Introduction

‘In Search of the Right Level of Profit’

This book is about purpose or rather the achievement of purpose, which is the realization of the highest form of aspiration of any organization or individual.

It is the argument of this book that the real battle our globalized world is facing today is not between liberalism and protectionism, or between China and the United States, or between globalization and nationalism, but rather between a sense of purpose and no purpose—between fulfilment and no fulfilment.

It is the argument of this book that the new rifts tearing apart the fabric of our society and planet—thriving cities versus rural areas, skilled elite versus the less educated, wealthy owners of financial assets versus the working class—are all rooted in an economic model (namely the Chicago School of Business) that was misconceived in its conception and has become more so over time. The nature of scarcity has changed radically from financial to other forms of capital while our economic models have not—making Chicago’s profit maximization approach progressively less efficient and effective and more destructive of value creation.

It is the argument of this book that today’s main actors of globalization are no longer nation states but a growing body of multinational corporations and large international non-governmental organizations (NGOs). These have gained power and influence over time and now have the means—if they so choose—to reshape the global agenda, but they lack political legitimacy. However, their power and influence give multi-national corporations (MNCs) a particular duty as well as opportunity to lead a transformation of business into a profitable force for good, that can partner with government to realign the regulatory environment for the new global context within which they operate.

It is the argument of this book that these new rifts have become so large—and the model and actors that together created them are so dysfunctional—that they cannot be addressed on the margin through conventional programmes of charity or corporate social responsibility (CSR) initiatives that incorporate philanthropy as a supplement to business. Instead, they demand a profound transformation of the very purpose of the firm, the extension of its effective boundaries beyond its legal ones, the redefinition of procedures for value creation beyond just the creation of financial capital for shareholders, and finally, the modes of profit construction. Only in this way will economists, academics, business practitioners, regulators, and policymakers have the tools and motivation to embrace their duty and opportunity to teach and practically implement needed changes within the context of the new macroeconomic and microeconomic paradigm.

But it is also the argument of this book that most successful organizations are those that choose to be driven by a sense of purpose that transcends self-interest—a sense of purpose that seeks to develop reciprocally beneficial obligations amongst a wide variety of relevant stakeholders—a sense of purpose that can transform business performance for the benefit of people, planet and profit (in that order)—in other words, mutuality.

Finally, it is the central argument of this book that the real issue today is not just having a purpose but fulfilling it. The achievement of purpose has become ever more necessary at a time when:

• Most MNCs articulate and communicate their corporate purposes beyond pure profit maximization but fail to realize them;

• There is a growing gap between purpose and practice—a dangerous and potentially explosive phenomenon that encourages cynical assessments of purpose as being ‘sustainability Ponzi schemes’, namely illusions of sustainable practices without the capability to deliver them;

• The level of trust society has in business and the leaders of business is eroding rapidly.

This is not an abstract issue, but rather is a real living, breathing conflict that every responsible leader in business, finance, and business academics must now face. This is the very essence of modern economics and management: a battle for purpose in a world of rapidly increasing complexity and confusion—not just having a purpose but making that purpose real at every level of the organization, especially when the odds are so often resolutely stacked against it.

This is the objective of what we call the Economics of Mutuality, which is about:

1. Putting purpose into practice through a new definition of the boundaries of the business ecosystem of the firm, a more complete definition of performance, a more comprehensive process of value creation, and profit construction that go beyond financial profit alone;

2. Inspiring corporations with a tested means to access untapped resources to improve business performance in a holistic manner for people, planet, and profit;

3. Identifying how business and finance can restore their roles in society and the planet.

There are periodic revolutions in business: the emergence of the joint stock company, limited liability, the market for corporate control, lean manufacturing, and just-in-time management are some examples. They fundamentally affect not just business and the corporate sector but customers, employees, investors, economies, societies, and the environment at large. They have profound effects on our lives, well-being, prosperity, and our environment.

We are going through such a period now. There are two forces at work. The first is technology: the so-called fourth industrial revolution is fundamentally altering ways of working, consuming, living, and flourishing. It is providing new means of communicating, socializing, thinking, producing, and distributing. And it is connecting us with each other, with information and knowledge in ways that were unimaginable only a few years ago.

