#79 Rethinking capitalism - purpose & profit, Alex Edmans' Professor and Author, London Business School
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Should companies be run to earn a profit, or to serve a purpose? Alex Edmans joins Purposely Podcast to talk about his ground-breaking book, The Pie-Growing Mentality A new approach to business (and indeed capitalism) that works for both investors and society. The book lays down the argument that “Great Companies Deliver Both Purpose and Profit” and that it is not an either or choice. Drawing from his research evidence and real-life examples spanning industries and countries, Edmans demonstrates that businesses driven by purpose are consistently more successful in the long term. He describes how a purposeful company must navigate difficult trade-offs and take tough decisions. Edmans' provides an actionable roadmap for company leaders to put purpose into practice, and overcome the hurdles that hold many back. He explains how investors can discern which companies are truly purposeful rather than green washing and engage with them to unleash value for both shareholders and society. And he highlights the crucial role that citizens can play as employees, customers and investors, in reshaping business to improve our world. What is the pie and what is pieconomics'? ‘The pie is the total amount of social value. It's not just financial value, but it's the amount of total happiness or welfare that a company creates. You can think about that pie as being divided between profits to investors and value to society. So often when people think about businesses becoming more responsible, they think about well, should we split the pie differently? So should we reduce profits in order to pay higher wages? or should we reduce profits in order to charge fair prices to customers? Similarly, if you're a CEO, many CEOs think about how to split the pie in their favour. So they might think the way to maximise profits is to charge as much as I can get away with or to pay my workers as little as possible. So what is pieconomics argues is that the relationship between business and society is not a zero sum game and the pie is not fixed. When a company chooses to invest in its workers or to become better stewards of the environment or to treat customers better. They're not just sacrificing profits, instead they're growing the pie, ultimately enhancing profits. For example, if you treat your workers better they'll be more motivated and productive and more likely to stay similarly with the environment and customers. So while there might be trade-offs in the short term but in the long term, a responsible company is not just being more ethical it is being more commercially savvy and boosting its long term returns.’ Alex Edmans' is Professor of Finance at London Business School.  Alex graduated from Oxford University and then worked for Morgan Stanley in investment banking (London) and fixed income sales and trading (New York).  After a PhD in Finance from MIT Sloan as a Fulbright Scholar, he joined Wharton in 2007 and was tenured in 2013 shortly before moving to LBS.