Courageous Companies Thrive by Giving More Than They Take,” that draws upon his experience at Unilever as well as the sustainability consulting career of his coauthor, Andrew Winston. We recently spoke with Polman about “Net Positive,” and how it fits into the ambitious mission of his CEO collective, Imagine.
The following interview has been edited for length and clarity.
JUST Capital: How did the idea for Imagine come together and how’s it related to “Net Positive”?
Paul Polman: They are closely related. I discovered when I was CEO that increasingly the needs to operate at a higher standard were apparent to create this more sustainable, equitable business model. We were trying to do that with Unilever and made great progress, got recognized for that. But I also could see that there were limitations. If you did something, competition might not join, you might not have the bandwidth to do things or enough trust these partnerships, and ultimately you need governments involved to drive the broader systems changes. Most CEOs know what needs to be done – the “why” question is not actually that pertinent anymore; the “how” is really where the issues are. And many CEOs struggle with that. So my co-founder Valerie Keller, we created Imagine, which really focuses on this broader systems change.
A theory of change is as much about leadership or human change as it is about organizational or broader systems change. Our theory of change is not the only answer, but we think it is an important contribution to moving fast on the Sustainable Development Goals (SDGs), especially on the areas of climate change and inequality – burning issues, both sides of the same coin. We thought, why don’t we create a neutral platform called, Imagine, the name actually came from Yoko Ono – “You may say I’m a dreamer, but I’m not the only one.” And we put a critical mass of CEOs together by industry sector, across the value chain. You solve issues that are not in silos.
When you have 20-25% of a sector together of undoubtedly more responsible companies, then civil society and NGOs want to work with them and governments start to listen. We looked at industries that had the biggest impact on the SDGs from a negative point of view that we could turn around to make them positive. The energy transition gets enough attention and we are working then with a lot of other things. Fashion is a very destructive industry from biodiversity and labor standards. We look at food – the whole food system needs to be transformed. We look at tourists and travel and we’re starting to look increasingly at private equity, as well.
At the time of the 2019 G7, we created The Fashion Pact, bringing together about 80 companies in fashion. They work with Conservation International and they are now the leading industry to develop these science-based targets and integrating them. Moving, for example, to regenerative cotton, getting out of single use plastic for B2B as a first step and then beyond. Redefining the standards of shipping and hangers and how products need to be moved. This industry didn’t have climate change, the value chain, or biodiversity on the agenda. And in a relatively short period of time, one and a half or two years, you’ve had a major thrust forward with very good progress. With COVID, this industry worked with the International Labour Organization to put responsible standards together, and determine what to do to guarantee jobs in the value chain despite the disruptions to supply. This is also an industry that very quickly got together and worked on PPE, making masks and things like surgical gowns. They moved very quickly into this because this partnership was created.
Another one is food. We have the 27 biggest food companies together, and we have the whole value chain from the seed and the input providers to the processors like Bunge, Cargill, and ADM, to the manufacturers, Nestlé, Unilever, and Danone, to Walmart and Carrefour. Together, they are moving to regenerative agriculture, which gets you into farmer livelihoods, soil health, and biodiversity protection. It has us working together on the European Green Deal to get responsible labeling with consumers to look at alternative proteins.
JUST: Why do you think that they are useful a useful lens for business leaders, rather than just leaders of countries?
Polman: When the Millennial Development Goals (MDGs) were developed in the year 2000 and were set to run through 2015, they didn’t talk about the private sector. I was at Rio+20 [the United Nations Conference on Sustainable Development], in 2012, and we said we cannot finish the Millennial Development Goals only halfway.
The secretary-general, Ban Ki-moon, put a panel together of what he called eminent people, 27 of them. And it is true that there were a lot of politicians in that panel, but he had the courage also to invite business, and he wanted me to be on that panel. We have the 17 SDGs coming out of that, which we worked for about two and a half years, intensively consulting with all different stakeholders in society. Business is needed for about 90% of them, and while they were adopted by 193 countries at the UN, they are very much different from the MDGs. Business needs the SDGs but the SDGs need business, as well.
We did some studies and found that between now and 2030, we could unlock about $12 trillion of potential and create 380 million jobs. So we’ve been able to do a few things to show that this development agenda is not only a moral framework for the world at a time that multilateralism isn’t quite working, but we’ve also shown that it’s not just about risk mitigation, but is rather probably the biggest and best business plan that we have in front of us.
JUST: This really ties into the bigger question of how to lead with purpose. One of the biggest questions, especially over the past year, that corporate leaders have is determining when and how to speak on societal issues. You saw that with the Georgia voting bill and the Texas abortion bill. With Unilever specifically, you have the company’s Ben and Jerry brand saying that it’s going to restrict sales in Israel in occupied territories and then you have certain American states saying that they’re going to divest from Unilever in response. When you have such a polarized political context, but you also have the public expecting companies to take these stances on societal issues, how do you know what is right and what is good for the company and what may be a step too far?