The second force at work is the central subject of this book, and that is the nature of business itself. In the face of profound and rapid changes, the nature of business has to evolve rapidly if it is to remain relevant to society at large. The last sixty years have seen the rise and dominance of a particular view of business that has shaped the nature of the way in which it conducts its activities. This view has been widely accepted as the sole paradigm for how good business should be done and what makes for success—a genuine success that has indeed enabled the emergence of a global middle class lifting hundreds of millions out of poverty in the midst of a doubling of the world population, famines, plagues, wars, the collapse of the Berlin Wall and most of the ideologies that have disfigured the twentieth century, the advent of the fourth industrial revolution, and the rise of MNCs.

Yet this success has been accompanied by an unbalanced distribution of value creation to the benefit of financial capital owners and highly educated workers at the expense of the less educated; an unprecedented and continuously rising consumption of natural resources—humanity is currently depleting the environment 1.7 times faster than our planet’s ecosystems can regenerate; and a rising and alarming level of societal mistrust in business and government.

In this context, the 2008 crisis was a wake-up call that has started to shake the pillars of society and the economy. It has been a milestone that has begun to highlight the excesses of the relentless pursuit of profit maximization and its consequences—the widening of inequalities, public distrust, and environmental degradation. The gains of financial capitalism and unbridled globalization are increasingly being extinguished by exclusion, populism, nationalism, and protectionism, which themselves are fuelled by fear of others, the evolution of work imposed by the fourth industrial revolution, the decline of the middle class, and threats to the planet.

Despite a plethora of papers, books, gatherings, forums, summits, initiatives like the United Nations Sustainable Development Goals, the World Economic Forum, movements like inclusive capitalism, creating shared value, conscious capitalism, and purpose beyond profit, the status quo prevails. Such has been the plethora of ideas for promoting responsible business that if ‘the road to hell is paved with good intentions’ then responsible business risks becoming the source of our damnation. However, the last few years have seen a growing recognition that business needs to change. The question is no longer whether business should reform or why, but how and now. How should business change to meet the requirements of the twenty-first century?

That is precisely the question this book seeks to answer. It attempts to move beyond general exhortations for change, fine words, and good intentions to describe how change should occur and how business can bring this about itself. It is about how some of the most enlightened, successful corporations are striving to achieve change and what their experiences of it have been. It is not about intentions but vision and actions. How business can and should adapt in the twenty-first century to make good its power to do good, not necessarily for a worthy higher cause but because it is simply good business. It is about what works and what doesn’t work and why.

The book therefore has elements of a ‘how to’ volume. But it is much more than that. It is based on an extensive programme of research that Mars Catalyst, the internal think tank of Mars Incorporated, the food and beverage company, has been undertaking since 2007 in conjunction with several universities, including the Saïd Business School at Oxford University as part of a programme of research funded by Mars Inc.

That research programme has provided profound insights into the nature of the corporation, its purposes, its process of value creation, and above all its potential to promote economic, environmental, and social well-being in ways that are reciprocal. This book sets out both the intellectual contribution of the research programme as well as the practical insights it provides into the means by which companies can adopt practices that are mutually beneficial for themselves, the societies they serve, and the environment in which they operate.

In these two introductory chapters we set the scene by describing the background to this volume based on the erosion of trust in business, the reasons for this, including the failings of the conventional business paradigm, the nature of the new paradigm based on the economics of mutuality, and its different components. We describe the contents of the book and the way in which it attempts to combine conceptual ideas with practical evidence from a large number of case studies.

Trust and Trustworthiness of Business

The current state of business is paradoxical. It is by most measures booming. Up to the period of writing this book, growth in many parts of the world has been high, unemployment low, and inflation modest. By conventional economic criteria these are in many respects halcyon days. Furthermore, technological advances are offering extraordinary opportunities for business to transform our lives for the better in numerous areas—communications, computing, energy, food, medicine, and transport, to name a few.

And yet despite the successes and the opportunities, the standing of business in societies around the world has never been lower. The latest figures of the Edelman Trust Barometer (a nineteen-year-old instrument designed by the public relations Firm Edelman to detect and document large opinion shifts globally), for example, confirms an alarming yet consistent pattern: ‘Only one in five feels that the system is working for them, with nearly half of the population believing that the system is failing them’ and a growing divide of trust in business, government, NGOs, and media between the informed public (a proxy for highly educated people) and the rest of the population. Yet, despite the bleak context, the 2019 barometer also highlights that people are looking to business leaders to promote the change that is needed.

