Paul Polman: "A purpose-driven business can be profitable"

“A purpose-driven business can be profitable,” Paul Polman told journalists at last month’s annual results meeting. “I don’t know where this notion that it can’t be comes from. Must be because of what you write.”

Not profitable enough it seems, for some of Unilever's shareholders who have criticised recent financial performance according to the Financial Times this week.  As an advocate for Long Term Capitalism, some think he cares more about the planet than them.

It was back in 2013 with his article on Where our Moral Compass Meets the Bottom Line that Polman wrote:

"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."

People-centrered economics and social business take this a step further in that they make the needs of citizens and communities their primary objective. In 2013, I'd written an entry for the McKinsey initiative on Long Term Capitalism which described this primary objective as 'The New Bottom Line' . It begins with an extract from a 'Marshall Plan' for Ukraine wriitten in 2006. 

An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. How this profit is used is another question. It is commonly assumed that profit will enrich enterprise owners and investors, which in turn gives them incentive to participate financially in the enterprise to start with.

That, however, is not the only possible outcome for use of profits. Profits can be directly applied to help resolve a broad range of social problems: poverty relief, improving childcare, seeding scientific research for nationwide economic advancement, improving communications infrastructure and accessibility, for examples – the target objectives of this particular project plan. The same financial discipline required of any conventional for-profit business can be applied to projects with the primary aim of improving socioeconomic conditions. Profitability provides money needed to be self-sustaining for the purpose of achieving social and economic objectives such as benefit of a nation’s poorest, neediest people. In which case, the enterprise is a social enterprise.'

It was also interesting to read that Polman had once trained to be a Priest. Over the last few years, since Pope Benedict shared his encyclical Caritas in Veritate, the Catholic Church has been talking about needing a people-centred ethics in our economy as has a priest who led the UN General Assembly in 2009.  Pope Francis above all has been most outspoken about capitalism and people's needs.  

More recentiy, the Archbishop of Westminster underlines the focus on human need

"My starting point is simple. It is the good of the human person. As a Catholic I have a fundamental belief, along with many others and indeed shared by very many people of no faith, that we must start from the conviction that people really matter "

I'm not a Catholiv BTW, but I may be the only one seeing these connections.

The limits of profit with purpose

Faith aside, what this response from Unilever shareholders illustrates that there's a limit to what this approach can achieve without incurring the displeasure of major shareholders. On the other hand, we have examples like Danone where many shareholders subscribed.to investment in the Grameen Danone intiative to waive dividend payment to produce a nutritious yoghurt for the poor. .

One may conclude that only by this approach can those big social and environmental problems be tackled.

It doesn;t stop the rhetoric however. Just last week the business world was full of fawning admiration for SalesForce CEO Marc Beniof and his  challenge to shareholder primacy with a call for 'Stakeholder Activists':

"The renowned economist Milton Friedman preached that the business of business is to engage in activities designed to increase profits. He was wrong. The business of business isn't just about creating profits for shareholders -- it's also about improving the state of the world and driving stakeholder value."

It all sounds very egalitarian until you reallise that the 1/1/1 buiness model he prescribes offers 1% each of profit, equity and employee time for the benefit of the community.  1 percent for the 99 percent in essence. Again, that's not going to address the big problems

The stakeholder activists are in fact already out there and they''ve already challenged Friedman's assertion. It began for us nearly 20 years ago with a position paper describing a business model where at least 50% of profit is set aside for community benefit:

"This business model entails doing exactly the same things by which any business is set up and conducted in the free-market system of economics. The only difference is this: that at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands. In effect, the business would operate in much the same manner as a charitable, non-profit organization whose proceeds go to local, national, and international charities. Non-profits, however, are typically very restricted in the type of business they can conduct. In the United States, all non-profits must constantly pay heed that they are not violating those restrictions, lest they suffer the wrath of the Internal Revenue Service. For-profits, on the other hand, have a relatively free hand when it comes to doing business. The only restrictions are the normal terms and conditions of free-enterprise. If a corporation wants to donate to its local community, it can do so, be it one percent, five percent, fifty or even seventy percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object.  But, if an a priori arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no objection can emerge. Indeed, the corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn, would be under the oversight of a board of directors made up of corporate employees and community leaders.”

Peace in Ukraine

In 2014 Paul Polman was among a group of business leaders calling for a peaceful resolution to the current crisis in Ukraine:

"As a group of global business leaders, we would like to offer whatever support we can to help resolve this violent conflict. We appeal to other business leaders everywhere to open up a dialogue to create ways to resolve the issues peacefully.  Conversations, not armed conflict are critical at this juncture. 

We all have a responsibility to work towards peace in Ukraine, so that people can thrive without putting their basic human rights at risk. Join us in this call for peace. We will do our best to ensure that your voice is heard by political leaders. We will also bring the right groups of business leaders together to work towards a better, more peaceful future."

As "stakeholder activists" in Ukraine since 2002, we'd delivered the 'Marshall Plan' referred to above,to Ukraine's government. It described how business could be applied to resolve social problems:    : 

"We see a staggering array of social problems arising directly from poverty, including but not limited to tens of thousands of children in orphanages or other state care; crime; disrespect for civil government because government cannot be felt or seen as civil for anyone left to suffer in poverty; young people prostituting themselves on the street; drug abuse to alleviate the aches and pains of the suffering that arises from poverty and misery; HIV/AIDS spreading like a plague amidst prostitution, unprotected sex, and drug abuse; more children being born into this mix and ending up in state care at further cost to the state; criminals coming from poverty backgrounds, ending up as bandits, returning to communities after prison, with few options except further criminal activity. These are all part and parcel of the vicious negative cycle of poverty, and this threatens to destroy Ukraine, if Ukraine is defined in terms of people rather than mere geographic boundaries"

Only recently, Pope Francis struggled to answer a Filipino child who asked him why God allows children to be subjected to prostitution and trafficking.

By April 2007, recommendations for childcare reform had been adopted by government by raising fostering allowances and agreeing to 400+ rehab centres for disabled children 

In February 2008, we'd called out the US government for support with the Genesis letter which ended:

"Thank you for your time and attention to this. I and others will look forward to hearing from you. I hope we continue to realize ever more fully that outside the box and inside the box have only a box in the way. We outside the box know quite a bit of what’s going on, many times in exquisite detail, perhaps in ways that those inside the box can’t quite as easily access if at all. We are grossly underfunded in favor of missiles, bombs, and ordnance, which is about 100% backwards. Now, with even the US Pentagon stating that they’ve learned their lesson in Iraq and realize (so says top US general in Iraq ten days or so ago) that winning hearts and minds is the best option, I and others shall continue to think positive and look for aid budgets and funding spigots to be opened much more for people and NGOs in silos, foxholes and trenches, insisting on better than ordnance, and who understand things and how to fix them. We can do that. We can even do it cost-effectively and with far better efficiency than the ordnance route. Welcome to our brave new world. Except it’s not so new: learn to love and respect each other first, especially the weakest, most defenseless, most voiceless among us, then figure out the rest. There aren’t other more important things to do first. This message has been around for at least two thousand years. How difficult is it for us to understand?

With the current crisis in Ukraine we will soon learn whether the ordnance route will be taken and perhaps whether this will take us further toward global conflict.

As one may hear from Davos 2014, business leaders are still searching for an economic model which delivers both financial and social returns - notably in that order.  Is it just another coincidence that this happened to be about Ukraine?