The Business Case For Purposeful Business – ValueWalk Premium
Purposeful Business

The Business Case For Purposeful Business

Based on his research, Alex Edmans shows how a corporation treats its employees and how closely it follows governance-related best practices is indicative of positive long-term outcomes for investors.

Q2 hedge fund letters, conference, scoops etc

The Business Case for Purposeful Business

 

What Is A Responsible Business?

  • One that grows the pie, rather than just profits
  • Creates profits through creating value for society
  • High profits are not an automatic sign of irresponsibility
  • The most irresponsible actions are errors of omission, not errors of commission
  • Kodak
  • The most responsible actions that a company can take are not to split the pie differently (cut CEO pay, sacrifice profits to reduce carbon emissions)
  • Pie-splitting mentality shared by some critics of business / advocates for business reform

Instrumental vs. Intrinsic

  • Milton Friedman: “the social responsibility of business is to increase profits”
  • Stakeholders are important, but only as an instrumental way to increase profits
  • Should Apple build a gym?
  • A responsible business is intrinsically motivated by the desire to create value for society, and sees profits as a by-product
  • Shift in thinking will lead to far more investments being made, especially intangible ones

Profits vs. Externalities

Purposeful Business

Source: Alex Edmans, “Purposeful Business”, Gresham College, October 10, 2018, https://youtu.be/6riKL8uPPqM

This slide may contain copyrighted material. Such material is being made available for research and educational purposes only and we believe constitutes a fair use. The ideas presented herein are solely of the presenter. The data used herein is for illustrative purposes only and sourced by the presenter, Alex Edmans.

Purposeful Business

Source: Alex Edmans, “Purposeful Business”, Gresham College, October 10, 2018, https://youtu.be/6riKL8uPPqM

This slide may contain copyrighted material. Such material is being made available for research and educational purposes only and we believe constitutes a fair use. The ideas presented herein are solely of the presenter. The data used herein is for illustrative purposes only and sourced by the presenter, Alex Edmans.

The Caveats

  • Growing the pie does not mean
  • Ignoring profits
  • Growing the firm
  • Principle of multiplication
  • Social benefits > private costs
  • Principle of comparative advantage
  • Social benefits > social costs, so activity creates value for society
  • Principle of materiality
  • Creates profits through creating value for society

See the full slides here by Alex Edmans, PhD, Research Affiliates


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