Well, I think frankly, we have a leadership deficit everywhere. It’s clear that the MBA programs, which have given us the leaders for business, are a version of Milton Friedman on steroids, and are in desperate need to be reinvented. In politics it has become, for different reasons, increasingly more short term oriented. Many of the NGOs have also been called out. Whilst they play a very crucial role, many of them are mono issue, end result focused, and are not willing to walk the journey, or walk in partnership. — Paul Polman, former CEO of Unilever
Matthew Bishop (MB): Hello, this is Matthew Bishop with Books Driving Change. Today I’m talking with Paul Polman, the co-author with Andrew Winston, of Net Positive: How Courageous Companies Thrive by Giving More Than They Take. It’s a terrific book, really drawing heavily on Paul’s own experience as CEO of Unilever, where he drove a purpose-driven company and helped it become a benchmark for many other purpose-driven business leaders as they seek to use their business to help build a better world.
Paul, thank you for talking with us today. The audience of this podcast is people who are interested in being involved, in building back better, and dealing with some of the big global challenges that we’re now facing. In a sentence, why should they read your book?
Paul Polman (PP): Well, in a simple sentence will be one question: is the world better off because your company is in it or not? This is probably the most important question to ask. What the book is trying to do is to create a movement that really describes how successful companies can profit — not from creating the world’s problems, but from actually solving the world’s problems. So we describe officially in the book Net Positive as: a business that improves the well being for everyone it impacts, and at all scales — be it product, operations, regions, countries — and obviously caters to the multiple stakeholders.
World Overshoot Day this year was July 29, which is the day that we use up more resources than the world can replenish. In other words, every day after that, we’re stealing from future generations. So it’s not anymore enough to be linear or to be circular. But more and more companies have to think about what can they do to have a positive impact on society. If they really can’t answer that, then why should society keep these companies around?
So the book talks about two things, personal transformation, because it starts with leaders, you cannot have systems changes without leader changes. So leadership transformation, and then systems transformation. And it takes you, with very simple steps, through what you need to do to get your own company in shape, to play a key role in your own value chain in your industry associations, and ultimately, in the broader society that you play in. And, the book doesn’t shy away from some of the tougher choices, such as how you deal with tax, with corruption, with trade associations, with money in politics, with human rights. It’s written for everybody, small and big companies, others who want to play a role in changing society for the better. So we think it broadly resonates.
And, if I may, the characteristics perhaps would be good to talk about of a net positive company. That basically boils down to companies that take responsibility and ownership for all impacts and consequences in the world. Intended or not. Many only look at scope one and two under their control. But you have to take responsibility for your total handprint. You cannot outsource your value chain and also expect to outsource your responsibilities. That simply doesn’t work anymore. It’s companies that operate for the long term benefit of business and society, that try to create a positive return for all stakeholders. They see shareholder value as a result of what they do, not as a goal in itself. And last but not least, they partner to form these broader systemic changes that society needs.
In every company there is an activist; every company I think has a Greta Thunberg inside of them.
MB: So we’re in a very interesting moment where in some ways, business appears to be at least talking the talk on being a more positive force in society. You know, you’ve had the Business Roundtable decision, that you note, to sort of abandon the Milton Friedman view of the world and to sort of focus on more stakeholder capitalism. And you’ve had lots of companies saying they’re committed to net zero carbon emissions by 2050. And more companies generally stepping into some of the political issues around elections in America, or issues like transgender rights, and yet there’s also tremendous skepticism. You take a book like Anand Giridharadas‘ Winners Take All, which really regards all of this as a giant charade by capitalism. How do you view this data? Because in the book you do acknowledge that, even at Unilever, with some of the things, that you didn’t feel you went far enough with, but you were one of the leaders there. Are we getting there? Is this real? Is it just greenwashing? Rainbow washing? What is it?
PP: I’ve read Anand’s book Winners Take All and frankly, that’s a book heavy on the analysis and light on the solutions. This book is really more practical and offers solutions to move it forward.
It’s very clear that governments are not functioning the way we have designed them, that multilateralism is not really delivering what we expect from it. The multilateral institutions that were designed in, basically, 1944 with Bretton Woods are not adapted to the current changes. And the bigger issues are more global — climate change, cybersecurity, pandemics, financial markets — and we’re just not getting to it. And what I think what you see is a few things, [such as firstly] technology always developing faster than people realize. So it’s easier to change things. Now take green energy [as an example], the International Energy Agency was expecting solar and wind in 2014, to be five cents per kilowatt hour in 2050. We have achieved that in 2020 already. So technology is advancing.
