Once again this year, thousands of the world’s leading economic and business players met in the little Swiss ski town of Davos. And once again, the key topics and discussions had little to do with winter sports.
The reasons are obvious. There’s a lot going on in the world today and plenty of questions:
- As global political economies continue to evolve at an increased pace, how much will leaders factor geopolitics into evaluating potential transactions?
- How do global population and health trends affect the ways companies and investors think about investing in and managing businesses?
- Can innovation, entrepreneurialism and investment meet the challenges of climate change?
- And what about technology? As jobs increasingly get disintermediated by Artificial Intelligence, how should businesses, governments and individuals balance the opportunities that tech brings with its equally challenging implications?
To find out, we spoke with Clayton, Dubilier & Rice London-based Operating Partner Vindi Banga. Some background on Vindi’s global business and policy efforts: Banga spent 33 years at Unilever, where he served as executive board member and president of Global Foods, Home & Personal Care. He led the creation of a ‘One Unilever’ agenda for the Foods, Home & Personal Care organization, responsible for innovation and marketing mix development across 170 countries for all 270 Unilever brands. Vindi also was responsible for Unilever’s sustainability agenda, an issue – as you’ll hear – he has learned and thought about since his childhood in India. Vindi served on the Prime Minister of India’s Council of Trade & Industry from 2004 to 2014, and in 2010 the India’s President awarded him the Padma Bhushan, one of the country’s highest civilian awards.
Transcript: Vindi Banga, CD&R
Chris Riback: Vindi, thanks for joining me. I appreciate your time.
Vindi Banga: Pleasure to be with you, Chris.
Chris Riback: Our main topic of course is Davos. But you live in a place that has just undergone a dramatic change: Britain has left the EU, and we all now live in a post-Brexit world. How would you characterize the business mood in the UK and in Europe?
Vindi Banga: I think the main thing I’d say is that people feel there’s been a step forward in terms of resolution. Even the dying hard “Remainers” would say that having got passed into a decision is better than the last couple of years of complete uncertainty and being stuck.
Chris Riback: Yes.
Vindi Banga: People realize that there’s a lot to be done in the next 11 months to actually get the details of a deal done between the UK and Europe. But in general, I’d say there’s a cautious optimism.
Chris Riback: Is the optimism translating into increased action or removals of pauses or at this point, because we’re talking only about a week after Brexit actually occurred. Is it just that the optimism has started to return and you expect over the next period for then the action to resume?
Vindi Banga: I think the action will depend to some extent on the progress of the deal. And people will wait and watch, but they’ll begin to think very seriously, once again about a post Brexit world. Up to now, people were stuck in a situation of we don’t know what it’s going to be. We don’t know whether we’re going to be in or out. Now we know we’re going to be out. And the question is, okay, so what does out mean? That’s partly informed by what one knows today or can guess, but it will be informed during the year as we actually see the deal unfold. And then action will commence during the year.
Chris Riback: So keeping a bit on this theme, but now moving back to that beautiful ski town of Davos, Switzerland and the meetings and insights that you were able to gain and share from there, the issue of managing through evolving political economies and global trade markets. And this now extends obviously beyond the European Union and UK and Brexit. And it goes to TPP and to the change that we went away from, NAFTA and to the USMCA. As global political economies continue to evolve at an increased pace, how much will you factor geopolitics into evaluating potential transactions? Is it same as you always have? It’s always a factor for you or given the world that we currently live in are geopolitics higher on your list?
Vindi Banga: I think geopolitics has always been high on our list and it continues to be, so even today. Obviously the issues that one is thinking about may move from time to time. For example, I have no doubt that in the last three years people have been very focused on the question of Brexit and how that should impact investing in the UK.] In the same way, there are other geopolitical issues. Most notably, I think the last 12 to 18 months have seen the U.S.-China tariff war as a big issue. And people have been trying to thread the way through that. So there is always an eye out for geopolitical issues. Having said that, I would say that it’s very important to look at each opportunity or re-transaction in its own specificity. And to try and work out whether it is highly likely to be impacted or moderately likely to be impacted or actually less likely to be impacted by a particular issue.
Chris Riback: Yes.
Vindi Banga: And I think that’s something we have done always. And keep doing.
