For the past few years I have been following, writing about, and participating in the “ESG Culture Wars” in the U.S. There has been a great deal of performative activity on both ends of the political spectrum. Left-wing NGOs and some investors are attacking companies for not doing enough to make the world a better place. Republican politicians and some right-wing think tanks are pursuing anti-ESG campaigns in various ways with the claim that ESG is a “woke” political agenda of progressives. Putting the florid rhetoric aside, there is an important underlying issue: What is the role of the corporation in society?
This culture war has extended beyond American shores. This came to my attention in reading an August 29, 2024, post on LinkedIn by Sir Jonathon Porritt, an advisor to Unilever for 28 years. His post is a hard-hitting, bitter, and in some ways very personal critique of Unilever, focused on what has happened since Hein Schumacher replaced Alan Jope as CEO on July 1, 2023.
Sir Porritt has been a leader in sustainability for many years. He is the Founder of Forum for the Future in 1996, although he is no longer involved in the organization, and a self-described “Campaigner and Author | Bringing down the forces of evil.” Sir Porritt is a well-educated man—Eton for secondary school and Oxford for university where he got a First in modern languages at Magdalen College. He is also and a committed environmentalist and played important leadership roles in the Green Party of England and Wales in the 1970s and early 1980s.
Sir Porritt is clearly in the camp of those who believe companies aren’t doing enough to make the world a better place. He is a man who, at worst, hates capitalism or, at best, is ideologically unwilling to accept that it involves tradeoffs. In reading his post it feels to me that he is channeling this animus for capitalism by making Unilever the target for a more general grievance. Under a series of excellent CEOs the company is navigating the difficult and treacherous terrain of being a responsible business. As I explain in my recent HBR article, “Moving Beyond ESG,” this means creating shareholder value by taking material stakeholder interests into account. The shareholder vs. stakeholder capitalism debate has become a somewhat empty one. Stakeholders do matter. But not all of them and not to the same degree. And tradeoffs are inevitable, whether between shareholders and stakeholders or within stakeholders themselves.
Being a responsible business also entails being aware of and candid about a company’s negative externalities. Every company produces them even when they are in complete conformance to existing laws and regulations. Some externalities can be addressed by the company itself. But often system-level changes must be made through collective action, regulations, and laws. We need to be realistic about companies can and can’t do to make the world a better place.
Unfortunately, Sir Porritt appears unwilling to accept the limitations on what a company can do and is happy for it to sacrifice shareholder returns for a sustainability topic that is important to him. At the same time, he also evinces a certain ambivalence about shareholders—liking them when they agree with him, not liking them when they don’t, and , most curiously, even being worried about them in some cases.
In hope of creating a more realistic and constructive dialogue about what Unilever is doing today, I will review the main points in Sir Porritt’s post as he organized it.
RECONCILING PROFITABILITY AND SUSTAINABILITY
Sir Porritt bemoans the fact that because “Unilever has always struggled to outperform its principal competitors in the FMCG category, ‘shareholder expectations’ have been a constant preoccupation for Unilever Boards and Leadership Teams.” So a company shouldn’t seek to deliver superior financial returns? And there’s the reality that failure to do so can lead to activist investors interceding, as happened under Paul Polman when Kraft Heinz and Warren Buffet launched a takeover. Polman, who referred to them as “the Barbarians as the gate,” was successful in fending this off. He did this by taking steps to reassure shareholders of the company’s commitment to financial performance. In doing so he incurred the ire of Sir Porritt who at that time wrote that “the Unilever Sustainable Living Plan slipped onto the back burner, and there were fears that the need to make the company even more profitable and ‘efficient’ from a shareholder point of view, would take the wind out of its sustainability sails.”
Sir Porritt’s view of capitalism is captured in his comment, ”in today’s neoliberal, profit-maximising capitalist system, there are always more Barbarians gearing up for further rape and pillage.“ He sees the most recent Barbarian attack occurring in July 2022, when the Unilever Board invited Nelson Peltz, who Sir Porritt describes as “(activist investor, Visigoth-in-chief)” to join the Board. I’m not saying that activist investors are always on the side of the angels, and they are clearly controversial, but the board of directors has a fiduciary duty to the interests of the company. In effect, Sir Porritt is damning corporate governance at Unilever.
