By Jonathan B. Wight
Paul Polman is CEO of Unilever, the giant European conglomerate that has revenues of over $50 billion. He first made waves in 2009 on his first day on the job when he announced the company would no longer issue earnings guidance and would stop issuing quarterly reports.
The micromanaging of quarterly earnings takes an incredible toll on long run corporate performance, as J.M. Keynes observed in Chapter 12 of The General Theory (1936). If you haven’t read that chapter, put it on your short list. Moreover, genuflecting to the financial market leads to ethical lapses, as Polman notes in this interview in today’s Washington Post:
“I saw a recent study that 75 percent of U.S. chief financial officers would take the wrong decision in the quarter over missing their guidance. You can see how that leads companies to a shorter existence or to making the wrong decisions. In the latest survey of the World Economic Forum, a majority of CEOs said the pressure they’re getting from the board is more about the short term than the long term.”
The interview with Polman is also interesting for the recognition that meaning in life is a growing factor in recruitment and retention in companies. And meaning in life no longer means making the most money, but rather doing something for others or the planet.
“You see how many companies are searching for purpose…. Many companies have difficulties attracting people, for example, and you have to wonder why. Is it because of salary? Often not, because anybody can ultimately pay what needs to be paid.”
“It's not just about making money, especially for the millennial generation. They want to make a difference in life, so they look for companies that have a strong purpose. This is a big challenge in many companies. Trust is low in business. Trust in CEOs is even lower. Many companies in the private sector are disappointing the citizens of this world by manipulating labor rates, foreign exchange rates, putting horse meat instead of beef out there, or thinking that it's totally acceptable to make a t-shirt from a collapsing factory. Increasingly, people don't want to work for these companies anymore, and consumers don't want to buy from them….”
“[I]f you work at an insurance company that sells premiums you wouldn't even sell to your wife or your mother, how happy would you feel to work there? It's going to eat you up over time. It might last a few years, but it doesn't attract the best people, and it certainly doesn't create the energy and engagement that you need to be a long-term performing company….”
Well said. The moral sentiments of the workers and customers are outraged. On a related topic, Polman reveals the dysfunction of corporate CEO salaries, which are not related to performance, but rather to status and bragging rights:
“[P]eople think if they don't get a salary increase, or if they don't earn a lot of money, they are not being seen as good-performing CEOs. This peer pressure drives dysfunctional behavior…. Most companies have salary policies that say, “We want to attract the best CEO, so we need to be in a top percentile,” and then you get a race to the top. That is really what has happened over the last decade or two….”
Finally, he puts a nail in the coffin of supply-side economics as it affects the rich:
“If you would pay me double, I'm not going to work twice as much, because I'm already probably maximizing my time available. And would it change the way I do things? Not really, because I try to do the right things for this company for the longer term…. I've often said that even if I didn't get paid, I would still do the job. I'm still ashamed when the topic comes up. I always feel embarrassed, to be honest.”
Polman ultimately embraces Adam Smith’s notion of superior prudence—after a long life of learning and putting our self interest to the forefront (normal or narrow prudence), a virtuous person begins to reach out to embrace as his own the interests of a wider community.
“Things you experience in life—sometimes pleasant, sometimes not—form part of your character. That is a journey we go through until the day comes…. The moment you discover in life that it's not about yourself, that it is about investing in others, I think you're entering a steadier state to be a great leader. Because above all, I think the main quality of a leader is to be a human being.”
Coincidentally, Tim Cook, CEO of Apple, recently told millennial graduates:
“There is opportunity to do work that’s infused with moral purpose….You don’t have to choose between doing good and doing well. It’s a false choice, today, more than ever.”
Reality check: When something goes mainstream, like the push for purpose in business, you can expect lots of fraud and lots of fakers. Insincerity begins to flow like honey.
Yet I am a firm believer that business owners can have a higher moral purpose than making money—and they certainly need to make money to be sustainable. And making money--if the market is competitive and does not exhibit market failures of externalities or asymmetric information--is itself a virtuous endeavor when it means serving customers.
The last third of my economic novel, Saving Adam Smith: A Tale of Wealth, Transformation, and Virtue (2001) deals with a real company in Silicon Valley that put Smith’s authentic moral sentiments approach to work. It is not a panacea and of course will face challenges. But being a human and doing a job are often compatible and produce synchronicities in a business setting. When will this idea become mainstream in micro theory?