As world business and political leaders prepare to gather in Davos, Unilever CEO Paul Polman tells Kamal Ahmed about the latest threat to the global economy
Paul Polman, the chief executive of Unilever (Amsterdam: UNIA.AS - news) (150m customers a day, products available in 170 countries), likes to quote Viktor Frankl, the famous psychiatrist and survivor of the Holocaust. In Frankl's book Man (MAGOF.PK - news) 's Search for Meaning , he says of the development of the West: "I recommend that the Statue of Liberty (Berlin: RS3.BE - news) [on the east coast] be supplemented by a Statue of Responsibility on the west coast."
Mr Polman, formerly of Procter & Gamble (NYSE: PG - news) and Nestlé, is a man on something of a mission. Sitting in an open-necked shirt in his office overlooking the Thames in London, the Unilever (UNLNF.PK - news) chief executive ranges widely from criticisms of short-term speculators in the commodity markets, to the need to tackle rampant food inflation; from proposing that climate change is one of the major challenges facing global businesses to revealing that he wouldn't mind being a cow on the Ben and Jerry's "caring dairy" programme.
"Those animals have massage and scrubbing machines," he says. "Man, I wish I was a cow." Unilever owns Ben and Jerry's.
At its most basic, he argues, consumer-facing businesses need to rip up their business models and start again working in partnership with local producers, NGOs and governments in ways that are sustainable. Growth and environmental degradation need to be "de-coupled", he says, explaining that Unilever wants to double its turnover at the same time as reducing its environmental impact. He admits that such targets, launched as part of Unilever's Sustainable Living Plan, have been described as "courageous". "Scary" is how he would put it.
In two weeks' time, world leaders from business and politics gather for the World Economic Forum in Davos, Switzerland. Among the Alpine peaks and snow 2 ft deep, Jamie Dimon, chief executive of JP Morgan, will talk global finance alongside Indra Nooyi, CEO of PepsiCo; Sheryl Sandberg, chief operating officer of Facebook and therefore one of the most powerful people in technology, will tramp in her snow boots along with Prince Andrew, George Osborne and Bob Diamond, the new chief executive of Barclays (LSE: BARC.L - news) who last week said it was time to end the period of remorse for bankers and "move on".
For those touched with a fleck of cynicism, Davos's broad, thematic discussions on future business trends, such as "responding to the new reality" and "building a risk response network", could be seen as so much hot air. A chance for chief executives to say some warm words in public while at the same time engaging in the deal-making and financing behind the scenes that make capitalism tick.
But Mr Polman has a different take. As one of the key leaders who will be travelling to Switzerland, he says that his generation of business leaders (those who grew up in the 1960s and are now at the top of the corporate ladder) are made of different stuff. He mentions Nike, TNT (Hamburg: TNT.HM - news) and Levis as companies which have built sustainability into their business. Those leaders who are not moving in that direction will be losers.
As part of this "new capitalism", Polman will argue this week in a major speech in London that the world economy has to take a new approach to agricultural production. He will say that, based on United Nations figures, the global population will be 9.6bn by 2050 and that the extra 3bn mouths to feed will need an increase in production of 70pc.
"According to the WWF, the world currently lives off 1.3 worlds in terms of use of resources," Polman said. "When you add 3bn people and increased standard of living, that figure rises to three Earths if you live like the US or the UK. That is just not going to work. We need to change things."
Ever increasing food inflation is causing another stress in the system as supply fails to keep up with demand. Polman will say in the speech that the world is moving into "dangerous territory".
Last week, the US department of agriculture said that the ratio of global stocks to demand would fall to "levels unseen since the mid-1970s".
"One of the main things in food inflation is that it has attracted the speculators for short-term profit at the expense of people living a dignified life," Polman says. "It is difficult to understand that if you really want to work for the long-term interests of society." He revealed that he has spoken to the European Commission's commissioner for internal markets, Michel Barnier, about the issue. Polman says that speculators should be forced to disclose their positions.
Polman suggests four practical proposals for change in agriculture the development of more sustainable farming models to produce more food, a dramatic boost in investment to hit the UN's Food and Agriculture Organisation's target of $83bn (£52bn) a year to meet increasing demand, the ending of "market-distorting" subsidies which promote, for example, the production of unsustainable first-generation biofuels and the freeing up of trade and the end of European Union subsidies that discriminate against poorer nations.
A distaste for short-termism in the City has been a leitmotif for Polson. Last year at Davos, he sparked one of the most intense debates when he said that short-term City speculators were damaging the long-term needs of business to change the way they operate. Referring to hedge funds that were short-term holders of stock, he says: "They would sell their grandmother if they could make money. They are not people who are there in the long-term interests of the company."