Every year for the past thirty-five years IPOS-Mori, the market research company, has undertaken a survey of 1,000 people in Britain on which professions they trust to tell the truth. The 2018 survey recorded that business leaders came near the bottom—just above estate agents, professional footballers, the media, and politicians. They came below trade union officials and ‘the man or woman in the street’.

This is not just a bankers’ phenomenon, because bankers are recorded separately and come slightly above business leaders. Nor is it just a post-financial crisis result because it has been true from the start of the survey. Mistrust in business is profound, pervasive, and persistent. Why?

The answer can be found in two books recently published by the editors of this book.

What Has Gone Wrong?

In Prosperity: Better Business Makes the Great Good, Colin Mayer (2018) describes how business fundamentally shifted its focus over the last sixty years. For nearly all of its two-thousand-year history since the corporation was created under Roman law to perform public works, such as collecting taxes and minting coins, it has combined a public with a commercial function. It is only over the last sixty years since Milton Friedman first expounded his doctrine that ‘there is one and only one social purpose of business . . . to increase profits so long as it stays within the rules of the game’ that profits have emerged as the sole purpose of business.

This was a consequence of mounting concern during the first half of the twentieth century about a lack of accountability of management arising from a separation of ownership and control created by the growing dispersion of shareholdings of companies listed on stock markets. The response was markets for corporate control, first in the form of hostile takeovers, and more recently hedge-fund activism, that have resulted in an increasing preoccupation in boardrooms with profits.

The Economics of Mutuality

In Completing Capitalism—Heal Business to Heal the World, Bruno Roche and Jay Jakub (2017) describe how the context in which business operates has fundamentally shifted over the last sixty years—and highlight the need for the economic/business model to adjust. On the basis that economics is about managing scarcity and that the nature of scarcity has changed since financial capitalism emerged fifty years ago and became the dominant model for business operations, the authors argue that this model is today redundant in the current context of there being an overabundance of what was once scarce (money) and a growing deficit of what was once abundant (natural resources and talent matching the jobs being created). The world has changed, but the dominant model continues to deliver a form of value that is in surplus while largely ignoring what is in deficit.

In business, as the old adage goes, only what is measured is managed. With financial capitalism, business has only the tools to measure and manage a single form of capital—money—among multiple forms of capital—social, human, and natural. These other ‘capitals’ have considerable value but their value is not expressed in conventional monetary terms, and businesses that fail to account for such forms of value underemploy them. Roche and Jakub (2017) demonstrate how business can mobilize more of the value at its disposal to create greater value for society and nature, and by so doing so, also generate more profit than it can by maximizing profit alone.

In their book on Completing Capitalism, Roche and Jakub (2017) set out the vision, context, objectives, roots, principles, and ideas behind the Economics of Mutuality. They position it as a management innovation designed to empower business to outperform while restoring its positive impact on society and the planet and highlight the duty, the opportunity, and most importantly the responsibility of business leaders and business schools to take the lead in recasting the role of business. They describe the central aspects of the Economics of Mutuality methodology in terms of ecosystem building and mapping (to identify the effective and relevant boundaries of the firm with regards to its purpose), pain-point identification (to identify opportunities for impact), innovative management practices (to deliver against these aforementioned opportunities), innovative metrics and measurement of performance, and finally new modes of profit construction—namely the concept of a mutual profit and loss statement (to help assess what the right level of profit should be, to then align purpose and practice). The book also highlights real business experiments where Economics of Mutuality has been implemented.

This book elaborates on this simple yet powerful idea—that many of the world’s most pressing societal and environmental challenges can be solved through business by using integrated business model approaches to drive positive social and environmental impact, while simultaneously delivering strong financial performance—and describes how in practice Economics of Mutuality can and has been adopted and the experiences and lessons that have been learnt from doing so.

It further describes the core elements of the Economics of Mutuality methodology in the next chapter and fifteen cases where firms have implemented Economics of Mutuality in one form or another. It illustrates the very diverse set of businesses and sectors to which Economics of Mutuality has been relevant. It discusses its performance in extending the boundaries of the firm and embracing capitals beyond material and financial capital to include human, social, and natural capital.

First, the Purpose of Business Is Not Profit

There is nothing wrong with profits. On the contrary, profits are the lifeblood of business. They are needed to sustain business and to provide it with resources to fund growth, investment, and research. Without them business is dependent on philanthropy, and, as Grameen Bank founder Muhammed Yunus once said, a charity dollar only has one life while a business dollar (profits reinvested in business) can have multiple and potentially indefinite lives.

