Paul Polman, the former CEO of Unilever, a man who had once wanted to be a doctor or, tellingly, a priest (something he seems now to emphasize more), is a classic example of the CEO who came to see himself as a some kind of statesman, if not a philosopher-king. In 2022, I wrote about him here, quoting from an article he wrote in the Financial Times, which included such observations as these:
Expectations of business leaders have changed dramatically. When I was a young executive, the chief executive was expected to deliver increased profits, happy shareholders and more jobs.
Oh, the horror.
But not to worry:
Today, staff and customers believe you should embody the company’s values and speak out on big, touchstone issues, from race to fake news and climate change.
Some staff, maybe, some customers, perhaps, but I suspect for most, these concerns do not rank very high.
I added:
But what matters (or should matter) above all is what shareholders think. Not to quibble, but it is their company. That said, if those shareholders want their company to flourish (spoiler: they will), that, by definition, is going to involve attracting customers and (to generalize) retaining a contented, and, in some instances, even enthusiastic workforce. Contrary to the usual caricature, advocates of shareholder primacy recognize that companies operate in the real world, not in a ceteris paribus economic simulation. And in the real world, ignoring certain “stakeholders” (although I wouldn’t use that term, not least because of the connotation of ownership attendant to it) could prove very costly indeed. However, if a company’s fundamental purpose is to be redirected — even if only in part — away from the generation of shareholder return and toward the promotion of causes favored by the CEO and his or her colleagues in the C-suite, that is a type of expropriation. No amount of talk about the greater good can alter that inconvenient truth.
This is not how Polman sees things, who was quoted in The Wall Street Journal (September 25, 2021) saying that “the role of business in society is definitely evolving, moving from a more narrow shareholder-primacy focus to a bigger role in society.”
Squaring that vision with democracy can, when businesses move into areas beyond their basic mission (to do well for their shareholders), be a challenge.
Polman had stepped down as CEO of Unilever, a job he had taken up on Jan 1, 2009, and from which he stepped down at the end of 2018. During his tenure the company’s stock handily outperformed London’s FTSE 100 index and Amsterdam’s ASE 25 in local currency terms, so that’s certainly to his credit. Since then, he has taken his role as a corporate (and, more specifically, corporatist) “statesman” to the next level.
Turn to Polman’s website to discover that he now describes himself as “business leader, climate and equalities campaigner.”
And:
Today I work at the intersection of global business, government and civil society, where I try to accelerate action on our shared global challenges, and none more burning than the twin challenges of climate change and inequality. I was honoured to sit on the high-level United Nations panel which originally developed the 2030 Sustainable Development Goals. They are the best blueprint we have for a more inclusive, more resilient and more prosperous global economy, and they are the business opportunity of a generation.
In 2022, Polman was profiled by Charlotte Parker of Yale’s School of Management, in connection with its Program on Social Enterprise, Innovation, and Impact. This program is described as “a cornerstone of the Yale School of Management’s mission of “educating leaders for business and society,” yet another reminder of how deeply stakeholder capitalism and ESG, two sides of the same grubby coin, have become embedded into the institutions of American capitalism. They will not be rooted out any time soon. Participants in the program “explore how for-profit, non-profit, and government entities can find and deploy innovative strategies to build a more equitable, sustainable, and inclusive world.”
Hmmm…
The introduction to Parker’s piece reads:
Early in his tenure as Unilever’s CEO, Paul Polman started thinking about the implications of infinite capitalism on a finite planet. He watched the calendar flip earlier and earlier each year to Earth Overshoot Day, the day when humanity’s demand for ecological resources exceeded what the planet could regenerate that year.
Earth Overshoot Day is closely linked to the idea of “planetary boundaries,” a notion tied into the idea that we should adopt the “steady-state” economy (or, if its advocates were honest about what that would mean, stagnation — at best) or, worse still, “degrowth” (or, less politely, decay).
The idea that our “finite” Earth may have “planetary boundaries” sounds superficially logical, but even a cursory study of human development over the millennia reveals that such boundaries are far more porous than they may appear. To be in thrall to them would, by inhibiting economic growth, make it less, rather than more likely, that our species will be able to manage any problems the climate or “Mother” Earth may send our way.
But we should not be surprised that a former CEO is taken with the idea of locking humanity within these boundaries. Policing such boundaries and the scarcity that would inevitably come with it will open up new opportunities to those who enjoy the exercise of power and of control, a pleasure that many current and former occupants of the C-suite tend to enjoy rather too much as it is.
In an article published in 2012 the environmental scientist Erle Ellis, no “denier,” to put it mildly, wrote this.
