Grow The Pie in 28 tweets

10 Apr 2020 | Responsible Business

On 6 April, I did a Twitter discussion on my book, hosted by Blackwell’s Bookshop. They asked me to start by providing 25-30 Tweets summarising the book, before opening it up to questions. I reproduce them below to provide the ideas of the book in a nutshell.

1. Thanks very much for joining this discussion! I will discuss my book on responsible business, “Grow the Pie: How Great Companies Deliver Both Purpose and Profit”. Was written before COVID-19, but the ideas are directly relevant for the crisis and I’ll explain how. #BlackwellsVF

2 The primary goal of a business is to serve society – make products that transform customers’ lives for the better, provide employees with a healthy and enriching workplace, and preserve the environment for future generations.  It is not to earn profit

3. However, profits remain a crucial secondary goal. We often think of the conflict between “investors” and “society” as “them” vs. “us”. But investors are not “them”, they are “us” – parents saving for their children’s education, or pension funds investing for their beneficiaries

4. So, while I strongly believe business needs to be reformed to serve wider society, some calls for reform are too unrealistic and unbalanced. They fail to recognise a company’s responsibility to generate profits. Companies must pursue social value, but in a profitable way

5. The “them-and-us” conflict is what I call the “pie-splitting mentality”. The value a company generates is seen as a fixed pie. Any slice that goes to society reduces the slice given to investors. So, some CEOs exploit workers and price-gouge customers in the pursuit of profits

6. But equally, the “pie-splitting mentality” is practiced by some business reformers. They think that profit and CEO pay are necessarily at the expense of society. So, they call for heavy regulation of business to ensure that companies are not too profitable.

7. There are three problems with this approach. #1: as mentioned earlier, profits generate returns to investors – who are “us”, not “them”. And they also help society. Many of the firms guaranteeing worker wages, donating products in this crisis can do so due to banked profits.

8. #2: there’s a limit to what you can achieve by regulation. Minimum wage laws can’t ensure meaningful work or training. Companies must be committed to serve society, rather than just complying with the law. Indeed, the great responses of companies to COVID-19 have been voluntary

9. #3: if responsible business was only about pie-splitting, it leaves no role for small firms with few profits to give to society. Responsibility is then an optional extra that should only be pursued once you’re profitable (or, if you’re a big business, in good times but not bad)

10. My book is about the “pie-growing” mentality. Investing in stakeholders doesn’t reduce investors’ slice. It grows the pie, benefiting investors as a by-product. (Critical to stress that the pie is social value, not financial wealth. Pie-growing doesn’t mean growing wealth).

11. A company may improve working conditions out of genuine concern for its employees, yet they then become more productive. It may develop a new drug to solve a public health crisis, without considering whether sufferers can pay for it, yet end up successfully commercialising it.

12. You might think that the idea that the pie can be grown – that both society and investors benefit – is too good to be true.  Thus, the heartbeat of the book is rigorous evidence buttressing this idea. Growing the pie is not wishful thinking, but realistic and achievable.

13. It’s important to stress “rigorous” evidence. My 2017 TED talk, “What to Trust in a Post-Truth World”, was on confirmation bias. We might be quick to accept even flimsy studies claiming that companies that “do good” also “do well”, because we’d like them to be true.

14. Rigour is critical because correlation does not imply causation. Profit might allow a company to spend money on purpose (“reverse causality”). Or an “omitted variable” (e.g. a great CEO) could lead to both purpose and profit, with no direct link between the two.

15. So the book draws from evidence in the most stringent peer-reviewed journals. One study shows that companies with high employee satisfaction beat their peers by 2.3%-3.8% per year over 28 years – that’s 89%-184% compounded. Similar results for other measures of responsibility.

16. The implications are profound. Creating value for society isn’t an optional extra, but fundamental to a business’s success. We often dismiss stakeholders as “non-financial”, but they’re “financial” in the long-run. A CEO-level issue, rather than one to be delegated to a CSR dept

17. How to put into practice? #1. Define your purpose – the answer to the question “How is the world a better place by your company being here?” Answer must be focused. Saying “to serve customers, workers, the environment” sounds great but is meaningless. Companies face trade-offs.

18. E.g. shutting down a polluting plant helps the environment, but hurts workers. A purpose highlights who is first among equals to guide difficult trade-offs. Just as a citizen’s purpose must be focused – it can’t be “to be a doctor, teacher, entrepreneur, human rights lawyer”

19. #2. Embed your purpose. Your purpose must lead you to make decisions that you wouldn’t have done without purpose. E.g. @CVSHealth sacrificing $2b of sales by stopping the sale of cigarettes. @Unilever donating €100m of soap, sanitiser, bleach, food in the crisis.

20. #3. Report on purpose. Make public commitments (e.g. @marksandspencer to cut calories on indulgent food by 20% in 2y, among others) and report on progress. The more specific the goals, the greater the accountability. Also shows investors your value is far more than your profits.

21. What does responsible business mean in a crisis? Companies should ask “What is in my hand?” What resources does my company have that I can use to serve society. For some, the answer is clear, e.g. supermarkets prioritising the elderly and vulnerable, or @Unilever’s donations.

22. But purpose isn’t just about giving the pie to those in need, but growing the pie by innovation. @ChelseaFC might seem unrelated to the crisis. But what’s in its hand is a hotel, to house NHS workers. @Burberry now making masks and gowns, @LVMH hand sanitiser.

23. Thinking “what’s in my hand?” empowers small businesses – with few profits to donate – to help out in this crisis. E.g. @BarrysBootcamp providing free online fitness classes, mental health advice by trained staff, reading stories to kids via Zoom to ease burden on working parents.

24. A key pillar of the book is how citizens can play their part. We often think we’re powerless vs. giant corporations. But our power is greater than ever before. E.g. #DeleteUber and #boycottvolkswagen campaigns, cleaner Abdul Durrant getting a 28% pay rise for all @HSBC cleaners.

25. “What’s in my hand” in this crisis? #1: Your Actions. Staying at home, or not panic buying, can literally save lives. On the positive side: doing grocery shopping for elderly neighbours, calling on those living alone. Think proactively on how you can serve society.

26. #2: Your Ability to bear a greater share of a shrinking pie. E.g. a friend has advanced-purchased 100 coffees from his local coffee shop to give them liquidity. Supporting local grocers even if more expensive. Paying freelance photographers, musicians now even if event postponed.

27. #3: Your Words. Their effect is hugely underestimated. But a sincere, genuine thank you can mean a lot to an overworked delivery driver, grocery checkout clerk, or doctor/nurse fighting on the front line.

28. If there’s any silver lining to this crisis, it’s that it will lead to a permanent change in (1) Companies thinking innovatively about how they can serve society, and (2) Citizens thinking about the externalities of our actions – how what we say and do affects fellow citizens.