Could companies do a better job than economists at changing the finance system?

If you ask the question, “How many economists does it take to change a light bulb?”, you might get a couple of well-worn answers:

(a) None – if the light bulb needed changing, the market would already have done it.
(b) Let’s assume that the light bulb doesn’t need changing…

What about this one: “How many people does it take to change the way finance works?”

Tricky. Post-financial crisis, even economists would be wary of offering answers in line with (a) and (b) above. But what is the answer? Huge numbers of people, not least the Occupy London and Wall Street protesters, are angry and see the need for change: that is a vital ingredient. But sheer weight of numbers will not in itself deliver change, unless we can translate these concerns into practical actions. And we should not assume that all of the blame and the actions must be taken by isolated groups of people like ‘greedy bankers’ and ‘toothless policy-makers’. We need them to act, but not alone. Companies, for example, can also have a powerful influence on the way finance works.

Take Unilever. Based on its experience, the company has identified barriers to a finance system that serves society and is finding ways in which it can influence change. So, for example:

Problem: companies tend to report their results on a quarterly basis, which reinforces short-term investor behaviour.
Unilever’s solution: Stop providing quarterly results.

Problem: companies are not always good at explaining to investors how their sustainability strategy adds long-term value.
Unilever’s solution: Create a plan that puts long-term, sustainable thinking at the heart of Unilever’s value creation proposition and explain it to investors in those terms.

Problem: Investors in ‘fundamentals’ with long-term horizons can be crowded out by ‘momentum’ investors seeking short-term returns based on small price movements.
Unilever’s solution: Make it crystal clear to investors that Unilever is focused on delivering long-term value and that it welcomes investors who share that perspective.

Faced with financial markets that are still very short-term, Unilever knows that none of this is easy. And of course deeper structural and cultural changes are also needed in the financial markets. But Unilever is taking practical steps to change the way finance works, based on its own areas of influence. 

It will take a lot of people to change the finance system, but Unilever’s leadership in this area will go a long way. As Unilever celebrates the first anniversary of its Unilever Sustainable Living Plan this week, Paul Polman, Unilever’s CEO, outlines some of the key elements in his company’s approach in the video clip.

We have more footage of our interview with Paul Polman, and tips from Sally Uren on how your business could achieve success through sustainability too. Click here to view.