Chris Riback: In thinking about what you’re saying about the U.S.-China situation and thinking about that vis-à-vis say Brexit and the insight you just gave about Brexit: That the key is, well, one way or the other, we now know, everyone now knows how things are going, we have resolution and now we can move forward. Is the biggest challenge on geopolitics and thinking about, for example, the U.S.-China situation, but there are others as well, is it uncertainty versus stability? Is that the axis perhaps on which you consider these types of issues or is there a different kind of paradigm that you apply?
Vindi Banga: Chris, businesses find it much easier to work in an atmosphere of as much certainty as possible. Now we all recognize that there is no perfect world and there will always be a degree of uncertainty. But the most certain it is, the most certain we can be about a situation, the better the investment environment and climate.
Chris Riback: So then it seems only fair for me to throw more uncertainty at you and lead into my next question, which is healthcare and global healthcare – and figuring out how to keep people healthy in the face of not only potential epidemics like the current Coronavirus, but both growing and aging populations. For example by 2030, the world’s population is projected to rise by more than one billion with 97% of this growth coming from emerging or developing countries. But this growth, as you may know, is also marked by an increasing percentage of people over 60 and increasing obesity. Healthcare is obviously a key investment sector. How do these global population and health trends talking about uncertainty affect the way you think about investing in and managing businesses?
Vindi Banga: Well, I think healthcare is a very big growing opportunity set, right across the world for exactly the reasons that you pointed out. On the one side it is aging populations. People are living longer and as they live longer, they actually acquire more and more complicated diseases. And those diseases are often interactive.
Chris Riback: Yes.
Vindi Banga: So not only do you have to take care of them from a health point of view, but some of the social issues also become interlinked with this. So there’s that side of it. On the other side there is the emerging world which is growing in income and actually as they grow in income in some ways they’re requiring many of the bad habits that the West has lived with for many years. And obesity is not just a problem of the West. It’s actually a problem of many emerging markets as well.
Chris Riback: Yes.
Vindi Banga: You would not be out of place to say that India has one of the highest likely incidences of diabetes and cardiovascular disease. So I think the question of health care is a very broad question and a huge opportunity set everywhere. I think the second point I’d make is that governments are finding it very hard to deliver the healthcare that they’ve actually promised their citizens.
Chris Riback: Yes.
Vindi Banga: And this is most apparent in the United Kingdom. But it’s also apparent everywhere else in the world. And I think, therefore another big opportunity is to improve the efficacy of delivery of healthcare. If you take the United States, this is one of the biggest opportunities there. The cost of healthcare is prohibitive. It’s very high – it’s a very large share of the GDP. And I think anybody who can help construct a business venture that will make the delivery of healthcare more efficient to the American population will be welcomed.
Chris Riback: You may have just answered my next question as I was listening to you, which is opportunity versus threat and the balance of those two. Do you look at healthcare and the changing health requirements as well as the changing health care responsibilities? Do you see those more as opportunities for business and innovation and investment or the balance of that against the potential threats that rising obesity in various populations around the world and other health concerns, the global pandemics for example, the potential risks that those bring to business. I’m certain it’s not one or the other. So how do you think about that balance?
Vindi Banga: I think that there are of course threats and if you just think about what we are living through right now with the Coronavirus issue, we can suddenly see that if you’re a business which is either hugely dependent on the Chinese market or on the Chinese supply chain then you would be immediately impacted because of the disruption that is happening at this moment in China. So yes, of course health and health issues will be a threat. But on the other hand, I think that it is within the ingenuity of the world to find solutions to all these issues. If you just think about HIV, many years ago this was a huge threat and people actually talked about, “My gosh! Is this going to wipe out the world? Is this going to be one of those unstoppable diseases?”
And today you have a situation where people with HIV actually can lead perfectly normal lives. And technology has been the solution. So I’m a great believer that I think in the world that is enough ingenuity and creativity for us to find technological solutions. Along with that though, in the case of healthcare, definitely, also the role of education is extraordinarily important and the two go hand in hand. You cannot just deliver a silver bullet. You have to actually help people understand the need for it and often accept it. So I think on balance, yes, it’s a threat, but I do believe it’s in our capability to seize opportunity from it.
