First He Saved Unilever. Now He Wants to Save Capitalism.

AI is transforming the world. And it starts with the right compute. ARM is the AI compute platform trusted by global leaders, proudly NASDAQ listed, Built for the future. Visit arm.com discover. Welcome to the hbr ideacast from harvard business review. I'm kurt nickish. Today's guest grew up in the Netherlands, one of six children, the son of a school teacher and a tire company executive. He first aspired to be a priest, then a physician, and when there wasn't a place for him to study medicine, he studied business, including an MBA in the United States. Then he built quite a dazzling career in the corporate. He stayed in the US At Procter and Gamble for decades, then became chief financial Officer at Nestle, the Swiss food giant. Eventually, he reached the pinnacle that many people aspire to and few do. CEO of a Fortune Global 500 company. At the British consumer goods multinational Unilever, Paul Polman stopped issuing quarterly reports and guidance, and he embraced stakeholder relationships to help turn the company around and fend off a hostile takeover bid from Kraft Heinz. He led Unilever for 10 years, and his experience showed him something. He had always believed that the doctrine of shareholder capitalism is wrong, that there is a better way to do business. And so when he retired From Unilever in 2019, he set out with new goals for today's business to fight climate change, to fight the use of corporate lobbying and government to make an even bigger impact. Pullman founded a group called Imagine, which aims to help CEOs fight these fights. And with Andrew Winston, he wrote the book Net Positive How Courageous Companies Thrive by Giving More Than they Take. Paul, thanks for joining us.

Thank you, Kurt, for the opportunity.

Do you consider yourself a capitalist?

Well, actually, to be honest, I've never really spent too much time debating the word, because what is more important to me is really what it means and how you live it. And so I've never been fussed by calling myself a capitalist, although I find people in different parts of the world interpreting my vision and my philosophy slightly differently. But I broadly believe what Winston Churchill said. I think he said it was the worst form of governance, except for all the other ones invented. And I tend to believe that even today.

Still, I'm curious. You started out wanting to be a priest and a physician, too, Occupations that don't necessarily start with profits. And you got into business. Did you have doubts about how things were done throughout your whole career?

Well, to be honest, the business is more of an accidental thing and certain level of serendipity. I grew up in 1956 when I was born, and I always thought it was a long time after the war. But the older I get, the more I realize how close it was. And my parents are fully dedicated to ensuring that there would be lasting peace, that their communities would function, that we would get an education that was deprived from them, et cetera, et cetera. So we, we really grew up with a mindset of putting ourselves to the service of others and knowing that by doing so we'd be better off ourselves as well. My parents met in Boy Scouts and my mother was leading the, the female side of it and my father at the male side. And they married and kept our interest in nature and, and living in harmony with planet Earth if you want to. So that's how I grew up and that's why it was for me normal to find a profession where I could actually exercise those values. But the more I actually worked in business, and I've been very fortunate for to work for three great institutions built to last, in my opinion, with great values. And the more I worked there, the more I actually could see the enormous force that the private sector has to actually be a force for good. Unfortunately, too many exercise it in a different way and the Milton Friedman doctrine of shareholder primacy hasn't served as well. But I've always felt that profits in a company should come from solving the world's problems and not from creating the world's problems. And I've been able to put that in practice. And I think ultimately that has also proven to be good for the shareholders.

What kinds of things did you see as you worked there where you realized things were working well but could be better?

