“Sadly, we have reached a moment where the cost of not acting is higher than the cost of acting.”
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. 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.
At the online bootcamp, Paul engaged in a conversation with Gary Hamel to discuss leadership and innovation from a purpose-driven perspective.
People often ask Paul why having a purpose is so important for businesses. “The environment is rapidly changing and we’re becoming more aware of it. And this 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.
Paul also noted that the world is 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. In fact, Paul mentioned that 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 further referred to JUST Capital's research which 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%.
So, the business case for having a clear purpose is compelling to say the least.
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. He mentioned that one-fourth 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.
Yet, 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. Therefore, he underlined that the world doesn't lack solutions; it lacks courageous leadership to make the required changes.
Perceptions are Changing
Next, 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.
Perceptions have now changed according to Paul. 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 also 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 partnerships are vital to driving bigger changes. In addition, 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 pressure is actually increasingly coming from the bottom. And the senior leadership that doesn’t respond to that will put their company at a disadvantage.”
The Cost of Not Changing
“The myopic focus on shareholders and the short-term has not served us very well.” 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%.
“Sadly, we have reached a moment where 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 have spent on the global crisis response and considered what smaller amount could have been sufficient to invest in prevention.
Change Brings Commercial Opportunity
Paul further underlined 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
Finally, 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.
“The first thing you have to do is to have a high level of awareness. You need to educate yourself.” 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.
- Companies with a multi-stakeholder outlook typically perform better. They attract better talent, a more engaged workforce, and better relationships, enabling them to be more innovative and profitable.
- People and organizations are waking up to the need to change, but the pace is not fast enough.
- 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.
- The change has to start by setting clear ambitions backed up by targets. Companies must take accountability for their total footprint in society.
- Profitable solutions to be more socially conscious already exist. We need courageous leaders with a solid moral compass to implement them.
Questions to Consider
- How far does your organization take a multi-stakeholder approach to its decision-making?
- How far is a long-term focus embedded within the culture?
- What ambitions and targets have you already set to be part of the change?
- What new ambitions and targets will you set to create the change?