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Growth reimagined Prospects in emerging markets drive CEO confidence

14th Annual Global CEO Survey

Paul Polman CEO,

Interview Transcript Interview with Paul Polman CEO, Unilever

PwC: What indicators are you short-term and let long-term issues fall watching to understand how the by the wayside. That is very dangerous global economy will develop and for business – just consider the currency what trends do you see? wars now being waged. Likewise, the crisis has caused some countries to turn PP: For consumer goods, we look at towards trade protectionism. Right now, consumer confidence data and there are 350 cases before the WTO, employment levels. In managing our the bulk of which concern various forms business model, we look at broader of protectionism by OECD countries. societal trends. With regard to social So we have to make sure that we don’t attitudes and behaviour, I would observe turn our backs on globalisation, which that the economic contraction has not is still the world’s greatest wealth only resulted in a financial crisis, but creator. An additional development that also an ethical crisis for the private you see coming out of this crisis is a new sector, which now must examine the seriousness regarding sustainability. way it does business. But every crisis People now realise that the ways we brings with it the opportunity to do currently consume resources is things differently, and in that regard, unsustainable. The world’s population is the economic contraction may change expected to grow by two billion over the attitudes and behaviours in a positive next 40 years and that growth will be way. The crisis has certainly underlined concentrated in the emerging economies the importance of international whose people have rising expectations institutions like the IMF, the World with regard to their standard of living. Bank, and the G20. People are taking To meet those expectations we’ll have these institutions seriously now. At the to look at things differently and find same time, the crisis has prompted the solutions that can lift people out of economies of the East to assume a level poverty. Businesses that understand of economic and political maturity much how to do that that will be successful. faster than they might otherwise have So you put all these trends together and – and that’s going to have a major impact what you’re dealing with is increased on business. The economic crisis has pressure and incentive for business to also brought attention to the level of take greater responsibility for society over-consumption by the wealthy. as a whole – and an expectation by That realisation will have repercussions consumers that business will accept regarding how we build a more equitable that responsibility. Unfortunately, the society in the future. In many cases political environment, by its sheer – you can take Greece or Ireland, but design, makes it difficult to implement many others countries, too – society has far-reaching solutions. And, right now, been living beyond its means. Corrective confidence in business is low. measures will be painful: Economists calculate for every one percent of PwC: Can you comment further government deficit that’s cut across about the public’s lack of trust European countries, one percent of GDP right now in business? will also be lost. So we clearly need a business model that will help us return PP: Some studies have shown that to growth – but growth that is equitable confidence in business has fallen as low and sustainable for all of society. This as 14 percent. Right now, people look will take political will. But, in reaction to inward – to friends, family, relatives – for guidance and advice. So consumer 14th Annual Global a crisis, most politicians focus on the CEO Survey

Interview Transcripts scepticism has increased because people 70 percent of our business will come Paul Polman don’t trust business. And they don’t see from the Far East. That shift eastward CEO, Unilever politicians solving the issues that need has tremendous implications for our to be solved. They’re terribly frustrated company’s structure and culture. with the way the world has been run. The values at the heart of our company If you view the world through the eyes certainly won’t change, but our culture of the consumer, which I do every day, and business model will need to it looks as if the world has been run so evolve to reflect a changing customer that the benefits of risk have accrued to demographic. The conventional a few individuals, while the cost of risk Western way of running a business – has been shared by society at large. which historically has not been very No one would ever run a business like advantageous for women, for example that, but somehow, we let the world – is not necessarily going to work in operate in that way. But the consumer the Far East. Unilever already has far is discovering that they have ways to more women in management in our make their displeasure known. I like to Far Eastern operations than in the West. say that Facebook – with 550 million As we shift eastward, we have to make members – is the world’s third largest sure that our corporate culture and country. You have China, you have operating model reflect the markets India, and you have Facebook. Likewise, there. Trying to get that right is where with Twitter. We recently launched I spend most of my time. Unilever’s, ‘Sustainable Living Plan’ and within hours of the launch, two million PwC: How does one go about people had commented on the Plan preparing a well-established using Twitter. So consumers are using organisation like Unilever for the Internet to make their expectations growth in new markets? known. And if you can fulfil those PP: We do that by maintaining our consumer expectations – which is what growth potential ahead of our actual we’re trying to do with our Sustainable business numbers. We aspire to become Living Plan – there’s tremendous a US$ 80 billion company versus a US$ opportunity for business. Businesses 40 billion company today. And in order that fail to tap into the expectations of to become a US$ 80 billion company at their customer base will very quickly some future date, I need to start go the way of the dinosaur. building a US$ 80 billion organisation PwC: Where do Unilever’s right now. If my capabilities are not most significant strategic ahead of my actual turnover, I will never achieve my objectives. So I concentrate opportunities lie? on expanding Unilever’s capabilities PP: Well, it’s very important to ahead of its numbers. Analysts focus on understand where consumer trends are turnover, but I focus building internal headed and to position your company as capabilities. For example, it took us a a leader of those trends. I always say it’s year to put our Unilever Sustainability better to make dust than eat it. If you Plan in place because I felt it was understand what consumers want and absolutely necessary that everyone in have products that meet their needs, our organisation understood and you can grow – regardless of macro- embraced it fully before the Plan was economic conditions. At the same time, announced externally. It was to we are also aware that within ten years, me that if I didn’t, for example, have 14th Annual Global CEO Survey