As Prosperity (Mayer 2018) argues, it is not profits per se that are the problem; it is the maximization of profit for the benefit of the shareholders at the expense of other stakeholders that is a mistake, as well as the presumption that profits are the ‘be all and end all’ of business and its sole purpose. Profits are not the sole purpose of business. The purpose of business is ‘to produce profitable solutions to the problems of people and planet, and not to profit from producing problems for people and planet’. In the process, business produces profits. But profits are not per se the purpose of business and business should not profit from producing problems for people and planet.

Everyone who runs successful businesses knows this to be the case. What they do is to recognize the importance of trust and trustworthiness in upholding the commitment of the company to its corporate purposes. They commit to the corporate purpose and to those who contribute to creating the common purpose. Those people in turn commit to the common purpose.

It is this that gives rise to reciprocal relations of trust between the firm and the different parties to the firm—its ‘stakeholders’. This in turn creates mutual benefits for the firm as well as its stakeholders. It gives rise to more loyal customers, more engaged employees, more reliable suppliers, and more supportive shareholders and societies. This results in higher revenues, lower costs, and therefore more profits.

This is the essence of mutual benefits—to the firm in the form of higher profits as well as to society in the form of the well-being of customers, employees, suppliers, creditors, shareholders, and communities.1 It is the basis of what is termed the Economics of Mutuality.

Second, the Effective Boundaries of the Firm Are Not the Legal Ones

In an increasingly global, complex, and interconnected world, business leaders are recognizing that they can no longer solely rely only on their own resources and ideas and still remain competitive. In particular, they are seeing that innovation can come from anywhere, often from outside the firm’s linear value chain.

In that context, what modern business is about is building relationships of trust not just within a firm but within society and in synergy with the environment. By trust we mean connection, recognition, and support of a mutual purpose for which we all work, and from which we all benefit, thereby providing an economic justification of social cohesion. In that context, the emphasis of the corporate purpose must shift—from the company being a mere vehicle for the capital market (to be traded, bought, and sold as a commodity) towards a vision of the company as a community of partnership in which each relevant stakeholder, including the planet, has a stake. The corporate ecosystem must be enlarged to go beyond the legal boundaries of the firm and be aligned with the effective boundaries of the firm (as determined by its purpose)—to encompass all relevant stakeholders; in a word: mutuality.

Notions of reciprocal relations are not new in business and are not in themselves a particular innovation. However, what marks out the Economics of Mutuality from other similar ideas in relation to responsible business is its notion of what constitutes the firm, and also (most importantly, perhaps) its pragmatic approach to defining the effective boundaries of the firm, to measuring non-financial performance with a set of simple, stable, and actionable metrics, and to leveraging the power of management and accounting to position mutuality at the core of the firm.

The conventional view of the firm is that it comprises a set of assets, such as buildings, plant and machinery, and land, over which it has property rights of control. It then contracts with a variety of parties, such as customers, suppliers, distributors, employees, and investors through contractual arrangements that bind them together with the firms’ assets. Together property rights and contracts define the boundary of the firm.

What is not owned or contracted by the firm is external to the firm and gives rise to ‘externalities’. These impose benefits or costs on the firm for which it is not charged or rewarded and, because they are externalities, they create a misallocation of resources resulting from the failure of markets to reward or penalize companies for them.

However, this conventional ‘nexus of contracts’ view of the firm is misleading. First, as is generally recognized, contracts are very incomplete. At best they are only a partial reflection of the factors that are relevant to the relation of firms with those with whom they interact. Second, contracts are in many cases infeasible. It is, for example, infeasible for firms to write contracts with future generations that may not yet be born but can be affected significantly by the activities of the firm, not least through their environmental consequences.

Most seriously of all, the nexus of contracts fails to recognize that most relations are not based on contracts at all but on trust, by which one party believes that another party will respect their interests without there being any contractual obligation on them to do so. That belief derives from an assessment of the trustworthiness of the other party.

What business is about is building relationships of trust and trustworthiness well beyond the boundaries of the firm to areas where ideas of property rights and contracts are an illusion. It allows companies to internalize activities that would conventionally be regarded as externalities and therefore the source of market failures.

The Economics of Mutuality is about how to create such reciprocal relations of trust and trustworthiness in areas that conventional business would not allow firms to trespass. It produces creative forms of doing business that do not do good for the sake of it or just for the benefit of others but for the reason that it is simply better business. It is a way of tapping into untapped resources, of mobilizing hitherto hidden capabilities, and of creating markets and profitable activities that other firms fail to recognize.