Chris Riback: So if you have got a path to address that major global challenge, let me throw a different one at you. Sustainability and another area where technology and education very well may mean the difference between a big change coming potentially to the world. Innovation, entrepreneurial-ism and investment must meet the challenges of climate change. Today you may know we consume 26 times what we did a 150 years ago. Yet only one in four people can actually explain what the terms sustainable and responsible mean. What do they mean to you? Sustainable and responsible and more pointedly what’s the business case for a company to be sustainable and responsible?
Vindi Banga: I think being sustainable and responsible simply means that you cannot actually deplete the resources of the planet for purposes of your own business and to create wealth for yourself. I think that’s the important way of thinking about it. You have to be really responsible about that.
Chris Riback: Yes.
Vindi Banga: You may, of course, use the resources, but you then have to make sure that you are putting enough back onto the planet and not to be a net depleter. I would like to think about this whole space in the language of today, which is ESG, with E standing for the Environment, S for Social issues and G for Governance.
Chris Riback: Yes.
Vindi Banga: I have always believed for many, many years, decades actually that ESG is truly good for business. It’s not something we have to do because of climate warming or any of these issues or it’s not a tick box exercise because people want you to do it. It creates value. And I’ll give you some very simple examples. Well, E is all about doing more with less. So how do you produce the same amount of goods that you would do in terms of volume, but use less power. Or use less water or create less waste. So it’s actually doing more with less. If you do that, you will certainly save money and if you save money, that’s value creating.
Chris Riback: Yes, efficiency.
Vindi Banga: Exactly. If you take S, which is the whole social issues. Well, look, we know for example, it’s axiomatic, but if your workplace is a happier workplace, is a satisfied workplace, is an engaged workplace in terms of employees, then you’re going to have more productivity. And productivity means you’re going to earn more and you are going to be creating value. If you have a diverse population, again, we know that diversity is the fountainhead of creativity and the innovation I was talking about earlier. So once again, diversity is not just about tick box and saying X percent of women should be on boards and so on.
Diversity is all about actually harnessing the creativity that comes from colliding different types of thought, different disciplines, different ways of thinking, different backgrounds. So when you think about this, I think you have to believe in ESG being good to create value. The moment you do that, it’s actually astonishing how many ways you will find in your business to create that value. As long as you think about it as a tick box exercise, well it’s then something you got to do. It’s compliance. And we’re not talking about compliance here, we are talking about value creation.
Chris Riback: What drove those insights for you? These are ideas that have been central for you or at least relevant for you for decades is as you indicate. What brought that about? What drove that? Because that’s likely many years before it was all connected for many folks.
Vindi Banga: Well, I would put a lot of my thinking in this space to my background. I grew up in India where everything in the house was reused. So my mother used to actually collect the newspapers that we read every morning, and at the end of the month somebody would come and buy the newspapers and give us something for it, a very small sum of money. They would take away empty bottles. Everything was recycled.
So I think when you think about that and you actually think about the value chain that recycling can offer you see value in waste. So that’s one of the influences that I think was certainly important. I think the second, I spent many years working in a company called Unilever.
Chris Riback: Yes.
Vindi Banga: And Unilever has sustainable business right in its genes. Not many people know that Lord Leverhulme, who founded the company over a hundred years ago, actually was the first employer of women in the United Kingdom. And the reason he did employ women is because they were much more productive than the men on the filling lines, on the packing. On the filling lines and packing lines their productivity rates were higher than the men. They showed up on time. They didn’t take absence because they had too far too much to drink the previous nights et cetera. He was the first person to actually recognize the productivity potential of women in his labor force.
Once he employed them he wanted to have them in the night shift. And of course to have them in the night shift the challenge was how do they go back home? So he created homes for them-
Chris Riback: Wow.
Vindi Banga: -in the vicinity of the factory. And a whole village was constructed. Now, if you think about this, what he’s basically doing is finding ways to be very socially responsible, but actually get back business benefit from it and create a virtuous cycle of value creation. That’s effectively what been talking about earlier. I think you have to find in this a path to value creation. If you launch a detergent, if you sell a detergent which uses less water, well actually that’s an interesting product because it saves water, the consumer thinks that it’s actually more powerful because it doesn’t need temperature. So it’s better than the ones that require more water. So you win on all sides.
