How to lead with courage and build a business with heart

It‘s unlikely you‘ve heard of Arthur Pigou, the Cambridge University economist who laid the groundwork for “stakeholder” capitalism. Pigou, who died in 1959, argued that production of goods and services often involves costs that are borne not by the producer or the end customer, but by society at large. These “externalities,” as he termed them, are a hidden tax on public welfare. Examples might include the CO2 emissions of combustion-powered cars, the negative impact of social media on mental health, and the social costs of discriminatory hiring practices.

In recent years, as the side effects of unfettered capitalism have become more visible and noxious, companies have been pressed to embrace a mission that goes beyond profits. Much of the squeeze has come from asset management companies, like Blackrock, that have threatened to disinvest from businesses that fail to take steps to improve their environmental and social impact. Governments are also tightening the vise. In April 2021, the EU passed its pioneering Corporate Sustainability Reporting Directive, which will compel 49,000 European companies to publicly report their progress in addressing climate change and other environmental threats.

While investors and governments have been laying the tracks for Capitalism 2.0, most CEOs have been on the back foot—greenwashing objectionable practices with eco-themed PR, endorsing bland statements about “social purpose,” and generally doing little more than what is legally required.

During his ten-year stint as CEO of Unilever, one of the world‘s biggest food and personal care companies, Polman was a notable exception to this collective foot-dragging. Polman prioritized long-term value creation and made sustainability the centerpiece of the company‘s strategy. Unilever‘s Sustainable Living Plan, launched in 2010, called for a 50% reduction in the company‘s carbon footprint, a sizable cut in landfill waste, and a commitment to 100% sustainable sourcing. Progress since then has been impressive: CO2 emissions are down 75%, water abstraction is down 49%, and landfill waste is down 34%.

Polman retired from Unilever in 2019, but his campaign for responsible capitalism continues—now from the platform of his non-profit foundation, Imagine. Recently, we sat down to talk with Polman about his long campaign for responsible capitalism, and his recent book, Net Zero: How Courageous Companies Thrive by Giving More Than They Take.

We started by asking  what had propelled him to set such ambitious targets for Unilever. He says:

I was the first CEO to come from the outside, so I spent a lot of time studying the history of the company, going back to the roots of Lord Lever who started Lever Brothers at the end of the 19th century. he believed in “shared prosperity.“ He didn’t build the company for the shareholders, nor for himself. He reduced the work week to six days, put pensions in place, and guaranteed that the men who went off to fight World War I would have their jobs when they came back. I held my first board meeting in Lord Lever‘s house to make a strong message: “We‘re going back to the core of this company.“

When Polman  took over in January 2009, Unilever had been underperforming its major competitors for more than a decade. How, we asked, did investors react to Polman‘s goal of creating long-term value for all stakeholders? As a new CEO, he must have been under tremendous pressure to pump up earnings. “I argued that the company had become the victim of short-termism,” says Polman, “and had started chasing its own tail. If you see profits going down, you start cutting R&D, brand spending, and investment in people. So the spiral keeps going and you cut more and more.“

Polman continues:

I thought the company needed something more energizing than trying to make its numbers. Growth for growth‘s sake is not very motivating. So we went back to the roots and said, let‘s introduce a Sustainable Living Plan, where we take ownership of our total impact in the world.  In the food business, you need to attack the issues of deforestation, improving the livelihoods of poor farmers, reducing food waste, and tackling obesity.

These are noble goals, but, we pressed the question again: How did Polman sell his vision to shareholders? “I told them,” he says, “that you cannot optimize one stakeholder—the shareholder—at the expense of the others and expect to maximize long–term returns. Shareholder returns are the result of what we do, and not an objective in itself.“

This is a simple truth, and one often missed by CEOs, who are prone to mistake the scoreboard (shareholder returns) for the game (empowering employees, encouraging breakout innovation, delighting customers, and strengthening communities). In some companies, it seems as if the entire executive team has abandoned the playing field and is crowded around one of those old, pre-digital scoreboards, wildly trying to manipulate the numbers. While share buy-backs, mega-deals, and downsizing can plump up the share price, they aren‘t strategies for long-term value creation.