Interview Transcripts Unilever’s R&D function geared towards everybody in the supply chain. Tesco is Paul Polman driving sustainable innovations – going to be around for another hundred CEO, Unilever which is a central principle of the Plan years or more – and so is Unilever. – I would not be able to deliver results It only makes sense to work in concert to the marketplace. And that would to meet consumers’ needs. By working create a credibility gap with our together towards a common goal there customers. So you always have to is much more value to be gained than galvanise the organisation around there is in haggling over costs. the way forward before you start communicating your plan to external PwC: Describe Unilever’s approach audiences. Internally, we talk a lot about to managing its brands. the values of running a business for the PP: Every one of our brands must have a long term. Externally, we speak more “product mission” grounded in consumer about the concrete things we’re doing to needs. But along with a product mission, advance our long-term goals. So my each brand must also have a social communication to the outside world is mission. That social mission engages the more about what we’re doing, while consumer in a relationship with the inside the company we talk more about brand. Take any of our brands – Ben & the capabilities we need to create now Jerry’s Ice Cream, for example. Ben & in order to reach our ambitions. Jerry’s social mission is to make the world a better place. To achieve that, for PwC: What is Unilever’s approach example, it uses fair trade practices in with regard to product innovation? procuring the ingredients that go into its PP: People tend to see innovation ice cream and operates a carbon-neutral strictly in terms of revolutionary, model. But it’s important to remember breakthrough products – technologies that the consumer creates the social to sequester carbon emissions or mission that the brand attaches itself to. microchips that can process data many People who buy Ben & Jerry’s Ice Cream times faster. That’s fine. But most support fair trade practices and buy innovations are the result of steady, Ben & Jerry’s with fair trade in mind. continuous improvement. Progress is Likewise, consider tea. achieved when you’re able to connect Consumers buy Lipton tea because it what’s needed with what’s possible. delivers good value in terms of price and And that connection needs to be taste. But then on top of that, Lipton is implemented across the entire supply committed to sourcing all of its tea from chain. So at Unilever, we’ve begun to sustainably-managed farms. Now, by change the relationships between our drinking Lipton Tea, a lone consumer company and our suppliers. What’s can become part of a movement of important to us is not only negotiating millions of other people around the the best cost with suppliers, but world that supports a socially understanding what they can and responsible product. People want to be cannot bring to our growth plans. part of a movement like that. In my We’re also working with our retailers in opinion every brand must have a social order to build new product categories mission and the consumer must have an and improve the customer’s shopping integral part in defining that mission. experience. So to drive innovation, you need to change the relationship with 14th Annual Global CEO Survey

