The Power of Purpose-driven Organizations with Alex Edmans

There are some people who think there's always win wins. Everything you do for wider society always comes back and benefits you as shareholders. Everything grows the pie. There is no trade off whatsoever between purpose and profit and if you write a book like that, such a book does become a bestseller. Why? Because of confirmation bias. You say what people want to hear and people lap it up uncritically.

Hey there friends. Welcome to Happiness Squad. This is the PODC dedicated to helping you unlock your full potential by mastering the art and science of happiness. We bring on the best leading experts on these topics to help you unlock your true potential and live with more joy, health, love and meaning in your life. Your host is no other than the star combo of Ashish Kothari and Anil Ramjiani who are both on a mission to provide you with an unfair advantage to be the masters of your experience and leaders in your industry. Get ready to be moved, challenged and enlightened on this podcast. It may change your life. Thanks for being here and joining the squad. Hey everyone, it's great to have you with Ashish and I as we host guests. We're industry leaders helping individuals and organizations unlock inner happiness and flourishing. The highest quality evidence, not wishful thinking, reaches this conclusion. To reach the land of Profit, Follow the Land of Purpose Our next guest explains how Alex Edmonds is a multi award winning professor of Finance at London Business school. After a PhD in Finance from MIT Sloan as a Full Breadth Scholar, he joined Wharton in 2007 before moving to London Business School. The TED Talk the Pie Growing Mindset and the Social Responsibility of Business has a combined 2.8 million views. He's written for the Wall Street Journal, Financial Times and the Harvard Business Review. Alex's brilliant book is the center of our conversation today. Grow the Pie How Great Companies Deliver Both Purpose and Profit. It was featured in the FT bestseller books of 2020 and won the FT Award for Excellence in Sustainable Finance Education. Ashish and I discussed Alex's book where he leverages quantitative research and insights to demonstrate the key idea and importance behind Growing the Piece of versus Splitting the Pie by bringing to life three principles to consider when applying this approach as a leader, shareholder or stakeholder. As a finance professor, Alex has turned heads when he shares and emphasizes the importance of three point for companies to follow in developing their purpose, the reason the company exists, who it serves, and the role it plays in the world. Ashish and I complement this with examples from our own work as we ensure you will all benefit as leaders, shareholders and or stakeholders of your business we highly recommend this book and are excited for the insights you'll obtain from this episode. So join Ashish and I as we welcome Alex to the Happiness Squad. Ashish, Alex, it's a pleasure to be with both of you. Alex, on the back of our conversation, you know the question we love to ask our guests when we first start is what is happiness to you and how has your definition changed for you since your younger years?

Well, first, thank you so much for inviting me. It's great to be here. So happiness to me right now will be fulfilling my purpose. So I define my purpose as to use rigorous research to influence the practice of business. And so that's why I really appreciate invitations such as this to share my research with a wider audience. Well, when you're a kid, maybe happiness to you is you get what you want. So if I look at my 2 year old, if he asks for something and he gets it, he's happy. If he doesn't get it, he's not happy. So I think happiness changes from getting to giving. And so now what makes me happy is making a positive difference to other people, be this, my family, my friends, my colleagues, or wider society through the dissemination of my research.

I love that, Alex. And that's a consistent theme, right? That we hear from guests on this purpose made a big difference for my life from going from surviving to thriving. So wonderful, wonderful to hear that from you as well. We are taught, right? We spent so much of our life in our initial years thinking about pursuing means like power, promotions, et cetera, in order to get happiness. And when we realized that if we make happiness the means, we can achieve all of those things. But the way to get, make it the means is to give.

Yeah, I think happiness is not something that you can pursue directly. So even if you think the goal of life is happiness, if I was to think about every decision, does this make me happy? I'd probably eat a huge amount of chocolate cake. I would drink a lot of red wine this evening. Those things will make me happy. And even if I'm a sensible, forward thinking person and I think about the long term consequences, it will still be the salient short term consequences that will dominate. If instead I say the meaning of my life is to be a good parent or husband or colleague or friend, then I will do things where I would not immediately connect them with happiness, but in the long term they will make me happy. So I think happiness is not something that you pursue directly, unlike you would when you were a child, but it's indirectly a result of fulfilling your purpose.

No, I agree with you. We recently celebrated our one year anniversary for Ashish's book Hardwired for Happiness. Alex. And we had a guest, a colleague, a very close friend, Naomi, who's currently in Israel, talk to us. You know her experience and in short, not to, not to do her a disservice, but her point was, I'm not happy right now, but the happiness that the science of it is actually what's helping me be resilient during difficult times. And I think exactly to your point, if it was simply about external sources of happiness, then yes, you could fill it, but it's an empty void. But if you really do the work on the inside, both as an individual or an organization, there's a lot of potential that you can unlock when you really realign your purpose and your intention and your meaning to really unlock true value, true substance.