And the other thing that is happening is the issues are creeping up on us faster than we realized, especially on climate, we’re getting closer to a negative feedback loop. And business sees that pressure. You see the weather disasters — we literally have the world on fire — disruptions in the food supply chain, and the logistics, and many other things. And in fact, COVID has been a rude awakening that you cannot have healthy people on an unhealthy planet. Just in Europe and the U.S. alone, we’ve spent $16 trillion on stabilizing and saving lives and livelihoods. The economy itself has probably lost $25 or $26 trillion dollars, according to the IMF.
So people are starting to realize that the cost of not acting is becoming much higher than the cost of acting. And that’s why you see this high level of dissatisfaction with the young people, with employees, with your customers, with people in your value chain. And good companies understand that, they understand that they have to be part of the solution, not the problem. They’re internalizing sustainability, they put it at the center of their business, they become more purpose driven businesses. And what you see is that businesses that operate increasingly under these longer-term, multi-stakeholder principles at the core are actually also better performing. That bifurcation has been even stronger during COVID. That’s one of the reasons why you see ESG funds taking off, green bonds taking off, the investor community getting actively interested in it, standard setters moving forward. Some of the responsible governments, like Europe, are embedding it in legislation, like the Green Deal or the taxonomy, so it’s definitely moving. But as usual, as these things are becoming more topical, thousands of flowers bloom — for example, we have over 600 standard setting bodies. And it’s time to make some bouquets.
And yes, if there are no clear standards, then companies will interpret things differently. And some people might call that greenwashing. And there’s undoubtedly some of that going on. But broadly, it is clear that we’re moving in the right direction, but [just] not fast enough, and not at the scale that we need. We now have about 20% of the companies, for example, that have commitments to be net zero by 2050. But what about 2030? Because we cannot wait that long. What about beyond scope one and two, and including scope three, four or five? And that still is unsettling for many.
MB: Because in the book, you talk about how these goals ought to be. You use the acronym SMART, which is measurable and realistic. I think a lot of the netzero pledges have been made without the companies that are making the pledges really having much of a sense of how they’re going to get there. And so you feel like it’s more of an ambition that may be far enough into the future that the company’s current leadership need not own it and there’s no pathway. Is that a problem?
PP: Well, I think increasingly, for some industries, it is difficult. If you’re in the fossil fuel industry where investments are being made by your predecessor or your predecessor’s predecessor, and it takes 30 years before you get a return on drilling a well, etc., it’s difficult to change very quickly. And some of the heavy industry, which happens to also be heavy emitters, might not have all the answers yet. How do you totally decarbonize airlines, or shipping, or steel, or aluminum and some of the other things? And the fossil industry itself needs careful reflection. But what is clear is that, increasingly, companies understand that it actually can be done, and it is within reach.
Companies from Salesforce to Microsoft to Unilever, or to Pepsi and others [like] Walmart are making commitments that not only green their supply chains well before [they are expected to] — Amazon itself, 2039 — and they have clear plans and pathways to get there. But they’re actually going beyond that, they’re looking at restorative commitments, they’re looking at integrating biodiversity and planetary health into their thinking. And what we find is that companies that proactively work this are often better run, their leaders are more in tune with societal needs, they come out with better products, have more engaged employees, better relationships in the value chain, and increasingly, that is linked to better returns.
You can now measure the negative environmental impacts of companies. And even within the same industries, there are some companies who take mitigating their environmental impacts more seriously than other companies within those industries. And what we clearly find is that accounting for these externalities about a quarter of these companies would not be profitable. But even within the industries, the ones that are less productive, also have lower valuations. So I think the market is starting to factor it in. And, looking very much at the leading companies that position themselves well for the future, and starting to reward those. So it is moving.
But again, as I mentioned before, these issues are creeping up on us quicker than we thought. We’re getting close to the situation that the Amazon are becoming negative emitters, that the Borealis melting releases methane that is up to 100 times more potent in the short term, and we don’t have that luxury to wait.
So what you need is to get critical mass behind this transformation, which is a big transformation, we all realize that. And that critical mass can only come from working together with civil society, with governments, obviously, and with the private sector, to drive these broader system changes.
MB: You open the book with this example of [when] you were quite far along in your time at Unilever, and the the CEO of Heinz comes along and makes this hostile takeover bid offer to you. And it seems like this is a battle between the old style capitalism and the new style capitalism. In this case, you were able to persuade shareholders to back you in this new model against the old model. Do you feel like that marked a decisive turning point in the attitude of big shareholders towards how big companies should be managed — that they seemed to be saying: now we will support this net positive type of leadership?