Chris Riback: Fascinating stories. You make me think two things. One, I chuckled because when you were talking about the impact of women labor versus male my immediate thought was, from your end, the insight that was from years ago, my immediate thought was, well, the more things change, the more they stay the same. And secondly, I think you may have a title for your book. Everything I learned about ESG, I learned from my mother. I think that’s a sure bestseller.
Vindi Banga: Well, I tell you, I mean, it is important. I may be digressing here, but one of the interesting phenomenon I used to see is actually the West trying to impose consumption targets on the emerging markets. And this was naturally resisted by many of those countries because they kind of said, “Well, look, you’re already consuming per capita, so much more of energy. How can you impose a limit on us? We have to develop, we have to feed our people, we have to take care of their health, et cetera.” And it was quite interesting.
When I saw this debate happening in global political circles it was like both sides not understanding each other. If you shift the debate to one of actually using less, because it is more value creating, I think then you suddenly get everyone’s attention. Because when you’re in the emerging markets, people can’t afford a lot and therefore you need to be more efficient. Products have to be cheaper, they have to be more affordable. And therefore if you can actually make them more economically, it’s better for those countries. So if you shift the debate into value creation into affordability, E means that you should be able to offer a more affordable products, you will get much more traction.
Chris Riback: And what trends did you see along these lines in Davos? What insights were you able to find around investors and the ways that investors can continue to generate higher returns by getting ahead with ESG. Were there ways the ways that management teams can pursue as you are kind of describing a more future proof business strategies? Were there trends or discussion along those lines that you noted at Davos or was the discussion in a different direction?
Vindi Banga: I think that this time around climate change and ESG has been on the world economic forum agenda for several years, the last several years that I’ve been there. But what I did notice this time is I think it’s taken a very sharp uptake. In life there always a tipping point. And I think this year that tipping point was reached. And I say that because the amount of discussion on climate change, on ESG and the width and range of discussion was far, far more exponentially than I’ve ever heard before. So I think it’s past tipping point. One of the big themes is around measurement.
Chris Riback: Yes.
Vindi Banga: I think that is hugely important because usually it’s quite hard to grapple on these issues unless you’re able to measure them properly. There’s the older days that if you set a target and you can measure it, you can normally achieve it because people are like that. Once you give them a quantified target, they know what to go for and you then linked their incentives with it and lo and behold, suddenly you start achieving it. So one of the challenges with ESG is that there has been no single language, no single currency, no metric. In fact at Davos I heard that there were about 600 competing ways of measuring ESG.
Chris Riback: Wow.
Vindi Banga: And the international business councils has spent a lot of time, devoted a lot of resource and will continue to do so to really narrow that down and try and arrive at a handful of key metrics. And I think that is going to be hugely important. If they’re able to sort of really bring this whole complicated discussion down to a few metrics and prioritize those, I think the world will make a lot of progress. So I would say that that was a resounding theme in Davos, which I hugely support.
Chris Riback: Talk about sustainability: 600-plus measurement systems. That is not sustainable because you surely would not have an outcome where everyone can speak the same language and can be talking about the same things in similar ways so that surely could not be a sustainable approach. Let me ask you quickly if I can as well about another obviously hugely important trend in technology. And once again, there’s a balance question because the impact of technology will continue I would think to be double-edged. And as you consider various sectors, how do you think about the balance between, so for example, when you see areas that could be disintermediated by artificial intelligence just for example, how do you think about that balance versus the opportunity obviously based on the business changes that will surely come?
Vindi Banga: Well, Chris, I think every time there’s a sharp technology change it is a threat to every existing business that’s using the older technology, and we’ve seen this since the industrial revolution. Today we are talking about digital technology, but in the last several decades they’ve been lots of technological changes that have come. So if you don’t understand the impact of technology, you almost certainly will feel its threat. What does that mean for practicing business? I think that what that means is that one has to be out there alive to all the technology changes that could potentially impact your business. It’s not just the technology that is changing in your sector. You could be impacted by a more general technology change or a technology that’s changing in another sector and that could have an impact on yours.
So I think it’s really important to be out there sensing and trying to figure it out, trying to piece through as to what of these technologies could potentially be a threat on your business. In the same way, trying to piece through what is the opportunity in these. If you take a medical technology, for instance, I think diagnostics is going to go through a huge change. Diagnostics, if you think about mammography or the way in which people have looked at x-rays and so on.