Once one thinks in these terms of extending the boundaries of the firm by creating reciprocal relations of trust then opportunities open up that previously were inconceivable. The purpose of the firm becomes the profitable solving of the problems of people and planet because people and planet provide profitable opportunities from which firms as well as people and planet benefit.

It is this notion of internalizing some of the most relevant externalities that underpins this book and the Economics of Mutuality and it is this that the subsequent chapters will explore. It will describe in principle and in practice how firms can and do create these profitable opportunities.

Putting purpose at the centre rather than the financial profit of a single firm means that an ecosystem can be designed to contribute to the overall welfare of communities while also leveraging multiple forms of capital, from financial to human, social, and natural, multiplying benefits for all. To do this, firms need to move beyond classical positioning strategies to embrace new approaches that bring into view wider perspectives that, in turn, focus on system-shaping strategies.

A starting point for implementing the Economics of Mutuality, therefore, is combining the principle of mutuality with the fact that companies are parts of larger business ecosystems and as such, have responsibilities to individuals, communities, and resources that contribute to business performance.

Third, We Need New Management Metrics to Measure Non-Financial Performance

In business, you manage what you measure and can expect good performance with good management. The issue we face today is that business tends to measure only financial capital—and only its own performance (ignoring the performance of others in the ecosystem in which it operates). Broadly speaking, business has managed its financial performance very well, but is left wanting in other areas. Although business has generally lacked interest in measuring—and therefore managing—non-financial capitals, it has been active in their creation and destruction.

The problem, however, is not business’ preoccupation with measurement. Rather, it is business’ obsession with the measurement of financial capital in the short term at the expense of non-financial forms of value without which the firm cannot operate effectively. The aim of the Economic of Mutuality’s non-financial metrics, therefore, is not to offer new metrics for measurement’s sake. Nor is it about using measurement of non-financial capitals to address sustainability issues and impact, although these are legitimate applications of the approach.

First and foremost, Economics of Mutuality metrics are designed to be simple, pragmatic, stable, and actionable tools for business to manage. They are analogous to financial metrics and are intended to drive management practices and decisions that positively impact people, planet, and profit. In other words, for business to be purposeful about becoming a force for good in society, it needs the metrics, management practices, and incentives that will drive corporate behaviour towards this goal. Without business enlarging the core of what it measures, mobilizes, and manages, it will never truly change its behaviour.

Fourth, We Need Management Accounting of Mutuality

The final core element of Economics of Mutuality is the mutual profit and loss (P&L), which integrates non-financial metrics and new practices through the use of existing accounting tools to efficiently manage performance across people, planet, and profit at the very core of the business.

The mutual P&L is a proposed change in the management account P&L, designed for internal use, that will modify the presentation of the financial P&L to take into account a business unit’s impact on selected human, social, and environmental capital issues. The challenges of accounting for non-financial capitals are many and in a large part due to the fact that natural, human, and social capitals are priceless in the sense that they cannot be assigned a dollar value in a non-arbitrary and/ or reductive way. A further challenge is that such capitals are external to the business, they are shared resources and do not belong to the company in the same way that buildings or machinery do. Therefore, there is little prospect of including them in the P&L by converting these non-financial capitals into a tangible asset with a financial value. However, it is possible through the Economics of Mutuality approach to:

• Avoid the pitfall of remunerating non-financial capital with financial capital (e.g. give a monetary value to human, social, human capital), hence positioning in an arbitrary fashion one capital above the others;

• Empower business to remunerate each capital with its own kind (e.g. remunerate financial capital with financial capital, natural capital with natural capital etc.);

• Account for the cost of maintaining and growing non-financial capitals, connecting the associated cost of doing so in the P&L; and

• Hence, calculate a single bottom line that incorporates financial and non-financial forms of value that are created and destroyed (and can be leveraged) by businesses across the most relevant stakeholders in the ecosystems in which they operate.

Doing this requires classifying two types of activity:
For External Capital Depletion: one should extend the operating P&L to reflect costs of replacing depleted capital. The ‘mutual’ profit will be lower than the traditional operating profit because of this adjustment. Any measurable improvement (i.e. reduction of external capital depletion) will be monitored using metrics (described above) and will entail an improvement year-on-year of the mutual P&L, encouraging doing ‘right’ for the durability of the business model.