PP: Well, it certainly raised awareness. I was happy that it happened during my eighth year of tenure in Unilever. We had produced very good returns for our shareholders. We also had worked very hard on changing our shareholder base, which was more loyal and had benefited from this value creation. So it came at a good moment in that sense. But it points out the dichotomy that there is in two legal systems. One that is focused on a few millionaires and billionaires, and financial manipulation, high leveraging up, cutting costs, frankly, something that anybody can do. And one that is more working for the billions of people invested in longer term value creation. And Unilever has certainly done that. Since the Kraft/Heinz attempted takeover bid, their share price has lost about 60%. They’ve had lawsuits, they’ve had change management three times, [while] Unilever share price has continued to grow. And I think this longer-term value creation model is also a better model over time for the shareholders, and you don’t have to wait too long for that. So that game, I think that was being played there is increasingly being called out as not being constructive for society. And I broadly think that the longer-term shareholders understand that there’s just so much money that we’ve put in the global economy, that a big part of that is chasing short-term returns at every cost. And there are some people that think their own greed is more important than the future lives of their children.
So you always have to deal with these challenges, but in order to avoid that over time, and to move it in the right direction, we indeed need to be sure that the regulatory frameworks and the moral standards that we put behind it, the obligations that we demand from companies as they operate in society, that they also fulfill the needs of society and get a real license to operate. It hurts to see a company like that at the bottom of a human rights index. And it gives me pride to see Unilever at the top. And if we can square that multi-stakeholder focus, in our case there was a 300% shareholder return over 10 years, then I think that is a much better thing for society. I’ve always said, I’m a proud billionaire, because we’ve focused on improving the lives of billions of people. And that’s a good way not only to live your life, but if you can also show that it is good for your shareholders, I think you square it, and give people more confidence that this should be the direction we should be pushing for.
MB: I wanted to focus on the last two or three chapters of the book where I think you really push into some of the very cutting edge developments that need to happen if a business is to really achieve its full potential in improving the state of the world.
One is this whole issue of how you in the industry can partner with your competitors to actually, overall raise standards across the industry. And one example you give us is the fashion industry, which, obviously, increasingly, people are scrutinizing for the fast fashion, and in particular for its lack of sustainability. What have you learned about making a cross-industry partnership successful? What are the conditions that can make that a really positive thing?
PP: There’s a whole chapter in the book which is called “One Plus One is 11” that deals with these broader partnerships. It’s very clear that CEOs alone are held to very high standards and often higher standards than they actually can fulfill themselves. No CEO can move the whole market to regenerative agriculture, or solve the issues of plastics in the ocean, or even get to green energy, if a broader system around you doesn’t pull in that same direction. And that’s difficult for CEOs then to move things forward. Also, sometimes they feel that if they do it, and competitors don’t, they might be at a disadvantage, because obviously there are other forces at play. So one of the reasons I created Imagine as a social enterprise is to bring a critical mass of CEOs together across the value chain, to look at some of these issues. Sometimes they are value chain issues, sometimes time availability, or knowledge issues. And together, they become more courageous. And if you have 20% to 30% of the market represented, civil society wants to join, NGOs want to be part of it, governments start to listen, and you can drive the broader system changes.
An example is fashion indeed, where we have 80 companies now in the fashion industry, together under the fashion practice. It’s a very destructive industry. But together, they have decided to move to regenerative cotton. Together, they are now buying green energy to get to the Paris Agreement and stay below 1.5 degrees. Together, they’re learning on how to integrate, with the help of Conservation International and others, biodiversity targets into their business models. So things that they could not do alone.
And I believe that, increasingly, when it concerns the future of humanity, we shouldn’t compete about that. But leave enough space in other areas to obviously compete. Now many of the CEOs get that. We get an enormous demand. We’re working also with the food companies, where we have 30 companies. We are starting now as private equity, with tourism and travel. So I think the needs are there. And creating these neutral platforms as we’ve done at Imagine is one way of addressing that.
But increasingly, you see these broader partnerships emerge, with partnerships for the greater good. And what most of these CEOs find is, whilst you cannot solve all these issues in one minute, and you have to space it out over a period of time (that we, to some extent still have), that a lot of things can be done, that are also immediately beneficial to the top and bottom line of your company. And not only from a risk mitigation point of view, but also from an opportunity point of view. And that makes these partnerships so powerful. The challenge is to get that translated into working together with governments to change the frameworks. Because right now, be it the carbon transmission and decarbonizing our global economy, or changing the food chain to make it more in line with the planetary boundaries, currently, many countries have frameworks in place that actually push you in a different direction. And that’s difficult, ultimately, to achieve your objectives if you can’t change those.