Well, what I like about consumer goods frankly is it's very market facing. Not surprisingly, they call it fast moving consumer goods. Every day or every other day. A citizen of this world can go in a store and as a choice between 4, 5, 6, sometimes more brands and if you don't deliver on the price, on the value proposition, on the broader benefits you want to convey with your brands, you're punished immediately. I've always felt that being so close to serving these consumers all over the world is fairly fascinating to me and very purpose driven if doing it well, you know, Lord Leverage. When he started his business in Port Sunlight at the end of the 19th century, you know, he was talking already then about shared prosperity. The man built houses for his workers before the factories were fully running. He guaranteed six day work weeks. When World War I came and he had the highest number of volunteers going, it was because he guaranteed their jobs back and continued to pay their wives their wages. You know, he believed in that broader concept like some of his contemporaries in the uk and unlike, let's say the Rockefellers or the Carnegies or the Melons or some of the others that were living at the same time period, he never really amassed a fortune and then decided to give it away. He just had this as philosophy of running the business. So these values were appealing to me. But obviously when I came in at the height of the financial crisis in 2008 as the first CEO from the outside, it was very clear having to hire someone from outside of the company, that there were some major issues. We'd seen our turnover decline from about 55 billion to about 38 billion. And the company was in a selling mode with lots of discussions about breaking up, et cetera, and frankly had become victim of short termism. Chasing its own tail was a strategy that wasn't working. So we really had to change that. And I could see in a financial crisis already then that there were some major things not quite functioning in society. High levels of debt at private and government level, enormous levels of overconsumption, too many people not participating or left behind. These are symptoms of a system that is not going to be successful long term. So I thought, why not create a company that goes back to the roots of Lord Lever, something that Jim Collins in his book From Good to Great called Nurturing the Core before you stimulate progress, and then create a different business model that could show also to the broader investor group, which after all are pension funds, institutional investors that should have a longer term perspective that an alternative model to shareholder primacy was actually a better model. Fast forward 10 years and you had a 300% shareholder return, a continuous 19% return on invested capital. So the shareholders went complaining. And I think increasingly we have also gathered the evidence with Unilever and with many other things in society now that companies that are run under these more broad ESG principles are actually better run and have a higher chance, if you want to put it carefully, of being successful at Unilever.

Then during these difficult years, you decided to stop issuing guidance, stop putting out quarterly reports. You talked about how shareholders responded positively later. I just wonder what it was like at that time. And did you feel like that crisis gave you a unique opportunity to do something you couldn't otherwise do?

Well, definitely. I made this announcement to stop giving guidance. Quarterly reporting. We abolished and then we moved compensation system quite quickly to the longer term. I did that right when I came because to some extent I figured they're not going to fire me the day they hire me. And that has proven to be fortunately the case. But what we did there was actually not that dramatic. We really changed boundaries. If in essence people are good people, I believe in that. I frankly believe in the goodness of human beings. Otherwise it's not worth living. But why aren't we collectively behaving the way we should? And the answer is really because of the boundaries that are around us. And so you have to take these boundaries away. I saw really a short term behavior in Unilever and I just wanted to get rid of that. That in itself is not the reason why the company turned around and became successful, but it certainly allowed people to make the right decisions to start investing in our brands again, to start focusing on these longer term societal issues that don't have quarterly solutions to work on programs in the company to ensure that we had green energy before many other companies even started to think about it, that we weren't operating with significant levels of waste, that we respected human rights and our value chain. I think the bigger decision that we took at that time was very overtly to say that we were running at this multi stakeholder model, that the shareholders were a result of what we did and not an objective in itself. And that caused some anxiety, there's no question about that. The share price had gone up 8% when I was announced as a CEO and I was happy to see it dropped again by 8% after I announced that we wouldn't be giving guidance and quarterly profits anymore.

Why were you happy to see that?

Well, because it's just a silly game. These things that we saw speculators move out of our shares, which obviously they had less opportunity to speculate. And it shows you that there are many of them just moving money around without really looking at the underlying value of a company or the value that can be created.

You talked about how shareholders responded, but I'm also curious how other CEOs or business leaders responded to you. Were they skeptical? Did they feel like you were you were messing things up or that you were a traitor to the executive class? How did they react?

Well, undoubtedly the answer would be probably all of the above. But let me put it this way. I was disappointed and still am to some extent, that not many more companies follow to abolish quarterly reporting because in many places, jurisdictions there isn't even a legal requirement. Now in Europe it has come in, but at that time I had expected more companies to do that. I also kept my compensation constant for 10 years and I had Thought that that would also send a signal to moderation of compensation among CEOs. But even during COVID we've seen that CEO salaries have risen whilst many others have lost their job. So we haven't learned from any of that. Which why I always keep saying that the most important ingredient to transform these companies is actually the human transformation. You know, without leadership change, you cannot have systems change. And we just lack enough of these courageous leaders that understand this and are willing to put themselves at a personal risk or making a relatively small sacrifice. You know, the reality is that Most of the CEOs or most of the people who become CEOs, are already probably reasonably financially independent because they've had a successful career. And, you know, you'd expect that other things would drive them and that their behaviors would then be in, in line with that. And if that is not the case, which we see all too often and increasingly being called out, it. It does quite a lot of damage. It does damage to your culture, it does damage to your employer brand, it does damage to the engagement within a company, but increasingly also to the citizens of this world who decide and vote with their wallets which companies they want to engage at.

