Introduction & Context

• Jonathan's birthday celebration during Google talk
• Alex Edmans presenting on "Growing the Pie" book - purpose and profit in business
• Format: 30-minute presentation + 20-minute Q&A
• Google's mission: organize world's information, make it universally accessible and useful
• Challenge: connecting daily work to greater purpose

Defining Purposeful Business

• Traditional view: purposeful business = doing no harm (avoiding scandals, mistreatment)
• Edmans' elevated definition: actively creating value for society through excellence and innovation
• Vodafone M-Pesa example (Kenya 2007):
  • Mobile money service without requiring bank account
  • Transformed Emmanuel Saronga's goat herding business
  • MIT study: 200,000 households lifted out of poverty in first 7 years
  • Significant impact on gender parity (women moved from agriculture to business/retail)
• Contrast with tax transparency reporting (2012):
  • First telecoms company to release tax transparency report
  • Created less societal value but avoided public backlash
• Purpose = creating value through relentless commitment to excellence and innovation

Growing the Pie Framework

• Value creation represented as pie: profits (investors) vs. societal value (wages, taxes, fair prices, free services)
• Traditional view: purpose = fair split of existing pie
• Edmans' view: purpose = growing the pie through innovation
• Two limitations of "fair split" approach:
  • Reduces company profits (disincentivizes voluntary adoption)
  • Bad for investors (who are society: parents, pension funds, insurance companies)
• Definition: "Purposeful business seeks to create profits only through creating value for society"
• Key word "only" - excludes price gouging, underpaying workers

Purpose vs. Profit-Focused Approach

• Milton Friedman (50 years ago): "Social responsibility of business is to increase profits"
• Friedman's logic: long-term profit requires treating stakeholders well
• Fundamental difference: instrumental vs. intrinsic approach
• Profit-centered: serve society only to increase profits (requires financial calculations)
• Purpose-centered: serve society because it's right thing to do
• 21st century challenge: intangible assets (workforce) difficult to calculate ROI
• Purpose frees companies from requiring explicit financial justification for long-term investments

Research Evidence

• Importance of rigorous, discerning evidence due to confirmation bias
• Edmans' 15-year study using Fortune's "100 Best Companies to Work For" (1984-2012)
• Advantages of this dataset:
  • Long timeframe including financial crises
  • Comprehensive qualitative and quantitative factors
• Results: Best companies beat peers by 2.3-3.8% per year over 28 years
• 89-184% cumulative outperformance
• Causality addressed through stock returns methodology
• Investment in stakeholders grows pie, ultimately benefiting shareholders

Practical Implementation

Excellence as Purpose

• Purpose often achieved through excellence in core business rather than explicit social programs
• Google's information accessibility has greater societal impact than charitable donations
• Train companies: on-time performance more valuable than ancillary activities
• All employees contribute: procurement efficiency frees resources for R&D
• Purpose-driven companies pursue excellence even without clear financial payoff

Focus and Materiality

• Purpose ≠ altruistic (serving everyone)
• Purpose = focused and targeted approach
• Definition: why enterprise exists, who it serves, reason for being
• Two aspects:
  • Why: based on comparative advantage (resources/expertise)
  • Who: driven by materiality (most impactful stakeholders)
• SASB materiality map shows industry-specific material stakeholders
• Study results: Companies excelling on material issues beat market by 4.83% annually
• Companies excelling on all issues: only 1.5% outperformance (insignificant)
• Purpose = knowing what NOT to do, not trying to solve all problems

COVID-19 Response

• Examples of pie-splitting: executives working for free, continuing worker pay, customer support
• Unilever: 100 million euros for food and sanitizer
• Growing pie approach: using comparative advantage creatively
• Google examples: NHS information access, contact tracing, digital skills training
• Focus on company's unique capabilities rather than general social problems

Implementation Challenges

Short-term vs. Long-term Horizons

• Purpose grows pie only in long term (4-5 years for full stock price incorporation)
• Solutions:
  • Integrated reporting (non-financial metrics)
  • In-person investor meetings beyond quantitative reports
  • Unilever example: investors defended against Kraft takeover bid
  • Reform executive pay structure (5-7 year performance horizons)

Why Not All Companies Adopt Purpose

• Initial flimsy studies created skepticism
• Evidence is nuanced (not all purpose dimensions matter equally)
• Materiality concept uncomfortable (acknowledging some stakeholders matter more)
• Example: CEO-to-worker pay ratio shows opposite of expected results
• ESG funds don't typically beat market due to wrong ESG focus
• Need evidence-based approach to purposeful business

Individual Agency Within Organizations

• Personal example: Morgan Stanley analyst treating creative services well
• Ripple effect: other analysts adopted similar behavior
• "Be the thermostat, not the thermometer"
• Individual actions can influence organizational culture
• Social media and modern organizations amplify individual impact

Personal Purpose Framework

• Stephen Covey's "Seven Habits": personal mission statement
• Edmans' statement: "Use rigorous research to influence business practice; inspire others to fulfill potential"
• Daily review initially, then internalized
• Purpose guides decision-making (charity work focused on inspiration vs. spreadsheet management)
• Culture makes purpose natural rather than rule-based

Government Role

• Limited positive examples of government encouraging business purpose
• Regulation useful for: carbon taxes, disclosure requirements, setting rules
• Problem with regulation: one-size-fits-all approach
• India example: 2% CSR requirement doesn't consider comparative advantage
• Government as referee setting rules, companies choose how to play