And I think this internal perspective is really useful because if happiness is driven by external circumstances, which it will be if you define happiness as do I get what I want? Well, whether you get what you want, that depends on things outside your control. So you could make some great investment decisions, but then the pandemic hits and stocks go down. Even if that's not your fault, you can work really hard on a pitch for a deal for a client and then the deal goes to somebody else, maybe because of some personal connection. Or you could work really hard on a research paper, send it to a journal and it gets rejected just because it ends up going to a peer reviewer who just doesn't like that particular message. So yes, I'm not one. I don't want to go too far the other way and not be naive. Certainly external outcomes do make a difference, but the more that we can think about internal Are we internally proud of the work that we do? Is the work that we do consistent with our purpose? Do we do it in the right way? Then that makes the impact of external events less important.

I absolutely agree with that. You know Alex, I'd love to switch gears and introduce our listeners who may not know quite a number of them are C suite business leaders, individuals, mid management to the concept of your book. Right. And it's the concept around growing the pie versus splitting the pie. And you have had an amazing continue to have an amazing career as a professor across multiple institutions, currently at London Business School. As you know and as you've talked about, many businesses focus on shareholder value creation as their primary responsibility. And as posited by Friedman, including the suggestion of greed is good. Can I Ask you, what was the turning point in your life, in your career, that led you to write your book, Grow the Pie?

This is a great question. I think why it's a great question is actually I believe much more in Milton Friedman than many people might think. So I actually think shareholder value creation is good. I think greed is good. Now you might think, well, this is crazy. How can someone like me say this? But what is shareholder value? You learn in the very first finance class that shareholder value is the present value of all future cash flows until the end of time. So if I am a car company and I just maximize shareholder value, would I invest in electric cars? Absolutely, yes. Because a net present value calculation will show me that even though in the short term electric cars will be costly, in the long term they will be very profitable. And therefore the effect on shareholder value is positive. So even if I'm not concerned with climate change, as long as I want to maximize shareholder value, I would invest in electric cars. And that's also why greed is good. As long as greed is long term greed, I would rather have a greedy CEO in charge who wants to maximize long term value, who wants to make the difficult decision of maybe investing less in petrol cars even though there's money to be made, and even though he's used to that and go into the unknown and invest in electric cars because he's greedy, he wants to maximize long term profit. I think a lot of the problems in the world are exacerbated if we are not greedy enough. At least on some dimensions, we want to just stick with the status quo. Some of the most daring innovations have been driven by greed. As long as this is long term greed, in many cases, this is actually good for wider society. So given that, you might think, well, why did I need to write grow the pie? Why didn't I just focus on highlighting what Friedman actually said rather than what people claim that he said? The reason is it's actually quite linked to the point that we started with about happiness. So let's say the goal of business is long term shareholder value creation. That would lead us to doing some great things like building electric cars. But there are still certain things that you wouldn't do. Why? Because the effect on long term shareholder value is really difficult to calculate, no matter how sophisticated your spreadsheet is. To give you an example, if I'm going to think about introducing or extending parental leave to my employees now, I have some sense that if I do it, employees will become more motivated and happier and likelier to stay. But how Can I translate that into some cash flows to go into my spreadsheet, to go into my shareholder value calculation? That is really difficult. So I think shareholder value is something pursued as a byproduct of creating value for society. It's not something pursued directly. Just like happiness is an outcome of being a great parent or husband or wife or colleague, rather than something you pursue directly. And so that comes to what is the idea of grow the pie. The pie is the value that a company creates, which can be divided between investors in the form of profits and society in the form of fair taxes, fair wages, fair prices, and so on. Now, often people think if I pursue profits directly, I do this by splitting the pie. If I take from others through higher prices and lower wages, that increases my profits. But my approach is that actually companies should grow the pie, aim to create shareholder value, and if you do this, then the profits will increase as a byproduct, just like by being a great parent or friend or colleague, then you'll become happy as a result.

You know, Alex, this notion of grow the pie was so elegantly put together and the case for it in your book. You know, in some ways, as some of our listeners know from our initial episodes, you know, look, I spent the first 10 years at McKinsey in our procurement practice, and our focus was how do I help negotiate lower prices. But to some extent, my soul and my heart was always driven towards this concept of growing the pie. Hence, you know, even as my fourth year at the firm, pretty young associate partner, I put my lot with saying, let's actually do supplier collaboration. How do we actually collaborate differently with suppliers to fundamentally expand the value that our ecosystems can create? You know, so this concept, I love it. And you know, what I really liked about the book, Alex, and I would love for you to share that with our listeners, is you actually provide a very specific set of principles based on your research. You know, things like multiplication, competitive advantage and materiality that companies should really think about and keep in mind as they pursue endeavors that actually grow the pie versus do something else that doesn't necessarily really grow the pie because they're not value accretive, they're just what you might call greenwashing. So bring to life those three principles, Alex, for our listeners and how they should think about these.

