Paul Polman: “Being ‘less bad’ isn’t good enough anymore.”

Paul Polman works to accelerate action by business to achieve the UN Global Goals, which he helped develop. He was the CEO of Unilever from 2009 to 2019, co-author of “Net Positive: how courageous companies thrive by giving more than they take”, and has been described by the Financial Times as “a stand-out CEO of the past decade”.

You’ve been calling for the world of business to tackle our planet’s biggest issues since your Unilever days. What has stopped leaders from stepping up all this time?

The barriers are changing. They used to be Why — “Why should we act if we’re not even sure whether the problem (climate change, rising inequality…) is real or not?” Then, the existence and scale of said problems became irrefutable, and the barrier morphed into What — “What can we even do about it?” Then, practical solutions emerged, and the barrier evolved once more, this time into How — “How are we supposed to pay for fixing all this?” And that’s where we’ve been for the past few years.

Today, that, too, is changing, as we’re reaching a point where the cost of not acting is overtaking the cost of acting. Take the Covid-19 pandemic: in Europe and the US alone, this virus has cost $17 trillion — vastly more than what would have been required to mitigate the issues of climate change, deforestation, and reduced biodiversity. “Non-material issues” are turning into material ones, gradually aligning the shareholders’ interests with the stakeholders’ and forcing companies to change.

That’s the “good” news. The bad news is that roadblocks remain. Four, in particular, come to mind:

• First, the flow of money towards greening our economies is not yet there. It requires changes in how multilateral financial institutions work and risk is shared with the private sector. For example, technology needs to be accelerated, but some changes have higher upfront costs that need to be dealt with, and especially emerging markets will need help. In particular, we still need to address short-termism. You can’t address deep-rooted, systemic issues if you’re in the rat race of quarterly reporting and unable to see past the end of your nose. You may be genuinely trying to do the right thing, but at best, you’re only going to slightly improve the outcomes of a system that’s not designed to deliver the results you’re looking for.

  That’s why the first thing I did at Unilever was to abolish quarterly announcements and move to a compensation system aligned with the long term. I wasn’t trying to be different for the sake of it; I wanted an environment that allowed people to behave in the right way. No CEO wants more unemployment or more climate change — but collectively we’re not delivering due to these boundaries in which we operate.

  “No CEO wants more unemployment or more climate change — but collectively we’re not delivering.”

• Second, leadership. Climate change, inequality, food insecurity, or even Covid aren’t the actual crisis — they’re mere symptoms of one larger, underlying problem: a crisis of greed, selfishness, apathy, and, ultimately, of leadership. We simply don’t have enough of the right leaders. And how could we, when the average CEO’s tenure isn’t even five years, and when boards keep handsomely rewarding the same behaviours and decision-making that caused today’s problems in the first place? Our educational systems need to evolve as well. We are still creating too many little Milton Friedmans on steroids.

  “We simply don’t have enough of the right leaders.”

• Third, measures of success. You treasure what you measure. One look at our heating planet and our divided societies is proof enough that Milton Friedman was wrong, and yet we continue to define success according to the narrow criteria that he popularised: “an entity’s greatest responsibility is to satisfy its shareholders.” If we want capitalism to remain the engine of prosperity that it can be, we have to change our mindsets and redefine success as more than just optimising returns on financial capital and also take responsibility for social, human and environmental capital.
• And fourth, lack of multilateral systems. Most of our institutions were designed in the wake of WWII, and as such, they’re built for a Western-centric, “G7” world that doesn’t really exist anymore and is steadily being replaced by a “G-Zero” where no nation or group of nations clearly dominates. And so, in the absence of one undisputed leader, and without institutions able to represent everyone and build consensus, there is no force pulling all of us together in one direction to solve our global issues.

What action should boards take?

My first recommendation, specifically for boards: own the problem. There’s the cliché view of management teams being the main culprits for the situation we’re in, and yet two-thirds of CEOs say that the pressure to focus on the short term is coming from their own board. The same goes for the complaints around the average CEO’s tenure being so short: didn’t boards pick these CEOs in the first place? How is it possible that the average length of “long-term” compensation — approved by the directors — is only 1.8 years? Boards should be one step ahead of the executives, showing them the way and creating an environment where CEOs can be the kind of leaders we need, but for this to happen, they first have a lot of work to do on themselves. That also holds for understanding a company’s impact on society, including environmental and social. Too many still think they can outsource their supply chain and their responsibilities. That does not work anymore.

“Boards should be one step ahead of the executives, showing them the way and creating an environment where CEOs can be the kind of leaders we need.”

