CEO SPECIAL .... PAUL POLMAN - CEO, UNILEVER

POLMAN, CEO - UNILEVER

`Pillars Now in Place for a Better India'





India is one of the fastest-growing economies and will continue to remain so, says Unilever CEO Paul Polman. India is increasingly taking to the global stage and everyone is realising that its active participation is needed for the world to progress, he tells Kala Vijayraghavan and R Sriram. 

Edited excerpts:

How do you see India as a market and how do you rate the Narendra Modi government's performance?

Well, now, we are in India -the country we visit once, if not twice, in a year because of the importance it has to the overall Unilever universe. India is a very exciting market and, currently, one of the fastest-growing markets in the world and, I think, in the foreseeable future, all indications are that it will stay (as one). One of the major strengths is its enormous population. You have a growing population, which nowadays is an exception if you come from the parts of the world like Europe, where I come from. Then another thing we are seeing is the unlocking of the more inclusive society. The Swachh Bharat, Make in India programmes, the Smart City programme. Obviously, they will require a lot of work, obviously we cannot expect miracles tomorrow. But the pillars have been put in place that will result in a better India for everybody. So if it is a better India for everybody, we all will also prosper.

You are in a very exciting period of time.India is increasingly taking to the global stage.Your government showed responsibility -took up Sustainable Development Goals in September last year. And, increasingly, everybody is realising that the world can only progress if India takes an active part.

And if India itself is successful, we are proud to be in HUL to be an integral part of it. And as far as the Modi government is concerned, well it's the same thing. People talk about what you have done in 100 days when you become a CEO. What I have realised is that it is very difficult to be in politics these days. I think from a private sector point of view, we need to play an active part in derisking the political process and be a part of the discussion. I think what you see in India is (it is) in the right direction and it is our responsibility to help accelerate that. How is India different from last year?
India has clearly stepped up its game. From a global perspective, India keeps performing, whether it's 6-8% growth, whichever way one looks at it, it is one of the fastest-growing economies in the world. The changes made by the government (are) being noticed by the world. With such a complex, diverse country and 1.2 billion or more population, it's not easy, so I have this huge respect for the work being done. The seeds have been planted and the plants are starting to grow. It will take some time, but there is momentum. I am confident of the government. But, more than the government, I am confident of the people in the country who are aware of the changes that are happening. Poor people are getting educated and there is financial inclusion.

So, I do not worry about HUL, there are good people here. We attract good talent. I am more concerned about how India develops. From your perch in Unilever, London, are you pessimistic about a global recovery?
I'm saying that I am a realistic optimist. I have always liked to be an optimist because I believe we need to work on a better future for everybody. The fact that last year, the world signed the Sustainable Development Goals and a fairly good start from the COP 21 agreement make me optimistic because at the end of the day, everybody thought, including the Press, that this is not possible. Nobody is going to agree among 90 countries, and at the end of the day, they agreed something quite substantial. So now it's implementation time.

There is no doubt that we have a hard time creating jobs, there is no doubt that geopolitical conflicts are on the rise, not on the decline, the issues of refugee crisis is distracting Europe from the longer-term thing... Then you have the Brexit issue that might disrupt Europe. Europe itself is in some areas moving apart. You have different political directions there. So the whole bloc is not addressing its long-term competitiveness. In America, you are in the midst of an election, which gets all the attention and the politics has come a little bit to a standstill. America's role in the world is changing as well, whether we like it or not.Then we have the Middle East, where we have a hard time finding a solution where people are suffering. Then because of the slower growth in China, as well as significantly lower oil prices that we see, there are many countries that are under pressure, (countries) which were not under pressure before.

The challenge you have here is, I think, climate change. India will be very much affected and you have had two seasons of back-to-back bad monsoons where the rural community has not had the best of luck. And that is not by coincidence. You have your water tables dropping. Water is becoming more salty, less drinkable. You have air pollution. Half of the most polluted cities in the top 20, not even the top 30, are in India. So whatever way you look at it, the answer becomes obvious that it is better to do something about it. India has discovered that as well. So this is an opportunity for India to really make that transformation. And the world is willing to help. We have had issues in India due to deflation, rural market slowdown, two years of bad monsoon. Are you happy with the kind of growth you are having?
I look at it on a long-term basis. I look at my seven years. At HUL, we have doubled the business. We have grown at over 12%. This is my eighth year as CEO, but if a country has zero percent growth one year, I actually like that because it wakes them up. We need to work a little harder. In the last 7-8 years, we have outgrown our markets. We need to work a little harder for that when there are headwinds. So we introduced more brands.That is also the case here. We might buy some brands. We step up our innovation pace. We focus more on execution and, in fact, the answer is we do all of that. Every year, our innovation pipeline has got stronger. We rolled these innovations out to more countries.So we have to set the bar higher. Consumers use more new brands now than in any time in history of Unilever. So you have to do all these things. There is no doubt that you have to do all these things to get the same results than perhaps 10 years ago, but that's fine. You were among the first to criticise short-termism among shareholders.Today, people like Larry Fink of BlackRock are taking this up and he has written to Fortune 500 CEOs saying: Don't focus on short term. Is there a change in thinking?
Larry works very closely with us. We have created a group of people that is working on what we call capitalism for the long term. We have now brought together about $24 trillion worth of capital on the management, Larry being one of the biggest ones with BlackRock. We are working on trying to change the system so that it changes people's behaviour. You cannot blame people individually for the short-termism.Short-termism comes from the requirement of incentive systems. For example, if you are a fund manager and you need to beat the market and your salary depends on how well you beat it every quarter, you are going to move the money as if it is a poker play to beat these indexes on a quarterly basis. So, your incentive system influences you. If you are a CEO and your board tells you all the time to deliver and deliver, or your shareholder calls you every day and tells you your share price has to go up, else I will put my money here or there.

