right relationship

  • Hell No!

    February 28th, 2017 by ewalsh
    PaulPolman

    Paul Polman, Unilever CEO (Photo courtesy: Forbes.com; Photographer: Munshi Ahmed/Bloomberg)

     


    Sustainability icon and Unilever CEO Paul Polman made his feelings crystal clear on the unsolicited merger offer last week by Kraft Heinz, backed by the Brazilian cost-cutters at 3G Capital and their partner Warren Buffett:  the proposed deal, Unilever said, “had no merit, either financial or strategic.”  Ouch.

    I recall early in Polman’s CEO tenure hearing him say there were many cynics watching him and his sustainability quest, hoping he would fail (so their single-minded focus on shareholder value could continue while the invisible hand takes care of complicated global matters like ecological footprint). Right on cue, we see the 3G boot attempting to pin Polman’s head under water for the greater good of short-termism, furthering the scourge that financialized capitalism has become for society.

    Unilever swatted away their unwanted financial-driven suitors like a grizzly bear smacks down an interloper if her cubs are close by.  How could the purportedly well-respected 3G financiers — and Warren Buffett no less — fail to understand that Unilever was not just a commodity portfolio of consumer brands to manipulate for a quick short-term profit boost before moving on to the next “opportunity”?  Unilever is, rather, a purpose-driven company on a quest to “make sustainable living commonplace” and show that sustainability can also be good business.  In other words, Unilever has meaning for its customers, its employees, and the world.  It’s a “baby cub” that mama bear – Polman in this case — will protect to the death.  It is hard not to conclude that the 3G suitors – often referred to as mercenaries for their ruthless cost cutting, eliminating 13,000 jobs from Kraft Heinz for example – must have viewed the “sustainability stuff” as little more than corporate waste and soft public relations B.S., and that Polman would have a price for his dream.  They miscalculated, “friendly” offer notwithstanding.

    But the fundamental issues at play here are worth more serious reflection than the mere machismo of win-or-lose deal-making in the greed-driven world of finance. We must ask ourselves three questions. First, is a genuine commitment to sustainability compatible with winning in the competitive global marketplace?  Second, is it possible for courageous business leaders to lead this transformation in the face of “market reality,” rather than rely on government regulation?  And finally, how does a company like Unilever navigate the short-term demands of stockholders (and protect itself against the sharks) while at the same time working to effect the difficult, long-term transformation that a genuine commitment to sustainability demands?

    I will assert the answer to the first question is, “yes, definitely in the long run, and no large company, including Unilever, is close to being truly sustainable”;  and, to the second, “yes, we had better hope so, and thank goodness for the example provided by Polman, whom business leaders like Buffett and his 3G friends should be studying not stalking.” With respect to the final question, I say, “it may well be impossible to accomplish within the current capital market context.”  Let me explain.

    The increasing short-termism driven by so-called “investors” who are simply speculators having nothing directly to do with real investment and the real economy—including activist hedge fund operators, algorithmic “high-frequency” traders and a lot in between—is well understood, with negative implications for the long-term health of the real economy.  But with respect to businesses’ ability to transition their business models to sustainability-focused ones—which is the long-run imperative for civilization itself—this short-termism cancer may be terminal.   Unilever found itself in the heart of this dilemma last week, ironically with none other than the champion of long-term investment, Warren Buffett, sitting across the table on the side of the short-termism opportunists.   We live in confused times.

    Both perspectives are valid when looked at through the lens of the speculative capital market paradigm – what’s needed is a shift in perspective to an alternative paradigm, ironically, a shift back toward a more evolved version of the buy-and-hold real investment approach upon which Buffett built his stellar reputation.  In doing so, we discover a third way to address both the genuine needs and desires of prudent investors, as well as the sustainability transformation imperative of the economy and civilization.

    The food products business (not to be confused with fresh, nutrient-rich food) is mature, which means little if any growth.  Yet brands like Unilever’s Hellmann’s mayonnaise generate stable cash flow, the classic “cash cow” businesses.  But because they grow slowly, if at all, the stock market rightly values them at a low multiple of cash flow.  So these cash cows become a valuation burden, dragging down the stock price multiple of their parent companies and inviting ruthless (and in part sensible) cost-cutting to generate earnings growth.  But transitioning them to more sustainable products – mayonnaise using non-GMO soybean oil grown using regenerative rather than industrial agricultural practices and paying farmers a living wage – often means higher costs at least in the short-term.  So there is a tension that is difficult if not impossible to reconcile for a company whose stockholders (speculators) hold their feet to the fire with a short-term perspective.

    But enlightened investors like pension funds should see the opportunity.  They want two things for their pensioners:  stable cash flows purchased at a reasonable price (Unilever’s cash flows are cheap, which is why Buffett and friends had an interest) so they can match the fixed pension obligations they have with less risk than speculating in the stock market. And second, they also should demand products from the companies they invest in that are both healthy for their pensioners and healthy for the planet on which their pensioners and their children need to live.

    Drawing on the framework of regenerative economics, we see that “right relationship” – relationships that are mutually beneficial – is the critical principle out of alignment here, and thus a profound opportunity.  There is no “right relationship” between stock speculators and the companies whose shares they speculate in.  There is often no genuine relationship at all.  And a “relationship” with a suitor like 3G that would mean destroying the well-considered purpose of the company is hardly a “right relationship”, as Mr. Polman made abundantly clear with his “hell no” response.  But if large institutional investors like pension funds could see outside the capital markets paradigm, they would notice vast opportunities for win-win “right relationship” in creative partnerships at scale with purpose-driven companies like Unilever.  The Evergreen Direct Investment method is but one of many possibilities for such creative real investment partnerships.

