LinkedIn: Profit and Purpose Webinar – Q&A part 3
These wide-ranging and insightful questions were asked by the audience of our Blueprint webinar a few weeks ago, during which I spoke with Alex Edmans about the challenges businesses face thinking about purpose and responsibility in relation to real practical challenges and questions that have surfaced through Blueprint’s engagements with FTSE 100 companies. You can watch the webinar on demand – HERE
Because we couldn’t get to so many questions on the night on the night, Alex and I have been working together on a series of posts with the aim to answer them all – this is the third and final part and you can read the first set of questions HERE and the second HERE.
Audience question 13: Alex mentioned earlier that some elements of ‘Purpose’ drove long-term shareholder value more than others. Can he expand on this, and summarise which elements do and which don’t so well.
Alex Edmans (AE): Yes. Employee well-being is significantly linked to long-term returns – see this article. However, for other dimensions of purpose, it’s only the material ones that are linked to long-term returns – see here for stock prices and here for bond prices.
Audience question 14: Why do you say that we can’t measure intangibles or intrinsics like employee productivity or motivation. I’ve seen it done by any of observation, 360 feedback, market research – inherently by comparing target vs control groups e.g. high/low productive work groups or individuals.
AE: I apologise if I was unclear, but I don’t believe I said that. Indeed, my employee well-being study takes a measure of intangibles (employee well-being) and links it to long-term performance. Instead, I believe I said that the stock market doesn’t take intangibles into account. This is why investors should pay attention to intangibles, because they’re ignored by other investors and thus not priced in.
Dee Corrigan (DC): Measuring intangibles e.g. the quality of human relationships, is complex. I’m wary when organisations put too much focus on measurement because it carries a constant risk of skewing activities and effort to ‘hit the target but miss the point.’ That’s not to say measurement isn’t important or that good proxies for intangibles isn’t possible , but it is vital to recognise the limitations. In purpose–led cultures measurement of tangibles and intangibles are part of the conversation, inputs to inform better dialogue and informed decision making, not a goal in and of themselves and not an absolute measure of the value of purpose, people or relationships.
Audience question 15: On emergence: My experience is that business senior leaders have to learn not only what they are able to do in being purposeful, but more significantly what they are willing to do, as they are tested by circumstances. Would you say that this second aspect of learning, is often not well understood or made sufficiently visible as part of the process?
AE: I agree. This is a different dimension of “emergent purpose” to the one Dee and I discussed. We discussed how purpose emerges from employees, rather than being something deliberately imposed on employees by executives. However, another important dimension of “emergent” is how it emerges in trying circumstances. For example, Mercedes realised that its purpose might be not just luxury vehicles, but precision engineering more generally, hence making CPAP breathing machines.
DC: This is a big topic that requires more than a short answer! It’s easy for leaders to talk the language of purpose, they like it, its cathartic. However, having the willingness to act in difficult circumstances is a test of character. And this is why I find the Lincoln quote helpful;
‘Character is like a tree and reputation like a shadow. The shadow is what we think of it; the tree is the real thing’.
Purpose is not only an organisational challenge, but a deeply personal challenge too in my experience. It’s about how we develop our character, and difficult as it may be, challenging circumstances are the best test and learning opportunity for that. The behaviours section of our Framework can provide a useful guidance to leaders, in particular when considering how to make a difficult decision.
Audience question 16: In the context of a fast growth start-up/scaleup at what point do you believe it makes sense to start talking about purpose and how would you go about defining and activating that purpose in a way which is engaging and meaningful for everyone?
AE: I believe that the right moment is as soon as possible. This might seem counterintuitive, as it might seem that purpose should come later. But, I think purpose is a key element of entrepreneurs’ success as it highlights their passion for making it work. An entrepreneur may have a brilliant idea but it’s the ability to execute – during tough times when the company isn’t making any money – that often makes the difference. In Chapter 8 I explain how my former student Will Shu ended up having a passion for food delivery (even though you might not think it was something you could be passionate about); this led him to turn down a lucrative hedge fund job and found Deliveroo, and spend five hours a day delivering the food himself for the first nine months.
