I recently had the opportunity to hear Alex Edmans speak at The University of Michigan Ross School of Business’ Positive Business Conference on social responsibility.
Edmans, a professor at the London Business School, shared his TedX Talk about the social responsibility of business. His first line asks the fundamental question, Why do businesses exist? Is it to earn profit OR to serve a purpose? For shareholders or for society?
The conventional view is profit, and we know many companies who still see social and environmental wellbeing as nice to haves, but not keys to generating returns.
Edmans shared the results of four years of research, looking at the impact of employee wellbeing on long term profits. He found that those companies who invested most in employee wellbeing [as measured by being on Fortune’s 100 best places to work list, controlled for a multitude of factors] outperformed peers in stock returns by 2-3% per year.
He proceeded to share other great case studies of employee wellbeing, for example, how at Marks & Spencer (M&S) top management walks around the shop floors to see first hand how customers and workers are being treated. As a result they have seen excellent engagement levels and higher profits. He shared additional case studies from best-in-class organizations such as: Sustainalytics, Unilever, and Costco.
Given that Edmans’ research suggests that companies who emphasize employee wellbeing will yield higher returns, he made the argument that investors should look at employee wellbeing when evaluating companies. Edmans encouraged us all to stop focusing so much on the short-term quantitative numbers, and instead focus on the long-term qualitative measures.
So what is the answer to his original question? Yes. Businesses exist to serve a purpose and in doing so, will generate a greater profit. It is not a zero-sum game, and contrary to investors beliefs, it is possible to do good, and do well. Company culture, employee wellbeing, and CSR programs, play an integral role in the success of a company. His parting words: To reach the land of profit, follow the road of purpose.