In today’s consumer economy, businesses feel shareholders’ pressure to make higher profits in the short term. That could mean more intense selling on the sales floor, or moving jobs to countries with lower wages. But what are the consequences — and use — five or ten years down the line?
Unilever is the third largest consumer goods company in the world, making everything from Ben & Jerry’s Chunky Monkey to Dove body wash. And it has the second biggest advertising budget. It sells goods to two billion people every day, and its products are in seven out of ten households around the world.
In selling all those products, Unilever CEO Paul Polman has something else in mind. He criticizes what he calls “mindless consumption” — the kind that many of us are used to these days. And he’s taken steps to get not just his business, but other major corporations, on a better path.
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Looking beyond quarterly reporting
Polman sees a lot of dangers lurking around the corners for businesses that increasingly worry only about pleasing shareholders every 90 days, with their quarterly reports.
“I saw a recent survey in the U.S. that 75 percent of the CEOs were willing to postpone the right decisions if it would affect their quarterly reporting, and that cannot be healthy for the long-term of the business,” Polman points out.
He lists the ever-shortening tenure of CEOs as one major challenge for companies in today’s global economy. He’s been at Unilever for four-and-a-half years — longer than many peers at other major corporations.
After taking the helm, Polman immediately got to work developing a better, more sustainable culture around the office. That included putting an end to quarterly reporting and changing the company’s compensation system accordingly.
“We had to create the right environment so that people would start to think about the longer term,” he says. “What we have seen is that discussions with our financial community have become a little bit more strategic. The decisions in the company are a little bit more long-term.”
Still, he stresses that the changes don’t mean that the short-term performance should suffer. “We’ve seen our share price more than double over the last four years, and our growth accelerate,” Polman says. “So if you explain it well why you do these things, more and more shareholders are behind it.”
What does he say to those who continue to argue in favor of shareholder value?
“We know it’s very easy to optimize — short-term — the share price,” he admits. “But lives of businesses are getting shorter and shorter, and yet society needs them more and more. Nine out of ten people in this world depend on businesses, and I think it’s in all of our interests to create healthy institutions… You cannot get a successful, healthy business model if you also don’t create a healthy environment. Business has a hard time succeeding in societies that fail.”
Change comes when big companies work together
Beyond trying to change corporate culture itself, Polman is involved in a number of other sustainability initiatives.
“Most of the activity that actually touches society is happening in the supply chain,” says Polman, “and that’s why we take responsibility from sustainable sourcing to sustainable living.” The company looks to find materials from sustainable sources, but then also looks to encourage sustainable choices on the consumer end.
There are some jobs too big for even Unilever to handle alone, and Polman works with several other companies on certain initiatives.
“To really get the meaningful differences that we’re looking for, it requires more than any individual can achieve,” Polman says. “What we’re now dealing with are enormous challenges of poverty or climate change; sustainable growth in its broadest sense; equality… That requires a broader level of partnerships.”
Take the example of ice cream: Unilever handles brands like Ben & Jerry’s, Breyer’s and Magnum. In moving to natural refrigerants for display cases, Coca-Cola and Nestle joined a coalition with Unilever to convert the market at a global level.
“It needs a tipping point; no individual company can do that alone,” Polman adds.
A similar effort is aims at ending illegal deforestation. Unilever and other companies “made a commitment not to sell anything anymore from illegal deforestation by the year 2020 — soy, paper, pulp, beef, palm oil. And if a big association representing $3-4 trillion of consumer sales makes that commitment, it sends a very strong signal into the whole value chain,” he says.
The role of business going forward
How can you reconcile the business of business — namely, making a profit — with all of these sustainability goals? Polman says that capitalism is still a great system, but it needs to be able to adapt.
“What we’ve created here is an enormous force to lift people out of poverty,” Polman points out. “But at the same time, we haven’t figured out how to do that without incurring these enormous levels of government or private debt; overconsumption; and frankly, leaving too many people behind. You cannot say that the system properly works if there are over a billion people going to bed hungry.”
Businesses may be some of the best forces at enacting the kind of change we need, he adds.
“Increasingly with governments being gridlocked, the need for change increasingly has to come from responsible business. If businesses understand that, they’ll have a bright future. If businesses don’t understand that, I think the consumer will increasingly vote them out of business.”