Yeah, thank you very much for asking that. I think before I get into the principles, why did I need to come up with them to begin with? There are some people who think there's always win wins. Everything you do for wider society always comes back and benefits you as sharehold as everything grows the pie. There is no trade off whatsoever between purpose and profit. And if you write a book like that, such a book does become a bestseller. Why? Because of confirmation bias. You say what people want to hear and people lap it up uncritically. Unfortunately, that is not the real world. Right? Even in the long term, there might be certain things you do to help society that don't ultimately show up in profits. For example, if you're an energy company and you contribute to global warming, it's not you who suffers so much as maybe an agricultural business which can't grow crops because there's a drought, or a real estate company with a waterfront property. So the goal of trying to develop some principles is to say, well, which are the actions which grow the pie, which benefit society and ultimately lead to profits in the long term, and which of the ones are more splitting the pie? You do benefit society, but it's going to cost you. You mentioned three, and there are indeed three in chapter two of the book. But just for the interest of time, I'll go through two. So one of them is the principle of comparative advantage. So this measures how much a company impacts society. So if you do activities that use your comparative advantage, you create a lot of value for society at relatively little cost to profits. So let's give a couple of examples. So if you look in the pandemic, there were many companies which pivoted and used their expertise and their comparative advantage to solve the coronavirus crisis. So it might be that you are a alcohol company or a perfume company. Your comparative advantage is alcohol based manufacturing, and therefore you pivot on that to make sanitizer, and that uses the expertise that you already have. Now contrast that with the approach that many other companies make, which is charitable donations. So when George Floyd was murdered, many companies thought, let's donate money to Black Lives Matter. Now, clearly, as an ethnic minority, I believe that racial equality is important. But if you are a perfume company, is your expertise, knowing that Black Lives Matter is a better charity than the American Cancer Society or Doctors Without Borders. If you give $1 million to charity, that costs you $1 million. That is pie splitting, not pie growing. Whereas if you are an alcohol company and you make a million dollars of sanitizer, that's something which could save lives to the tune of many, many more times what you spend because you're using your comparative advantage. So that's one principle, comparative advantage. How much a action affects wider society.

Alex. And sorry, just for a minute, before you Go to the second. And I think that's an important one. Right. So in this one, you don't say, don't just do something because it benefits the society, because anybody can do that. Do those that you can do better than others. It leverages something. Right. That you have an expertise at. Did I paraphrase that correctly?

Yes, that's very fair. And I think this is really important because there's so many problems in the world right now. There's 17 Sustainable Development Goals. And companies often think, well, if I'm to be a purposeful company, let me speak out on every single issue out there and solve all of the world's problems. But that is not realistic. And I don't think it's good for wider society. So there are problems out there with homelessness. Does this mean that I should be out there? They're helping at a homeless shelter or a soup kitchen. Maybe not. Maybe actually by giving free lectures to the public on financial literacy. That is something where I am using my expertise better than I would if I was to help out in a homeless shelter, even though I do believe homelessness is a very serious problem.

Beautiful. So talk to us about the second principle that businesses should keep in mind.

Absolutely. So this is the principle of materiality. So comparative advantage is the effect that you have have on stakeholders. Materiality is the importance of stakeholders to you. So that's in the opposite direction. If I do something in which I have comparative advantage, it costs me a little bit in profits, but it creates a lot of value to society. If I invest in something which is material, then society will flow back to me. Then a benefit to society is something that ultimately will improve my profits. For example, in many companies, employees are extremely material. Why? Because this is something where it has a huge impact on employee productivity, their willingness to stay, and so on. Now, it will vary from company to company as to whether suppliers are material. So in Apple, suppliers are highly material because what they produce are things like the touchscreen glass that is critical for iPhones. So this is why Apple invests in an advanced manufacturing fund to help develop suppliers such as Corning, the glass supplier for their iPhones. In contrast, if you are, say, a plastics company and your raw materials are petrochemicals, given that they are more of a commodity, then suppliers are less important. And so materiality, this is something which some companies feel is uncomfortable because you automatically have to say that some stakeholders are more important than others. But this is realistic. A company has limited resources. It's not able to help everybody. There are often Trade offs between different stakeholders. And so the idea of materiality is when a company has limited resources, which of its stakeholders are first among equals. And if you create value to your most material stakeholders, that value will flow back and then feed into your profits in the long term.