THE NEW REGIME
Instead of doing that, he chooses to train his rhetorical wrath on the next CEO, Mr. Hein Schumacher. “Having spent his first nine months as CEO channelling Nelson Peltz, whilst remaining silent on sustainability issues, Hein Schumacher decided in April that it was time to explain what this new reality for Unilever was all about.” You can read Sir Porritt’s post, filled with language like “s*#t show” I’m not allowed to use, for his full exposition. Here I’ll simply report what Mr. Schumacher did while recognizing the irony that he got slings and arrows from both the left and the right. This is inevitable when running a responsible business.
After significant internal and external consultations, on April 19, 2024, Schumacher announced Unilever’s “Growth Action Plan.” Putting Sir Porritt’s diatribe aside, its essence seems straightforward and sensible to me. The strategy is “fewer things, done better, with greater impact.” The company’s focus is on climate, nature, plastics, and livelihoods. Each has a long-term ambition and goals. I think this new focus in today’s political environment is a good balance between long-term shareholder value creation and making the world a better place.
UNILEVER HAS NO SUSTAINABILITY STRATEGY
Sir Porritt also asserts that, “Perhaps most extraordinary of all, Unilever now has no sustainability strategy. It has 15 Sustainability Goals, but no Strategy.” What Unilever has done is incorporate its sustainability goals into its corporate strategy “Growth Action Plan” something much derided by Sir Porritt. I see it differently. Schumacher has created a sustainable corporate strategy, appropriate for the time we live in, and something much more powerful than a sustainability strategy. A sustainable corporate strategy means a company can create value for shareholders over the long term and have the resources to innovate and address its sustainability challenges, which will all be challenges for the world as whole.
The market agrees. Unilever’s market cap is now at a five-year high of around $155 billion. A very good thing to me but Sir Porritt has a different view: “Schumacher’s ‘intentionally and unashamedly realistic approach’ puts shareholders first with literally every other stakeholder duly subordinated.” Just to note again that the board’s fiduciary is to the corporation and in doing so must take account of shareholder and stakeholder interests.
Sir Porritt also expresses the concern that “sustainability in Unilever in service to the usual wholly unsustainable kind of economic growth that continues to exploit people and trash the planet.” While capitalism is admittedly imperfect and always will be, I don’t share this dystopian view. Even if I did, there’s nothing Unilever can do about solving this problem; it must operate within the system as it is.” To his credit, Sir Porritt acknowledges that that while doing things more sustainably can generate cost savings it “can also cost a lot more money.” If these costs are long-term investments that pay off over a reasonable period of time, there is an economic argument for making them. Otherwise, there isn’t. That’s not evil. That’s just how capitalism works.
UNILEVER’S PLASTICS FAILURE
Sir Porritt calls plastics “an ongoing horror story for Unilever for many, many years.” He acknowledges the company “has done a huge amount of work seeking to reduce the impact of that horror story. But part of the current retrenchment is an outright acknowledgement of failure.” Here he asserts that targets set under Compass in 2019 “were bold but achievable.” Yet he also acknowledges that the costs to achieve all he wants erode margins, impact profits, and lower dividends. And it clearly irritates him that this “irritates the likes of Nelson Peltz and his army of profit-maximising Visigoths.”
I’m no expert on plastics. It’s clear they were on track on some targets, off on others. The Ellen MacArthur Foundation, sees Unilever’s performance as leading the pack. What Unilever is doing now is positive and pragmatic. I have written about how the company is taking a leading role in creating a global plastics treaty based on mandatory rules with the support of some 175 countries. Unilever has also expressed its strong support for “Extended Producer Responsibility.” Instead of acknowledging this, Porritt prefers to lambaste Schumacher for saying ““on plastics, you need governments, you need retailers, you need partners in the petrochemical industry. You need recycling systems that match.” Yes, Sir Porritt wants that, but he also wants Unilever to do more so it can erode its margins and lower its return to the Visigoths.
BACKTRACKING ON LIVING WAGES
Again, Sir Porritt complains that that Unilever has backed off of a 2019 Compass target to “Ensure that everyone who directly provides goods and services to Unilever will earn at least a living wage or income by 2030.” This has been replaced with a “Long-Term Ambition” of ensuring “a decent livelihood for people in our value chain, including by earning a living wage” which he calls “woefully inadequate.” Porritt’s anti-capitalist sentiment is seen here as well. He approvingly notes that when the Compass goal was set, “it was also acknowledged at the time that to deliver on this target would inevitably cost Unilever billions of Euros over the intervening years though to 2030” which would have led to a substantial financial hit. In a rather large leap he concludes these billions wouldn’t be available as dividends to shareholders. “Let’s have no illusions: this is how the system works.” Yes, the system has tradeoffs. If Unilever is paying a living wage and none of its competitors are, its ability to continue to do so will be put at risk.