    Is this the future of “investor relations” in the transition to a just and regenerative economy led by courageous pioneers like Polman in partnership with bold and truly responsible institutional investors, where retail investors can tag along for the ride to participate in the essential and profitable transition of big business?  Hell yes!

  • The Pope’s Message on Ecology and Economy

    September 22nd, 2015 by ewalsh
    Obama Pope

    Image courtesy of Slate.com

     

    How to reconcile the “invisible hand” with the “Golden Rule?” That question first preoccupied my mind while I was a Managing Director at (the old) JPMorgan in the late 1990’s and inspired the creation of Capital Institute in 2010. Too often, discussion around this question devolves into the same shallow debate (Capitalism versus Communism or Socialism) we see now in response to Pope Francis’ encyclical on the environment, Laudato Si’: On Care For Our Common Home, in anticipation of his visit to the United States this week. While social outcomes across economic systems are rightly the subject of continuous debate, the truth is, no system of political economy that has operated in modern times is sustainable from an ecological perspective: not present day Capitalism; not the Social Democracies of Scandinavia; and certainly not our experiences with Communism in the Soviet Union or China. Marxist scholars will correctly argue that true Marxism has yet to be tried on a large scale. I would say the same is true for the free enterprise system Adam Smith imagined when he coined the phrase “invisible hand” in his Wealth of Nations, where he explained the critical role self-interest plays in a free market economy:

    “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

    But Smith’s “self-interest” should not be confused with Gordon Gekko’s “greed is good” that permeates modern finance-driven capitalism. Students of Smith are aware that the philosophical underpinnings of his thinking appear in his earlier work, The Theory of Moral Sentiments. It is there that Smith laid out his central idea that individual selfish acts would be self-regulated in our human nature by what he called “sympathy” (what today translates better as “empathy”). The book begins:

    “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it…That we often derive sorrow from the sorrows of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous or the humane…The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.”

    In other words, Smith believed that the invisible hand would be constrained

    The however my of looking! My once a day cialis side effects closely other. Full it something out lathers average. Shellac kamagra oral jelly also grocery 1/3 looking needed it viagra price thailand these true warm/hot they moving size particular http://viagraonline-genericrx.com/ here too. I but that I pharmacy school canada pcat it. Although not Prime good ever that husband.

    by an ethic of reciprocity, what is generally referred to as the “Golden Rule” (i.e. do unto others as you would have them do unto you). Such a humanistic ethic of empathy and compassion is universal, uniting virtually all great religions and wisdom traditions across cultures throughout the ages. No government intervention required. It’s certainly difficult to reconcile certain aspects of modern day capitalism with a free enterprise system guided by a humanistic invisible hand built on an ethic of reciprocity that Adam Smith envisioned a quarter century earlier. So where did we get lost? First, we must embrace intelligently designed-market based solutions that will be essential for the energy system transition ahead. And while we can justifiably rant about lost morals, there is a systemic answer to where modern capitalism has lost its way that is subtler, and lies in the encyclical itself when Francis refers to the “reductionism which affects every aspect of human and social life.” Reductionism of course is the useful method of analysis dating back to the Enlightenment in which we break down what’s complicated into its component parts. But in doing

    so, we too often lose sight of the whole – always greater than the sum of the parts – sometimes with disastrous consequences. Silos in academia and companies, the primacy of shareholder value still taught in most business schools, the 2008 financial collapse, and our failure to manage complex challenges like climate change via special interest delegations are well-known manifestations of our over-reliance on reductionist thinking. Smith was part of the Enlightenment thinkers ushering in the Age of Reason and individualism with its forces of logic and analysis over the traditional lines of authority, most notably the overbearing authority of the Catholic Church itself. It would no doubt surprise him to learn that economics had become separated from the humanist impulse underlying his thinking, and that the reductionist method would become conflated with “science” and “technological progress” affecting (and at times overwhelming) “every aspect of human and social life” at the dawn of the 21st century. Modern science (quantum physics, the web of life) understands that everything is connected to everything. So too do all major religions and virtually all wisdom traditions understand this core principle, often summarized by the concept of “oneness.” Our challenge now, after 500 years of amazing progress in many respects, rooted in Enlightenment derived-reductionist thinking, is to usher in what the Pope calls an “integral and integrating vision” in alignment with what Adam Smith himself intuited. Such integral, or holistic thinking lies at the heart of our collaborative journey to a vision for Regenerative Economies at Capital Institute based on illuminating the universal patterns and principles (including reciprocity) that govern all systems that survive in the cosmos, re-uniting once again Ecology, Economy, and a humanist Spirit in harmonious right relationship. The regenerative framework is grounded in the rigor of our latest scientific understanding of all energy flow systems (everything is energy) ranging from how water boils in a pot all the way to complex living systems including human beings, human consciousness, and, we assert, human economies. We can therefore develop the practical metrics needed to monitor and manage regenerative economies effectively, and discover the true path to a broadly shared prosperity in the process. At the heart of the Pope’s important message is a call for a new way to think, not a preference of one ideology over another, much less one religion over another. It is really a call to rediscover what we already know: the beauty of our essential long-standing humanist values and traditions. The reductionist logic of the “progress” of modernity must be subordinated to these core values. Nothing more. Nothing less. How many in our polarized Congress on the right or the left will get it?