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
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.
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