For External Capital Creation: change the presentation of the operating P&L to treat related costs of interventions (budgets, people costs, etc.) as investments not as operating expenses. These costs will be removed from the mutual P&L with an effect similar to existing accounting practices, such as capitalization on internal R&D or IT costs or reclassification ‘below-the-line’ of one-time costs for restructuring. Mutual profit will be higher than traditional operating profit due to this adjustment. This modified presentation of the P&L can help relieve budgetary tensions at the unit level that are obstacles to strategic initiatives with short-term costs and long-term impact.

The P&L modifications described above can be shown as a simple reclassification in the management accounts P&L in a way similar to the treatment of non-operating costs. This is a simple, pragmatic step to incorporate non-financial metrics in management accounts. It will promote decision-making and performance management across multiple forms of capital; present an alternative mode of profit construction away from a pure financial profit maximization; remove the tension between the idea that there must be a trade-off between ‘delivering the P&L’ and doing what is responsible long term for human, social, and natural capital issues; and make it possible to adjust the incentive system and dividends accordingly so that doing the right thing aligns with the firm’s objective and how it rewards employees and shareholders, shifting variable pay incentives from financial to mutual profit.

The next chapter will summarize the main learning that has come out of these experiences to date and the insights that Parts II and III of the book provide on the conceptual and practical adoption of the Economics of Mutuality. It is worth noting at this point that the significance of the Economics of Mutuality extends well beyond business theory and practice at the micro level to macroeconomic considerations of the role of business in addressing performance of economies as well as firms.

The significance of extending the boundaries of the firm beyond their conventional confines is that it empowers parties to engage in economic activity from which they were previously excluded. The exclusion does not just come from the traditional concerns of macroeconomics in relation to aggregate demand and money supply but from the ability of individuals and organizations to realize their productive supply capabilities.

The pain points that are identified in ecosystem mapping are not only those of consumers in terms of meeting their consumption needs but also employees, suppliers, communities, and the environment in delivering the goods and services of which they are capable. These parties are constrained by their access to knowledge, training, skills, as well as finance and material inputs. These resources are not available to them from existing arrangements, but they are precisely the contribution that other companies are capable of providing, once they realize the potential profitable opportunities from doing so.

In other words, analogous to the demand constraints that afflict consumers in making their notional demands effective are limitations on individuals and organizations to make their notional supplies effective. They are supply constrained in a way that mirrors the demand constraints of Keynesian economics. These constraints are not a function of the capabilities of individual agents but a reflection of the systemic coordination and cooperation between multiple parties. No one agent acting individually is capable of realizing their potential supplies without the contribution of others. There is a need to orchestrate the contribution of different parties in such a way as they can meet their collective purposes.

Interventions by companies in building ecosystems that embrace constrained organizations therefore not only enhance human, social, and natural welfare and the performance of participating firms but also stimulate levels of supply and the growth and development of economies as a whole. The success of previously constrained organizations in turn allows them to engage with and assist other parties, which thereby alleviates the constraints that they in turn face. There is therefore a multiplier effect from one organization promoting Economics of Mutuality that permits others to follow suit.

The Limitations to Economics of Mutuality

While the book attempts to describe the case for Economics of Mutuality as clearly as possible, it strives to do so in an objective and balanced way. The partnership between a company—Mars Incorporated—and an academic institution, such as Oxford University, has been important in that regard. It has given access to information on the underlying activities and performance of firms which otherwise would not have been available, while ensuring that objective independent assessments of them are made. It has also given access to knowledge and capabilities that would not have been available to create new knowledge, to implement it in business, teach it in business schools, and disseminate it through books, academic publications, and forums.

Such partnerships inevitably pose risks and problems, for example, of academic capture by commercial interests. However, one of the insights to come from the Oxford–Mars programme has been how to manage such academic–business partnerships in a way that provides insights while maintaining independence. The book does not claim to provide definitive answers on the merits or deficiencies of this particular model of doing business but it does suggest that it is worthy of serious consideration and in-depth analysis and scrutiny by others.

First, as conventionally understood in some circles, mutuality is a source not a solution to the problem.2 To the extent that it is associated with free exchange then mutually beneficial transactions to which parties voluntarily contribute cannot be divorced from the power imbalances and concentrations of control that frequently underpin them. To create a mutually beneficial outcome that confers nearly all the gains on the rich and powerful while only improving the lot of the impoverished by a miniscule amount is certainly not inspiring and may be positively detrimental in exacerbating inequality and disparities of wealth.

