In February 2021, Dee Corrigan, Head of Corporate Engagement at A Blueprint for Better Business interviewed me on the tough questions faced by companies seeking to put purpose into practice. Since Blueprint’s network already understands the value of purpose, this webinar aimed to go one level deeper than simply “purpose is key” and address the difficult issues in embedding it.
A link to the webinar is here and it contains many excellent Q&A from the audience. We had far more questions than we had time for, so answer the remaining ones here.
Q1: One of the themes I recall from my time in the late 1990s doing a Masters in Finance at London Business School, where you teach, is the significance of (real) options. Two thoughts: firstly, given that most companies have more real options (such as investment projects) than they can realise, how can ‘purpose’ be deployed to help them decide which options to select to activate? Secondly, how could ‘purpose’ help a business decide which new real options (again, such as potential future projects) to try to create for itself for the future?
Alex Edmans (AE): Real options theory argues that, in a world of uncertainty, you should delay investment until the uncertainty is resolved – in other words, retain the “option” to invest later. But it defines the payoffs from investment in purely financial terms. For some investments, such as Vodafone launching M-Pesa in Kenya, or Merck developing Mectizan to cure river blindness throughout Africa, even if you waited several years, you still wouldn’t be able to justify the investment on financial grounds. Thus, given we do live in a world of uncertainty, real options theory would lead to firms postponing many critical investments almost indefinitely. Under purposeful business, you consider the social rather than financial returns to an investment. Even if the financial returns to curing river blindness are uncertain (because the African governments were unable to pay for the drug), the social benefits are immense, so a purposeful company undertakes that investment.
Dee Corrigan (DC): The deeper the understanding of what it means to be purpose-led across the leadership and board, the stronger the commitment is to invest in activities that support the company’s purpose, creating new possibilities even if the traditional financial-led business case is not clear-cut. A clearly articulated purpose can help stimulate innovation as well as judge whether an investment will further the purpose.
Q2: When resource is limited, it can be relatively easy to evaluate financially-driven initiatives against one another. Would you have any advice on comparing, evaluating and prioritising purpose-driven initiatives?
AE: One way is to try to estimate the monetary value of purpose-driven initiatives. This post gives an example of how you can do this even for initiatives with purely social outcomes, such as programmes to reduce alcohol abuse and sexual assault. However, this won’t always be possible, and such calculations can sometimes require so many assumptions that they’re unreliable. Thus, Chapter 3 of Grow the Pie highlights three principles that a business leader can follow to evaluate such initiatives. One is the principle of multiplication – that the initiative should create more social value (note, not financial value) than its cost. The second is the principle of comparative advantage – that it should be an initiative that the company has particular expertise in addressing (such as Coca-Cola helping to transport medicines as discussed in the webinar). The third is the principle of materiality – that the initiative should affect stakeholder that are particularly material to its business. For example, an energy company decarbonising may consider the environment even more important than safeguarding jobs, and thus shut down a polluting plant.
DC: As I mentioned above a clearly articulated purpose can help judging investment decisions. An additional point which may be helpful in comparing, evaluating and prioritising initiatives is to consider engaging stakeholders in the decision-making process. How companies make decisions can often be as important as the decisions made. Being purpose-led invites organisations to think differently about their relationships with stakeholders. Recognising stakeholder as partners in the development of a company’s purpose-led strategy shifts the nature of the relationship from an extractive/contractual one to a generative relationship based on respect and dignity. I suggest reflecting on at what point and through what mechanisms you can enable people affected by your decisions to influence them. If people are engaged respectfully in the decision-making process, even if the outcome is not what they hoped, it may be accepted, supported and therefore more effective in the long-term. It is also an important signal, helping to reshape the nature of the relationships with business seeks to have with its stakeholders.
A clearly articulated purpose can also help navigate dialogue with stakeholders.
One final point is whilst it is necessary to assess the non-financial impacts a decision will have – both social and environmental – we do caution against the desire to try to measure all impact using the same monetary units, we outline the potential risks of doing this in the blog, the limits of putting numbers to things we care about.