Interview Transcripts PwC: Are brands with a social and by switching to margarine about Paul Polman mission equally relevant to three kilos of trans-fatty acids can be CEO, Unilever emerging markets? cut from the average diet during the course of a year. That would improve PP: I believe they are. In fact, brands health statistics significantly. In schools, that support a sustainability agenda may we work on hand washing. In the actually be more pertinent to developing developing world, one and a half million countries because of the immediate children die every year from diarrhoea. pressures those countries face with You can cut that number 30-40 percent regard to climate change, food just by introducing simple hygiene shortages, population growth, and practices like hand-washing. Even in other problems. So for example, the developing world, many people a billion people who live in developing only brush their teeth once a day, if or under-developed economies have at all. So advertising for our Signal no access to clean drinking water. brand toothpaste is geared towards In response, we’ve introduced the demonstrating how brushing together Pureit brand of water purifiers, which twice a day can be a bonding experience we now have in about 15 million homes. for a father and his son. Our intent is to We’ve made a commitment to get Pureit sell responsible products that leave the products into 500 million more homes world a little better off. But market around the world so that people even growth for those products must be part t the lowest economic strata can have of the equation. access to clean water. We might not always be able to find an economically PwC: Tell us about Unilever’s viable model to support that target, Sustainable Living Plan and the so we’ll work with local communities risks associated with it? and NGOs to make Pureit products affordable for everyone. Now, that’s PP: The Plan is Unilever’s commitment not an economic model that the to improve the health of one billion Western world would necessarily feel people; buy 100 percent of its comfortable with. But in the process of agricultural raw materials from familiarising the world with our Pureit sustainable sources; and reduce the products, we’re developing relationships environmental impact of everything it with millions of people and tying Pureit sells by one-half, while doubling our to our other brands. If consumers don’t revenues. In other words, decoupling have clean water they can’t cook with growth from environmental impact. bouillon cubes. Now, in any calculation there is a risk. But in the case of the Sustainable Living PwC: You’ve talked about Plan, I think the upside far outweighs responding to consumers’ the downside risk. Of course, whenever expectations. To what extent you go public with a big, ambitious plan, are you also trying to change there is a risk that you’ll miss one of consumer behaviour? your objectives, in which case you become a target for criticism. But I’ll PP: Well, you try to do both. So for accept that risk as the price to pay for example, in order to get people to eat making the discontinuous progress we healthier, you reduce their intake of need. The alternative is not pretty, nor is trans-fatty acids. Unilever is the world’s this a spectator sport. leading manufacturer of margarine 14th Annual Global CEO Survey

Interview Transcripts PwC: What about the macro- atmosphere. But these companies need Paul Polman economic risks you might face? the support of government – in the form CEO, Unilever of loan guarantees, say –while they PP: In business, there are always risks transition to a more sustainable business that one has to deal with. In the present model. Governments have come to environment, we see increased risk their own realisation that they need a with regard to the viability of input thriving and successful private sector costs. There’s also the possibility that because only business can create wealth. government protectionism may slow Government can re-distribute wealth. the pace of globalisation. In any case, NGOs can advocate for specific we are living increasingly in a world that allocations of wealth. But at the end of is more volatile. I describe the world the day, only business can create wealth. using the acronym, VUCA: volatile, uncertain, complex and ambiguous. PwC: And yet, the public’s trust I work a lot with charities for the blind. in business is at very low levels And one reason I like to work with the right now. blind is that blind people must deal with uncertainty every day. Close your PP: That’s true not only of business – eyes and try to walk around – it’s a trust in the political system is equally very uncomfortable feeling. Blind low. So, yes, you have to build trust in people, actually, are ideal people to business and there’s no better moment learn from because they experience to try to do that than now. One has many situations as uncertain and to cherish this time as a unique complex. And many of the skills they opportunity. We’ve arrived at a point use to cope with those situations are at which the level of trust in business exactly the skills that managers now has bottomed out and can only go up need to run their businesses. from here. If we rally together we have a tremendous opportunity to re-build PwC: What are your expectations trust in the private sector. But it is also with regard to government clear that trust can be regained only oversight of business? over the long term with consistent, responsible behaviour. Trust is built PP: In response to the economic crisis, over time but can be lost overnight. we can expect to see more re-regulation So, one must be continuously vigilant. and an increased role of government When Victor Frankl wrote his book, in business over the next few years. Man’s Search for Meaning, he wrote t the same time, governments now that the Statue of Liberty erected on understand more than ever that the East Coast of the US should have business is their partner in finding been accompanied by a Statue of solutions to economic and social Responsibility on the West Coast. problems. Governments have seen The crisis we’re experiencing now is that business can bring important a crisis of responsibility. And so we need capabilities to the table. Take the issue to re-instil in organisations of every of deforestation. Paper and lumber kind a renewed sense of responsibility. manufacturers are ready to switch to If we can do that, it will be a tremendous sustainable forestry practices, which force for building trust. And, ultimately, will help mitigate the presence of trust is the basis for prosperity – there’s greenhouse gases in the world’s no doubt about that. PwC: How is your perception of Paul Polman value changing in terms of the CEO, Unilever benefits you deliver to consumers? PP: The concept of value is continuously evolving. In the past, value was about delivering a basic commodity like sugar or salt to the consumer at an attractive price. Later on, the goal was to create a brand – like or – which was a guarantee of quality. Then, value became synonymous with the experience a product delivered. Starbucks isn’t just about coffee – it’s about a warm, inviting place where you can relax and check your email. It’s an entire experience. Today, the concept of value is increasingly associated with products that demonstrate social responsibility. A successful product must provide utility, but it must also exhibit a social consciousness, if you will.

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