It was these principles, dear friends, that really spoke to me about six months ago when I picked up Alex's book and I reached out, you know, because oftentimes this world of esg, the world of trying to do good, we forget the mind, we just go with heart and the heart goes and bleeds for everything out there. And I think Alex in his book really highlights look, in the end we do have fiduciary responsibilities not just to stakeholders, but to all stakeholders as every individual. I think if we focus on focusing on doing what makes the most difference, that we are rightly placed to do the power of competitive advantage and materiality, I think we can be more thoughtful. We can bring the science and the research and our minds, you know, the analytics part of us in addition to the heart. Now Alex, stakeholder value, right? Social performance as you call it, increases shareholder value financial performance as the results of your research clearly show. And I loved how you actually took employee satisfaction as one of the ways to measure social performance because a in almost all companies employees are material to the long term growth and value creation potential for companies. And I love that that is at the heart of our mission at Happiness Squad is how do we enable leaders to create environments where people can flourish and be at their best, enjoy the work, connect to their personal wise and work in ways that help them create value versus burnout. So talk to us Alex about the correlation versus causation effects of what you found from employee satisfaction. And I loved also that nuance because so many people don't talk about the difference there. So talk to about what you found in terms of the relation between employee satisfaction and stock returns.

Thanks for asking. So I measured employee satisfaction by the list of the hundred best companies to work for in America. So these are companies that go above and beyond in how they treat their workers. And what I found is that over a 28 year period from 1984 to 2011, these companies beat their peers by 2.3 to 3.8% per year which is 89 to 184% compounded. So what does that mean? That means that companies that treat their workers well, they are not just being fluffy and nice tree huggy people, they are being commercially sensible. They're not just giving their pie to the employees, they're Growing the pie because employees become more motivated, more productive, and more likely to stay. But as you say, quite rightly, this is only a correlation. The question is, is it causation? So I'm suggesting that employees who are happy, that improves financial performance. But you might think, is it the opposite? If the company's already performing well, then it can start investing in its employees. And maybe there's third factors that affect both. If you're in the tech sector, employees are happy because the job is more fun than in say, coal mining. And also the tech sector has performed better than the coal mining sector. So the skepticism that you show is really important. And we should show this with any study on purpose or happiness or satisfaction or esg. Why? Because of confirmation bias. We always want to believe that these things have a causal effect on performance, but it could be that the effect is the other way. So how do I address them? Well, first let me go to the concern of third factors affecting both, like industry. Or maybe bigger companies can afford high satisfaction and bigger companies perform better. I have a very long list of controls that I strip out. So for the industry, I will compare, let's say Google, which is on the best companies list, not to the broader market, but to other tech companies that did not make the top 100 to try to isolate the effect of employee satisfaction and not just an industry effect. And I can do other comparisons beyond industry. I can compare the company to other companies with similar size, similar recent performance, similar similar valuation ratios, dividend yield, and so on. But the second issue of reverse causality is potentially harder to deal with. How do I know that it's not the company's already performing well and therefore that causes employees to be happy. So this is why what I look at is future stock returns. If I looked at other measures like profitability, which is what many studies look at, you could have causality in either direction. But the nice thing about the future stock return is that it's the change in the stock price between now and five years time. Let's say now the stock market is already quite good at incorporating current profitability. So if the reason that employees are happy is the company is already profitable and therefore able to spend on free gyms and so on, the current stock price would already be high because the current stock price already takes profitability into account. So if I find that companies with high employee satisfaction deliver superior stock returns in the future, it can't be that the starting point was already high. And therefore it's unlikely to be that the company was already profitable. So that's it in a nutshell. It's actually much more nuanced than that and I go into more details in the paper but in a nutshell, by looking at future stock returns, the change compared to the current stock return, I addressed the issue that maybe it was already had a good starting point and that's why employees were happy.

I love that I had not that seen that extensive research and kind of the strong quantitative underpinning Alex that you brought. By the way friends, this research at least showing the correlation between the two is not new. Most recently if you look around, I think three months ago, Professor Yam Ranual at Oxford studied 2 million data sets partnering with Indeed and showed high returns return on assets. If you think about he was studying well being, work wellbeing and it was linked to higher return on assets, higher shareholder returns, higher profitability. If we look at the work even over the last 15, 20 years done by Gallup and so many others, we have seen similar results. What was beautiful about Alex's work was he said yes, I don't want to stop at correlation, I want to look at causation. So I think it was kind of one of those final pieces that really helps me when I'm conversing with many CFOs to say look, it is not correlation. We can put our head in the sand and believe what we want to believe or we can actually look at the data that is clearly showing how this drives it. So I love that. Alex, thank you for fitting in that piece of the puzzle.

Foreign.

S We hope you're enjoying the tips discussed in this episode. If you're on the career treadmill, seeking the next promotion, experiencing stress and anxiety, or reach the top of your career and wondering if the sacrifices to get there were worth it, Ashish and I have been there and we're ready to support you. The Happiness Squad rewire program is designed to integrate the nine hardwired for happiness practices into your day. Within five minutes form proven habits to experience more success, resilience, satisfaction and creativity. You won't be alone in your journey. Check out the rewire link in the show notes. Make happiness your competitive edge to achieve your goals. Now back to the episode.

