By Andrew Saunders Tuesday, 01 March 2011

The MT Interview: Paul Polman of Unilever

The Dutch boss of Unilever likes to make an impression, shaking up both his company and the City in his first two years on the job. It gets him noticed but can he follow through with sustainable results?

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Appearances, as the saying goes, can be deceptive. The man at the helm of Unilever, Paul Polman, presents exactly the sort of public face you would expect from the CEO of the world's third-largest FMCG company. Tall, tanned and self-possessed, smartly but not flashily dressed, from neat silver grey hair to impeccably shined shoes, he's every inch the textbook FTSE 100 boss.

He looks like the sort of grey-suited specimen whose idea of fun is poring over the minutiae of how to sell more margarine, tea and toothpaste, but beneath the corporate uniform beats the reforming heart of a radical. His mission? To bring Unilever and its huge portfolio of household brands - Knorr stock cubes to Domestos, Signal toothpaste to Cif - into the 21st century. And to challenge the most ingrained assumptions of the business and financial world in the process.

How many other leading lights of UK plc would dare to suggest in public that, for example, the concept of shareholder value has passed its sell-by date? Or to tell the City it would get no more earnings guidance or quarterly financial reports? Or voice the opinion that hedge fund managers would 'sell their own grandmothers if they thought they could make a profit'?

Precious few. Yet Polman (pictured on the roof of Unilever House, the company's Art Deco London HQ) has done all these things in a feather-ruffling 26 months in the Unilever hot seat. Nor has he done so from a position of great strength, with credit at the bank of goodwill to spend on such pronouncements. Unilever may be a big beast, but it's a lumbering one whose inability to proceed at more than a walking pace has frustrated markets and shareholders alike for years. However much Polman enjoys poking sticks into wasps' nests, might it not have been safer to have kept his more provocative opinions to himself?

Take the issue of shareholder value, which since the 1980s has become the prevailing orthodoxy on what business is for. The focus on delivering short-term shareholder value has led, says Polman, to widespread addiction to quick artificial highs - rather like a junkie hooked on heroin or a financial trader on cocaine.

The ultimate cost of short-termism, he says, was the financial crisis of 2008-9. 'Too many investors have become short-term gamblers: the more fluctuations in share price they can engineer, the better it is for them. It is not good for the companies or for society, but it is influencing the way firms are being run, all the same.'

He prefers to champion the customer over the investor, even if that means telling investors to wind their necks in. 'To drag the world back to sanity, we need to know why we are here. The answer is: for consumers, not shareholders. If we are in synch with consumer needs and the environment in which we operate, and take responsibility for society as well as for our employees, then the shareholder will also be rewarded.'

It is not an easy pill for all to swallow - when Polman announced his intention to abandon earnings forecasts last year, Unilever's shares dropped 10% at a stroke. Perhaps his greatest ire has been reserved for the hedge funds: he was at Davos last year when he made the 'grandmother' crack and it's not surprising to learn he no longer makes financial presentations to hedge fund managers. 'I do not wish to be political, but my decisions are made in the long-term interests of the company. It would be easy for me to jack the share price up, collect a bonus and go sailing in the Bahamas, but in five or 10 years Unilever would not be in good shape.'

His fondness for talking about the needs of society and the long view, coupled with an occasionally eccentric turn of phrase (although, like many of the Dutch, his English is fluent), make him sound a little out of step with the times on occasion. But his motivations are bang up to date. He wants to make Unilever into the kind of high-performance 21st century operation he believes it should be, and to do it by capitalising on its longstanding reputation as a good corporate citizen.

'It is clear to me we are coming out of the financial crisis and into a 'new normal', created by tremendous pressure on the resources of the earth. There are two billion more people coming in the emerging markets and standards of living there will rise,' adds Polman.

Population growth, climate change and the desire for a new social contract between business and the consumer are delivering big shocks to the global economic system, he says. We can't pretend we are not going to feel them. Nor can Unilever, which now makes some 50% of its annual sales in emerging markets.

That means pressure on prices, particularly of the edible oils that form a staple part of the company's diet. This year's results - operating profits up a tasty 26% to £5.4bn on turnover up 11% to £37.8bn - came with a warning that rising commodity costs would add about £1.5bn to the bill over the coming year.

In the longer term, Polman believes the 'new normal' requires a different approach to doing business, codified in his strategic brainchild, the 'sustainable living plan', launched last autumn. The plan has three key objectives, to be achieved by 2020: to cut the environmental impact of Unilever's products in half by slashing water use and carbon emissions; to source sustainably all its agricultural supplies; and to improve the health and wellbeing of a billion people worldwide. Oh, and to do all this while doubling sales revenues.

'Too many people think in terms of trade-offs,' Polman says, 'that if you do something which is good for you, then it must be bad for someone else. That's not right and it comes from old thinking about the way the world works and what business is for: Milton Friedman's optimisation of short-term profits. We have to snap out of that old thinking and move to a new model.

'Our new business model will decouple growth from environmental impact. We will double in size, but reduce our overall effect on the environment. Consumers are asking for it, but governments are incapable of delivering it. It is needed for society and it energises our people - it reduces costs and increases innovation.'