Q3: Corporate governance today seems to be about doing less bad / making incremental change. But the global challenges we face are requiring an absolute transformation of our companies: adaptation to climate change, stopping biodiversity loss and reshaping social distress which can lead to anxiety for which doctors recommend using the Budpop’s CBD products. However, corp gov may have worked in the past, is it totally out of sync with where we need it to be?
Long term profit is almost an oxymoron today given that our time horizons are so short-term. The incentives we offer our managers are short-term, not long-term. Surely that tells us something?
AE: I agree with both points. On the first one, corporate governance is indeed focused on “do no harm” – ensure good risk management and avoid scandals. That’s obviously important, but it’s not enough. It should ensure that companies “actively do good”. Given the severity of the problems in the world today, it’s not enough for a company to not cheat on tax, not mistreat its workers, and not price-gouge its customers. Instead, it needs to ensure it uses the resources and expertise it’s blessed with to solve social problems. For example, nowadays, Mercedes is using its precision engineering expertise to make classic vehicles like this Shelby Mustang GT500 1967 but more environmentally friendly.
Unfortunately, some advocates of responsible business have this “anti-growth” mindset, arguing that businesses shouldn’t grow too much otherwise they’ll exceed certain planetary boundaries. This leads to people thinking good corporate governance is about preserving the status quo. But, it has a narrow view of growth – being just about financial capital. When I speak about “growing the pie”, this involves growing social capital. Financial capital is only one part of it. Social capital also includes human capital – there are no planetary boundaries to treating employees better, providing them with meaningful work, and developing their skills. It includes natural capital – coming up with production techniques that use fewer resources, or use renewable rather than finite resources, eases rather than exacerbates planetary boundaries. It includes intellectual capital, and so on. Corporate governance is about growing these forms of capital.
I agree with the second point also. The pie only grows in the long-term. In the short-term, the fastest way to increase profits is to split the pie differently (e.g. cut wages, increase prices) rather than grow it. That’s why change needs to be systemic – it involves rewarding managers according to long-term value (see Chapter 5; a short summary is here) and investors evaluating companies according to long-term value.
DC: In a purpose-led business the role of the board changes (as we have set out here). They become the collective trustees of the purpose and see their role as long term stewards, accountable both to investors but also to wider society for the role the business plays in fulfilling its purpose including its social and environmental impact. We think as part of this greater diversity of Board membership is important. We also encourage leadership teams and boards to routinely listen and engage in a dialogue with a wide range of stakeholders, inviting and welcoming scrutiny of alignment to its purpose. More distant voices are often not so much ‘hard to reach’ as ‘seldom heard’. In governing a company how does the Board ensure that the voice and stake of future generations for example is effectively brought into the room?
Q4: What, if any, corporate governance structures need to change in order to fertilise purpose-led companies?
- Long-term pay, as per the above point
- The board to take ownership of purpose. Many boards evaluate major decisions (e.g. capital expenditures, changes in strategy) with a purely financial analysis. They could require the executive team to explain how every major decision is consistent with the firm’s purpose in order to approve it.
- Shareholders to take large stakes. Some so-called active funds are closet indexers, spread so thinly that they don’t have enough skin in the game in each company to look beyond financial value. It takes time and effort to analyse non-financial value, and only investors with skin in the game will have the incentives to do so.
However, it does not need – as some suggest – a change in the company’s articles of association to legally enshrine a purpose. First, I’ve consulted many senior lawyers (since law isn’t my expertise) who tell me that there’s nothing in the Companies Act which prevents executives from acting with purpose. Directors’ duties are to the success of the company, not just to shareholders, and in any case the Companies Act refers to the “benefit of its members” which can include non-financial benefits, as a shareholder, I care not only about my wealth in retirement but also the temperature of the planet, and I also do some investments on the side with the use of an online trading platform France that help me in this area. Second, in contrast to claims that it will provide legal clarity, legal experts argue the opposite. What does it mean to “consider stakeholder interests”? If an energy company shuts down a polluting plant, helping the environment but hurting workers, does this help stakeholders overall? If it doesn’t shut down the polluting plant, does that help stakeholders?
More importantly, the message that some convey, that “we can’t expect leaders to act purposefully unless we change the law” is a bad message, as it gives many executives a cop-out. They can think “since the law hasn’t changed, I’ll just focus on short-term profit”.