If a CEO gets enormous compensation by having the share price go up in the short term, then he starts to behave that way. So we said we need to put a group together under the leadership of McKinsey's Dominic Barton and Mark Wiseman from Canada Pension Plan.Mark and Dominic took up this initiative and wrote two articles in Harvard Business Review that you can see mentions Unilever, and we put a group together of 10 people, myself included, to see how you can go to make these markets function for the long term. So what does this group do?
We meet a few times and look at what are the things we need to do. For example, we are looking at how we can change the compensation systems around CEOs to make them more long-term focused. There are shareholder services like ISS and others that influence them. We work with these boards so that we see what is the fiduciary duty for the boards. There is a misunderstanding that has crept into many markets that the fiduciary duty of the board is only to shareholders and often that is interpreted as short-term shareholders. That is not true. It is to ensure long-term viability of the company. Are you trying to rope Indian CEOs into the capitalism group?
I had a wonderful breakfast in Delhi last Tuesday with these wonderful 20 CEOs from Indian companies that all belong to the World Business Council For Sustainable Development. And that is the major organisation of companies that want to move the world forward. Companies like ICICI, Tatas, Birlas, Mahindras, I do not want to mention them all where the CEOs are leading India in the right direction. Through this business council, we have to share best ideas and practices on how we can accelerate that.The World Business Council will have its annual meeting in Chennai in October this year. This will give us an opportunity to enrol other people there. The PM will probably be there. So that will get the right attention. There is this great debate about inequality. What do you think about it? Is it the biggest issue of our times?
The biggest issue is not poverty, it is exclusion.

So poverty is relative. Inequality will always be there. Because we all are different. But what you want is equal opportunity. Then there are some basics that you want as well.The right to a job, right to food, right to education, equal rights to women and men.There is no religion that says it has to be different, I haven't found any. Equal opportunity for everyone is the most important thing. And we have started to realise that the world is better if we all have equal opportunities and solve these issues instead of some of us living behind barbed fences. How much of this is caused by the financial market policies of the developed countries? Because you had asset-price inflation but you did not have good wage growth and you have consumer price deflation.Now the issue you are raising is different from what you are analysing. The issue that is happening with the financial industry is, because of the Basel agreement, the capital balance the banks need to keep has become so stringent that the banks don't lend anymore. So the original function of banks was forgotten by the banks themselves -which was to help the economy, not be the economy. So that was the crisis of 2007-08 in one sentence. That is why financing has not flown through. And that is the real issue right now. The cost of capital in India is too high.People say how can I invest in green energy when the capital cost is so high. We need to find blended financial mechanisms. Why we have these disparities is what the economists call the tragedy of the commons. Where one benefit goes to some but the cost to the others. So how do you make a value chain work. That's why when we were working on the USLP (Unilever Sustainable Living Plan), we said instead of shared value or CSR (corporate social responsibility), we take responsibility of the total value chain. If you don't do that, you cannot solve it. If you do it, you find opportunities that are enormous. advancement. The industrial revolution gives us a lot of solutions to lift people out of poverty, so we will embrace it but at the same time we have to think how can we use it so that it is inclusive. For example, you cannot solve the issue of employment if you do not solve the problem of food security and issue of smallholder farmers. For that, you have to solve the issues of land rights and sustainable farming. You have to solve the issue of youth, otherwise we cut down money more fast. So, it becomes a value chain issue. create 5-6 millions jobs a year probably. So it is difficult with our industrial revolution.Because, in India, you are in the second part of the revolution. Think about the wealth of robotics, driverless cars, people-less checkout counters in supermarkets. You can see it is enormous job destruction. Some people say it will be around 1.8 billion. Now people should not be deprived of technology.For example, if drones could deliver drugs during a heart attack, hard to argue that it is not right. You can make financial inclusions and automatic bank transfers. Some of the jobs are very dangerous, people lose their lives, but they are now automated.Alzheimer's is a big problem and if you can get implants... so you should not stop advancement. The industrial revolution gives us a lot of solutions to lift people out of poverty, so we will embrace it but at the same time we have to think how can we use it so that it is inclusive. For example, you cannot solve the issue of employment if you do not solve the problem of food security and issue of smallholder farmers. For that, you have to solve the issues of land rights and sustainable farming. You have to solve the issue of youth, otherwise we cut down money more fast. So, it becomes a value chain issue.

ET8FEB16