Since Polman took charge of Unilever in 2009, the company has stopped providing earnings guidance and quarterly profit updates to investors, a move that caused the share price to drop by 8pc as worried investors pulled out their money.
One year on, does he believe that investors have understood the need for new approaches? "I say to a lot of people you have to measure success in terms of progress, not in terms of end state," he says.
"There is still too much pressure on short-termism in terms of the drivers of success. It is interesting, because the same consumer who is demanding change is encouraging that behaviour because it is their money and their pension funds that are chasing that shorter-term return. The average holding of a Unilever share in 1960 was 12 years; 15 years ago it was about five years, now it is less than a year, sometimes half a year. Our stock is not an exception."
Polman wants that figure to move in the opposite direction, a project for which he feels he is getting some traction.
"We definitely feel and to some extent we are leading the pack that we are moving our business model to the longer term. I tell our investors, if you don't like that, to be honest, then I fully respect you but look at other alternatives that might be better suited to your needs.
"I don't criticise hedge funds, they undoubtedly have a role to play otherwise they wouldn't be there, but they might not have a role to play with companies like ours. The world is big enough. I have seen a move in our shareholder base, I have seen that we have more investors supporting the strategy that we are doing.
"That can only be supported if you have the results, and fortunately we are having the results in the company and I hope that will continue. The worse thing would be to do what is probably right for the long-term benefit of society and being forced out of that because you don't get the short-term results. That is where the biggest pressures are, there is no doubt about it.
"I want people to focus on cash flow, which is a much longer-term measure than short-term profit, which doesn't take cost of capital into account, doesn't take capital investment into account."
Many analysts believe, as Polman does himself, that Unilever is an undervalued stock, with growth potential particularly in its skincare ranges and in the emerging markets.
Its (Paris: FR0010370163 - news) full-year results later this year are expected to be some of the best that have been seen in 25 years as the global giant pulls out of recession. It may be the age of austerity but consumer appetite for their products Knorr, PG tips, Persil, Marmite, Vaseline, Domestos, Walls (Copenhagen: WALLS.CO - news) , Dove, Hellmann's to name but a few appears undimmed.
As with many global companies, up to 80pc of Unilever's growth will be in the emerging markets, which Polman says are now operating on a different economic cycle to the West. That of course puts a question mark against why globally-focused companies need to be headquartered in London, particularly if any of the major global banks make good on thinly-veiled threats to move operations to Hong Kong or Singapore.
"If you look at the changing forces in the world it is very clear that already now 75pc to 80pc of our growth is in the emerging markets," Polman says.
"A lot of that is about market development, it is about growing the pie. It is very difficult to see that change. From where we are as a company, in 10 years' time I will have 70pc of my business in the emerging markets.
"That, of course, requires you to think about your operating framework, your talent base, it requires you to think about the culture that you have to succeed and to attract and retain talent.
"Four of the world's top 10 banks are Chinese banks which many people in this part of the world can't even pronounce. Our investors in the US ask us, say, about the private label initiative of Wal-Mart in Arkansas but they don't know what's going on in Indonesia."
Last year, for the first time, Unilever hosted one of their major investor meetings in Singapore.
"We wanted people to understand the value creation opportunity in emerging markets so that they are able to fully value companies like ours. I believe that we are undervalued because too many of the capital discussions are made by people with due respect who do not truly understand the forces right now in value creation."
Polman says that the headquartering of a global company like Unilever is almost irrelevant.
"Where you are headquartered or what currency you consolidate in is frankly something of a theoretical discussion given the way we run our business," he says.
"Does that mean we'll leave the UK? I honestly think that is not important. We have great research here, but at the same time we have opened a research centre in China, opened a training centre in Singapore."
He has praise for David Cameron and George Osborne, saying that their decisions on cuts to balance the economy were right. In the short term, though, it does mean the private sector has to expand more rapidly and the economy could have a bumpier ride.
"The UK has taken a tremendous decision, which is the right decision long term, which is to significantly cut the deficit. But as the OECD estimates, any 1pc cut in deficit reduction results also in a 1pc cut in growth in the short term.
"There is tremendous need for the private sector to fill that vacuum and for businesses to pick up the slack. That is not immediately happening."
He is cautious about the global recovery pointing out that £57 trillion was taken out of the system by the credit crunch and that consumers in the developed world, facing stagnant house prices, are still nervous. "We are not in for any quick fix," he says.
Whichever way the economy progresses, it must be done sustainably, Polman says. "People always think that to do the right thing costs you more. That is not true at all.
"It can actually ignite innovation and lower your costs. The alternative of not having sustainable sourcing, of having to deal with the effects of climate change, is a much higher cost on business.
"It is time to change, that is why I am here. I want to live in a better world."
