Grow the Pie

How can businesses achieve lasting success while also benefiting society? The answer lies in shifting from a zero-sum mindset to a strategy that fosters shared value and sustainable growth.

1. The Pie-Growing Mentality: A New Way to Look at Value

Modern businesses often operate with a pie-splitting mentality, assuming value is finite and must be distributed at others' expense. However, this approach can create harm by focusing solely on maximizing shareholder profit.

The pie-growing mentality flips this idea, emphasizing that companies should strive to expand the overall value they generate for all stakeholders – customers, employees, communities, and the environment. By growing the pie instead of simply redistributing it, businesses can foster long-term success while contributing to societal well-being.

The example of Merck in the late 1970s illustrates this idea. Under Roy Vagelos' leadership, the company distributed ivermectin for free to combat river blindness in Africa. This decision saved millions of lives, bolstered the company’s reputation, and attracted talent and investors—all while aligning with Merck’s commitment to societal impact.

Examples

• Turing Pharmaceuticals’ price hike on Daraprim highlights the pitfalls of a pie-splitting approach.
• Merck’s ivermectin initiative demonstrates the benefits of aligning profits with purpose.
• Patagonia’s sustainable manufacturing underscores efforts to grow societal and environmental value.

2. The Role of Incentives in Value Creation

Incentives play a central role in steering businesses toward sustainable growth. Executives who focus on long-term outcomes typically make better decisions for both the company and society.

Take Bart Becht, the former CEO of Reckitt Benckiser, as an example. His leadership spurred the company's growth and innovation, benefiting not only investors but employees and customers. Although his £92 million salary drew criticism, most of it stemmed from share options, incentivizing him to focus on long-term success.

Instead of merely capping salaries, companies should prioritize remuneration structures that tie executive pay to sustainable value creation. Stock ownership, restricted shares, and simplicity in pay structures ensure that incentives align with a company’s broader goals.

Examples

• Bart Becht's decade-long focus on innovation at Reckitt Benckiser benefitted customers and investors alike.
• Shareholder-aligned pay structures encouraged Becht to reinvest £110 million in charitable causes.
• Long-term stock ownership programs for CEOs correlate with higher company performance.

3. Understanding Share Buybacks

Share buybacks are a debated financial practice where companies repurchase their own shares. Critics argue that buybacks prioritize short-term profits, but they can also reallocate resources effectively if used with care.

Humana’s buyback in 2014, for example, was misused to artificially boost earnings per share, securing a bonus for the CEO. However, buybacks can also indicate confidence in the company's trajectory, make dividends manageable, or respond to low-growth opportunities.

Implementing share buyback strategies wisely can support long-term growth instead of undermining investment opportunities. The key is ensuring they’re part of a broader vision aligned with the pie-growing mentality.

Examples

• Humana’s controversial buyback in 2014 highlighted potential misuse.
• Buybacks in the S&P 500 accounted for 91% of net income between 2003 and 2012, reflecting their popularity.
• Strategic buybacks often strengthen share ownership among investors who align with long-term goals.

4. Purpose Is the Driver of Sustainable Excellence

Businesses create the most societal value when they excel in their core purpose. Profit then becomes a by-product rather than the primary goal, as shown by Vodafone's M-Pesa initiative in Kenya.

M-Pesa, a mobile money service, revolutionized financial access for Kenyans, uplifting 196,000 families out of poverty by 2014. This innovation demonstrates how a company fulfills its societal mission by solving real-world problems.

Anchored by clear goals, companies like Unilever and Patagonia also deliver societal benefits through specialized campaigns, such as Unilever’s global handwashing initiative that saved lives through better hygiene practices.

Examples

• Vodafone’s M-Pesa brought financial autonomy to people in rural Kenya.
• Unilever’s hygiene campaign reduced diarrhea infections by 45%.
• Patagonia’s "Don’t Buy This Jacket" campaign encouraged environmental awareness.

5. Importance of Long-Term Thinking in Leadership

Short-termism erodes not just financial stability but also societal trust. Effective leadership means setting goals with a long-term vision, even when the benefits may not be immediately visible.

Roy Vagelos set an impactful precedent by providing ivermectin for free, demonstrating courage and commitment to societal value. Such decisions often require leaders to prioritize corporate purpose over quarterly financial reports.

Balancing profit with purpose ensures businesses create enduring results—economically, socially, and reputationally—for all stakeholders.

Examples

• Vagelos' ivermectin initiative helped millions while securing Merck’s long-term reputation.
• Reckitt’s growth under Bart Becht showed consistent focus on incremental improvements.
• Patagonia maintained its sustainability ethos despite risking short-term sales losses.

6. The Role of Integrated Reporting

Transparency is vital for aligning business value with societal goals. Integrated reporting combines financial and non-financial metrics to show how companies perform holistically.

This approach ensures stakeholders understand a company’s true mission and impact. For instance, transparent reports helped Patagonia build its brand around sustainability while handling criticism about pricing.

Integrated reporting also highlights areas for improvement, giving companies a clearer roadmap for aligning their practices with a purpose-driven approach.

Examples

• Patagonia’s transparent campaigns clarify their commitment to environmental preservation.
• Companies with clear value-driven goals attract investors who support ethical practices.
• Integrated systems foster accountability by encouraging alignment between pay and impact.

7. Empowering Citizens to Shape Businesses

Individuals often underestimate their power in driving ethical corporate behavior. As employees, investors, and customers, they can influence choices that shape a company’s long-term success.

For example, ethical investment platforms like ShareAction help investors select companies aligned with their principles. Similarly, platforms like Ethical Consumer guide purchase decisions, empowering consumers to prioritize responsible businesses.

Engaged citizens not only make meaningful choices daily but also hold businesses accountable, fostering collective betterment.

Examples

• ShareAction ranks mutual funds based on stewardship quality.
• Customer suggestions revitalized Lego’s product offerings after its near-bankruptcy.
• Ethical Consumer’s guides support responsible shopping.

8. Policymakers Have a Role in Regulation

Smart policy can encourage sustainable business practices without hindering innovation. Carbon taxes, backed by thousands of US economists, highlight how regulations can align societal goals with market forces.

However, one-size-fits-all rules often create inefficiencies. A flexible "comply-or-explain" approach works better, allowing companies to maintain transparency without crushing adaptability.

Voters can shape policies that support the bigger pie while avoiding disruption of entrepreneurial innovation.

Examples

• Over 3,500 economists support carbon taxes as a method of environmental protection.
• Flexible UK rules on share buybacks reflect accountability balances.
• Policymakers influence minimum wage laws to redistribute economic gains fairly.

9. The Power of Media & Public Influence

Media and thought leaders carry an enormous responsibility in shaping perceptions about businesses. Balanced coverage ensures companies are judged fairly on both their contributions and transgressions.

For instance, narratives around Bart Becht’s payout overlooked his societal contributions. Similarly, share buybacks are often misrepresented as detrimental rather than strategic.

Informed media spotlight successes to emulate and mistakes to avoid, helping citizens and businesses grow the pie more collaboratively.

Examples

• Media exaggerated Bart Becht’s earnings, ignoring his societal reinvestments.
• Share buybacks are frequently criticized without considering their long-term benefits.
• Lego’s transformation benefited from positive public engagement and media input.

Takeaways

1. Focus on purpose: Align your business or organization’s mission with societal benefits for sustainable growth.
2. Evaluate where you influence: As a customer, investor, or employee, prioritize entities that reflect your values.
3. Advocate for transparency: Push for policies and business practices that promote integrated reporting and long-term accountability.