It’s very clear that governments are not functioning the way we have designed them.
MB: But you have another chapter looking really at multi-stakeholder partnerships. It seems like we’ve been talking about how you get government, business, and the civil society organizations, NGOs, to work together for a long time. What have we figured out about what makes for a successful multi-stakeholder partnership? Because a lot of them haven’t succeeded.
PP: Successful partnerships — many partnerships obviously don’t work out — there are numbers floating around that 75% of partnerships might fail. But ultimately, if the aligned objectives are there, you have the same purpose, you’re very clear on what each partner brings to the party, you work with transparency that creates that trust, you have clear accountability mechanisms, everybody clearly understands what his or her contributions are, then these partnerships can work very well.
Unilever built a tea plantation in Rwanda, where we needed the government from Rwanda, and where we needed organizations like Dfid, the U.K. development aid, and where we actually got high net worth individuals, like Ian Wood from the Wood Foundation, that were willing to help and protect the smallholder farmers. And we could create a value chain that was good for all of its stakeholders, and delivered the quality tea that also was feeding our brands. By the way, interestingly, [speaking of] the brands, people want to know if these products are sourced sustainably and where they come from. So building these whole models with these broader partnerships are very important. When we went into Ethiopia, we first worked with the government with our brands like bar soaps or toothpastes, or [we worked] with the health workers, they have about 30,000 health workers there, to teach people the benefits of hand washing, or tooth brushing, that are far more preventative solutions than waiting for the problem to occur. And only when we created that credibility over the longer term, we [were then able to] make these brands available into society on a broader level. And these are the broader partnerships that work for us.
It’s interesting in the book, we talked about $3.5 billion being [spent] in lobbying in the U.S. alone — I wonder how much money goes to self-interest? Well, one company says A and the other company pays money to say B; where politicians are in the pockets of some of these big spenders, we see, increasingly, that that’s not the type of democracy that ultimately builds the value. And I think you see the enormous price we pay for that. Ceres, which is a company that is very capably led by Mindy Lubber, is pulling the financial market to a higher level of responsibility. It was looking at all this government spending and lobbying etc., and it actually found out that 40% of the companies in the U.S. were not actively even engaging with governments, or moving things forward in the right level, on let’s say on climate change, when they know it’s a big issue.
So the book is talking about: how do you create these partnerships? Why would you do that? What benefit do you get out of that by being a participant? And frankly, the employees and the companies expect the CEOs now to increasingly participate. About 76% of the employees expect this. And it’s interesting, because CEOs broadly think they do. But when you ask their employees, there’s a big gap between what the employees think and what the CEO themselves think.
MB: And as you say, one of the things we’re seeing now is employees becoming more vocal — in social media and elsewhere, at meetings, and so forth — and holding their bosses to account. And we’re almost out of time, and I’ve got two more questions. One, is really, I love your last chapter where you go, what the next frontier of…
PP: Engaging the Elephants
MB: Yeah, the elephants. And obviously, one of the elephants that you acknowledge right up front is companies trying to avoid paying taxes, and you really argue against that. Another is this lobbying issue, you want to basically end, and political donations, you want to get rid of those. And then you talk about corruption. Are you starting to see company leadership and shareholders really want to get into these, to address these elephants in the room, or do you feel like there is still a long way to go?
PP: On some issues more than others, obviously. But you mentioned a few. I don’t want to respond to all of them, but take tax for example — one quarter of the Fortune 500 companies paid zero tax in 2018. 10% of GDP is in offshore accounts. 500 or 600 billion of taxes are lost as a result of that. At Unilever I put my tax principles on my website. We got out of these constructions that were purely organized for tax reasons, and the company did fine. We hire people that get free education, we would use the road systems, we need social safety nets around people. When you get things like COVID, I think it’s quite normal that you pay tax as well. So it’s hard to square over time that society will give you bonus points on being a purpose driven company, if you don’t find a way to contribute your fair share there either.
And it’s the same thing with some of the other areas that we talked about. If you look at the shareholder propositions right now, the shareholder resolutions, they are actually demanding more and more transparency.
Take in the U.S. the issue of money and politics. If you will have taken 2009, well before this January 6 event of storming the Capitol, in 2019, there were over 50 political spending proposals on the ballots of shareholder meetings, non-court accepted; if you look now, to date, already in 2021, there are over 40 on the proposals, and you’re already running at a significantly high level of support.
MB: For disclosing what the donations are and who to.
Companies have to think about what they can do to have a positive impact on society. If they can’t answer that, then why should society keep these companies around?