While there is nothing particularly good about a planet hotter than our ancestors ever experienced — not to mention one free of wild forests or wild fish — it seems all too evident that human systems are prepared to adapt to and prosper in the hotter, less biodiverse planet that we are busily creating. The “planetary boundaries” hypothesis asserts that biophysical limits are the ultimate constraints on the human enterprise.1 Yet the evidence shows clearly that the human enterprise has continued to expand beyond natural limits for millennia. Indeed, the history of human civilization might be characterized as a history of transgressing natural limits and thriving.
Wise words.
But the question of planetary boundaries is a topic for another time, so back to Unilever.
What has happened there since Polman moved on? What has his legacy been?
The Daily Telegraph, January 2022:
One of Britain’s best known investors has attacked Unilever for its “ludicrous” focus on sustainability, in a sign of growing City frustration at blue chip companies championing fashionable causes.
Terry Smith, manager of the £29bn Fundsmith Equity fund, said that the consumer goods behemoth has become “obsessed” with its public image and mocked its efforts to imbue brands such as Hellman’s mayonnaise with a higher purpose.
He said this overzealous focus on environmental and social issues has proved a distraction at a time when the £101bn maker of products from Vaseline to Marmite is struggling with a falling share price.
In a letter to investors in his fund, Mr Smith said: “A company which feels it has to define the purpose of Hellmann’s mayonnaise has, in our view, clearly lost the plot.
Environmental, social and governance – ESG – considerations are now a key part of the investment agenda, with fund managers falling over themselves to launch sustainable strategies and companies keen to promote their ethical credentials.
Unilever in particular has long seen itself as a leader in this field.
In 2019, its chief executive Alan Jope vowed that “in the future, every Unilever brand will be a brand with purpose” and said he would offload those that “are not able to stand for something more important than just making your hair shiny, your skin soft, your clothes whiter or your food tastier”.
Mr Smith is not the only investor concerned about financial performance at a time when management attention might appear to be elsewhere. In the past year, shares have fallen 9pc when the UK market has risen 11pc, while pre-tax profits have fallen for two consecutive years from €12.4bn (£10.3bn) in 2018 to €8bn in 2020.
I wrote more about this here.
ESG’s defenders tend to claim that the current, still too tentative pushback against its expensive snake-oil is the work of cynics or zealots, cooked up by opportunistic Republican politicians and/or “rightwing” culture warriors, embarked on a crusade that is in some sense opposed to the free market. These are arguments of the intellectually desperate and politically nervous, something only underlined by their irrelevance as explanations for the criticism that has come Unilever’s way.
The Wall Street Journal, May 2022:
The brands-with-purpose strategy has become a centerpiece for Unilever since Alan Jope took over as chief executive in 2019. The Scottish marketeer defines purpose as having a point of view on issues important to the planet or society. He has said the U.K.-based company could sell brands for which it can’t identify a mission.
And so Knorr, a 150-year-old brand best known for its bouillon cubes, now wants people to diversify their diets with more plant-based foods, such as white icicle radish and an Ethiopian grain called teff, for better nutrition and less environmental impact…
“We’ve organized all of our priorities in the company around three very deeply held beliefs: that brands with purpose grow, that companies with purpose last, and that people with purpose thrive,” Mr. Jope told investors shortly after becoming CEO. He has said that brands with purpose increase sales twice as fast as those without.
How’s it going so far? Unilever’s share price and sales growth have lagged behind those of rivals Nestle SA, L’Oréal SA and Procter & Gamble Co. in recent years.
Some analysts, investors and former executives say that rather than talking about purpose, Unilever should put greater emphasis on shifting its portfolio toward faster-growing categories and on developing new products.
You think?
The Daily Telegraph, June 2022:
Unilever has been drifting for years, devoting all its energies to pious virtue signalling, but bereft of ideas and imagination, and with about as much energy as a cup of Horlicks [Translators’ note: For an explanation of Horlicks, please go here]…
It has been a terrible five years for what should be one of the UK’s, and Europe’s, leading businesses. The shares have drifted aimlessly. Over the last five years they have fallen by 13pc. That compares to a 41pc gain over the same period for its great rival, the Swiss giant Nestle, and 66pc for Proctor and Gamble…
By any measure, that is unacceptable. The company has stumbled from one crass mistake to another. Under its former chief executive, the saintly Paul Pollman, it allowed itself to become far too tied to the Remain [anti-Brexit] cause, when it would have been sensible for it to remain neutral as most major companies did.
In a fit of pique, it threatened to move its headquarters to the Netherlands, to show its unwavering devotion to the regulators in Brussels, but then had to abandon the plan after protests from its British shareholders base, and ended up with a single HQ in London instead.
