Pursuing purpose, not profit, could help businesses grow a bigger pie for all of us Pursuing purpose, not profit, could help grow a bigger pie for all of us The coronavirus crisis is highlighting one of the most fundamental tensions that business leaders face: do they pursue purpose or profit? Sainsbury’s chose purpose. They’ve reserved the first hour on every Monday, Wednesday, and Friday for elderly and vulnerable customers, and are giving them priority access for online delivery slots. The supermarket is also limiting [...]
Embed purpose into business so that it flourishes for the benefit of all UK business is at a critical juncture. Low investment and low productivity have been compounded by perceptions that their fruits are unequally shared. The government’s recent green papers on corporate governance and industrial strategy signal a serious intent to address these problems by revitalising the productivity of business, reorienting its focus onto the long run, [...]
As Standard Life’s investment boss calls for pay curbs, are big investors right to target chief executive pay? Alex Edmans, professor of finance at London Business School and a member of the steering group of The Purposeful Company, says Yes. Shareholders bear both the direct cost of executive pay and its indirect effects on other stakeholders, since stakeholder value ultimately affects shareholder value. Thus it is they, not one-size-fits-all regulation or other stakeholders, [...]
Five evidence-based proposals to make sure executive pay benefits society November 29, 2016 Theresa May is absolutely right that executive pay needs reform as part of creating “a country that works for everyone”. Today, her government is expected to release a Green Paper outlining measures to ensure that chief executive contracts benefit society, not just the executives themselves. At The Purposeful Company, we applaud and share this mission. [...]
Executive pay regulation will backfire if it’s not based on evidence October 20, 2016 Executive pay is the poster child for the disconnect between big business and the general public. It does need to be reformed. It needs to be fair given an executive’s performance – and performance as measured by long-run contribution to society, not short-run profit. However, 80 years of history shows that compensation reform has frequently [...]
Theresa May should use Nobel-winning insights – not anecdote – to guide executive pay reform October 10, 2016 The 2016 Nobel Memorial Prize in Economics was awarded yesterday to Harvard’s Oliver Hart and MIT’s Bengt Holmstrom for their ground-breaking work on contract theory. Their work has profound implications for contracts in many fields: financing contracts between investors and firms, business contracts between customers and suppliers, and – most topically – employment contracts between [...]
In praise of hedge funds: Why short-term activists create long-term value August 16, 2016 Activist hedge funds are often seen as the epitome of all that’s wrong with capitalism. They cut investment, fire employees, and break contracts to boost the short-term stock price, and cash out before the long-term value destruction comes to light. It’s certainly possible to find examples of this. And such stories make for good journalism [...]
Is the proposed £25m pay package for new BG Group chief executive Helge Lund defensible? November 26, 2014 Alex Edmans, a finance professor at London Business School and Wharton, says Yes. Compared to the pay of ordinary workers, £25m is an astronomical figure. But the correct benchmark is the value Helge Lund may create. BG Group’s market cap is £35bn, and it’s fallen 18 per cent this year. If he restores just 1 [...]
Is Mark Carney right that clawback may need to cover all bankers’ pay, not just bonuses? November 17, 2014 Alex Edmans, a finance professor at London Business School and Wharton, says Yes. Pay packages should ensure that executives act in the long-run interest of their firms. Short-run bonuses incentivise bankers to boost near-term earnings at the expense of long-run value – such as writing subprime loans or manipulating rates. Clawbacks will deter myopic actions, [...]
Forget bonus caps: Why real executive pay reform must tackle short-termism September 9, 2014 EXECUTIVE pay is a high-profile topic which almost everyone has an opinion about, and many believe the entire system is broken. But despite being well-intentioned, many suggested reforms may not be targeting the elements of pay that are most critical for shareholder value and society. Much of the debate is on what I call a [...]
