In defence of Unilever and corporate social responsibility
16 March 2017
Forbes recently ran an opinion piece titled ‘Unilever and the Failure of Corporate Social Responsibility’. The importance was not in the article itself – the author Tom Borelli is a long-term ideological opponent of CSR and its case is typically overstated – but it is an indication of the particular vulnerable position we’ve reached at the moment in the development of business as an agent for sustainability.
Let’s list the substantive points.
- Certain CEOs (he names Schultz as well as Polman) are putting their “personal agenda” ahead of the interests of investors.
- Polman’s leadership has not been effective. This point is considerably weakened by the values-laden rhetoric employed (“disastrous leadership”, “twisted priorities”) but let’s put that to one side just for now.
- This is highlighted by the fact that Unilever, in spite of Polman’s attempts to emphasise sustainability, is not ethically perfect, with sexual harassment claims at a location in Kenya and competition issues in South Africa.
- Polman is distracted from core business issues. The evidence offered for this statement is that he gave an interview to a magazine where he talked about the UN Sustainable Development Goals rather than the company’s financial results. Truly shocking, I think you’ll agree.
- Unilever’s business is suffering. Evidence for this is that sales for 2016 were 3.7 percent, below Wall Street’s estimates of 3.9 percent.
- But most of all Polman’s “biggest blunder” was to reject the takeover bid from Kraft. This apparently “perplexed” Wall Street. Evidence for the blunder was that the share price dropped 8 percent following the rejection.
Let’s deal with these quickly, and then move on to look at some actual substantive concerns that arise from all this.
1. The “CEO with a personal / political agenda” argument.
It’s certainly the case that if a CEO were to bring an agenda that was irrelevant or damaging to the business, then that might well be a point of concern for shareholders.
You can only believe that to be the case here if you believe that the need for business to engage with sustainability is mistaken (as Borelli does).
For Unilever, a company that is seeing the impact of climate change in its supply chain, that realises that the sustainable creation of wealth (and therefore profit) in the future is going to rely on producing goods with a considerably reduced impact, this is a solid business need. They are ahead of some of their competitors in terms of the vigorous action they are taking on this (but they are hardly unique, except perhaps in Polman’s willingness to take the spotlight as an advocate) and there may well be advantages to being first movers. But in any case, this is a journey that we will have to go down in order to create wealth sustainably.
Kraft owner 3G has a track record of slashing costs (and people) to generate a short-term surge on the balance sheet. People who think that is a good idea have no sense of the importance of the work Unilever is doing for our ability to generate returns in the future.
2. Polman’s disastrous leadership.
This point is mainly invective. Although Polman has seen some increased pressure since the Kraft bid, the mood music from mainstream investors has certainly not been in line with this assessment. By and large, Polman has been able to be bold about Unilever’s robustness on sustainability because he’s been standing on solid financial performance.
Unilever makes the top 50 of Fortune’s Most Admired Companies List – a list compiled from the views of thousands of executives and analysts. That seems to be a reasonable indication that those in the best position to know think that Polman is doing a pretty good job.
3. Unilever is not ethically perfect.
This point sits slightly oddly with the whole point of the piece, since you can’t really argue that someone shouldn’t be distracted by ‘issues that don’t matter’ but also they should be better at them.
But here’s the thing. No company of a significant scale is going to achieve ethical perfection. Ever. Just as no NGO, government, or any other organised body of human beings will do likewise.
The important thing is how the company responds to failures when they happen, and whether they organise effectively to avoid such problems as far as possible. Given Unilever’s huge global scope, if these examples are the only things the author could find, Unilever is doing pretty well, notwithstanding that they need to sort these out.
4. Polman is talking about sustainability to magazines
Yes, that’s because it’s a serious business issue. Those financial numbers don’t appear out of thin air. They come from the extended process of taking raw materials and adding value to them, and doing that sustainably on a planet and within societies under stress is going to be key to keeping the numbers healthy into the future.
Unilever points out that its brands that are most associated with sustainability and social responsibility have been its fastest-growing and best-performing brands. If the opposite were true, the author might have a point.
