It is a sign of the world in which we live that the
word “crisis” should appear so often in the introduction to
Dominic Barton’s wellargued
critique of capitalism. But
what we have experienced over recent years is not, in my
view, so much a crisis of capitalism as a crisis of ethics.
As the author acknowledges, capitalism itself remains the
“greatest engine of prosperity ever devised.” The issue, to
pursue the analogy, is that maintenance of the financial
engine has too often been left in the hands of young,
untrained apprentices.
The central thesis of the article is that the “shorttermism”
of so much modern business
—“quarterly capitalism”—lies at the heart of many of today’s problems. I agree and have
said so many times, occasionally to my cost. At Unilever, words have been backed with
action. We have aligned management incentives for the long term and invested heavily in
R&D to build our pipeline of innovations. In addition, we have moved away from
quarterly profit reporting; since we don’t operate on a 90day
cycle for advertising,
marketing, or investment, why do so for reporting? And as Dominic Barton
acknowledges, we have also been among those companies “to resist playing the game”
when it comes to issuing guidance. The share price may have fallen on the day we
announced an end to guidance but is now 35 percent higher. Nothing in the intervening
two years has persuaded me that this was the wrong thing to do. We will therefore go on
resisting.
For all these reasons, it is difficult to argue with Dominic Barton’s prescriptions for
change—management incentives that encourage a focus on the long term, a broader form
of stakeholder capitalism, and stronger, betterinformed
boards of directors.
These will all go a long way to addressing the problems of shortterm
capitalism. They
are necessary. But they are not sufficient. Changes in policy will mean little if not
accompanied by changes in behavior. That’s why we need a different approach to
business—a new model led by a generation of leaders with the mindset
and the courage
to tackle the challenges of the future.
Such challenges go beyond those arising from the financial crisis. We now know, in
outline, what the future will look like. It will be a world where climate will change, water
will be scarce, and food supplies will be insecure.
Business has a chance to become part of the solution to those challenges. Just as we need
to ensure that we do not repeat the mistakes which led to the recent banking crisis, so
there is an equal imperative to face up to the realties of a world where 9.5 billion people
will put enormous strain on biophysical resources. The rapidly growing populations of
India, China, and Indonesia will all aspire to the lifestyles and living standards enjoyed
by the Germans and the Californians. There is nothing that we can, or should, do to stop
that.
The challenge for business is to meet these needs in a sustainable fashion. Success will
require completely new business models. It will demand transformational innovation in
product and process technologies to minimize resource use, as well as the development of
“closedloop”
systems so that one man’s waste becomes another’s raw material.
Interestingly too, the challenge is likely to encourage a much more collaborative form of
capitalism. Companies will have to work with each other, not just with governments,
nongovernmental organizations (NGOs), and civil society. Issues like deforestation and
species extinction cannot be tackled by just one company acting alone; they will require
collaboration within, and across, industry sectors. To arrest the alarming rates of
deforestation in Brazil and Southeast Asia, for example, not just the consumer goods
industry but also the oil industry (interested in vegetable oils as feedstocks for biofuels)
and big agribusinesses (like Cargill, Bunge, and ADM) must work together. Coalitions of
this kind need the active involvement of NGOs to mediate discussions and ensure that the
interests of civil society are fully factored into solutions.
Just as important, the growth strategies that businesses pursue will have to be more
inclusive. Michael Porter captures some of this thinking in his concept of “sharedvalue”
creation. In a world of scarcity, there will be greater pressure to ensure that wealth is
created not just for the few but that the benefits are spread more widely—to small farmers,
small and midsize enterprises, women, young people. If you doubt the truth of this, just
look at what is happening on the streets of Cairo and Tripoli, where educated, digitally
connected young people who have been locked out of the formal economy are challenging
the prevailing political and economic orthodoxy.The changes Dominic is advocating deserve very careful attention. But if the world
economy is to continue to grow and flourish, it will have to learn to live within rational
financial and ecological constraints. As Jonathon Porritt recently argued, “The recession
we are in right now is grim, but nothing like the recession that awaits us if we don’t start
living within our means.”