By Alex Edmans
What is a responsible business? Common wisdom is that it's one that sacrifices profit for social outcomes. But while it's crucial for companies to serve society, they also have a duty to generate profit for investors - savers, retirees, and pension funds. Based on the highest-quality evidence and real-life examples spanning industries and countries, Alex Edmans shows that it's not an either-or choice - companies can create both profit and social value. The most successful companies don't target profit directly, but are driven by purpose - the desire to serve a societal need and contribute to human betterment. Grow the Pie explains how to embed purpose into practice so that it's more than just a mission statement, and discusses the critical role of working collaboratively with a company's investors, employees, and customers. Rigorous research also uncovers surprising results on how executive pay, shareholder activism, and share buybacks can be used for the common good.
Alastair James on LinkedIn wrote:
"Grow the Pie challenges many of the assumptions underlying the case for ESG investing. Unlike those with an ideological axe to grind, Edmans comes to the debate bearing data, lots of it, skillfully distilling a wide array of academic research. While they may fail to impress those on either side of the debate who’ve already made up their minds, Edmans’s insights are fresh, often surprising, and always thoughtful and thought-provoking. [...] One doesn’t have to agree with every one of Edmans’s recommendations to respond positively to the spirit that infuses his writing: Optimism, supported by copious evidence, about the potential for positive-sum outcomes to transform business performance and its contribution to society."
Ben Yeoh on personal blog wrote:
"I think that Alex Edmans’ Grow The Pie is the most significant book on business purpose yet written. Its author, a Professor of Finance at London Business School, defines his professional purpose as “to use rigorous research to influence the practice of business”. This book is a significant step towards achieving that objective. [...] Edmans strives to uphold the highest academic principles of objectivity, with positions held on the basis of rigorously analysed evidence. [...] Edmans works hard to scrupulously analyse the evidence for and against the hypothesis that: purpose driven enterprises create more long-term value, for both stakeholders and importantly shareholders; than those businesses led on the principle that “There is one and only one social responsibility of business – to…increase its profits”. As one might expect Edmans has actually read Milton Friedman’s article from which that quote is taken and highlights that it is much more nuanced than both its many adherents and detractors claim. He recognises what is correct in Friedman’s article but also very carefully explains what it overlooks. However, Edmans analysis also shows that the devil is in the detail. [...] Another consequence of Edmans’ careful, objective analysis is that he reaches conclusions that will enrage ideologues of both left and right. [...] It is beautifully, engagingly and humanistically written. Edmans is clearly very well informed – the book is a great introduction to aspects of microeconomics as well as a great book on purpose. But he wears his learning lightly. Evidence and theory are always there to help the reader understand how the conclusions have been reached, not to show off or to blind with science."
"Core ideas Edmans argues for (along with pie-growing) are: the importance of “omission errors”, the multiplication principles, the importance of materiality judgements and comparative advantage. If I were to pick out two other principles that weave throughout the densely argued book, they would be the ideas of personal agency and a reliance on fact-based evidence over ideology. Interspersed with lively stories and backed by evidence, it makes for better reading than a dry academic text. However, it is still packed with references to studies and data that makes the book dense reading and above the one-shot idea business books that line airport bookshops. [...] Suitable for a thoughtful lay reader as well as covering material useful to business leaders and investors in the field. This book is recommended on some of the latest thinking and evidence on how companies deliver both social value, purpose and profit."
Launch Video with Book's Key Points
- "How great companies deliver both purpose and profit" - article on the website of the London Business school that Erdman recommends on the book's website as providing a summary of the book
- Growing the Pie in 28 tweets, on the website of Erdman, April 2020
- Overview of articles & interviews about the book
- Overview of talks, podcasts & columns about the book
- Teaching materials with the book
About Alex Erdman
Alex Edmans is Professor of Finance at London Business School. Alex’s research interests are in corporate finance (corporate governance, executive compensation, investment/growth/innovation, and M&A), behavioural finance, and responsible business. He graduated from Oxford University and then worked for Morgan Stanley in investment banking (London) and fixed income sales and trading (New York). After a PhD in Finance from MIT Sloan as a Fulbright Scholar, he joined Wharton in 2007 and was tenured in 2013 shortly before moving to LBS. He has spoken at the World Economic Forum in Davos, testified in the UK Parliament, and presented to the World Bank Board of Directors as part of the Distinguished Speaker Series. He has published in all the leading academic finance journals, written for the Financial Times, Wall Street Journal and Harvard Business Review, and appeared live on Bloomberg, BBC, CNBC, CNN, ITV, and Sky News.
Table of Contents of Grow the Pie
Part I: Why Grow The Pie? Introducing the Idea
- The Pie-Growing Mentality; A new approach to business that works for both investors and society
- Growing the Pie Doesn’t Aim to Maximise Profits – But Often Does; Freeing a company to take more investments, ultimately driving its success
- Growing the Pie Doesn’t Mean Growing the Enterprise; Three principles to guide trade-offs and what projects to turn down
- Does Pieconomics Work? Data – not wishful thinking – shows that companies can both do good and do well
Part II: What Grows the Pie? Exploring the Evidence
- Incentives; Rewarding long-term value creation while deterring short-term gaming
- Stewardship; The value of engaged investors that both support and challenge management
- Repurchases; Investing with restraint, releasing resources to create value elsewhere in society
Part III: How to Grow the Pie? Putting it into Practice
- Enterprises; The power of purpose and how to make it real
- Investors; How to turn stewardship from a policy into a practice
- Citizens; How individuals can act and shape business, rather than be acted upon
Part IV: The Bigger Picture
- Growing the Pie More Widely; Win-win thinking at the national and personal levels