DC: I agree, as soon as possible, not least because it will influence the investors and employees the company attracts. Having investors and employees (often with vested interests) who are aligned with the company and founder’s purpose will help guide critical decision in particular in a fast-paced environment. I’m reminded of WhatsApp’s co-founder, Brian Acton, regrets in selling WhatsApp to Facebook.
Audience question 17: How do you get the media on side with purpose as the danger is that they turn it into negative focus or using it to “cover up” what is considered traditional success?
AE: I actually think that the media is already on side with purpose, as it holds companies to account for mistreating its workers, having product recalls etc. I’d say the problem is sometimes the other way – it might shame a CEO for being highly-paid, even if she’s created long-term, sustainable value, or a company for generating high profits even though it’s a by-product of growing the pie rather than from redistributing a fixed pie.
DC: Building on the point I made above, businesses on a purpose-journey can sometimes concentrate too much on improving their reputation and not enough on developing the character of the organisation. This can result in companies professing to be purpose-led too early, which naturally leads to media questioning the intention. Let the story speak for itself, over time.
Also if a company is true to its intention to become purpose-led it will reshape the nature of the relationship with media (and investors and the public). A purpose-led company not only enables more effective forms of public scrutiny but welcomes it and is open and honest about the challenges in bringing purpose to life. To do this organisations must rethink the role of communications, public relations and investor relations functions…the clue is in the name! Quality dialogue is central to good relations.
Audience question 18: Where decisions are made that are commercially the right thing to do but negatively impact customers e.g. pricing decisions – how can these be framed from a purpose perspective – whilst I appreciate that making commercially sensible decisions may be necessary to sustain the long term prospects of the company and therefore providing employment, shareholder value etc, how can it be justified if it negatively impacts customers?
AE: I’ll start with pricing decisions. Business relationships should be win-win, i.e. grow the pie for both the company and the stakeholder (customer, in this example). If the company is losing from the relationship, and this is unlikely to change in the long-term, then it has to increase prices otherwise it’s unsustainable. Often, “sustainability” is thought of in terms of wider society, but business decisions have to be sustainable for the company also. If the company raises its prices, and it’s no longer affordable for the customer to buy that product, that’s fine – the customer can walk away. Not every customer needs to have a relationship with every company. (Of course, walking away is not possible for essential goods and services such as utilities, and so they are regulated). But the company does need to ensure that customers are not locked in, and that their pricing is transparent so the customer knows how much she’s paying so she can decide whether to remain a customer or walk away.
The same approach applies to investment decisions. If a branch is not profitable, and has no prospect of returning to profitability even in the long-term, then it’s unsustainable. It means that the resources that the company is investing in the branch could create more value for society if reallocated elsewhere. However, a purposeful company will take this commercially necessary decision in a responsible way, such as finding employees new jobs within the firm, and investing time sitting down with customers to make them comfortable with online banking and getting them up to speed with it.
DC: Building on Alex’s excellent answer, I suggest involving people most impacted by the decision in the decision-making process. Will there be certain groups within your customer base which will carry the burden more than others? For example, if the decision to increase pricing is regarding an essential good, then seek to understand how this decision impacts the most vulnerable customers. Price increases may not always be viewed as a negative, for example if more people understood that free banking is a myth with the costs often borne by the most economically insecure in our society, perhaps sentiment might change. The same could be true for the real cost of £2 t-shirts. Another thought is to crowd source ideas to reduce costs of production/service from your supply chain and employees.
Final point, drawing on our Five Principles, under Good Citizen it states, ‘Consider each person affected by its decisions as if he or she were a member of each decision makers own community’. Get close to those most impacted by the decisions made. Distance, dehumanises! as Margaret Heffernan says.
Audience question 19: Have you come across purposeful developers in the housing world within the private sector? In Liverpool we’re trying to respond to the damage caused by fractional investment and failed development
DC: I don’t know enough about purposeful developers, but I am aware that Natwest Group recently issued €1bn inaugural affordable housing social bond, if that is helpful.
Thanks to everyone who attended and to our audience members who took time to share questions –including Steven Phillips, Nash Billmoria, Clare Hill, Jenny Lyle, Jane Corbett and others for these questions and your patience.