The Coronavirus crisis has highlighted the imperative for businesses to be responsible. Companies that have put profits above purpose have been rightly shamed, such as Sports Direct for attempting to keep their stores open.
Even the seemingly untouchable Sir Richard Branson, once named by the Sunday Times as the most admired business person over the past five decades, was called a “disgrace” by a politician for asking staff to take eight weeks’ unpaid leave.
Prioritising society over shareholders
On the other hand, enterprises who’ve prioritised society over shareholders have been praised. Google has pledged $800 million in ads and loans to help businesses and crisis response efforts. Roman Abramovitch, whose public image is often the opposite of Sir Richard’s, is allowing NHS workers to stay at Chelsea Football Club’s hotel for free to reduce their commutes.
The stories of how big business is helping to fight the crisis are inspiring. But they also seem unrealistic for entrepreneurs. A small business doesn’t have millions to donate or extend credit, nor does it just happen to have a luxury hotel sitting idle. And while there’s indeed evidence that purposeful behaviour does eventually lead to profit, that’s only in the long-term. In the short-term, it’s costly, and start-ups have to focus on survival. So, can entrepreneurs really afford to think about responsibility?
Indeed they can – by shifting their thinking on what “responsibility” actually means. Many business leaders, and business critics, believe that the value that a company creates is a fixed pie. That pie can go either to shareholders or to society. A responsible business, the thinking goes, is one that sacrifices profits (shareholders’ slice) to ensure that enough goes to society. This might involve making large donations to charities, paying higher wages to employees, and investing in reducing its carbon emissions. And that indeed might be difficult for a start-up.
Ensuring that society has a fair slice of the pie is indeed important. But that’s not the heart of what responsibility is about. It’s about growing the pie – creating social value. Doing so increases the slices of not only society but also investors, so profits rise as a by-product. Growing the pie means answering the question “How is the world a better place by my company being here?” “We give to charity” or “we don’t mistreat our workers” is an insufficient response. Responsibility isn’t about non-core activities (giving to charity) or doing no harm (not mistreating workers). It’s about actively doing good through your core business.
Let’s take an example. Vodafone was the first telecoms company to release a tax transparency report on how much tax they were paying worldwide. They were rightly lauded for that because paying fair tax is important. But that’s about splitting the pie. Instead, Vodafone made a far greater contribution by launching the mobile money service M-Pesa, providing banking to the unbanked and lifting 200,000 Kenyans out of poverty.
Importantly, the idea that responsibility is about a passion to serve society can apply to small enterprises as well as large corporations. That’s because the biggest ways in which a company serves society isn’t through philanthropy but excellence and innovation.
Excellence means having an uncompromising commitment to quality. This may not involve paying the highest wages to employees, but mentoring them, viewing them as partners in the organisation, and giving them opportunities to step up. It may not involve giving bells and whistles to customers, but stepping into their shoes, taking feedback seriously, and forming personal relationships.
Innovation involves asking the question “what is in my hand?” What resources or expertise does my business have to serve society? For Vodafone, it was about applying their expertise in telecoms to the out-of-the-box idea of mobile money. And this question is relevant in crisis times as well as normal times. Jab Box, a new London boxing gym, only opened in January and had to temporarily close two months later due to the virus. Times are hard. But what’s in their hand is fitness expertise, which they’re using to provide free online workouts. They’re doing this out of genuine service, but ultimately may benefit by attracting new clients for when they reopen. Barry’s Bootcamp organised a day of workouts to raise £35,000 for the NHS. For 1Rebel, what’s in their hand is gym space, which they’ve offered to the NHS for beds and facilities. All of these cost little, but make a big difference.
Responsibility is often seen as a “nice-to-have” extra, a luxury to be pursued if you have the money. But, viewing responsibility as excellence and innovation, rather than philanthropy, means that it should be a guiding principle during difficult times as well as good, and for small businesses as well as large. And, by inspiring employees and customers, it ultimately pays dividends for investors.
The author of this post Alex Edmans is a Professor of Finance at London Business School and author of Grow the Pie: How Great Companies Deliver Both Purpose and Profit published by Cambridge University Press