It appointed an insider Alan Jope as successor, a man steeped in the company’s listless culture, when the moment was clearly ripe for a radical outsider to come in…
Jope’s successor, Hein Schumacher, was appointed in early 2023 from outside the company (sort of: He was already a non-executive director, and had worked for Unilever earlier in his career). Would this mean a return to basics? The Daily Telegraph’s Matt Oliver and Daniel Woolfson explained that investors were “impatient for better results following years of lacklustre growth under both Jope and former chief executive Paul Polman.”
The Daily Telegraph (October 2023):
Unilever will no longer seek to “force-fit” all of its brands with a social purpose, its new chief executive said, following a backlash over the company’s “virtue-signalling”.
Hein Schumacher, who took over from Alan Jope in July, said for some of its brands, giving them a social or environmental purpose “simply won’t be relevant or it will be an unwelcome distraction”.
He added: “I believe that a social and environmental purpose is not something that we should force-fit on every brand.”
It marks a change in position from Mr Jope, who placed social purpose at the centre of his strategy for Unilever. In 2019, he pledged to sell off brands that “are not able to stand for something more important than just making your hair shiny, your skin soft, your clothes whiter or your food tastier”.
The stance prompted a backlash from the City, amid growing frustration at blue chip companies for prioritising fashionable causes over profits.
Schumacher commented that “the quality of our growth, productivity and returns have all under-delivered.”
Also in the Daily Telegraph that month, Matthew Lynn commented that Unilever’s shareholders would not have minded all the preachiness if it had been generating decent returns, but it hadn’t:
The company might have had a social purpose but there was not much sign of a financial one. Over the last five years, the share price has drifted aimlessly, falling 5.5pc over that time period. Rivals were doing far better, with Nestlé up 16pc over those five years, and Procter & Gamble up by 66pc.
Lynn was talking about a period, when except for a few months, Polman was no longer around. As mentioned above, the company’s share price did well when Polman was at the helm, although Unilever’s financial performance was, at least arguably, less impressive. But it seems clear that Polman had left behind a corporate culture which would be likely to undermine shareholder return, especially if a less capable executive were in charge. Jope was clearly not up to the job. Schumacher has not yet had the time to show shareholders what he can do, but his task won’t be easy.
The Daily Telegraph’s Lynn:
Schumacher is going to find it a lot harder to ditch the social purpose baggage than he thinks. There are two big problems. First, after a decade it will have become deeply embedded in the organisation.
For years now, managers have likely been hiring staff based as much on their political views as their ability to do the job, and promotions have been based as much on parroting the right slogans as they are improving production, distribution or marketing. It is very hard to root that out…
Ferociously politically committed employees don’t accept instructions from above, and by now Unilever will have so many of them they can mount fierce resistance to the change of direction. Schumacher will find he has a big fight on his hands.
Next, it has forgotten how to sell. Unilever has spent so much time demonstrating moral leadership, and making grandiose claims for mayonnaise and soap powder, that it has forgotten the fundamentals of consumer brand building that made it such a huge company in the first place.
It has not been launching new products, it has not been extending its existing brands and it has not been exploiting new media channels as effectively as it should have been.
But it’s worth noting that Schumacher is recalibrating rather than abandoning Unilever’s extracurricular “purpose.”
“We are not walking away from sustainability, rather we are stepping into it in a different and even more impactful way,” [Schumacher] said. “Our focus on purpose is laudable and it inspires many people to join and stay with Unilever, so we must never lose it.”
[A] presentation [given by Schumacher in October] made clear that all brands were still expected to be “full and active participants” in delivering Unilever’s four big sustainability priorities of climate, nature, plastics and livelihoods.
He added some brands would want to go further, and step into other areas of social and environmental concern.
Hopefully, some of this is just lip service. Hopefully.
The Unilever saga is not unique: To take one example (there are others), events at Danone, where the ousted CEO once boasted of how a change in the company’s stated purpose had “toppled the statue of Milton Friedman” were a reminder of what can happen to companies that move away from the basic discipline provided by a primary focus on the bottom line and the responsibility owed to shareholders. Both the Danone and Unilever stories are warnings to managers tempted to stray from that discipline into social or political activism, but whether enough of them will heed the lessons provided by both companies’ troubles is a different matter.
Stakeholder capitalism of the type promoted by Polman offers financial rewards for managers (if not necessarily for shareholders), as their bonuses come to incorporate soft “social” targets as well as the tougher demands of the bottom, line. Moreover, by allowing executives to borrow their companies’ clout and cash to work for loosely defined “stakeholders,” it can transform corporate managers from dull “suits” into quasi-activists and (without the inconvenience of any elections) politicians, a shift in role that can bring power, prestige, and (additional) cash in its wake. And some, particularly younger managers brought up in a business culture saturated in ESG and stakeholderism, may even believe in what they are doing.