We’ve seen before what happens when people focus on the numbers with no regard to what underpins them. Like the Philippines logging industry that generated healthy contributions to the country’s GNP – right up until the point where the depletion of the forest base led the industry to collapse. And the numbers had looked so healthy up until that point. Sometimes you’ve got to raise your eyes from your spreadsheets and see what’s happening in the actual world.
5. Unilever’s financial performance is suffering.
Because good companies never fall below analysts’ guesswork, and the gulf between 3.7 percent and 3.9 percent is stark, I tell you, stark.
In truth, Unilever’s financial performance is steady. Those who are ideologically of the view that companies need to maximise returns – not deliver fair returns but deliver above average returns – will never be happy with steady.
It’s right that Polman should always have pressure on delivering good performance – we need sustainable companies to be well performing ones. Otherwise, the unsustainable companies end up with the market advantage, which sends the wrong signals for people like Borelli to exploit.
But at some point we need to address the damaging effect of these ideological investors. All companies chasing ‘above average’ returns promotes short-term thinking to the detriment of our long-term future. And it guarantees that some good companies that are producing good value for their customers and society fail because they don’t deliver ‘above average’ returns.
It is in the definition of ‘average’ that only a minority can every pass that test. And the drive for overperformance was what pushed all those financial companies to engage in practices that led to a huge and dangerous crisis.
6. Unilever’s share price went down when they rejected Kraft’s bid
If you’re going to quote the short-term movements of share prices as your evidence, you’re really declaring to the world that you know nothing. Unilever’s shares quickly recovered their value after the immediate drop and have been edging upwards ever since – something that presumably wouldn’t have happened if mainstream investors shared the jaundiced view of the company’s prospects.
Ultimately, Tom Borelli is the sort of anti-CSR ideologue who doesn’t represent the mainstream of business sentiment. He was part of the ‘CSR Watch’ website (now defunct) that was founded on the belief that CSR is a conspiracy by left wing activists to force their agenda on the country via businesses. Anyone who knows how the movement for CSR has developed over the last twenty years will struggle to see that as any kind of description that matches reality.
However, the article does identify a particular danger, and a vulnerability.
In the past, we have seen mainstream businesses embracing – to a greater or lesser extent – the imperative for sustainability because the business case is unarguable. If you’re interested in creating wealth for the long-term, you have to deal with the unintended consequences of wealth creation today.
However, every action provokes a reaction. And the fact that we have begun to make progress in this direction – with a number of very mainstream firms getting serious about tackling some difficult areas – would sooner or later inevitably attract a response.
In his article, Tom Borelli approvingly name-checks the Trump election as evidence that good people are taking down the privileged elites, with the implication that Polman is a representative of such an individual. He wants the revolution that swept Trump to power to equally sweep aside CEOs ‘with a personal agenda’.
That is nonsense, but it highlights the point that at a time of political polarisation, there is a risk that socially responsible businesses allow themselves to be pushed into taking a political positioning that undermines their pragmatism, that takes the focus off what needs to be done in order to create wealth sustainably and turns it into something that can be labelled as partisan and ideological.
All those well-meaning campaigners who tried to push companies to refuse to serve as advisors to the Trump administration have fed this. We need companies to build a sustainable future much more than we need them to make futile political gestures that will get one-day headlines at best.
We need to build a consensus across the political spectrum in order to achieve sustainability, and the most disastrous mistake we could make would be in falling into the trap that encourages companies committed to CSR to define themselves by aligning with one political view.
That’s the danger – and the vulnerability?
We have seen a small number of individual business leaders prepared to plant their flag in this forward-looking agenda. Paul Polman has gone further than most. That creates an opportunity for him to be an effective advocate so long as Unilever’s performance remains strong. But the Kraft episode underlines the fact that the people who never look up from their spreadsheets are still the ones in the majority.
The danger right now is that if the handful of companies that have defined leadership in this area have a period of bad performance (and most companies do eventually) then it may make it politically harder for other CEO’s to take a similar leadership position.
We need more leaders in this area – to the point where sustainability becomes accepted as the norm rather than the exception. If Polman was to fall from grace that could be hugely damaging for the cause. That leaves us a lot more vulnerable than we want to be.
Polman framed it best in his Fortune interview: “The question is, ‘do you run this for society or not?’ The real purpose of business has always been to come up with solutions.”
It is the establishment of this principle that is at stake.