Thank you so much for talking about the statistical rigor. Actually, I would say that the findings are new because this was a study that was published 12 years ago. It was something that I started in 2007. So there have indeed been papers which have come up after that. And I think Jan Emanuel Deneves work is really good at Oxford, but that was sort of a decade after to my work. So at the time it was new. And this was why it was so difficult for it to get published is that prior research at the time found the opposite. That actually if you treat workers better than the stock price goes down. So there's a famous paper by John Abow in the American Economic Review showing that it was a zero sum game. So because it was new at the time, the Journal of Financial Economics made me go through so many more hurdles than other papers had to. And that's good in the end because given I had to go through purgatory, it now means that the results are robust and it now means that it's easier to publish papers on this topic now because it's not seen as so controversial. But back then it was new. And I think the studies that you mentioned, since they were after me, they sometimes go beyond me because Jan Emanuel had some really nice micro granular level data which I don't have. But because my paper actually came before some of this research, that's what made it actually more difficult to publish because of its novelty at the time.

Thank you.

You know, Alex, I'm going to look at the book and see kind of which companies were included in the research Because I work for Nike, I've worked for Adidas or Adidas before that, IBM before that. And so I can tell you qualitatively a sentiment that I've sensed around the business over the last couple of years, especially after reorganizations have typically been, well, my contribution may not do much because the till will continue to ring, product will continue to sell. But we know that's not the case. You know, that's at the, at the end of the value chain. But up the value chain where product is being created, brand ideas, campaigns are being designed, that creativity, that employee engagement and employee satisfaction is absolutely critical. If you don't have that long term to your point, the business will ultimately suffer. So short term gain check, long term gain at risk. And just on the back of that, this is maybe an opportunity. Alex, where could you maybe share examples of companies that you believe from your work, from what you've seen are actually leading the way and maybe how their stories truly prove that companies can do both good and do well. I know in your book you refer to Barry Cares, you recruit, you refer to MPISA by Vodafone, Unilever. I'm not sure if you have an example from Nike, but I would love to hear some examples from your side just so that skeptics that maybe are listeners would actually be like, oh, there is merit beyond. And there are case studies and examples they can see in the market that truly can change their perspective.

Certainly. Actually let me start with Google because I just mentioned them in terms of employee satisfaction. They are typically, they've been for many years, number one on the best companies to work for. And so what they introduced was 20% time where one day a week a Google employee could work on whatever they wanted to do. They didn't need to report back to management. And so you might think, well, this could just lead to abuse. Would they be playing Minesweeper or whatever the equivalent of that today is and just wasting time? And the answer is no. Why? Because they are all buying into Google's purpose of organizing information, making it useful and that this led to the discovery of Google Maps and Gmail. Where would we be without Google Maps? I would not be able to get to most places I need to without this navigation. And so here the trust in their employees that Google had to given this 20% time was something that led to this huge innovation and then for Google themselves to launch it. Maybe it's not clear how easily monetizable something like Google Maps is. So if you were a regular company basing decisions on financial outcomes, maybe you would not have done that. But instead they first said, well, no, let's launch Google Maps because we think it's going to create value and then find a way to monetize it. Can it be that we can get some advertising revenue from some restaurants or other companies that want to be displayed more prominently on the maps?

No, I agree with you. I mean, there are things that I know companies work on within Nike ourselves, there are areas that we want to work on. You know, we want to be mavericks, we actually want to try things differently. But there always is that question, well, first off, is this a priority? Second, is this something that's going to add to the top line in a bigger way or is this a risk that we're undertaking, hoping that to your point, you might be able to find a way to maximize it or you know, maximize it's in the return on that investment in different ways that maybe you've not thought about in the present, but you'll have to give it time in the longer run in order to see what you can convert that opportunity into. It's a risk that companies take. And I think this also leads back to conversations we've had previously with other guests, which is how do you create that environment, that psychological safety, that, that openness, that communication within your business in order for an organization to enable employees to feel comfortable, to come to the table with ideas, to come to the table with possibilities, and forge new ways of thinking. Otherwise, again, short term, you may profit, but long term, you. Not only may you lose that talent, but you'll lose that opportunity that your competition may jump on or may take an opportunity on that you've lost sight of. That truly resonates for me in the industry that I'm in and that the industry that we're trying to pursue and support others in.

Alex.

So thank you for sharing that.