The institutionalization of ESG and stakeholder capitalism will, as noted above, make them difficult to uproot. And it is a task made even harder by the incentives that come with them. We are a long, long way from peak ESG and peak stakeholder capitalism, even if the current resistance to them leads some companies and investors to adopt some camouflage. Their substance, however — rent seeking, the partial expropriation of shareholders, and the sly bypassing of the democratic process — will remain the same.
As for Polman, the former would-be priest is still preaching. Over lunch with the Australian Financial Review in June, the conversation turns to Polman’s education:
[H]e enrolled in economics at nearby Groningen University. The course was very conventional – Polman invokes the name of neoclassical economist Milton Friedman frequently and with much disdain…
Of course.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and National Review Institute trustee, David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 149th episode, David is joined by Beechwood Homes executive and principal, Steven Dubb, to discuss the state of housing in America today. Why is there so much trouble getting new homes built when demand is so high? What does the correct “all of the above” narrative look like in understanding this more? And are some people looking in just one place for an explanation when they should be looking in three or four places?
No Free Lunch
Earlier this year, David Bahnsen launched a new six-part digital video series, No Free Lunch, here online at National Review. In it, we bring the debate over free markets back to “first things” — emphatically arguing that only by beginning our study of economics with the human person can we obtain a properly ordered vision for a market economy…
The series began with a discussion with Fr. Robert Sirico of the Acton Institute. Later guests include Larry Kudlow, Dennis Prager, Dr. Hunter Baker, Ryan Anderson, Pastor Doug Wilson, and Senator Ted Cruz.
Yes, the six-part series now has seven parts.
Enjoy.
The Capital Matters week that was . . .
Net Zero
The EU is a technocracy. The opportunity offered by climate fundamentalism for bureaucrats who like to command and control is one that some of its officials are unable to resist.
Fiscal Policy
The Congressional Budget Office’s latest Monthly Budget Review for October and November 2023 reveals an alarming trend: Despite a 19 percent increase in revenues, amounting to $108 billion, the federal budget deficit has ballooned to $383 billion, $47 billion more than the same period in the previous fiscal year. This surge is attributed to expenditures outpacing revenues by $155 billion, a 17 percent hike…
Adam Michel’s post, titled “2026 Tax Increases in One Chart,” discusses the impending tax changes set to occur in 2026 due to the expiration of the tax cuts and reforms implemented by Republicans in 2017. The post includes a fantastic table summarizing the current policy, the automatic tax changes for 2026, and Michel’s recommendations for addressing these changes, all of which I agree with. (Here is the PDF version of his table).
Regulation
The Jones Act was passed in 1920 and is one of the strictest protectionist laws on the books. It says ships carrying freight between U.S. ports must be built, owned, and crewed by Americans, and they must be flagged in the U.S. Few ships meet those requirements (in the case of LNG tankers, zero ships meet those requirements), so American consumers pay higher costs for a variety of goods…
The comment period for the Food and Drug Administration’s latest power grab has just concluded. Roughly 20,000 comments were submitted addressing the FDA’s proposed rule which explicitly asserts its long-claimed authority to regulate laboratory-developed tests (LDTs) as medical devices. Many of these comments — including one from the Competitive Enterprise Institute where I am a senior fellow — and a Paragon Health Institute paper I wrote argue that the FDA lacks statutory authority to regulate LDTs, would be unwise to do so, and is ill equipped to undertake the task…
Stone Washington & Ryan Young:
At least one form of government abuse might end soon. The U.S. Supreme Court heard oral arguments this term for Securities and Exchange Commission v. Jarkesy, which challenges the unlawful powers wielded by administrative-law courts (ALCs). These are courts inside agencies that do not afford civilians the same protections as independent courts. ALC defendants typically do not get the right to a jury trial. The judges are employed by the agency that also pays their salaries. The agency also sets the ALC’s procedural rules, has different evidence-sharing standards that favor the agency, and stacks the deck against defendants in ways regular courts never could…
Electric Vehicles
According to CNBC, EV “demand has been slower than many expected, as prices and interest rates remain high.” Higher prices and interest rates have remained higher than expected, but I suspect that they are only part of the problem. Car buyers are clearly becoming increasingly aware that EVs (and the infrastructure needed to support them) are not yet ready for prime time. That may not matter too much when EVs are being bought as a second or third car (as has been the case with many EV purchases), but it will weigh much more heavily as manufacturers attempt to widen demand for EVs away from relatively wealthy early adopters….