Polman: We actually address that in “Net Positive.” One of the key hallmarks of a net positive company is that they take responsibility for their total imprint in society, not just their footprint. Many companies outsource their supply chain and also think they can outsource their responsibilities. And that’s obviously not acceptable anymore. You have to own the problems that you create as much as you embrace the opportunities that are there. We talk about the multi-stakeholder or the longer term model, with purpose at its core. We talk about shareholder return being a result of what you do, not an objective. And then we talk about these broader partnerships to drive this transformative change in society. We then call out some of these tougher challenges that are there, like how to deal with money in politics, corruption, tax payments, human rights in the value chain, and CEO salaries. So the book doesn’t shy away from giving people key ideas of how to get trust in society and how to turn that into a competitive advantage.
Now, the reality is not only your employees, but study after study – including from JUST Capital – finds that most people in society expect CEOs to speak up and participate in these broader societal issues that directly or indirectly affect their businesses. We’ve seen CEOs speak up on LGBT issues when governments were going in a different direction and that sent an incredibly important message about dignity and respect. We’ve seen people like [Merck’s former CEO and current chair] Ken Frazier walk away from the president when you had Charlottesville, because it was about dignity and respect.
So CEOs have to speak up when these basic human values are being threatened, because it undermines humanity. Likewise, when democracy is being threatened, like you saw at this dreadful event on January 6, at the Capitol, many CEOs spoke up and I think helped make the situation more manageable than it otherwise would have been. So it’s not anymore a question of if a CEO speaks up, it’s a question of how a CEO speaks up. And it’s really impossible or impractical to speak up on every issue. You cannot and nobody is expecting that. So there are some things I would say to get to your question. You should really ask, does it align with your company’s strategy? Can you have a meaningful influence on the issue? Does your voice matter, or is it just noise? Look at your broader constituency.
And we need to be sure that net positive companies are consistent. You cannot anymore make big commitments on climate change and then lobby separately for anti-climate change legislation, or speak up for human rights in the value chain but then operate your company under opposing principles.
JUST: At JUST Capital, we only have a focus on American companies, but these large corporations have a global lens. In the book you write about the challenges that you faced in dealing with that. How do you take that into account when there are different needs for different markets, but you also are trying to have an alignment of values?
Polman: Well, the values that you express as a company that you have to make come alive to create the right culture, et cetera, I think that can be done universally across the globe. There are companies that criminalize LGBT people, and so you will have to confront what you advertise in one country versus another. But what good companies do is they set goals that make them feel uncomfortable, but that they know what the world needs. A total inclusion goal – inclusion of people with disabilities, of different races, of gender. Unilever operates in most countries in the world, and in some countries, we had to fight with governments to get more women rights, for example.
So while you are not perfect, you have to be part of embracing that problem and actively driving for positive solutions. If you are willing to go on that journey, do it transparently and in partnership, and hold yourself accountable, then I think you are better placed than others. Ultimately, you need to work with governments and civil society to drive the bigger changes. Unilever has plastic around its products, some products need to be shipped, they need to have packaging, but when you are active to reduce plastics to start coalitions around that, to work with countries to set up recycling systems, to try to innovate in the industry at scale, to find alternatives.
So you become a solution provider and not a problem creator. And this book is very much about how to profit from solving the world’s issues, not creating them. And it’s the same as this advocacy. JUST Capital was evaluating the Russell 1000 companies and you showed that companies that lead in meeting the needs of all the stakeholders financially outperform those that lag by over the last four years. Well, if you truly run a business model with all stakeholders, you also have to advocate for all stakeholders. They have to make their voices heard to defend them when they are being attacked. You also have to ensure that these negative externalities that these stakeholders suffer, that you also actively correct them.
I could never say that there was no child labor or slave labor in Unilever’s value chain. The value chain was too big and too complex, and, you know, 90-100,000 companies that you work with and some contractors. But I could say that Unilever more aggressively was looking at this. They created the Modern Day Slavery Act in the UK and we lobbied for that. We had Oxfam audit our supply chains. We worked with broader coalitions of establishing what would be living wages and set the standards there. We not only made these commitments public, but kept raising them. That made us move quite rapidly up in GlobeScan’s ranking as the most respected company in the world, even ahead of Patagonia, which is the poster child, number one in the Dow Jones Sustainability Index all the time. But more importantly, we saw it translated into having higher engagement and having stronger relationships in our value chain and in our communities.
And that ultimately resulted in a 300% shareholder return during my tenure in our competitive set. So I think we’ve been making the case that this is actually good business, but it’s a different way of doing business than being myopically focused on the shareholder, which has proven now to more and more people, I think broadly, that’s a failed concept that destroys social cohesion, destroys our planet, and puts more people into poverty.