I think you raised a really important point. Because if you want to be a company that has a competitive edge over your rivals, you need to be bold and do things that your rivals are not doing. And so if every other company is basing decisions on financial analyses, then to do something different, then you might be the company to have the confidence to do something, even if it's not backed up by a rigorous spreadsheet showing how it's going to be profitable in the long term. And this absolutely leads to creating a culture where employees are willing to share bold ideas even if they might fail. So there are companies like Tata and Intuit which give failures also, which give rewards for failures. So this is an idea that ultimately failed, but it was something where the learning process was good and the idea at the time was something worth pursuing. And why is that important? So this reinforces that the culture is one in which they would like employees to take risks and not necessarily be scared of these risks failing. And this gets to a broader point on diversity, equity, and inclusion. So this gets a lot of focus. Every company right now claims to be caring about dei. They don't actually. Many of them only care about demographic diversity in a box ticking way. They think, well, if we hire enough women or minorities, then this will improve performance. But it's far more than hiring a diverse set of people. But we want to ensure they create and contribute their diverse viewpoints. And a psychologically safe corporate culture where people are willing to express ideas, launch innovations without fear of failure, is absolutely critical to get the best out of your employees.

I absolutely agree with that. And I think this is also an opportunity, Alex, to shift gears into purpose. I think speaking as an individual in a team within an amazing business that has a very clear purpose. I'm sure there are folks out there who work for companies or, you know, small, medium and large that may not have a clear purpose or the purpose within their team is actually different than the broader purpose that the business is Driving. You know, in reading one of your essays, Alex, I chuckled. You said, you know, as a finance professor, you know, when you were in a room and you mentioned to folks the importance of purpose, people were a bit taken aback. You know, they wouldn't expect a finance individual or the finance department, let alone that part of the business, to truly appreciate the role and the importance of purpose. What I'd love to shift and ask you, Alex, now is could you please share with our listeners the power of purpose and making it real as a powerful way to grow the pie.

So what is purpose? It's why a company exists, its reason for being, and the role that it plays in the world. And why is that useful? Because that's something. Something which then inspires and excites the company to make some bold decisions, even if they cannot see the bottom line impact of doing so. And that might be something like Google launching Google Maps and Gmail. Why? Because it's consistent with their purpose of to organize the world's information and to make it useful. And so this is something where it means that we're not just basing a decision on a financial calculation. But ultimately, if you are driven by purpose, you will become more financially successful. Why? Because if purpose drives you to grow the pie as a byproduct of growing the pie, the slice that goes to shareholders, which is profit, will rise as a result. So this is why I think it's sometimes bizarre that people say, oh, if you're a finance version, you shouldn't really care about purpose. If you're a true republican, you should care about big business and big business should not think about purpose. What I'm arguing, and this is not just me arguing based on words but based on data, is that if you're a company which is purposeful, then it is actually good for big business. This leads to the company being long term successful. So purpose is not just about being woke or being tree huggy. It's about being commercially successful and creating long term social value that manifests in financial value.

Alex, your points on purpose are so resonant and coherent with the work I'm incredibly passionate about doing and helping companies do. And I'll add a little bit to what you just highlighted, right, because purpose is so important. Because one of the most powerful ways, if we truly engage the whole organization, and we just did this with a 5000 person European division for a packaging company, for a purpose to truly be owned, everybody needs to have a hand on it versus five people, write it and say this is our purpose. The Importance of purpose. When we do that work, it's a really powerful way to engage everyone who's involved, all stakeholders, not just employees, but customers, suppliers, to truly articulate our why and how. We actually focus on growing the pie right. So it does not just focus on one stakeholder at the expense of other. It truly allows us to look further back about our reason for being. But the other big reason why purpose for us is so powerful is even if you have the most noble purpose in the world, if it is not connected to the individual why of employees that are working there, you don't get the best out of the people. You just don't get. You're there then just to check the box, earn a paycheck versus really live into meaning. And the work we did at McKinsey, the research we looked at when I was there, we Everybody wants purpose through work. Yet while 85% of executives say they find meaning at work, only 15% of frontline do. So there is a real power in purpose, both defining it, but activating it. Alex in his book highlights three really powerful points to consider as companies develop their purpose. And Alex, I want to invite you to share that, because purpose can be just a creative exercise. You know, let's give it to the creative. Let's come up with a big exciting purpose statement. But that's not what you're recommending. You recommend very specific things, just like you defined up front around how to grow the pie. You have some guidelines for companies. So can I invite you to speak around those three points that companies should consider?

