There is too much focus on short-term results in business today. Investors in the capital markets are driven by quarterly earnings, and this puts tremendous pressure on CEOs, especially those who run publicly-traded companies, to develop short-term strategies to return quarterly profits at the expense of sustainable solutions that are in the long-term interest of all stakeholders.
Because of this pressure, many CEOs fear for their jobs if short-term results do not meet expectations and stock prices fail to grow. Unfortunately, this pressure to deliver quarterly results is often in direct conflict with the necessity of long-term investment in initiatives that will support global sustainability.
The better course would be to find some degree of balance between short-term earnings and long-term investments. Finding this balance requires courage on the part of CEOs and business leaders, who must communicate with shareholders, bankers and other investors about the importance of ensuring that their investments are sustainable in the long run.
Paul Polman, the CEO of the consumer products giant Unilever, has shown that kind of courage. On the day he became CEO, he abolished quarterly profit reporting. “If we do the right things then we do them for the longer term,” Polman told me. “We have to get out of this quarterly rat race, this expectation management versus reality. And that’s a business model that’s not run by quarters; that’s a business model that’s run by years.”
Polman has undertaken difficult conversations with Unilever’s investor base in recent years about the critical importance of investing in long-term sustainability. Certainly some investors have abandoned ship as a result, but Unilever has also attracted a new breed of investors who understand the importance of sustainability and are willing to accept a longer-term outlook. These investors understand that current investment is required in order to build momentum for long-term prosperity, and that this will have an impact on short-term returns.
Polman said that he has some investors challenge him because Unilever had a “bad year” since short-term sales and profit growth were just half of what a competitor reported over the past 12 months. But that’s where he says you need to adjust your expectations to the longer term.
“If you believe in a long-term sustainable model, then why don’t we look at it over five years or ten years?” he asked. “You might have connected with five hundred million more consumers, improving their lives and livelihood and encouraging them to become your loyal consumers in the next year or the year after. They will be your future consumers, and they won’t forget you. So we take a long-term perspective. If we invest in training, if we invest in information technology, or if we invest in factories that only pay out five or ten years later, why shouldn’t we invest in the future of humanity? And if you do that in a way that is relevant to your business, perhaps that year was a very good year.”
And that message has been well received by investors who have seen Unilever’s share price climb 12 percent in the past year—it’s up 30 percent if you include dividends. “We are not short-circuiting anybody,” says Polman, “and increasingly, the financial market understands that. We also encourage and incentivize our senior managers to invest short-term compensation into the long-term so that they become bigger shareholders and put their money where their mouths are.”
In rethinking the balance of what might be a good investment today versus what might pay off over the long run, Unilever has undertaken a number of groundbreaking initiatives.
For example, Unilever began working with Ben & Jerry’s, one of its subsidiaries, to replace the ice cream freezer cases we see in supermarkets and convenience stores with newer cases that rely on environmentally friendly technology rather than hydrofluorocarbons (HFCs). In 2011 alone, according to Unilever’s website, the company rolled out twenty-two thousand of these new freezers in non-US markets, resulting in a reduction of twelve thousand tons of CO2 emissions. And the eventual goal is to eliminate HFC freezers altogether. “What we are trying to do here is put the right groups of people together,” Polman says. “And by doing that, you can create that tipping point on anything.
Another example and perhaps Unilever’s most ambitious and potentially far-reaching sustainability initiative is also its simplest: handwashing. The simple act of washing one’s hands with soap for twenty seconds does more than just about anything else to curb the spread of disease. Through its Lifebuoy soap brand—and in partnership with various governments, The World Bank Group, and a host of NGOs, including Save the Children, Oxfam, and UNICEF—Unilever is conducting a public-health-education campaign designed to prevent the 1.1 million preventable diarrhea-related child deaths that occur across the developing world each year.
“For Unilever, our overarching measures are our positive social impact and the decoupling of our growth from our environmental impact,” says Polman. “For me, sustainability is when our love for our children is stronger than our greed for our own well-being.”
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