Will the “green transition” create jobs? Yes, and some of them will even be in the U.S. China is not going to get them all. For example, the plants being built in the electric-vehicle “battery belt” will be hiring plenty of people. Whether this transition creates jobs on a net basis is an entirely different matter. Decarbonization is going to cost jobs too (and that’s before considering the slowing effect that it is likely to have on overall economic activity). Whether it creates more jobs than it costs in each country in which the transition is taking place is a different question. And will those new jobs pay as well as those that they are replacing?
Count me pessimistic…
Inflation
The “mission accomplished” mood in markets implies that they believe that this normal historical pattern will be avoided this time. But are the data really supportive of such optimism? This chart plots average hourly earnings and wage inflation, both as measured by the Bureau of Labor Statistics, back to January 2022. As you can see, the textbook pattern is clearly evident in the data. Price inflation dropped to wage inflation, and then has been stuck there with super glue ever since…
The Economy
Since March 2022, the money supply has been falling like a stone. With that, we altered our inflation forecast. By the end of this year, we forecasted that the headline CPI would fall to between 2 percent and 5 percent. Yesterday’s inflation report showed the CPI had fallen to an annual rate of 3.1 percent. With only one month to go until the end of the year, it looks like the quantity theory of money will deliver another inflation bullseye.
But that’s not all. The contracting money supply means that the economy is running on fumes…
Over the past few years, the Fed has swung from an overly easy monetary policy intended to prevent too-low inflation to a highly restrictive monetary policy in an effort to regain inflation control. In the process, it has failed to deliver on the price-stability part of its dual mandate. Risking further damage to its tattered credibility, the central bank now seems to be inviting a meaningful economic recession and real trouble in the financial system by an overly hawkish monetary-policy stance…
Argentina
Argentina’s new president, Javier Milei, has to face two realities. The first is that the Argentine economy is in a desperate state, and the second is that he will depend on the support of other parties in the country’s congress, where Freedom Advances, his own (more or less start-up) party is only lightly represented. The second reality probably explains some of his backtracking, for example when it comes to dollarization, and his sticking with the Paris climate agreement.
And the first reality explains why the government has announced the first stages of shock therapy…
Mass Transit
For decades, environmentalists and urban planners have been on a mission to get Americans out of their cars and on to buses, light rail, commuter trains, bicycles, their feet, and, these days, even electric scooters. For reasons that have shifted over time from the Arab oil embargo to smog to climate change, advocates have pushed a similar suite of policies to make mass transit more attractive than private car ownership. The world of anti-car advocacy is also full of arguments that transit activists will be treated as liberators by millions of Americans who secretly hate driving, disdain the country’s low-density suburbs, and desperately yearn for an authentic big-city subway experience.
So why don’t these millions of supposedly self-loathing motorists make the jump? …
Climate Policy
“We could mobilize the trillions of dollars we need, in the order of four-and-a-half to five trillion a year, to drive the transformation we need,” King Charles told a crowd of environmentalists during his opening address.
To put $5 trillion a year into context, that’s almost three and a half times more than the $1.51 trillion the U.S. is set to spend in fiscal year 2023 on Social Security, and 28 times the $177.5 billion the U.S. Army is set to spend…
Defense Spending
Hendrix foresees potential dissent from within the conservative movement. He writes that government’s role in expanding defense production is “a hard thing for conservatives to accept, given their belief in free markets.” Later, he writes, “There is no magic market force, no invisible hand from either Adam Smith or Dwight Eisenhower, that will reignite the defense-industrial base.”
Hendrix is correct to note that there will be intra-conservative opposition to his proposals, but it’s not free-market conservatives he should be most worried about. Hendrix is more likely to find opposition from the faction on the right that has been more skeptical of markets…
Supply Chains
Events in the Red Sea are reinforcing the case for “re-shoring” or “near-shoring” (where possible).
Adam Smith
Although Smith manipulates Seneca’s story of Pollio and Augustus in a way modern scholarship would frown upon, he nevertheless does it in a way of which Seneca would surely approve — to draw a moral, and to illustrate a consideration, in this case an economic one, that might not at first be apparent. In Smith’s telling, not only are the slaves preferred by the emperor to the slaveholder, but the assessment of the punishment communicates the viciousness of the slavery system.
The next time you hear the accusation leveled that market society is founded upon slavery, remember the tale of Augustus and Pollio, and that, at the very beginning of the industrial revolution, Smith pointed out not only slavery’s vanities and vices, but its economic contradictions.
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