All organisations can give something back to the community, Edmans tells Festival of Work

The investment banker turned finance professor opened this year’s virtual conference by explaining that responsible business is about ‘actively creating value’, not just spending money

All businesses are in a position to be responsible and give back to the community, even if they are struggling during the coronavirus pandemic, delegates at the CIPD’s Festival of Work have been told.

Speaking in the opening session of the virtual conference, Alex Edmans, professor of finance at London Business School, said that even businesses not in a position to spend money on environmental or social causes can still create value for their wider society if they are creative about how they use their resources.

Acknowledging that some companies are simply not in a position to guarantee people’s jobs or donate food or hand sanitiser to local communities, Edmans said responsible business was about “actively creating value and innovating, not just spending money, which is why I think it is realistic, even right now in a crisis.”

“What I think a [responsible business] leader should ask yourself is: what is in my hand? What are the resources and what is the expertise that my company has? And how can I use it to serve wider society?”

Edmans gave the example of Barry’s Bootcamp, a chain of gyms forced to shut for months because of coronavirus restrictions. As well as offering free virtual fitness classes, the firm realised that many of its furloughed reception staff were also actors. “If you're an actor your income is volatile, so that's why they're taking this desk job to provide some income stability,” he explained.

“What we had in the pandemic was a lot of working parents whose kids were at home because the schools were shut. So what they offered were things like Zoom storytelling sessions to take the load off their working parents. That might seem a small thing, but it made a very big difference.”

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Speaking more broadly, Edmans said people often conflated purpose with altruism. But, he said, it was unrealistic for a business to try to serve everybody.

“Companies have loads of problems in the world that they could solve. But it's not their responsibility to solve every single one of the world's problems. Instead, they could focus on the couple of problems that they have the greatest expertise and solve,” he said.

Edmans gave the example of a London-based professional service firm that offered free taxis to and from the office for employees wanting to continue coming into work during the pandemic. This was both to support the mental health of those living alone and to make sure staff who wanted to still had access to the learning and development opportunities afforded by office interactions – both issues predominantly affecting junior staff.

The decision did increase the firm’s carbon footprint, said Edmans. “But if your purpose has human capital development right at the front and centre, that will help you navigate those tradeoffs.”

And, evidence suggests companies that are selective about what their purpose is perform better. Edmans cited a 2016 study by Khan, Serafeim and Yoon which found firms that scored highly on all environmental, social and governance (ESG) issues only outperformed other businesses by 1.5 per cent a year – statistically insignificant.

In comparison, firms that scored high on ESG issues that were materially significant to their sector and low on other issues outperform their peers by 4.83 per cent a year.

Historically a responsible business was one that did no harm, said Edmans. “We should not cheat on taxes, we should not mistreat our workers, we should not pollute the environment. We should not price gouge customers.

“Don't get me wrong, that is absolutely important,” said Edmans. But, he added: “I believe [that] in 2021, given the massive challenges that the world faces – automation, biodiversity loss, climate change, skilling and so on – I don't think it's enough for business to just do no harm. It needs to act to do good.”