I’ve recently read two books that gave me one thought: how can we get beyond the importance of profit? The hypothesis is straightforward. Business needs a purpose beyond just making money and all businesses should be agents of good for their people, their communities and the planet. Profit* is an easy measure as well as proof of success. But is it enough?
Rebecca Henderson, a Harvard professor, argues in Reimagining Capitalism that it is possible to combine sustained economic growth with a positive impact on the world. It requires strong regulation, widespread co-operation and a determined civil society. And it must be the future.
The second book is Narrative Economics, by Nobel Prize-winning Robert J Shiller. Humans like stories. They create an emotional attachment and can drive rapid change. Economists, therefore, need to look beyond the numbers to the stories when they are seeking to understand what’s going on and what’s going to come next.
I happened to read these books consecutively, which was a happy coincidence because they are integrally linked.
Henderson argues for change in the way capitalism operates, echoing a similar call made by Mark Carney in Value(s). There are some relatively quick wins. Mandating standardised environmental, social and governance reporting is one. Some will be harder work, such as shifting the mindsets of business managers and investors to a longer-term view. I’m sure an end to quarterly reporting would help with that, though it also involves putting more of a focus on a 30-year exit strategy, for example, than a three year one.
The why seems quite straightforward to me. Most metrics suggest inequality is growing, both within countries and between countries. The rich are getting richer and the poor, poorer. It isn’t a viable trend. When you layer on the approaching environmental nightmare, it becomes easy to see the rational case for change.
This isn’t about walking away from the established models: it is about adapting them. On the supply side, we need to reshape the regulatory environment and businesses have to accept that new environment. And companies need to find ways to be more effective when they work together, not constantly seeking to compete. On the demand side, we need to change our business and domestic purchasing habits.
You’ll have noticed that I wrote ‘how’ in the first line, which is where the concept of the narrative comes in, as laid out by Shiller. We can reimagine capitalism all we like, and it’s essential to have an end-game mapped out, but the only way we’re going to get there is by encouraging behavioural change. The only way to do that is by persuading people. And we know the only way to persuade people is to appeal to their limbic systems: their emotions.
There is a whole science around the hormones we produce when we are exposed to the right stories, particularly oxytocin and cortisol. The ancients knew this. Aristotle, in his Modes of Persuasion, talked about the balance of ethos, pathos and logos. Note that the emphasis is on the emotional side by a factor of 2:1, with only logos referring to the rational.
We shouldn’t be surprised, therefore, about the central importance of storytelling. But a little like Spock in StarTrek, we’ve perhaps relied too much on logic and not enough on emotion. Which isn’t to say tapping into emotions is an unscientific approach. The very best way to do it is through meticulous planning and preparation, examining the current context, understanding your audiences and learning what it will take to change their behaviour.
I’ve talked here about storytelling around the big changes we need, which can feel daunting. Each organisation needs to find their own stories, so they can contribute to that big picture.
It isn’t a trivial task, which is why you need to work with people who understand how to build and shape the stories that will deliver the results you need. And that is where we come in.
* And I’m not talking about EBITDA because that can be very elastic. It’s not as snappy as the original but the reality is that ‘turnover and EBITDA are vanity’. So when I say profit, I mean what’s left after everything else has been paid.