Global

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  • Industry: Retail, Food, Drink & Consumer Goods
  • Type: Business and industry issue
  • Date: 6/17/2014

Unilever CEO Paul Polman talks strategy 

Paul Polman
Unilever CEO Paul Polman has never shirked controversy. In this exclusive interview, he reveals what it took to change the FMCG giant, how the media have misunderstood emerging markets and why capitalism needs partial reinventing.

With his silver U-for-Unilever-shaped cufflinks and steel-gray hair, Paul Polman looks every inch the modern corporate CEO. But the Dutch head of Unilever, the fast-moving consumer goods company that is the world’s second-largest food producer by sales, is in many ways a radical. When he was appointed in 2008, the group – the maker of brands such as Dove soap, Domestos disinfectant, Omo laundry cleaners and Lipton tea – had been underperforming for a decade and was in dire need of fresh ideas. Polman supplied those by initiating the Unilever Sustainable Living Plan.


The plan was certainly ambitious. Polman’s aim was to double the size of the business while halving its environmental impact by 2020. So far, it’s working. Sales are up – 3.6% year-on-year in the first quarter of 2014 – and Unilever is meeting its green targets. The company has reduced waste by 66% per tonne of production compared to 2008, and by the end of 2013 it responsibly sourced 48% of raw agricultural materials, up from 10% four years ago.


One of the unexpected consequences of this transformation is that Unilever has become one of the world’s most sought-after employers – it is now the third most-searched-for company on LinkedIn globally, after Google and Apple.


ConsumerCurrents caught up with Polman in Unilever’s famous HQ in London’s Blackfriars, looking out across the Thames. After 35 years in the FMCG sector – he held senior posts at Procter & Gamble and Nestlé before being asked to lead Unilever – he has the kind of experience needed to initiate cultural and strategic change at a US$68.6bn revenue business which derives 57% of its sales from emerging markets. Yet he brings his own particular worldview to the task. He addresses such august bodies as the United Nations General Assembly on issues such as poverty, biodiversity and the environment – concerns he feels businesses cannot afford to ignore.

You have pushed through massive changes in a short time at Unilever. What are the secrets of good leadership?

I don’t believe in any of these ‘10 tips for leadership’ or ‘how to be a leader in five minutes’. It’s about being yourself and being human. For me, the definition of a leader is being able to reach someone in a positive way. There are millions of leaders in the world, from social entrepreneurs to teachers. People talk about certain qualities being inherent in leaders, such as having an introvert or an extrovert personality, or being a good communicator, but they are not that important.


You don’t need to be a good communicator: it helps, but it’s not essential. If you are a sincere and honest communicator, people will notice. And if you are an introvert, it makes it a bit harder – but if you have integrity, a great sense of purpose and mission, it doesn’t matter. Fundamentally, leadership is about authenticity, integrity, values and purpose. Too much emphasis is put on those other things.

You have spoken a lot about the culture and values of Unilever. Did you have to change the culture when you became CEO?

When a company doesn’t do so well you tend to get an internally-focused culture. The question is: how do you turn that around to become a consumer- and customer-focused culture? Sometimes big companies become bureaucratic and slow, so how do you create a bias-for-action culture? When a company doesn’t grow, people become more concerned about themselves than others, so how do you create a culture where there is a passion for people? If you haven’t won for 10 years, how do you start to create a winning culture? To change these elements and to change our mindset was a big task.

“In 2008-9, when many companies were being cautious, we invested in IT systems, R&D, new launches in new markets and made acquisitions. We made it clear the company had a strategy”

Can you give some practical examples of how you did this?

The first thing we had to do was get the growth agenda back, so we said we wanted to double our business. We worked on compensation and firmly linked performance reviews to results. At the beginning we had too many people in the top right-hand quadrant of exceeding leadership and exceeding business results, at a time when the business was not performing. Everybody thought: “It’s not me that’s the problem.” We had to bring that number back to 20%, place people in a performance curve, and focus the compensation plan on long-term goals.


We instituted 30-day action plans for things that were not working, to create a bias for action. We also stepped up our investments. Back in 2008-9, when many companies were being cautious and laying off staff, we invested in IT systems, research and development, and stepped up new launches in new markets. Instead of selling brands, which we had been doing for 10 years, we made acquisitions. We made it clear that the company had a strategy.


Was there anything there that you felt should not change?

It’s important to separate culture and values. Culture changes, but values remain the same: if Lord Lever [who founded the business in 1885] came to this company today, he’d find the same ideals as when he built it. We spend a lot of time making sure that our pioneering work is carried out globally with integrity and respect, while always ensuring the communities we work in are as successful as our own.


I have been blessed to work for three of the great consumer goods companies and their beliefs are basically the same. But they had never been written down at Unilever. There was a sense that: “people will know the values, because they are in the company’s DNA”. You can’t rely on that. How will people we recruit in the Far East know what we stand for? So we took the time to take a good look at our principles and consulted widely inside the company, and I spoke to a lot of retirees to understand what made the company tick. We then captured the beliefs on paper and began to celebrate those people who embody them. Now every year we have a big event to celebrate unsung heroes and make our values come alive.