JUST: And on that, that notion of shareholder primacy versus stakeholder capitalism. Do you think that we need a new framework or that CEOs need a framework that is something along the lines of total stakeholder value? And how do you communicate this easily to investors? There are ESG standards coming to the United States shortly. What do you think is necessary for all of this to become reality?
Polman: Well, there’s a lot in there, but the most important thing is that yes this short-termism is not helping us. We cannot solve the issues of food security, climate change, inequality, with myopic focus on the quarters. But it’s not helping the economies either. The average lifetime of a publicly traded company has gone from 67 years when I was born to 17 years now. The average length of a publicly traded CEO’s tenure is now less than four and a half years. The number of publicly traded companies has gone down in the U.S. over the last four decades from 4,800 to 2,300. And increasingly the more we study this myopic short-term focus, we actually see that it destroys economies, versus builds economies. And it’s not surprising because most of the investments that are made for companies are investments that actually pay off only in year four, five, or six.
So we need to fight that. So one way to fight that is it’s obviously ourselves align the incentives, in the financial market, align the incentives, not incentivizing people on the quarterly meeting, but on the compensation side, the CEOs. So we need to put the right incentives systems in place. We need to educate the boards. The fiduciary duty of boards is not just single-mindedly to the shareholders. It goes much further than that in terms of guaranteeing the long-term future of the company. So we need to work the governance of a company. 75% of CEOs say that pressure is actually coming from the boards. We need to actively engage with our shareholders. Very few CEOs have the dialogue of long-term value creation by also working the environmental and social capital. So we need to communicate better our value creation models and how ESG or sustainability or whatever word you want to put on that is actually, the driver for long-term value. I think we have increasing evidence of that, that we need to do it. And then last, but not least, we need to be sure that the strategies we put in place are these longer term strategies. That’s why in Unilever, I got rid of quarterly reporting. We got rid of guidance when I came. I put the compensation system on the long term. Just to create an environment, that space for people, to start to act longer term.
On a macro basis to really solve that, we treasure what we measure. So we need to be sure that we start to not only celebrate return on financial capital, which is important, but also increasingly on social and environmental. So there is movement there from the SEC, from the Sustainable Standards Board, from the leaders behind the European taxonomy. Increasingly governments are looking at these negative externalities and trying to put them back into the company and hold companies increasingly responsible for that. Climate change is the first step, the recommendations of the TCFD, but it’s increasingly coming in other areas as well, such as wage disparities and makeup of companies around ethnic lines or racial or gender lines. All these things are becoming increasingly transparent and they force behavior. It’s very clear that if companies make commitments, report on it, and make it public, they make faster progress. What we now see is that these companies that do that also are more profitable and more resilient in this environment.
JUST: Is there a moment from your tenure as Unilever CEO that you would consider to be your proudest moment as a leader, and then if something comes to mind, what do you think that that taught you?
Polman: Well, it’s not about myself. It’s a whole organization that they are aligned behind a common purpose in Unilever’s case making sustainable living commonplace. And we had the Unilever Sustainable Living Plan, which was very audacious, which was very uncomfortable. We didn’t know how to do it alone, nor did we know how to get there, but we knew that these targets were needed. Get out of fossil fuel, don’t run your factories with waste, treat people well in your value chain, create decent jobs. These are very uncomfortable targets that no company had set before. But what I’ve learned with Unilever is that if you can get into people’s individual purpose and then translate that into a corporate purpose, that’s an incredible force for change.
That beacon gives you courage when the skeptics are there, when the financial markets aren’t fully on board, when the newspapers like to step on you, and when competitors want to abuse that by trying to undermine it. Ultimately it has resulted in Unilever showing that a longer term multi-stakeholder model with purpose at its core is also better for the shareholders. And nothing was better for us than having to face this battle with Kraft-Heinz, which was under the philosophy of only value creation for a few billionaires, and us under the philosophy of value creation for billions of people. Kraft-Heinz is on the bottom of lists for sustainability and human rights, and there’s the case of its falsifying records. What you’ve seen clearly before, during, and after that is the Unilever model on a long-term compounded basis is a significantly better value creation model. You have to figure out how you want to run your business. And you should run your business to the service of society, or otherwise it will not accept you in the long term.
At JUST Capital, you guys provide the positive ammunition that we need to give people courage to make the change, because we know what we have to do. Leadership is really what the issue is, right? It’s not technology, because we can do a lot. It’s not really the money – we have too much money coming out of our ears. It’s the willingness to put the interest of the common good ahead of your own, knowing that by doing so, you’re better off yourself, as well. And that takes courage. We just don’t have enough leaders. There’s a four and a half year CEO tenure. Most of these leaders will look at their own compensation, which often incentivizes them to do what’s best for themselves because they don’t know how long they’re around and that’s the problem. We have a human problem. The problem is not is not climate change or inequality. The problem is greed, lack of empathy, and selfishness. And if that doesn’t change, you won’t tackle the issues. It’s absolutely key.