Take Persil small and mighty, a concentrated detergent that uses less packaging and is cheaper and less polluting to transport. It washes better, at lower temperatures, using less energy, he says. Everyone benefits.

In the developing world, water is precious, so Unilever has introduced an easy-rinsing detergent that saves billions of litres of water. Sustainable living is not a pipedream, he says. 'It can be done, and there is very little downside.'

But it's a hugely demanding objective all the same, especially when it comes to the supply chain. Only 10% of the agricultural produce it uses today is from sustainable sources. It's also the first time that a company the size of Unilever has nailed its colours to the sustainability mast in quite such an unambiguous fashion. What will happen if the sustainable living plan turns out to be, well, unsustainable?

'I'm uncomfortable about it myself. You have to be if you are going to achieve audacious goals. But what is the alternative? In parts of the Middle East, there are food riots and 50% unemployment. Two billion people across the globe live on less than a dollar a day.

'There will always be cynics who ask: "If you miss one target, will you still be the CEO?" But these people are spectators. We say: "We can't do this on our own, so be part of it." In that spirit, I think we can do well and move the world to a better place.'

His speech is like a fast-flowing, undammed river, drowning interruptions or digressions until he has had his say. He's a forceful arguer and trying to get a word in the other direction feels like swimming upstream.

There's also a touch of the evangelist, which may account for sometimes brusque treatment at the hands of the financial press. 'I hate to say it, but the FT has been the least supportive newspaper,' he says, bridling visibly at the name. 'Some of its reporting has been poor.'

He is clearly looking forward to a day when Unilever's performance forces the sceptics to eat their words. But although the share price is up substantially from the dark days of 2009, that rise seems to have stalled again in the past year, as fears over input cost inflation and the sustainable living plan have emerged.

There has been plenty to keep his mind off such annoyances. On his first day in the job in January 2009, he froze salaries and slashed overseas travel: salaries for many remain frozen. He then set about shaking the corporate tree so hard that, within a few months, over a third of the firm's top 100 executives had fallen out - including the CFO, chief marketing officer and global head of foods, home and personal care.

It helped that the financial crisis had made a bad situation even worse. 'It gave me a mandate. There was a burning platform out there, which people understood. We have new people in a lot of key positions,' he says unblushingly. He didn't stop at the top team either. All managers' feet are now held much closer to the fire, thanks to 30-day action plans and revised bonus schemes that combine bigger rewards for good performance with stronger penalties for underachievers.

It's all in the name of speed to market and faster, consumer-led product innovation. The global roll-out of its new Dove deodorant brands is the biggest and fastest-moving Unilever has ever attempted. 'We have now launched more new brands in new territories in the past year than we did in the previous 10,' he says.

But what about the rest of the staff? For many of the firm's 163,000 employees (half of them based in the Americas, Middle East and Asia), it must all have looked suspiciously like the thin end of a hard-nosed wedge. Not much carrot and a lot of stick. But it needed to be done, he says. 'The culture was internally focused and self-serving after years of restructuring. It was a good company with some good values, but it needed more than that to be a winner.'

There are signs, he adds, that his tough love is working. 'Our volume growth is the best it has been in 25 years and employee engagement is up. It comes from being successful - it is simply more pleasant to work in an atmosphere where people are winning.'

It has certainly been a while since a boss of Unilever could talk about winning without crossing his fingers. Although its roots date back to the Victorian era, Unilever proper was formed in 1929 by a marriage of convenience between philanthropic soap-maker Lever Brothers and Holland's Margarine Unie (the unlikely couple shared an affinity for rape seed oil as their key raw material).

For the first couple of decades of its existence, trouble was ever-present, from the Great Depression to the Second World War. This background of hardship bred a peculiarly decentralised organisation, in which local trading companies and divisions across the world were loosely united and nominally controlled by joint HQs in the UK and the Netherlands.

'Globalisation' played a big part in building Unilever's reputation for doing the right thing. Those local companies used local managers, who inclined to a more progressive and less exploitative modus operandi than more colonial rivals. It was also robust - Unilever made it through the war in remarkably good shape - but the structure had two major drawbacks. It was inefficient and, worse still, difficult (perhaps impossible) to co-ordinate from the centre.

When the consumer boom of the 1950s got underway, Unilever started to lose out to slicker centralised rivals, most notably Procter & Gamble. Unilever entered a long, if stately, period of decline.

The challenge facing Polman remains essentially the same: how to get the firm to grow as quickly as it should. On paper, Unilever has a lot going for it - a strong brand portfolio with tremendous global penetration in both the developed and emerging worlds, longstanding and fruitful relationships with its suppliers and an intelligent, diverse and experienced pool of management talent. Despite these advantages Unilever has been a chronic underperformer, frustrating both the markets and its management by consistently proving to be less than the sum of its parts. For much of the noughties, growth was negligible.

'There have been long periods of no growth and sub-optimal results,' admits Polman. Efforts to tackle the problem by major restructuring, streamlining the portfolio and hiving off businesses such as the Diversey cleaning division in 2002 and Birds Eye and Igloo in 2006 had been partially successful at best.