Do consumers care about values and ethics?

Yes. There is a perception that they don’t, but it is increasingly clear they do. After the disaster in the clothing factory in Bangladesh, consumers spoke up. They are more educated now about what they buy. In general, citizens are driving change. You see it in the Arab Spring, and you see it in consumer goods. I understand that if you sell Lipton tea the price must be affordable and the product has to taste good, but consumers do care about how you treat people who work at the tea plantations. By its very nature the consumer goods industry represents the citizens of this world, so it should be in tune with their needs.


How much can Unilever do on its own? Doesn’t the whole industry have to come on board to make a real difference?

Yes. We want to take advantage of the size and scale of our company. What is unique about our plan is that we have taken responsibility for the whole value chain. We try to be a positive force, whether it be on illegal deforestation, in food security, obesity, nutrition or hygiene. Most companies are working in the corporate social responsibility space if they are doing anything at all, but being less bad is just not good enough any more.


Many people have realized that the cost of inaction is often greater than the cost of action. We need partnerships across the industry – ones that probably haven’t happened before. Competitors need to say that it is in our own self-interest that we move to sustainable sourcing, stop illegal deforestation, and move to natural refrigerants. If the consumer goods industry does not move to a more sustainable model, most of its profits will be wiped out in 30 to 50 years, and if you are in food even earlier.


What do investors say?

The investor community is starting to come round, sometimes for risk or cost reasons. There has been too much chasing of short-term profits, which has caused long-term damage. We have to go back to putting business at the service of society.


You talk a lot about sustainability, but what about other ethical issues? Where do you stand on diversity, for example?

Of course this is important too. Just to take the example of gender balance, at Unilever we have a gender-balanced organization. Europe is very diverse and cosmopolitan, but it is moving much too slowly on this question. Instead of governments putting quotas in place, they should provide childcare and flexible working: initiatives that enable women to work, rather than laws and regulations.


The reason we need more women in the workplace isn’t just about how many women buy our products, or recruiting from 100% of the population, or fostering creativity. It’s also because the Unilever Sustainable Living Plan requires long-term thinking, partnership and a purpose-driven way of working, and these are things that women are good at. We will not be able to solve the world’s problems if the gender mix isn’t balanced.


How does the idea of sustainability play in emerging markets?

In some respects they are running ahead of developed economies – China certainly is. The emerging markets are where population is growing fastest, and where resources are most constrained. It is better for those countries to develop growth in a more sustainable way. Because the people there have never had much, they are more resourceful so it is much easier to start a circular economy there and to make sustainability mainstream.


Consumers in these regions understand this need. Where do our waterless shampoos grow fastest? The emerging markets. Where was the one-rinse fabric softener that saves an enormous amount of water most successful? In emerging markets. Where do we make bar-soaps that take 10 seconds to disinfect hands rather than 30? In India.

We sometimes discuss the emerging markets as if they are one homogenous block. In reality, how do Latin America, Africa and the Far East differ?

I had the fortune to have some interactions with the business thinker C. K. Prahalad [author of The Fortune at the Bottom of the Pyramid] when he was still alive and he made it very clear to me that the world is not flat. Just to take the Far East, there are many different stages of development there, with Singapore at one extreme and North Korea at the other.


At Unilever, we have divided the world into seven clusters. De-averaging is very important. Even in the US you have to de-average. It looks like the US economy is improving, but the middle classes are actually slipping back so you have to make adjustments by having low-price, mid-price and high-price products. In the emerging markets you see the same thing – a premium sector but also a segment where you have to raise people out of poverty still.


The overall state of the emerging markets is not as bad as the newspapers make you believe, there is a lot of geopolitical tension, but a lot of people are being lifted out of poverty. The fact, though, is that a system where we over-use resources, where the rich part of the world lives beyond its means, or a system where too many people are left behind is not a system that is in equilibrium and so we have to address that. We have to evolve our business models and reinvent capitalism a little bit.


Unilever by numbers:

  • 14 Unilever brands have sales exceeding €1bn (US$1.38bn), making up 54% of its business.
  • 90% of Unilever’s growth is driven by emerging markets.
  • 4.3% growth in underlying sales achieved by Unilever in 2013.
  • 14.1% was Unilever’s core operating margin in 2013.
  • €3.9bn (US$ 5.3bn) was the value of Unilever’s free cash flow at the end of its last financial year.
  • Two billion people use one of Unilever’s brands on any given day (the company has more than 400).
  • 450 million consumers across the globe use Unilever’s Hellmann’s mayonnaise.
  • €100m (US$136m) in revenue is generated by the Cornetto ice cream brand in China.
  • 11% is the waste impact reduction achieved by Unilever since 2010.
  • 42% of Unilever’s managers are female.
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