Second: be ambitious. Most companies these days are trying to be “less bad” at best. Playing not to lose versus playing to win. They commit to fewer tons of carbon emissions, less deforestation, less single-use plastic in the oceans, and more recycling… But we’ve overshot the planet’s limits by such a huge margin that “less bad” simply isn’t good enough anymore. That’s not what science tells us. Being “sustainable” is a bit better, but even that won’t do it, because it would only keep us where we are instead of undoing the damage we’ve done. The only acceptable goal should be to transform your organisation into a regenerative, restorative, reparative force — that’s what we call a Net Positive company.

“We’ve overshot the planet’s limits by such a huge margin that “less bad” simply isn’t good enough anymore.”

It requires boards to familiarise themselves with the key issues out there that affect their business and understand how putting sustainability at the core of their operations drives value.

Third: embrace broader partnerships. If it all sounds like a tall order that no leadership team or board has a chance of fixing all by themselves, that’s because it is! No matter the scale your business operates at, no single company alone can solve climate change, plastics in the oceans, deforestation, human rights abuse, the undermining of democracy, or any other global issue. That means that decision-makers can’t just focus on improving their own organisations; they must work with others to improve their whole field.

One way to have a real impact is to bring together a critical mass of leaders so they can start transforming their practices as a group. It’s what I’ve been pushing for in recent years within destructive industries such as fashion, food, and tourism & travel. What we’ve found is that when they are together at critical mass across the value chain, CEOs become much bolder and braver. We call it the courageous collective. So, my advice to leaders would be: think beyond your organisation and collaborate to move your whole sector forward — because it’s the only way you can tackle the real challenges.

How can boards improve in this regard?

It starts with having the right skills around the table. The NYU Stern Center for Sustainable Business found that the vast majority of Fortune 100 directors don’t have ESG credentials, with only 6% coming from a professional background relevant to the G or the S. One would never dream of running an audit committee with so few experts, so why do we accept it in this area? Training directors and recruiting to fill that competence gap should be a priority for every board.

“The vast majority of directors don’t have ESG credentials. One would never dream of running an audit committee with so few experts, so why do we accept it in this area?”

Diversity is also key in this regard. There is increasing evidence that more gender-diverse boards tackle these issues better and create more value for shareholders. But what about minorities, people with disabilities, etc.? Diversity is broader than most boards are reflecting.

Then, boards need to have a serious second look at what “fiduciary duty” truly means. The UK is doing better than most here, thanks to Section 172 of the Companies Act, but we’re still only in the early stages of recognising that boards’ fiduciary duty extends far beyond their shareholders’ money. That’s why I’m such a big supporter of the B Corp movement and how it’s helping change that narrative.

For those willing to upskill themselves and their board, there are plenty of resources that you can tap into. For example, organisations can join initiatives like the UN Global Compact, the World Business Council for Sustainable Development, the International Chamber of Commerce or Competent Boards — all three have fantastic training on offer. Or you can take a look at universities such as IESE or St. Gallen that have high-quality board education curricula.

Directors are busy people, but as chair or CEO you should demand that board members go through one of these programmes. Not only will your organisation be better for it, but your directors will also find it amazingly interesting — provided they have the kind of natural curiosity that all great board members share.

Last but not least, once you have these skills and that understanding within your board, ask yourself the two questions that actually matter:

1. As an individual, what’s your purpose? You can’t create a purpose-driven organisation if you’re not purpose-driven yourself, so what makes you a moral leader? How does that relate to the company? And is it actually lived?
2. And as an organisation, how can you profit from solving the world’s problems rather than creating them? In other words, is the world better off because your company is in it?

What do you see in the world that makes you optimistic about the future?

To quote Desmond Tutu: “I’m a prisoner of hope.” The latest IPCC report is incredibly alarming, and there’s no doubt that we’re heading towards a dramatic reckoning. Many of the signs are visible already today. But it will also be our opportunity to create a more inclusive, equitable, sustainable world. And if we grab that chance, we could very well be looking at one of humanity’s most successful periods. This is the growth story of the century.

“There’s no doubt that we’re heading towards a dramatic reckoning. Many of the signs are visible already today. But it’s also going to be our opportunity to create a more inclusive, more equitable, more sustainable world.”

There are lots of reasons to be hopeful. We always underestimate the speed of technology, and we are seeing the cost of not acting starting to exceed the cost of acting. Finally, the more purpose-seeking Millennials and Men Z are demanding changes — and importantly, a seat at the table.

Covid has shown us how fast we can move when our lives are at stake. We haven’t quite realised how much climate change is putting our lives at risk just yet, but as awareness grows, we’ll eventually reach a point where we’ll start tackling the problem with the same kind of full-on reaction — because we sure are capable of it.

This interview was conducted by Dr Scarlett Brown, Pippa Begg, and Maximilien van Gaver.