Milton Friedman famously coined this phrase: “The business business is business” just 50 years ago.
Milton Friedman famously coined “The business of business is business” in just over 50 years. This statement is no longer true today. Businesses hold enormous power to direct the course of our society, whether it is to destruction or to salvation, in a world that is ravaging by climate change, socio-political instability, ecological degradation, and social inequality.
In the last few decades, there have been rapid changes in how businesses tackle humanity’s most pressing problems. In the past, CSR (corporate social responsibilities) began with acts like philanthropy. However, it has led to the rise in companies that live and breathe positive environmental and social impact, such as Patagonia. There’s a growing number of businesses that are taking a proactive stand on current issues. This can be driven by investors, consumers or NGOs.
Unilever is a company that is leading this movement. Paul Polman, then-CEO of Unilever, is the global conglomerate that sells everything from Ben & Jerrys soap bars to Dove soap bars. Since 2009, Unilever has been a leader in putting purpose at its core. The company has made many social and environmental commitments, including the Unilever Sustainable Living Plan. As with all things that challenge the status quo there are critics to this business approach.
The rise of initiatives like the Taskforce on Climate-change related Financial Disclosures (in which businesses quantify the financial risks they face from climate-change-related risks), or ESG (Environmental, Social, and Governance), has spread like wildfire in the last few years, giving reasons for optimism. However, it is still not clear if putting the environment and social purpose at its core of a business can result in poor business performance. This was highlighted by the recent news that Terry Smith, one Unilevers’ top shareholders, had openly criticised the company.
Smith was angered at Unilevers’ rejection for its bid to acquire GSK’s consumer division of GSK Pharmaceuticals. He decided to take a shot at highlighting the company’s poor performance and blame it on their focus of purpose. He wrote in his annual letter for CEOs that a company which feels it must define Hellmanns’ purpose has, in our opinion, lost the plot. Since 1913, Hellmanns has been around so we can guess that consumers have figured it out (spoiler alert: salads and sandwiches). He also stated that Unilever appears to be struggling under the weight of a management that is obsessed with publicizing sustainability credentials at the expense focusing on the core business.
Smith’s perception of Unilever, which he sees as a business that has become stuck in its head of a utopian business environment, may not be unique. These public statements, which have attracted the attention of many news outlets, including The Financial Times, may cause greater scepticism among investors about social- or environmental-driven businesses.
The complete opposite was said in a second Letter to CEOs that was sent the same week. This letter was written by Larry Fink, CEO at BlackRock. Media outlets picked it up, mainly because it used the word profit as often as it used the term purpose. Fink stated, “In this polarized world, CEOs will have one set or more stakeholders demanding that we do something, while another set of stakeholders demands that we do the opposite.” Your company’s purpose is paramount. You will achieve long-term returns for shareholders if you are true to your company’s purpose and keep your eyes on the long-term while adapting to the new world. Companies like Unilever are a shining example of a business that is purposeful. Fink said that we do not focus on sustainability because we are environmentalists but because our clients are capitalists and fiduciaries. This highlights the fact that long-term economic success is dependent on our concern for the environment.
Some business leaders have polarized their views, which highlights how complicated, frustrating, and exciting the business role has become. Can a company only be driven by profit? Is it better to focus on purpose than profit if investors stop supporting the company? The answer is not clear. It will take time to find out. Or perhaps it is our responsibility as members and workers of society to paint the picture.