It is therefore important to understand that the conception of mutuality here goes beyond this conventional notion of exchange to embrace the idea of promoting positive and significant benefits for others as well as the self. Putting purpose as the driver, with purpose being directed towards solving problems appropriately identifies problem solving as the source of economic performance and social well-being.

A second limitation is that, in its current form, Economics of Mutuality is a management innovation that is limited to business. It does not address the macroeconomic and policy-making questions that will be necessary to frame the upcoming Economics of Mutuality grassroots movement and ensure that there will be no confusion between the role of business (which has no democratic legitimacy), civil society, and government. In that context, the topic of the politics of mutuality is separate from its economics but of utmost importance and will requires politics, similarly to business, to shift the paradigm and tilt it in two directions: first, to strengthen the core of purpose (drawing inwards to a core meaning); and second to embrace the power of participation (pushing outwards to engage) and develop leadership capabilities to unite inner purpose and outer engagement.

A third limitation is that, in its current form, because Economics of Mutuality is a business model innovation that works for business, it is not (yet) designed to be used in finance as an investment model, though conversion of Economics of Mutuality from a business model tested in the fast-moving consumer goods space into a financial investment model is the next step in our plans for the Economics of Mutuality. Given the overwhelming power of finance (over the real economy), one could argue that until Economics of Mutuality addresses the world of finance, it will never be a transformational movement.

A fourth limitation is that Economics of Mutuality should not be regarded as a panacea for the failings of companies in relation to society or the environment or a means by which companies are assured of improved performance. As with any business innovation, it has its pitfalls as well as advantages in terms of the impact that it can have on companies as well as the societies and environments in which they operate, and this book seeks to set out a balanced account of these drawbacks as well as advantages.

In particular, in so doing the research programme has brought out the importance of recognizing the two elements associated with purposeful business, namely not only ‘to produce profitable solutions to the problems of people and planet’ but also ‘not to profit from producing problems for people and planet’. The latter is important in avoiding the adverse consequences that doing well by doing good can create. That is to say, extending the boundaries of the firm beyond its property and contractual rights can be an intensified source of doing well by doing bad as well as good.

Two examples will illustrate this. The ‘gig economy’ and the sharing instead of ownership of assets for the provision of taxi, delivery, property rental, and other services around the world provide forms of ‘employment’ with a greater degree of flexibility than previously existed. However, they also lack the security, protection, and insurance of traditional employment and risk exploiting vulnerable members of society with few or no alternatives available to them. Whether the gig economy is enabling or exploitative remains highly controversial.

Second, companies may enhance human and social capital by bringing employment to parts of the world where it is in short supply but involve the production, distribution, and supply of goods and services with adverse consequences associated with them, for example addictive products such as alcohol, drugs, fast foods, and tobacco.

In both cases, companies may appear to be benefiting—earning profits—by doing good—creating employment—where they are producing bad—insecurity and addiction. The profits are therefore illusory and do not satisfy the condition of avoiding producing one set of problems at the same time as they are solving others.

The approach of arguing for companies taking enlightened and innovative approaches to the way in which they conduct their business also raises questions about whether companies can and should be making ethical and welfare judgements. The traditional view of business, as expounded by Milton Friedman, is that there should be a clear separation between the roles of business in seeking to profit, and governments in setting the regulatory rules of the game by which companies are expected to abide. Mixing and confusing the two risks placing welfare judgements in the hands of those without elected mandates to exercise them. It therefore subverts the democratic process by conferring disproportionate authority on owners and executives of corporations in relation to the rest of society.

There therefore remains a primary role for governments and regulators in setting and enforcing the standards by which companies are required to behave, for example in relation to the terms and conditions on which people are employed. However, many of the obligations on companies will reflect not only formal systems of regulations but also socially acceptable norms, as, for example, set out in the United Nations Sustainable Development Goals.

In particular, regulation has an important role to play in not only setting the rules by which companies should abide but also aligning corporate purposes with public purposes in organizations that perform public functions and provide public goods and services. This applies in particular to utilities—energy, telecoms, transportation, water companies— infrastructure providers, companies engaged in public–private partnerships and private finance initiatives, and companies with significant market power. In all these cases, companies perform public alongside private, commercial functions and need to align their corporate with their public purposes.

Conclusion

In our world of increasing complexity and confusion, the achievement of purpose in business becomes steadily more difficult but is also more necessary; and our world needs mutuality more than ever, even if the forces that oppose the achievement of mutuality are becoming more powerful.