This group you founded, imagine you're trying to solve some of these big problems and you see a big role for business in it, but it's really working with people. It's the human side of the leadership. Tell me about that.

So we actually do both. When I was the CEO, I discovered that even at Unilever, you cannot solve all the problems that you're being held accountable for, especially the two most burning issues, climate change and inequality. If you have an idea and you want to work together, your competitor might not because they might feel that you get the credit or that others might be at a disadvantage or advantage. You might not have all the knowledge or the time. And more importantly, you cannot get all these broader networks around you of civil society, of governments organized to really drive the more important system changes that are needed right now. Most companies play, frankly, not to lose instead of playing to win with a fear of setting too bold a target that they don't quite know how to, how to get there, or that that might put them at a. At a disadvantage versus their competitive set. So what I felt was there was a need for a neutral platform where we could drive systems change. And this is what we created with. Imagine we looked at the industries that had the biggest impact, negative impact, this is on these sustainable development goals and our theory of change that we're testing now and Putting in place quite rapidly is that if you put across the value chain a significant group of CEOs together, about 20 to 25% by sector, that you can actually drive tipping points. What happens is when these CEOs come together across the value chain collectively, they become more courageous, interestingly. But because you have the whole value chain there, you can also solve some of these burning issues that are across the value chain where partner one has to make the investment and partner B gets the benefit. This way, by having a platform where they all come together, where trust is higher, you can actually solve these issues. What we find is that when we have 20, 25% of the people together, could then civil society wants to work with you, government start to listen. You can actually start to work in broader cooperation and partnership to drive the real systems changes that are needed so that the system doesn't push back. And you get incrementalism, you actually get breakthrough. So a concrete example would be the fashion industry, where we now have 80 companies in something that is called the Fashion pact, or the Food Collective, where we have 30 companies of the biggest companies across the food value chain working together. We're looking now at tourists and travel going into private equity and helping these industries transform with imagine we're not pretending that we have all the answers, but what we clearly have seen in the two years, despite Covid and the zoom world, that we can accelerate that progress significantly faster. And that's incredibly important now, Kurt, because unfortunately, multilateralism, globalization, the institutions that we have designed are not quite working.

You are a systems thinker here, clearly, right? You're trying to change a system and be a change agent in a system. And clearly government and policymakers have a lot to do with the answer. And as part of how you'd like to see the current climate change, you are calling for an end to corporate lobbying.

Well, in our book, we take the reader through both a leadership transformation as well as a systems transformation. Drawing on some of the lessons from Unilever, but also from many of the best in class companies that we've talked to. Two of the chapters would deal with partnership. We call it one plus one is 11, which is partnership within your own value chain, your industry sector. And the other one, we call It Takes Three to Tango, which is really partnerships with civil society and governments. So, for example, Ceres, the organization in the US just issues a study that shows that, you know, 40% of companies in the fossil fuel industry don't talk to governments. I mean, when you have an issue like climate change, you think There are issues you want to discuss together to solve it. In fact, many are actively lobbying against the governments and thereby undermining, I think, or endangering a system for many human beings. So one of the things that we address in the book is some of these tougher calls. You know, calls like when to pay tax or not, how to deal with corruption, executive compensation, human rights, or forced labor in your value chain. Lobbying via trade associations. That might be different than what you are publicly stating as a company, which all too often still happens. And then, not surprisingly, money in politics. I wrote a article in January after this dreadful event at Capitol Hill that I suggested three actions for CEOs that they can take to uphold democracy. You cannot buy democracy with dollars. You have to give people equal representation. If I remember, it's in your constitution and we should not have it be decided by dollars, but by votes. So some actions that we were talking about was look at these PACs and think if, if you should not dissolve them or if they really serve a purpose. There are companies increasingly like the IBM's who never had it, or Charles Swap or others who actually went out of it. Another thing I was suggesting was ending this gap between what you say as a company and what you let trade associations do. You have here a group of trade associations like the U.S. chamber of Commerce or the national association of Manufacturers or the American Petroleum Institute, who clearly, clearly took positions in their lobbying with governments in their public statements that went against some of the things that companies were saying. When I was running Unilever, I went out of several trade associations because it was totally inconsistent with the values that we had as a company. So these tensions that are there often where CEOs hide themselves behind a wall of trade associations to deal with these difficult issues, increasingly that is being flushed out. And that inconsistency or hypocrisy to some extent does not help your companies anymore.