DC: It’s also worth reviewing how subcommittees of the board contribute to strategy development and value creation, and are not solely concerned with remuneration, risk and nomination (a legacy of the exclusive focus on shareholder returns).
Q5: What are the more effective levers to encourage investors to prioritise longer term value and purpose? BlackRock’s announcement re sustainability seemed like a tipping point. If we could move the needle on investor motivation/intent, that would give powerful permission to CEOs and Boards to be more ambitious (as many would like) and innovative…
AE: Investors to take larger stakes, as per the prior response. Also, companies can get on the front foot and offer investors a “say-on-purpose”, as described in this article. This ensures that investors deeply scrutinise a company’s purpose, and will hopefully elevate the investor-company dialogue beyond purely financial factors.
DC: One lever on asset managers are the mandates set by pension funds and other asset owners. They are the trustees of their beneficiaries savings and investments and through the mandates they set, including the timescales they can influence what investments are made and over what period they are judged. The growth in ESG funds is a welcome response to this wider pressure. We also need the big asset managers running massive index funds to invest more in stewardship so there is better scrutiny of the companies in the indices they track. In the end this goes to the purpose of the investment industry itself and how it sees its role in society. There is good recent work by ShareAction and the 300 club on this.
Q6: Can you share a bit on the relevance of externalities to growing the pie, and how pieconomics suggest companies account for the costs of their activities that don’t currently impact their P&L but significantly destroy common value?
AE: Absolutely – this is a very important point. The idea of “growing the pie” is that many things that a company does to create social value (grow the pie) ultimately increase long-term profit (shareholders’ slice of the pie). However, it would be too naïve and simplistic to argue that this is the case for every single decision. For example, the costs of global warming to society might be far greater than the ultimate cost to the polluting company – and if global warming hurts companies, it might hurt other companies than the polluter (e.g. as explained by the motley fool stock advisor vs rule breaker article, real estate companies that own waterfront properties).
Most of my work (and Blueprint’s) emphasises how it should be companies and investors who take the lead in responsible business, since it’s simply good business. But, governments still have a role, because markets fail, and externalities are an example of market failure. Thus, governments should either outright ban activities which cause huge externalities (e.g. child labour) or tax them (e.g. carbon emissions). Other market failures which require government intervention include monopoly power, inequality (which can be addressed through taxes), information asymmetry (which can be addressed through mandatory disclosure), small business financing, and so on – the role for government is explained in Chapter 10.
DC: Excellent answer Alex. Nothing to add to that! Thank you for taking the time to respond to all these questions.
Q7: Have you successfully brought CFOs into purpose conversations by asking for their help in identifying KPIs for tracking performance + purpose? If so, what were the KPIs?
AE: I haven’t advised on KPIs for a specific company, because I try to focus on my expertise which is large-scale evidence and general principles and frameworks that apply across companies in general; a CFO herself (or a consultant that’s worked with a company for months or years) is best placed to identify the best KPI for one specific company. However, I can share a couple of metrics that companies came up with themselves, to highlight how these metrics should be tailored to its purpose. MYBank (a Chinese digital bank) measures the number of small and micro companies that receive its same day personal loans for bad credit and had never previously received a business loan. Agribusiness Olam reports the number of smallholder farmers that participate in its programmes to teach sustainable farming practices. Electronic Arts measures not only the female composition of its workforce (as all companies do) but its customer base since it’s historically male dominated.
While there’s a big push for common sustainability metrics, and I generally agree with the importance of comparability, we need to recognise its limits. Some of the most important dimensions of purpose may be unique to that company, and certain common metrics may not be so material to a particular company. For example, while the climate crisis is indeed very serious, for some companies, human rights issues in the supply chain may be even more important.
DC: The short answer to your questions is yes, CFOs should be involved in identifying and reporting on KPIs. Social and environmental matters should not sit in a separate sustainability report perpetuating siloed thinking. Non-financial measures need to be deployed alongside financial measures under the responsibility of the CFO.