But the system can be changed. Just as Unilever is trying to do that with plastics, it is working to help achieve this by collaborating with the International Labour Organization which supports a living wage. They have also partnered with the WageIndicator Foundation to publish #LivingWage estimates for over 2,600 regions across 165+ countries on national WageIndicator websites, in national languages and currencies.
Unilever can change as well. I guess the Visigoths don’t always win! Based on feedback it received from a range of stakeholders, it recently recommitted to its 2030 Living Wage commitment in its sustainability goals. I’m not sure how the Visigoths feel about this, but it certainly hasn’t hurt the company’s stock price. My guess is that investors appreciate the work Unilever is doing at the system level to make this possible such as collaborating closely with the Fair Wage Network and developing a Partner with Purpose program.
FAILING ON FOOD WASTE
Porritt rightly notes that food waste is “one of the worst sources of institutionalised wastefulness across the entire global economy.” He liked the 2019 Compass goal to “halve food waste in our operations (per tonne of food handled) by 2025.” He doesn’t like its “Ultimate Aim” of “no food waste to landfill, and ensure no good food is destroyed.” When I look at the four sustainability topics in the Growth Action Plan, food waste is not one of them. (Nature is but Sir Porritt doesn’t write about this. Not sure why.) I suspect this is because food waste is only relevant to two business units, nutrition and ice cream, and the latter is being spun off. Unlike plastics and a living wage, food waste is not a financially material issue for the company. Nevertheless, Unilever has strong goals for eliminating waste in producing food products. Similar to plastics, solving the system-level food waste problem requires system-level efforts and the strong participation of major food companies, their suppliers, and their customers.
CLIMATE TARGETS SURVIVE
Sir Porritt is more positive about what Unilever is doing on climate. He acknowledges that “Unilever was the first company to prepare a Climate Transition Action Plan” and even calls it “pretty good.” Three years ago I wrote about this plan and how the company secured broad shareholder approval. Showing his ambivalence about shareholders, Porritt applauds them for their unanimous approval of an updated Action Plan (“still pretty good!) and chortles that “because this has now been signed off by shareholders, it’s beyond the reach of the Visigoths’ slashing swords.” Although Sir Porritt read (British for majored in) modern languages at uni (British for college) he does seem to have a special place in his heart for Visigoths!
But he can’t resist throwing some shade at the end by calling it “a consummate exercise in ‘managing expectations’” instead of telling shareholders “just how screwed they are” from the effects of climate change that “will impact margins and returns to shareholders.” This is demeaning to shareholders. And given how he feels about shareholders there is more than a hint of irony or duplicity in this. I’m writing this piece while attending PRI in Person in Toronto. If it’s any comfort to Sir Porritt, I can assure him that shareholders are well aware of the potential effects of climate change on their returns. It’s also worth noting that the NGO Influence Map gives Unilever a perfect score of100 for its disclosures on climate policy engagement.
CORPORATE SUSTAINABILITY: A BUSTED FLUSH
I don’t play cards, so I don’t know what a “busted flush” is. Thus, I have a hard time understanding his concluding argument. On the one hand, Sir Porritt acknowledges that “governments write the rules of the game” and that “companies have to operate within those rules.” At the same time, he acknowledges that “all too often [companies] get punished when they try and overcome those constraints by accepting the need for more urgent and comprehensive environmental and social measures.” Yes, there are urgent environmental and social issues to be addressed but we have to be realistic about what any single company can do to address them.
Sir Porritt’s penultimate sentence leaves me scratching my head about what point he is trying to make. “The fact that even Unilever has fallen foul of this crude, callous and ultimately cretinous misunderstanding of what long-term wealth creation is all about, is, to say the least, unfortunate.” What is he trying to say? That capitalism is fundamentally evil and thus so are those who operate within it? That long-term wealth creation can happen for shareholders by waving away inherent tradeoffs? That long-term wealth creation needs to be defined differently and more broadly and operationalized in a different system?
I think it’s fair enough to have a debate about capitalism. What doesn’t seem fair to me is to criticize Unilever under the leadership of Mr. Schumacher for being as responsible of a business as it can be with the rules of the game as they are while still working hard to change those rules to make the world a better place.
