It was Winston Churchill who famously said that “democracy was the worst form of government apart from all the others that had been tried.” Much the same can be said for capitalism, particularly the form of capitalism that has been practiced over the past 20 years.
This form of capitalism certainly has some strong points. Over the past 50 years or so capitalism has been directly responsible for lifting nearly half a billion people out of poverty, for revolutionizing health and medical care and for the creation of digital technologies that are transforming the lives of people everywhere.
But modern capitalism has also resulted in huge extremes of wealth, significant debt at both individual and government levels, creation of financial instruments that have no social value at all and the unsustainable use of scarce physical and natural resources.
However, the alternatives to capitalism have all been tried and all been found wanting — some, like communism, catastrophically so.
So capitalism, with all its faults, is the only game in town. The task confronting the present generation of leaders is to improve on it, to build on its strengths and eradicate its weaknesses.
The challenge is to hold on to the energy, enterprise and creativity that characterize capitalism at its best, while doing away with its destructive elements. If too many people feel excluded from the system and cannot access its benefits, they will ultimately rebel against it. It was sentiments like this that motivated the understandable but incoherent anger of global movements like the Arab Spring, Madrid’s Los Indignados, and Occupy Wall Street. Unfortunately the Ginni index of wealth disparity is in many places still increasing, with China now exceeding the US.
I believe that the financial crisis of 2008/9 exposed more a lack of ethics and morality — especially by the financial sector — rather than a problem of regulation or criminality. There were, of course, regulatory lessons to be learned, but at heart there was a collective loss of our moral compass. Too many put self-interest ahead of the interest of the greater good.
It became all about “having more,” instead of “living more.”
Addressing the weaknesses of capitalism will require us, above all, to do two things: first, to take a long term perspective; and second, to re-set the priorities of business.
The short-termism characterizing modern business has been described by McKinsey’s Dominic Barton as “quarterly capitalism,” and by Roger Martin as “expectation management” in his book, Fixing The Game.
This is the treadmill on which the leaders of many public companies find themselves. The requirement to report back to investors every ninety days distorts behavior and priorities. It is absurd for complex multi-national companies to have to invest huge amounts of time preparing detailed income and margin statements every quarter. No other aspect of business is run on such short time horizons — certainly not R&D, capital investment programs, buying contracts, even advertising. So why should financial reporting? Likewise for the giving of constant guidance and then managing toward these expectations versus management of the business.
The priorities of business also need to be challenged. Since the 1980s we have all been worshiping at the altar of shareholder value. This is a doctrine that says that the principal purpose of business is to maximize returns to its investors.
At Unilever we have challenged both these precepts. We have abandoned quarterly reporting as well as guidance. We have also made it clear that our paramount goals are to satisfy the demands of consumers and customers and to serve the needs of the communities where we operate. I am convinced that if we do these things well we will deliver excellent returns to our shareholders. And so far we have not been disappointed, as we have performed strongly despite a challenging economic environment.
The great challenge of the 21st century is to provide good standards of living for 7 billion people without depleting the earth’s resources or running up massive levels of public debt. To achieve this, government and business alike will need to find new models of growth that are in both environmental and economic balance. It requires new levels of leadership as well.
As global temperatures continue to rise and natural resources deplete, business has to decide what role it wants to play. Does it sit on the sidelines waiting for governments to take action or does it get on the pitch and start addressing these issues? If we continue to consume key inputs like water, food, land and energy without thought as to their long-term sustainability, then none of us will prosper.
If business is to regain the trust of society, it must start to tackle the big social and environmental issues that confront humanity, especially at a time when governments seem increasingly to be caught in shorter and shorter election cycles and have a hard time internalizing the global challenges in an increasingly interdependent world. As I have said many times, “business can not be a mere bystander in the system that gives it life.” The environmentalist Paul Hawken believes that if there is any deficit we are facing right now, it’s a deficit of meaning. Many are talking about the need for a GDP+. A broader measure of success than just simply wealth creation.
Stepping up to the plate is not only the right thing for business to do from a moral perspective, but it is also in our economic self-interest. As CK Prahalad and others have argued, there are enormous growth and margin opportunities in what people now call “sustainability.” For Unilever, these are to be found in addressing the needs of billions of people for clean drinking water, basic hygiene and sanitation, nutritious food and sourcing all of our agricultural raw materials sustainably.
Unilever’s future success depends upon us being able to decouple our growth from our environmental footprint while at the same time increasing our positive social impacts. These are the central objectives of the Unilever Sustainable Living Plan, which we launched in 2010.
When people talk about new forms of capitalism, this is what I have in mind: companies that show, in all transparency, that they are contributing to society, now and for many generations to come. Not taking from it.
It is nothing less than a new business model. One that focuses on the long term. One that sees business as part of society, not separate from it. One where companies seek to address the big social and environmental issues that threaten social stability. One where the needs of citizens and communities carry the same weight as the demands of shareholders.
This is why we have put the Unilever Sustainable Living Plan at the heart of our strategy. Our growth rates are increasing as we put the USLP in action. Innovation rates are accelerating, new growth opportunities are appearing (like Pure-it) and costs are decreasing as we reduce our resource dependency. Our corporate brand is flourishing, with Unilever becoming the preferred employer in many of the markets we operate.
But if we achieve our sustainability goals and no one else follows, we will have failed. We recognize that to be successful we have to work in partnership with others: with governments, with customers, competitors, suppliers and,very importantly, NGOs.
The Rio+20 summit, dubbed by many as a failure, saw some promising signs of how business can work better in future with both governments and civil society. Over 1800 businesses were present, resulting in about 200 concrete proposals. The Natural Capital Declaration was one such example — a commitment by more than 30 companies to put a value on externalities like water, carbon and bio-diversity–and we are now taking a lead in the global discussions on Integrated reporting. So was our work on Food Security,which follows the work done for the G20 — an issue that is more important than ever given the recent extreme weather patterns in many parts of the world. Another was the announcement by the US government to form a public-private partnership with over 400 companies to eliminate illegal deforestation from their supply chains.
This latter partnership puts one of the most powerful industrial coalitions ever built alongside the world’s most powerful government. This is the kind of scale at which we will have to work if we are to successfully tackle issues like deforestation – a phenomenon that accounts for 17 percent of all greenhouse gases; that’s more than the entire transportation sector.
We will need many more such initiatives if we are to meet the triple challenges of food, water and accelerating climate change that are hurtling toward us.
Success will require courageous leadership. We will need companies that are prepared to march in the vanguard and pioneer new ways of working and build new business models. By doing so they will rebuild trust in business and, I am sure, grow profitably. The B-team, a group of leading business people, has come together to help accelerate this process for maximum impact.
Your contributions toward this goal are more important than ever. Small actions, big difference. Yes, we all have a role to play.