When Lebanon-based Fattal Holding, agents and distributors for numerous global brands in six countries of the Middle East and North Africa region, celebrated the 80th anniversary of their partnership with consumer goods multinational Unilever, the occasion was auspicious enough to bring Unilever Chief Executive Officer Paul Polman to Beirut. Executive used the rare opportunity to squeeze an interview into Polman’s hyper-busy schedule.
E I would like to start with a macroeconomic question. Multinational producers of fast moving consumer goods (FMCG) are affected by global economic challenges more and earlier than other types of multinationals. How is Unilever dealing with macroeconomic challenges across the globe?
At this point in history, whether we like it or not, we have to deal with an economic system that produces slow growth and many companies are challenged by that. In Europe there is deflation and a geopolitical environment which is seeing more conflicts than we have in a long time; the [Middle East] is unfortunately one example, but there are many others too.
Then we have the effects of climate change which are coming through at an increased rate. All of that causes a social dissatisfaction that we also have to deal with, and all these forces don’t make it easy.
If you think of that at a high level, of what you can do if you are in my position, the first thing is to be sure that your organization is driven by a strong purpose because the stronger your purpose is, and the more people are aligned with it, the more it will permeate these short term volatilities.
The second thing you need to do is be sure that your organization has a certain level of agility. It is now much more difficult to anticipate all these changes that are going to happen. With a company like Unilever, it means creating four different business units; we are more decentralized, driving decision making down, delayering organizations.
The third thing to do [in tandem with creating] agility, which is the ability to react quickly, is to build up resilience. Agility and resilience have to go hand in hand if you want to be a top performing company. So as a company we spend a lot of time building that resilience and one of the ways in which we do that is to look at our leadership development and what type of leaders we need.
E In their governance, companies today are looking more and more at bottom-up approaches, embarking on inclusive visions and missions, as compared to a top-down approach. How successful were you in migrating Unilever to this culture?
Changing the culture is the most difficult thing for a financial market to understand and it’s also the most difficult thing to do. In many companies, the top level implements something and thinks the rest of the company will behave which is not true; it takes a long time. For every layer in the company, you will need a year to change the culture. And culture is also influenced by many other things. What is happening is that people are looking for a deeper level of job satisfaction. They are discovering that happiness comes from positively influencing others and leaving the world a better place.
When we moved to the Unilever Sustainable Living Plan [ed.: a transformation project aiming to double the business while improving environmental and social impacts], I took a year to first be sure that our internal organization was aware of what we are doing, because they had to be comfortable with the idea. We don’t incentivize people too much which is interesting, it is not in our bonuses or something like that. We just expect people to join us and the more people join us and are there for that reason, the quicker we can advance our cultural journey.
E Lately we’ve witnessed a shrinking emerging market which contributed to 57 percent of your revenues a few years back. As an executive committee, when you submit your strategy for the next year to the board, to what extent is the board reasonable or unreasonable in terms of market expectations?
In fact we don’t make forecasts for one year; I don’t think they are very useful. You have to continuously work with the board and make them part of the change process that you are applying in the company. As CEO I am part of the board myself. Board members come from a broad variety of backgrounds, from their knowledge base or region of origin, and they only meet six times a year. Because this world is changing so fast and there are many issues, such as cyber security, digitization of society [and] changing emerging markets, you have to spend a lot of time educating and updating the board [on issues such as] why we have the Unilever Sustainable Living Plan, and why this is our business model. The board, on its end, has to be very confident in the CEO and his management team; after all, the main responsibilities of the board are succession plans, governance and protection of the culture. A lot of the other things are actually delegated to management but the way we work is to engage them as if they are part of the company; I believe this is the best way.
E To what extent do you think shareholders have taken note of the environmental, social and governance (ESG) concerns as factors in evaluating their investments and do they assess you on your ESG?
The answer is, not enough, but the positive thing is, increasingly so. For example, there is an enormous divestment movement worldwide in the financial markets on carbon. So if you take this specific topic, carbon and climate change, the financial committee has been majorly aware. The reason is that if you want to stay within the two degrees [of global temperature increase] which was a clear signal in Paris, this basically means we have to leave in the ground about two thirds of the carbon stock that has been discovered. These are now called “stranded assets”, so all of a sudden the financial markets are interested.
[pullquote]A company like Unilever reaches two billion consumers a day in 119 countries and has a value chain that influences tens of millions of people[/pullquote]
The other reason, on the business side, is that people are starting to discover that the cost of not acting is becoming higher than the cost of acting. A good example is the insurance companies. Over the last ten years [insurers] paid $2.7 trillion more in response to natural disasters than the normal average; 14 of the last 15 years in history have been the hottest years on record, [and] the sea level has risen. Some people are starting to see this as enormous risk that needs to be dealt with. [Also,] the costs of mitigating [climate change risk] are coming down rapidly because of technology; solar is a good example. You have forty countries in the world where green energy is already cheaper than fossil energy.
So we need to change some things like market mechanisms. We need to price in carbon, we need governments to start developing rules and regulations, we need subsidies in many parts of the world to accelerate this process and the financial markets are taking notice of all this.
The other reason why ESG investment is going well is because 75 percent of the money that is invested by these institutional investors is your or my pension money; it’s the money of us all and society is starting to wake up to the need for change. So the ESG investment itself is the fastest growing. People are subscribing to the UN Global Compact and Principles of Responsible Investing (PRI). We are definitely on the right curve and for good reasons; my main concern is how fast we are [acting]. [To achieve] what we signed in the sustainable development goals and [at the COP21 conference] in Paris, we have to accelerate.
E To which extent can a company like Unilever be an agent in reinforcing this commitment to the ESG?
A company like Unilever reaches two billion consumers a day in 119 countries and has a value chain that influences tens of millions of people who are directly or indirectly working for us. So we have a longer term view. To implement the sustainable development goals (SDGs), it’s going to cost the world between $2 trillion and $3 trillion a year. This is a low investment compared to the global economy and certainly one that would be a good payout to eliminate poverty in the most sustainable and equitable way, but the overseas development aid from all countries is $140 billion – so where is the money going to come from? It has to come from the private sector.
It’s also really difficult now to depend on the governments alone because most of the institutions that have been designed to deal with the global issues of governance were designed at Bretton Woods when 85 percent of the world’s economy was in Europe and the United States. I am talking about the IMF, the World Bank and the OECD. Today it’s so difficult to forge global agreements when governments come together because we haven’t figured out what the governance is in this increasingly interdependent world, and we are living off a system that is over 70 years old. Business needs to step up because there is no business case in enduring poverty. We need to be sure to forge what I call these partnerships for the common good. When developing the SDGs we insisted on goal 17 which is about partnerships, but these are not partnerships working together on products or on technology; they are partnerships for the common good. If we can rise to that level, we can solve any problem; we just need human willpower which is actually a renewable resource. That is why I often say we need more leaders and we need more trees.