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Should Unilever Be “Serving Society and the Planet”?

Date:12 February 2018
Author:Frank Hindriks
Milton Friedman
Milton Friedman

The theme of the meeting of the World Economic Forum held at Davos towards the end of January was Creating a Shared Future in a Fractured World, which is obviously a laudable ambition. At this meeting, Unilever made “five big announcements” that fit this ambition rather well. For instance, Unilever calls for more action on packaging waste and accelerate sustainable palm oil production in Indonesia. Strikingly, the first announcement concerns Unilever’s ambition to “elevate the importance of ‘real’ play”. The company observes that children now spend less time outside than maximum security prisoners. And it wants to approach schools and invest in urban research in order to do something about this. At this point, I could not help but being reminded of Milton Friedman’s claim that the only social responsibility of business ‘is to increase its profits’.

Unilever has an extraordinarily ambitious corporate social responsibility program. It takes its purpose to be ‘to make sustainable living commonplace’. In 2010, it launched its ‘Sustainable Living Plan’ that has three targets that the company aims to meet by 2020: first, to help more than a billion people take action to improve their health and well-being; second, to reduce its environmental footprint by half; and third, to enhance the livelihoods of hundreds of thousands of people in their supply chain. Again, the first of these is particularly striking. It makes me wonder why Unilever would even want to help more than a billion people.

Shareholder Theory

As the notion of a stakeholder is rather elastic, stakeholder theory allows businesses to sell basically anything under the label “corporate social responsibility”. But does Unilever really have a billion stakeholders? The expansive notion of corporate social responsibility Unilever employs makes me wonder whether it shouldn’t stick closer to its core business: making profit. In response to my sceptical stance, one might point out that the targets are good. So, why wouldn’t it be good for Unilever to achieve them?

This is where Friedman comes in. His first argument against corporate social responsibility was that the CEO of a company has a contract with its shareholders (the contractual argument). Unilever’s ambitions are limited by what its shareholders want. Were it the case that they do not want Unilever to help one billion people, it should not do so. Friedman’s second argument was that the market economy – that includes the corporation as one of its core institutions – is justified in terms of the benefits it generates for society (the welfare argument). Helping others distracts from that and can in fact reduce social welfare. The third argument Friedman presented was that companies lack democratic legitimacy to pursue social goods and goals (the political argument). They cannot assume that they have public support just because they pursue good outcomes. There are no democratic checks and balances in place to secure that what it does and how it does is desirable and fair. Because of this, companies should not meddle with politics or with non-economic issues that are not their concern.

Casino Capitalism

But doesn’t Friedman’s shareholder theory lead to casino capitalism? Perhaps it does. The only constraints on profit-maximization that Friedman mentions are the law and ‘ethical custom’. But the law may be out of date or sanction immoral practices such as slavery. Furthermore, it facilitates the pernicious thought that whatever is not illegal is permitted. Finally, whatever “ethical custom” is, it seems too arbitrary as a basis for specifying an ethics for the market and business.

Ethical Shareholder Theory

What is needed is a new version of shareholder theory, shareholder theory 2.0. The core of this theory is that companies should be taken to have almost the same central duties as human beings. They have a duty not to harm people, and a duty to treat them with respect. Presumably, they also have a duty not to lie or cheat, as well as a duty to keep their promises. And they have a duty of justice, to treat people in a fair manner and to see to it that benefits are distributed in a just way. Taking more action on packaging waste and accelerating sustainable palm oil production in Indonesia fall under the duty not to harm (insofar as these activities affect people). And the ambition to enhance the livelihoods of hundreds of thousands of people in Unilever’s supply chain falls under its duty of justice. Rather than allowing businesses to hide behind law and ethical custom, they should recognize and embrace these responsibilities. This is the first pillar of what I call ‘the Ethical Shareholder Theory’.

What is distinctive of the market, however, is that its participants do not have what is called ‘a duty of beneficence’. This means that corporations need not set out to do good for the sake of doing good. Market economies exempt consumers and corporations from this obligation for the benefit of all (the welfare argument). (When markets fail in this respect, governments should take action.) And when they pursue the social good, they risk undermining the way in which the market should function. This implies that, unless they have a proper justification for doing so – one that addresses Friedman’s concerns – they should not do so. This is the second pillar of the Ethical Shareholder Theory.

Now, if corporations do indeed not have a duty of beneficence, there is ample reason to be rather skeptical of Unilever’s overall ambition to “serve society and the planet”. I should emphasize at this point that most of Unilever’s corporate social responsibility program falls under the first pillar of the theory I propose. So, many of its ambitions are things it should indeed pursue. Given that Unilever is doing so much better in these respects than other corporations, it has good reason to be proud of its achievements and ambitions.

What I am worried about is pillar 2. Consider the aims of “elevating the importance of ‘real’ play” and “helping more than a billion people take action to improve their health and well-being”. Do corporations have the authority to pursue such aims? The justification for allowing corporations into society is that they will generate welfare by making profits. This is why they enjoy privileges such as limited liability. And this is why they should carefully justify any action that seems to be a matter of beneficence.

The Business Case

Now, I suppose that the major shareholders of Unilever support its sustainability program. This suggests that it expects some return on it. It may even be that a good business case can be made for it. If so, their program does not fall under beneficence, but is part of its core business: maximizing profits. Unilever may well be the kind of company that fares best by taking a broad perspective and exploring global problems as a means to formulating a solid long-term business plan. Personally, I would applaud it if Unilever came out and said this. It would then have an all-round justification for what it regards as its corporate social responsibilities.

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