PP: What the donations are and for what they are. So you see, actually, the shareholders are demanding more. Now more CEOs are getting fired for ESG related reasons, then for performance related reasons. You see shareholders demanding, like in the famous Exxon case, that they are more aggressive on mitigating climate change. We saw it with Shell and some other companies [too]. So if you don’t embrace these elephants proactively, and have a strategy around that, which is what we’re really talking about in the book, then I think you will be exposed.
You mentioned in every company there is an activist; every company I think has a Greta Thunberg inside of them. And if they see, increasingly, these companies, on the one side, saying we want to do this and making these public statements, but then, for example, financing trade associations, like the American Petroleum Association, or some of the others actively advocating the opposite, then you lose credibility, you undermine your culture, and ultimately, the fabric of your company, and that gets reflected in your success, and share price.
So it is important that you discuss these issues, it is important that you take positions on them, and it is important that you do that in a holistic way. And not do it in a CSR way, where you pick a few topics that you think suit you well, but then go horribly wrong in the other areas. That’s why this book talks about net positive in a more holistic way. And which makes it such a powerful book, actually.
MB: I wanted to end with asking for some career advice for our listeners. You mentioned every company having a Greta Thunberg maybe lurking within it, but the book really, I think, raises more clearly than any other book I’ve read, this notion that you can be a net positive leader. If you’re someone who is committed to public service, you can actually go into a company and see that as a way of living a life of public service, which is an idea that 25 years ago would have seen laughable or even 10 years ago, but now seems to be a choice that many people are wrestling with. If I want to give, if I want to be part of the effort to build back better, should I go into business? Or should I go into government? Or should I go into a nonprofit? Or what? How would you advise someone trying to wrestle with that kind of calculation as to where they should focus their energies and their life, if they really want to have the biggest positive net positive impact in their career?
PP: Well, I ended up in business, by a little bit of serendipity. I wanted to be a priest first, then a doctor, and none of that really worked out. So I ended up being in business. But I discovered that, business being 60% of the global GDP, 65% or 90% of the job creation and the financial flow that you cannot solve any of these famous Sustainable Development Goals, bar a few if you don’t have business actively in there. So you need business, but for the same reason, you also need government, and you need civil society. It’s really what the book ultimately talks about is this partnership that needs to be formed between all of them.
And my advice to anybody listening and looking for a job is: find out what the world needs, what you’re passionate about, and what you’re good at. And if you can work on that intersection of what the world needs, your passion, and what you’re good at, then you’re going to have a very fulfilling and and very gratifying life.
Mark Twain said there are two moments in life that are the most important: the first one is when you were born, and the second one is when you figured out why you were born. If you can operate on that intersection, it is giving you a meaningful life that I think most people aspire to. So it’s not one or the other, it’s really finding yourself and realizing, above all, that we are lucky. Most of the people listening here have been educated, they didn’t have to deal with the issues of food security, or stunting, or open defecation. But that, unfortunately, is only 5% of the world population that you belong to, and have that freedom to some extent. And then it is important, I believe, to put yourself to the service of the other 95%, who still have not been so fortunate.
MB: If I asked you to build on that, if I asked you to take a 100 mile up view of the world, I suppose you would say that for someone wanting to have a positive impact for good, there’s never been greater opportunity to do that through business than now perhaps. But if you looked at each of business, civil society, and governments, and you looked at their human capital, where are people with a service orientation, most needed? Is it business? Is it government? Or is it civil society at the moment?
PP: Well, I think frankly, we have a leadership deficit everywhere. It’s clear that the MBA programs, which have given us the leaders for business, are a version of Milton Friedman on steroids, and are in desperate need to be reinvented. In politics it has become, for different reasons, increasingly more short-term oriented. Many of the NGOs have also been called out. Whilst they play a very crucial role, many of them are mono issue end result focused, and are not willing to walk the journey, or walk in partnership. So I think the biggest deficit is not in one or the other institutions. The biggest deficit ultimately, is the leadership. And that’s why this book starts with a very famous question: do you care? And that’s why we believe and what makes it so powerful, is that you need a personal transformation before you get a systems transformation.
MB: Well, thank you. I think that’s a great note to end on. I would like to thank both you, Paul Polman, and Andrew Winston for writing this book Net Positive: How Courageous Companies Thrive by Giving More Than They Take. It is an incredibly positive and practical book that anyone who is thinking about if they should live out their public service through business, will find very useful and very inspiring. So thank you very much for talking about the book with Books Driving Change, Paul, thank you.
PP: Thank you, Matthew enjoyed it.
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This transcript has been lightly edited for context and clarity.