'There was battle fatigue and if there's one thing I am really pleased about it's that the confidence is back. When we see opportunities we are not ashamed to go after them any more,' he says.

Last year's acquisition of Alberto-Culver for £2.3bn, gave Unilever a huge stake in the high-margin, high-growth personal care market, adding brands such as VO5 shampoo, Simple soap and Noxzema to the portfolio, while a £1bn deal for Radox-maker Sara Lee's personal care business went through in 2009.

For all his desire to do the right thing, Polman - who runs marathons and climbs mountains in his spare time - is a ruthless competitor. He uses 'win' words a lot, and 'it is better to make the dust than to eat it' is another favourite expression. He also likes to test managers' mettle by 'inviting' them to join him on training runs.

He'll need all his persuasive skill to convince a sceptical financial community that the sustainable living plan is different and that finally Unilever will manage to deliver on its grand promises. Polman's appointment was itself a measure of how low the firm's star had sunk with shareholders. Not only is he the first outsider ever to be put in charge, he also spent 27 years of his career at arch-rival Procter & Gamble, working his way up from the finance department to group president in Europe by the time he left. A stint as CFO of Nestle followed, before he was headhunted for the top spot at Unilever. For a firm that prides itself on growing its own talent, this was tantamount to letting the fox loose in the chicken coop.

But it was a good match - Polman is progressive, meritocratic and unwilling to follow the herd. 'I have managed to make a decent career without ever once having played golf,' he says. 'And I have never asked for a salary increase, a promotion or a particular job. I have always had the opinion that if you do what you do well, then the opportunities will come.'

Married with three grown-up sons, he lives in the UK, but has the rootless air of someone who has followed his personal star. 'I say to my kids - don't be driven slavishly by a job title, only to find out when you get there that your ladder is up against the wrong wall.'

One of six siblings in a staunch Catholic family, Polman was born in 1956 in the Dutch town of Enschede. His father was a tyre company executive and his mother a schoolteacher who quit to raise her family. He wanted to be a doctor, but places at medical school were allotted by a lottery system and he wasn't picked. 'I still wonder what my life would have been like as a doctor.' Less well paid? He trousered a total of £2.8m in 2009, but doesn't think it's a fair question: 'You can't link money with passion and success.'

He also spent time studying for the priesthood in a Carmelite seminary - 'My family was always clear life was about more than money' - before heading to the US. He ended up at university in Cincinatti, home to P&G's head office. 'At night, I worked in a P&G building and they asked me to join them. I never wanted to go into business, but that is what life is like: there's a lot of serendipity. If you're a planner you get frustrated. Create your own opportunities and then get firmly behind them, because you made the choice.'

So why choose Unilever? 'What attracted me, selfishly I admit, is that I can use a company of this size not only to do what is right for the company but also what is right for society. There was a chance to turn Unilever into a really great company, to have the kind of personal influence which you can't have as number two.'

Unsurprisingly, he has great faith in his powers of analysis. Once he's figured something out to his own satisfaction, that's the way it's going be. Obstructions - in the form of institutions or people who don't share the same view - are either reasoned with (he is highly persuasive) or simply ignored and worked around.

Hence his novel campaign to 'reprofile' Unilever's shareholder base, to win over the long-term investors he believes his company deserves. 'We spend a lot of time disengaging from shareholders who do not benefit our strategy, and attracting those who do buy into what we are doing. There will always be people driven by short-termism, greed and self-interest, but we'd rather not have them associated with our company.'

In a world where institutional investors are used to being courted, indulged and generally sucked-up to, it makes a refreshing change to meet someone who so cheerfully adopts a 'treat 'em mean, keep 'em keen'

approach. It's yet another reason why the City looks on Unilever with uncertainty, but for Polman it's all part of trying to put that genie of shareholder value back in the bottle. 'We're trying to build our sustainable model, the share price is up 50%, and there are more "buy" recommendations on our stock than "sell" ones. Unilever is back deciding its own future.'

That radical spirit bubbles up again. 'All I am saying is, "here's our strategy, buy into it". People forget that the financial world is only the grease in the system, it is companies such as Unilever which have the track record of value creation.'

THREE CHALLENGES FACING POLMAN

  • To manage for the short term, keeping a lid on costs and an eye on cash flow, as well as taking the long view he prefers
  • To drive speed and innovation at Unilever as fast as it can go, without pushing so hard that the wheels fall off
  • To win over a sceptical City by proving that sustainability really does go arm in arm with faster growth and bigger profits

POLMAN IN A MINUTE

1956 Born 11 July in Enschede, eastern Netherlands. Father a tyre company executive, mother a schoolteacher

1977 BBA/BA, University of Groningen. Followed by MA in economics and an MBA in finance and international marketing from the University of Cincinnati, Ohio

1979 Joins P&G finance department as a cost analyst before switching to marketing

1995 Managing director, P&G UK

2001 Group president Europe, P&G

2006 Leaves P&G after 27 years to become chief financial officer at Nestle

2009 1 January, Joins Unilever as CEO

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