Enough about shareholders, what about Unilever‘s employees? “After years of retrenching,” we asked, “they must have been burned out and cynical. How did you bring them along?”

“Before we launched the Sustainable Living Plan,” Polman says, “we spent a year with the top 100, then the next 500, then the next 3,000, developing our collective purpose. And the first question we asked was, ‘What is your own purpose? What gets you up in the morning?‘ The second question was, ‘How do you use that purpose to influence others?‘ And the third question was, ‘How do you get results with that?‘ We wanted everyone to become more aware of their own purpose in life, which frankly, few people have thought about. But it was important to have a leadership team go through their own journey to discover their purpose.“

Enlightenment is, we agreed, is a pre-requisite for change, but often not enough. Many of us, for example, know we need to shed a few pounds, but lack the discipline to work out each day. How, we asked, did you move your colleagues from awareness to action?

“The key,” Polman says, “was creating more than 50 ambitious ‘time bomb’ targets.” These highly specific goals made the company‘s newly discovered purpose tangible for every employee. Moreover, in a “burn the boats” move, Polman made the targets public and asked PwC to produce a yearly progress report.

Here, again, Polman‘s experience dovetails with our own. No company out-performs its aspirations, and it usually takes an ambitious and noble goal to coax people into re-imagining legacy systems and practices. By way of example, Polman describes the challenge for Unilever‘s procurement function. “For years,” says Polman, “procurement had been focused on squeezing the last penny of costs out of a supplier. All of a sudden it has to focus on sustainable sourcing, on longer-term relationships with suppliers, and leveraging their infinitely bigger R&D capabilities to drive innovation.“

This sort of radical shift didn‘t come easy to all of Unilever‘s senior executives. Country managers, many of whom had grown up in the finance function, found the pivot particularly difficult. Having become adept at downsizing, they were now being asked to embrace a new social mission and grow the business in new directions. Retooling mindsets is never easy, and over the next few years, 70 of Unilever‘s 100 top local leaders were replaced.

Another barrier was Unilever‘s bloated management pyramid. Says Polman:

A former boss told me that when it comes to transformation, you need to add a yearfor every level in the organization. That wasn’t appealing to me. When I arrived, Unilever had 12 layers or 14 layers, so I reduced that to five layers to make the organization agile again.

Even with these moves, Polman admits that it was four to five years before he knew the changes would stick—before “moral capitalism,” as Lord Lever called it, was once again imbued in the company‘s DNA.

As you might suspect, Unilever‘s all-in bet on sustainability has been widely praised. The GlobeScan/SustainAbility survey has ranked Unilever as the world‘s most environmentally minded company for ten consecutive years. Nevertheless, there are detractors. Some have scoffed at the company‘s attempts to imbue each of its brands with a higher purpose. Isn‘t it enough, critics ask, for Hellman‘s mayonnaise to simply improve the taste of a sandwich? More worrying is the fact that Unilever‘s share price, which rose 290% during Polman‘s tenure, has under-performed the market since 2020—a reminder that being green doesn‘t cure every operational ill or remedy every strategic misstep.

Nonetheless, Polman, more than any other CEO, has provided leaders with a template for building a business that serves all of its constituents—and merits their trust. That‘s a substantial accomplishment, given that a 2020 global survey by Edelman found that only 29% of respondents believed that big business serves the interests of “everyone equally and fairly.”

As Polman will tell you, it takes grit and perseverance to proactively re-vector an immensely complex global business. But most of all it takes heart. “The word ‘courage,‘” Polman reminds us, “comes from the French ‘cœur,‘ which means ‘heart.‘ We have to humanize leadership again, we need empathy, compassion, the ability to listen to others, and we must be inclusive and purpose driven.“

This is wise counsel for anyone who believes it’s time we stitch up the hole in the soul of capitalism.

Gary Hamel is a business thinker, author, and educator. He is on the faculty of the London Business School and the Harvard Business Review Press best-selling book, Humanocracy: Creating Organizations as Amazing as the People Inside Them.

Michele Zanini is the co-founder of the Management Lab (MLab), where he helps organizations become more adaptable, innovative, and engaging places to work. He is the coauthor of Humanocracy: Creating Organizations as Amazing as the People Inside Them.