What would you recommend to somebody listening to this who works at a company and wants their company to move in bold new ways? What would you tell them?

So it indeed starts at the top, like fish starts rotting at the top. The same as in companies. When you see companies having broad value statements, but then you see their culture going off track. The Wells Fargo's, the Boeings, the ges. It's because these leaders are not matching the values with their behaviors. And that gap actually grows. And then ultimately you pay the price for that. So it starts with courageous leaders that have to find their own purpose, which is something that is, I find tremendously important to Withstand the cynics, the skeptics, the shocks to make you determined to move a certain direction. Bill George calls it true north in his book and this inner compass that you need. And these are the leaders that, that's why I call them courageous leaders. It comes from the French word cur. It starts as much with the heart as it is with the head. These are leaders that have a higher level of empathy, compassion, you know, excellent listeners. They have actually done well during COVID They work in partnership, they're purpose driven, they think multi generational. I think you get the idea. Unfortunately we are blessed with some of them, but we need more. Now if you increasingly you see that if you look at some of the latest surveys that have come out, 75% of CEOs think that they are very purpose driven and that they implement it in their companies. But if you then ask your employees, you at best get to 20, 25%. So there is a huge gap between what the CEOs believe they're doing and what the organization perceives they're doing. And I think like anything that what we did in Unilever as well, we ran these employee surveys not to satisfy our own egos. We did them continuously and dipsticks in between to find out where the organization was and have a pulse. And that was a good awakening because we put things in there that had directly to do with the leaders themselves. That made us feel uncomfortable but provided an enormous feedback loop to how we as leaders were perceived, which ultimately is how we most likely were behaving. We ended up from being in the bottom of the, the pile on engagement to the top of, of the top tercel on engagement. But it was because of this enrollment of the whole organization in trying to figure out how we needed to take care of what most people call the most important assets. So if you work for a company like that, I think and you're, you're in there and you see management not really walking the talk, but just talking the talk. I think there might be mechanisms that you can bring that in a polite way to the attention, that you can come up with suggestions. But ultimately if these companies don't change, then I think you need to move. Often there is a barrier of skepticism that you cannot be purpose driven and profitable, that you cannot be sustainable and profitable. And that is increasingly being busted. And if you do it smartly, if you take a little bit of a time period of a few years, you can manage most of the challenges that you have to deal with. So help these CEOs understand that bring them to bring the water to them. Show them with overwhelming evidence in your areas why it can be more profitable to the organization, make them a little bit more holistic thinkers. Because the benefits might come from a better customer service or more motivated employees and more loyal customers. And often it's not just in one bucket or another. But you have to educate that. And young people, most companies will have half of them will be millennials. Young people are the ideal voice to organize themselves and speak up in that respect constructively, but become an active engager with senior management.

Well, Paul, this has been great to hear about what you're working on and thanks for coming on the show.

Thank you for the opportunity and for what you're doing. Be safe. Talk soon again.

That's Paul Polman, the former CEO of Unilever and the founder of Imagine. He also explains a lot of this thinking in the new book he co wrote, net How Courageous Companies Thrive by Giving More Than They Take. This episode was produced by Mary Dew. We get technical help from Rob Eckart. Adam Buchholz is our audio product manager. Thanks for listening to the HBR Ideacast. I'm Kurt Nickish.