In its current form, Economics of Mutuality is a first step in that direction that can be applied in business and helps shape a grassroots movement of business and business leaders to adopt a responsible form of capitalism, fairer and more efficient than the purely financial one dominating business practice today. Through the Economics of Mutuality, one can achieve a more equal, social and environmentally oriented economy that is actually more profitable than a purely financial one. To rediscover its vocation, business does not need to focus exclusively on short-term financial capital remuneration to survive and thrive.

This book avoids responsible business paving the way to hell with good intentions by converting those intentions into actionable realities and compelling visions. It describes how it can, should, and has been done. It sets out the evidence on the way in which companies can do well by doing good and avoid doing well by doing bad.

In particular, the book sets out the reasons why this works. It is centred round corporate purposes that go beyond the pursuit of profits to solutions to people and planet problems. It emphasizes the importance of trust and trustworthiness beyond property ownership and contracts. It describes the process of ecosystem building, pain-point identification, and human, social, and natural capital promotion, measurement, and rewarding.

However, above all it points to the importance of extending the boundaries of the firm beyond property and contractual control rights to areas that traditionally would have been viewed as external to the firm. By internalizing such externalities, it encourages companies to address market failures themselves that previously have been the remit of governments.

The significance of this is not just for firms and the societies with which they interact but economies as a whole. What the Economics of Mutuality does is to establish the macroeconomic as well microeconomic significance of mutuality. It does this by allowing not only those who are demand constrained to be able to make their notional demands effective, but also those who are supply constrained to make their notional supplies productive. It does this by providing them with the skills, relations, and financial resources that they require to do it.

This book is therefore of significance not just in addressing the defects of corporations, solving problems of people and planet, and avoiding problems that are currently imposed on people and planet, but also in promoting the functioning of national and international economies. Putting purpose into practice potentially provides a process for promoting aggregate as well as individual well-being. At the heart of this is a new paradigm for business and finance driven by new modes of profit construction and a new relationship between business, society, the environment and work.

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Notes

1. For evidence of superior financial performance of purpose driven firms, see Gartenberg, Prat, and Serafeim (2016). For evidence that firms which treat their workers well perform better see, for example, De Neve, Krekel, and Ward (2019).

2. Rangan (2015, 2018).

Colin Mayer CBE FRA is the Peter Moores Professor of management studies at the Saïd Business School at the University of Oxford. He is a professorial fellow and sub-warden of Wadham College, Oxford and an honorary fellow of Oriel College, Oxford and St Anne’s College, Oxford. He is a fellow of the British Academy and the European Corporate Governance Institute. He is a member of the UK Government Natural Capital Committee and the Board of Trustees of the Oxford Playhouse. He was appointed Commander of the Order of the British Empire (CBE) in the 2017 New Year Honours for services to business education and the administration of justice in the economic sphere. He was chairman of Oxera Ltd. between 1986 and 2010 and assisted in building the company into what is now one of the largest independent economics consultancies in Europe. He is a director of the energy modelling company, Aurora Energy Research Ltd. He advises companies, governments, international agencies and regulators around the world, and he leads the British Academy enquiry into ‘the Future of the Corporation’. He is the author of Firm Commitment: Why the Corporation Is Failing Us and How to Restore Trust in It and Prosperity: Better Business Makes the Greater Good, published by Oxford University Press in 2018.

Bruno Roche is the founder and leader of the Economics of Mutuality. He served as the Chief Economist at Mars, Incorporated between 2006 and 2020. In that position, he led Catalyst, a global thought leadership capability and internal corporate think tank to Mars, which was the laboratory for the Economics of Mutuality from 2006. Recognising its potential to reshape the landscape of business, finance and management education, Mars endorsed Bruno to re-deploy the Economics of Mutuality as a structurally independent public interest foundation with a management consultancy arm, able to grow beyond the boundaries of one company. Today, he leads the Economics of Mutuality globally from Geneva, Switzerland with the support of Mars as a key partner. Bruno co-created Economics of Mutuality Labs at the business schools of Oxford University (SBS) and CEIBS (Shanghai). He is a visiting lecturer in different universities and serves as an expert to the World Economic Forum. His education and academic research interests followed an applied maths path, with a specialization in international economics and finance and management sciences. Bruno co-authored Completing Capitalism: Heal Business to Heal the World, which has been published in both English and Chinese.

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