Chris Riback: Yes.
Vindi Banga: This is just going to change. A lot of it is pattern recognition. It’s dependent on the human eye. And surely artificial intelligence and machines are going to do this more effectively. So there’s going to be a threat on one side, but a huge opportunity on the other. And that’s just one example. There’ll be many more like this. And there are every day. You think about e-commerce. I think retailers who had huge assets invested in big box retail, et cetera, was slow to see the possibility of eCommerce and actually have found it very hard to move into the new paradigm of omni-channel. On the other hand, a few of them have made that change and actually seize that opportunity. So I think with every big technological change, one sees some losers and some winners precisely because of this.
Chris Riback: In tying this back perhaps to the one of the original topics we talked about, the geopolitics and some of the stress points in societies, one of the big impacts is to labor – to people, human beings. And that’s greatly through AI. And so I hear you on the one hand, the opportunities and threats to business models, but when we also think about the popular pressures that governments and businesses will face, the impact to labor, I would think, has to be among them. How do you think about that, and how do you think about the responsibility around creating soft landings? Whose responsibility is that for the labor impacts? Government? Management? Is it up to individuals to get educated and go through training themselves? Is it some combination of all three? How do you think about this area of the technological impact?
Vindi Banga: Chris, I think the most important thing is that every businessman realizing that he as a citizen actually has to live in the same society in which he or she does business in. And I think that’s a really important link. You can’t separate those two. If you look at what’s happened over the last 10 or 20 or 30 years and you think about Western companies which have offshored and sent them manufacturing into emerging markets or sent their back offices there. Now, that’s been hugely good at an aggregate level for the world because at a global level, the world has benefited because a lot of people in those emerging markets actually benefited, they brought up skills, they have got new jobs. At the same time, people in the developed world have actually lost their jobs. Now overall, it’s a win for the world, but it’s a lost somewhere.
Now, I think it’s really important that if you’re living in the West, you actually got to take cognition of that and you have to think about, “Well that’s the society in which I’m doing business, but fine. I mean that’s where my is headquartered, but I also live there and I’m part of that society and I want to keep that society stable and healthy.” So what does that mean? It means that I think, governments cannot solve the problem of helping people learn new occupations, learn new skills on their own. I do believe that everybody, business has to play a very important role in reskilling people to help them upgrade their capabilities and actually create value addition for themselves and therefore to business.
Chris Riback: Vindi, to close our conversation, a forward looking question. We are in a changing and as we’ve discussed, often divided world where there is frequently and seemingly increasingly become characterized by an I win you lose mentality. A lot of what I hear you talking about really runs contrary to that mentality. I’m hearing you strongly advocating in fact, in your last response around the understanding that a business lives in the same community, we all live in the same communities really kind of runs directly against that mentality of I win you lose. So with that philosophy, how should private equity investments be constructed? How should they be framed and executed so as to not fall into the trap that it seems is gaining steam and in some areas?
Vindi Banga: Chris, that’s a really important point and I think you hit the nail on the head, and I think I would say that I truly believe that to create value sustainably, you have to play win-win. If you play win-lose that’s unsustainable. And if you go back and read history one will see that every win-lose situation has eventually led to a revolution. And that’s not a great place to be. Coming to private equity, well private equity is an often misunderstood class of investment and people think it’s all of our assets stripping and things like that. Actually private equity only makes money if they create a better business, a more sustainable, higher value creating vehicle then when they bought that business. And the reason for that is that they are usually selling that business to intelligent buyers and they’ll only pay a higher price if they can see the sustainable value creation. So successful private equity firms that have been around for a long time, I would argue are there because they are creating sustainably higher value than the businesses that they buy.
Chris Riback: Well, it sounds like a philosophy that you have applied for many years now as you described around ESG and other areas. And I just can’t help getting the image out of my mind. Perhaps many of those lessons came to you from your mother around the ways that you, your family took resources and were able to find ways to not only help the environment but make small amounts of money along the process. It sounds like you were a business person, at a very, very young age and you had a great teaching at home. Vindi, thank you. Thank you for the insights that you’ve shared.
Vindi Banga: Thank you, Chris.