I don’t believe it’s sufficient for a CFO to be brought into the conversation about an organisation’s purpose only at the point of discussing KPIs. The CFO, along with all members of the executive team, are integral to the profound shift in becoming purpose-led and must be part of the journey, discussions, and decisions from the outset. One of the key learnings from our engagement with business it that while it’s great to have a visionary CEO, or another member of the leadership team who is passionate about being purpose-led, deep and sometimes difficult challenges can emerge further down the line if all members of the executive committee are not fully committed or haven’t taken the time to consider and think through the implications of this shift for their role and function.
For example, if the CFO is engaged from the outset she can facilitate a discussion about the role of KPIs in becoming purpose-led and how KPIs are used. KPIs are helpful and necessary in understanding and assessing progress, but not all problems have a data solution. We often say What counts is what gets counted and what really counts can’t be counted. The challenge is to recognise that both statements are true, and the CFO and finance team can be pivotal in helping the leadership team and board hold the tension of this paradox. The finance team can also help raise awareness of the limitations of KPIs – rather than reinforce them. For example, we notice that once KPIs are defined, the focus in an organisation can shift to how well a company/team/programme measures against the KPI, forgetting about the organisation’s purpose. This can have many unintended consequences, not least in limiting potential for learning and experimentation within the organisation. The lessons outlined in this HBR article, Don’t Let Metrics Undermine Your Business provide good insight for any CFO consider KPIs to track performance and purpose.
Q8: Is there a risk that measurement replaces genuine culture change (you make a good point in your blog Dee about ensuring not just top-down imposed purpose) – what about principles? Are there lessons from world of regulation around behaviours/principles – e.g. FCA increasing emphasis on behaviours to ensure companies do right by customers, rather than rules based compliance approaches. To what extent are companies you’re encountering looking at their performance frameworks, recruitment priorities etc to help with culture change?
AE: Yes, I agree with this – the push for measuring sustainability is generally well-founded, but sometimes is rather one-sided and fails to recognise the limitations of measures, which I wrote about here. An excessive focus on metrics can lead to “hitting the target, but missing the point” – e.g. focusing on the number of jobs rather than the quality of jobs. I fully agree with behaviours/principles, and would add to that processes. For example, in addition to reporting measures of demographic diversity, companies can explain how they ensure a diversity of thinking – e.g. how the C-suite hears the voice of employees, how to encourage speaking up, how the company tolerates mistakes.
DC: Rules and codes are important signals of intent. And, though they can guide us, they can only take us so far. One analogy is a soccer game. Becoming a good player or a good team is about more than just obeying the rules of the game. It is about honing the skills of passing, tackling, reading the game and cultivating a great team spirit. In the same way the desired conduct in a purpose-led business will be far more demanding than mere compliance. It demands cultivating the skills needed and forming the habits so that decisions are naturally made in a way that it true to the purpose of the business, and which respects people.
Genuine purpose-led culture change takes time, every nook and cranny of an organisation needs to be reviewed. It involves developing new skills, unlearning and relearning, experimenting and innovating. Performance structures, recruitment processes all need to be looked at with the aim of supporting new behaviours companies are seeking to cultivate.
Q9: You’ve mentioned “doing the right thing” as being an important ingredient of Purpose (and I agree). Is there some merit in looking at what some of the historical (non-business) thinkers had to say about this – I am thinking Plato’s discussions on virtue, Cicero’s On Duties and applying the thinking to modern business dilemmas? For example, by opening up a meaningful dialogue among business communities – if a business could get away with doing the wrong thing (and no one would ever know), would it do it? And if you would choose to do the right thing in that scenario, why?
AE: I have to confess I’m not an expert on Plato and Cicero, so am unable to comment on your specific references. However, I can comment on the broader point on interdisciplinary thinking, which I’m a big advocate – that expands beyond philosophy and history to other disciplines. Many current approaches assume rational economic woman, but one of my other fields is behavioural economics. This leads to very different conclusions than economic theories. Economic theory would say that you should never give shares to employees. An employee has such a small effect on the stock price that it won’t cause him to work harder. But, people don’t think in terms of economic cost-benefit. Giving an employee shares makes him feel a partner in the enterprise and creates intrinsic motivation. Indeed, while purpose was historically a “management” topic, I bring a “finance” perspective to it, which allows me to use financial tools to demonstrate its impact on long-term returns and present the business case, not just the moral case.