Certainly. So the first is that purpose needs to be focused and selective. So sometimes companies have purposes like our purpose is to serve customers, suppliers, communities, the environment and generate returns to shareholders. And that sounds great, we serve everybody, but it's unrealistic. Why? Because there are trade offs, as I've highlighted earlier. If you're an energy company and you shut down a polluting plant, that's good for the environment, but it's bad for workers. So that's why I go back to defining purpose as why you exist, who you serve, your reason for being, and the role that you play in the world. That can't be to solve all of the world's problems, but to focus on a few. For example, as I mentioned at the start, my personal purpose is to use rigorous research to influence the practice of of business. So there might be other professors whose purpose is to use rigorous research to get published in the top academic journals. But for me, what gets me really excited is to influence practitioners which is why it's a pleasure for me to be on this podcast and to have this conversation. And so this is why purpose can be so useful is if purpose is focused, then it tells the company where to devote its limited time and resources. Just like for me, it means that I will accept an invitation like this, but I might decline a keynote speech at another university. The second principle is, well, how do we decide what to focus on? Yes, I've decided that purpose should be focused, but this is where the two other principles we mentioned earlier, materiality and comparative advantage, should come into play. So why you exist, that should be based on comparative advantage, who you serve, that should be based on materiality. So again, why I choose my personal purpose being to use rigorous research to influence the practice of business is I have quite a lot of interactions with the real world. I started off as an investment banker at Morgan Stanley. That's why I feel particularly comfortable speaking to a practitioner and audience. I enjoy it. Whereas some of my colleagues who might be lifetime academics, their comparative advantage might be publishing in an academic journal. The third set of principles is that purpose should be both deliberate and emergent. And this echoes the points that you've just raised. So often people think that purpose is only deliberate. It's decided by the five top managers when they go to an off site for one weekend with some flip charts at marker pens and then after they've decided the purpose, they tell everybody, this is our purpose and you need to obey this. Well, how would that then be received within the company? Probably with a lot of resistance. Who are you, top executive, to tell me who our purpose is? And not only will that be resistant, but actually the purpose you come up with is probably going to be short sighted and not capture many elements of the company. So a lot of companies that I know who've taken purpose seriously, they will have focus groups at all levels of the organization to allow people to contribute and say what they think the company's purpose should be. And notice that you don't just have one company with one purpose that applies to all the 10,000 people in the company. Nobody runs an entire company with a single sentence. You might have a macro purpose, which is the purpose of the company at the overall level, but how the procurement department implements that purpose might be different from how the R&D department implements its purpose. So I think London Business School's purpose is to have a profound effect on the way the world does business. And so for me, I choose to have that effect by interacting with practitioners and conveying to them not Only my research, but the research of other people. Whereas other people might contribute to that purpose by exclusively focusing on just producing the academic research and not disseminating it. And that's fine. We can have different types of people within the organization. Not everybody needs to do the same thing in order to fulfill the organization's purpose as a whole.

You know, Alex, and to those who are listening who say, wow, you know, is this actually practical? How much effort it is going to take to engage the whole organization? Let me give you a very practical example. There is a way to do this. So we engaged about 5,000 people. And the way we did this required little more than three hours of investment at almost all people leaders. What do I mean by that? And how did we achieve it? How did we touch 5000 people but at only 2 to 3 hour investment per people leader? We used a process called cascading. So imagine you start at the top of the house and you engage your team with four questions. What drives you? What is your proudest moment being in this company? What should we stand for as a company beyond just earning shareholder profits? And fourth, how can you connect what drives you into what we do here? Four questions. You start at the top, CEO and eight. You have those eight individuals then do the same with their team of eight and their team of eight. So individually, it might be an hour and a half to two hour exercise collectively of time that you're investing, but you're truly sensing and having real conversations about it. And it doesn't need a lot of time in terms of actual time investment. You do have to take time in terms of how long it would take for you to go do it. But if you do it, the purpose statement that you create will have more resonance because everybody had a hand in shaping it. And we'll have an element of living it. Because the last question is about how you as an individual can live into it. Really, really important. And so I want to switch with that example, Alex, to the second element of purpose, which is so important. So many companies create a purpose statement or have a purpose statement. It's on the wall, but it's never activated. They don't live it, they don't integrate it into the strategy, into the operating models. I want you to share an example of one of the interventions which was in the context of balanced scorecards, and bring that to life for us to say, how can companies, if they really want to live it, they have to measure it. So bring that example of the balanced scorecard for us.

Absolutely. And what's interesting is the balanced scorecard is not new. So that was something that was developed in 1992 by Kaplan and Norton in a famous Harvard Business Review article. And what this highlighted was that in order to understand the value of a business, you need both a balance of financial and non financial measures. But what was critical was those non financial measures needed to be relevant for the company's business. So they might be certain things such as customer net promoter score, employee satisfaction, new patent generation. And so now we would say, well these things have to be not just consistent with the company's business, but the company's purpose. But we can certainly come up with key performance indicators which are relevant for a company's business model. For example, if you're Unilever and you want to make sustainable living commonplace, they will measure the number of people they reach with their hand washing campaigns to highlight the importance of hand Washington in order to prevent the spread of illnesses. Now that is something which ultimately does lead to profit. Why? Because if people recognize the importance of hand washing, they will buy Unilever. So it's something which is still business relevant, but I genuinely believe it is created by the desire to stop the spread of illnesses rather than just a clever way of flogging soap. But why I highlight this is this is something tailored to Unilever's business. This is very different to the ESG metrics you see out there, which try to be as generic as possible. Why? If you are a standard setter and you come up with a set of ESG metrics, you claim victory by saying I've got 10,000 companies to adopt my standards and you've only got 1,000. And so they will be generic things such as water usage, carbon emissions, gender, pay gap. Now those are not irrelevant. But does that really capture what a business is about and what gets people excited? I don't think so. Those are measures of do no harm. Yes, we don't want to emit a lot of carbon or use a lot of water, but purpose is more about actively doing good, growing the pie, reaching people with hand washing programs. Or if you are a bank, some banks will measure the number of business loans they give to entrepreneurs who had never received any loan from any other bank before to highlight their about financial inclusion. These might be minority entrepreneurs who might be turned down by the other types of banks out there. So to come up with some measures, some key performance indicators that are relevant for your specific purpose and therefore they are highly informative about the extent to which you are succeeding in putting it.

