Leading for purpose and profit
Vlatka Hlupic, Geoff McDonald, December 24, 2015
How the Unilever example proves purpose and profit are not mutually exclusive
Half a decade ago, Paul Polman, the CEO of global consumer products giant Unilever, declared that the company was ditching quarterly accounting reports, and moving away from short-term financial targets towards sustainable management. The company would be geared to the wellbeing of all stakeholders, respecting the importance of environmental responsibility.
It was a bold move by a long-established capitalist corporation and reliable dividend-earner. Would this principled stand improve societal conditions and employee morale, but cause earnings to be diluted as financial gains promised to be both lower and more widely spread?
There is an alternative view, which is that economic returns from organisational management and business investment don’t obey linear, arithmetic sums, but follow complex behavioural dynamics. Under this perspective, it’s possible for all stakeholders, including shareholders, to profit simultaneously. This comes from releasing the value in improved employee engagement and creativity. A wider sense of purpose than financial targets can unleash the talent and commitment of all employed. The Unilever journey promised to be a neat experiment as to which is the more sound commercial approach.
Research in recent years increasingly supports the latter view: that humane leadership can be better for profits, as well as employees, society and the environment. Findings presented in the 2014 publication The Management Shift show that, if anything, the power of a stakeholder-based approach to business management has been understated. It describes five Levels of individual, team and organisational behaviour, ranging from Level 1, which is severely dysfunctional and apathetic, to Level 5, which consists of unbounded, passionate teamwork.
A particularly significant shift occurs when moving from Level 3, which is ordered and bureaucratic; to Level 4, which features high-engagement and enthusiasm. When this occurs, the change is transformational; organisations become more than the sum of their parts. Not only are communication, productivity and the customer experience improved, but empowered teams become more responsive and innovative, able to create new products and services, and adapt business strategy to evolving consumer and technological changes.
Five years on from Paul Polman’s declaration, Unilever’s employee engagement has shot up, with percentage scores rising from the mid-50s to the mid-80s. The company is now the third most in-demand employer in the world according to LinkedIn, behind Google and Apple. The company changed from developing leaders in the world to develop leaders for the world, seeing all its activities as having a societal impact. It closed its corporate social responsibility department because the new vision was that the entire purpose of the organisation should be one of social responsibility.
The business results, far from being compromised by the ethical stance, have improved: and not only in customer retention levels, but in some less obvious ways, as Paul Polman explains:
‘We moved to green energy, we moved to circular economy thinking, we look at sustainable sourcing that has higher yield per acre than unsustainable sourcing. So it’s an efficiency measure as much as it is anything else. So it makes good business sense. And … [we] provide the market with more transparency. There’s less uncertainty for the investors. So your cost of capital actually goes down.’
When Unilever began the move to sustainability, the share price was in the region £11-12. Now it is in the range £27-£29. Such a case study can appear ‘too good to be true’, and the headline statistics don’t reveal the considerable challenges in transforming the organization to one of high-engagement and sustainability. But one thing is for sure: Unilever won’t be performing a u-turn.
Vlatka Hlupic is professor of business and management at the University of Westminster, a management consultant and executive coach, and author of The Management Shift. Geoff McDonald is former global VP HR marketing, communications, sustainability and water at Unilever