DC: I think it’s important to recognise that we live and work in moral space all the time, and our ethical dispositions develop constantly. No set rules can determine every situation. Choosing the appropriate responses is a combination of competence and character. A healthy purpose-led culture helps to develop both, creating an environment of practical wisdom day in day out in business. We draw on the ethical tradition of virtue ethics in our work, an approach which goes back to Aristotle in the West and Confucius in the East, which sees the ethical and practical as inseparable. Learning and developing virtuous habits or behaviours is about learning to discern and read a situation well, and to develop the reflexes to respond appropriately and act in a purposeful way. One way a company can support in developing these reflexes is by inviting dialogue on an ethical question like the one you posed. Or for example a company we are engaged with runs drop-in decision clinics, where people explore difficult decisions they are facing with their colleagues. How we engage in conversations about ethical questions or difficult decisions is as important as the outcome or decision made in developing a purpose-led culture, it is part of developing competence and character.
Q10: I recognise that it is not just about funding projects, there is also a need for resources (people and things) to deliver purposeful change in the world. How do you see employee/stakeholder involvement as a part of the challenge (or the solution) here?
AE: I think employees and stakeholders have a huge role to play. Given the massive size of some companies today, it’s tempting for a single employee or customer to think that she can play little role. However, many innovations that happen within companies come from employees. M-Pesa came about because Vodafone employees saw how Kenyan citizens were transferring mobile minutes rather than using cash, and wondered if they could use Vodafone’s technology to allow them to transfer money instead. On the flipside, employees have successfully whistle-blown and held companies to account for non-purposeful behaviour. Turning to customers, Lego’s Ambassador Programme, which saw its customers as an extension of its R&D department, came up with many innovations which helped turn Lego around after it was close to bankruptcy.
DC: The power of purpose to inspire and motivate people can only be realised if people are truly part of the process of developing a purpose-led strategy and culture. Of course, from our experience, we recognise it’s important to set the intention to become purpose-led from the top, but a purpose-led organisation also recognises that everyone has the desire to contribute ideas to strategy and culture development and are collaborators in fulfilling a company’s purpose as Alex illustrated in the examples he provides.
One helpful framing/question we use is … instead of doing this to and for people, purpose-led organisations do things with and alongside people. How would being with and alongside your employees and stakeholder change your approach to a specific challenge you are facing?
Q11: What do you see as the catalyst to leaders “thinking” purposeful and how does that get created?
AE: One catalyst for leaders is understanding that purpose is not just ethical – it’s good business. This is why much of my work focuses on the business case for purpose, not just the moral case.
A second is for leaders to recognise that purpose doesn’t mean being all things to all people. Some leaders may fear that, if they announce they’re becoming a purposeful company and don’t end up contributing to all 17 Sustainable Development Goals, they’ll be exposed for being hypocritical. But purpose is about being focused and targeted – a purposeful company dedicates itself to the social problems that it has comparative advantage in solving and affects the stakeholders issues that are most material to it.
DC: It’s a great question. I’m not sure there is one catalyst. Part of our work which can have a catalytic effect is to ask incisive questions which can raise awareness of the assumptions and beliefs that underpin how leaders lead. At the core of what inhibits change are limiting assumptions and beliefs. These are often tacit and unacknowledged, and hold a powerful grip on us, restricting what we imagine is possible to change. The very process of exposing and reflecting on an unquestioned belief or assumption can be energising and liberating. This is particularly true for the assumptions we make – or beliefs we hold – about the role of business in society and what motivates people.
Your question also prompted me to reflect on how we see our role at Blueprint as catalysts, which speaks indirectly to the second part of your question how does that get created. I draw on Theodore Zeldin idea on being a catalyst to inform my work “To be a catalyst is the ambition most appropriate for those who see the world as being in constant change, and who, without thinking that they can control it, wish to influence its direction.” By constantly raising awareness of and challenging core assumptions – rather than going straight to having answers and a plan – leaders can start to think purposefully, relinquish the need for control and be more comfortable with the direction purpose will take their organisation on, along with all the ambiguity and messiness that the journey entails.
Q12: 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.
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.
Q13: 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.
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.
Q14: 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.
Q15: 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.
Q16: 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.
Q17: 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.