Into practice, I absolutely Fully agree with that. Go ahead, Ashish.

I was going to say that is. It is so powerful what you've shared, Alex. And this notion of using balanced scorecard is also how we can keep ourselves honest, right? You know, I have companies talk about ESG is really important or I really care about employee well being and employee health. Well then why do we, when we do weekly, bi weekly, monthly, quarterly reviews internally, or what we communicate externally, why are we not holding leaders at all, all levels accountable to both revenue and profit metrics and the health metrics, right? Or in this case, elements that we are prioritizing based on the measures around. Are they giving us a competitive advantage? Are they material? You know, also a multiplication effect we didn't get into in this. But if you define the areas and integrate them into purpose in your way to grow the piece, then let's really make sure that we embed them in every performance dialogue, in every review of the business at all levels so that we can keep purpose front and center. Alex, this was incredibly helpful and I recommend everybody to get a copy of the book because it truly marries the heart of what we all want to do with the science in mind. A real practical guide to implement this research and this work so we truly can actively do good versus do less harm.

I agree. So as I mentioned, working for Nike, I have to be honest. So I wanted to make sure folks know, like, you know, the purpose for Nike is to move the world forward through the power of sport. What I'm actually thinking about is going into work on Monday. I actually want to kind of look at how are we on a micro macro level tracking that, because I know we talk about what we do with athletes, what we do with shoes, with T shirts, with various clubs, teams, license programs, whatnot. I'm actually quite curious to see how we do it. And so my invitation as well is until you pick up the book, maybe even ask the question within your own organization, how do you track this? How are people aware of how this can come to life? And if there's something lacking, raise the question, raise your hand, say, hey, there is an opportunity to do something different around this space and not treat this as just a qualitative exercise. That's a nice high five exercise, but actually something that you can measure, track and, and discuss at the right intervals, day to day, week to week, month to month. Alex, I would love to, just as we wrap up, have a little bit of fun. And it's something that we love to do with our guests and it's just a little Bit of a quick round fire of a few questions just to kind of pick your brain on things you love, things that make you happy. So I just want to ask you three questions. The first is could you please share with us when you're feeling down, what is the comfort food you love to eat that makes you feel great?

I don't really have a comfort food. I think if I was feeling down I would probably do something physical like some exercise. So that's something which gives me a pickup through endorphins.

So okay, as a guy then from Nike, I have to ask what's my second question? What's your favorite sport or what would you then do to pick yourself up?

So I really like Barry's Boot camp. So this is a brutal gym that I go to in London. There's various outposts and it's really good because I think it's group exercise. So you are lifted up by a lot of other people out there in the same room going through the same class as you.

Love it. Love it. Third question is, do you have a particular song that you love to listen to again that fires you up, gets you moving, gets you going when you're doing either your research, your work, or just to fire yourself up first thing in the morning?

I like Born to Run by Bruce Springsteen.

Nice one. We're actually going to build a playlist of these songs, Alex, and share it with our listeners at some stage. So if you don't mind, we're going to add that to that playlist, Alex, as we wrap up again, just truly as a, as a former London business school MBA student reached out to you, you were gracious to welcome the invitation to have this conversation to share your insights, share your research, your practices. I'm taking this away both at a personal as well as an organizational level and my invitation to our guests is to do the same as Ashish already mentioned, encourage all of you to pick up a copy of Growing the Piece of Genuinely the Insights. The research that you raise, Alex, are things that we need to be thinking about and talking about. And again, it's quant based. They are clear examples, clear opportunities and as as even mentioned from his experience prior with McKinsey, it's not like every company has the purpose set out. It can change, it can evolve. But how do you truly embrace it not only at the macro level but as individuals? One thing we didn't get to Alex, I personally also want you to know I took away from, from our conversation is just how as citizens we also can make a difference in embracing a change that we can make in growing the pie and not just wait for, you know, leadership or an organization to drive that for us. So pick up the book folks. You'll know more when you read it. Thank you so much Alex for your time. Ashish appreciate you as well. Thank you both.

Thank you very much. It was great to be here. Thanks for the invitation.

Take care and super excited to continue this conversation. Another time and collaboration. Collaborate together. Alex, great work you're doing. Grateful to you.

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