Overview

Mutuality and Mars

Part II of the book begins in Chapter 3 with some thoughts on the ideas of mutuality and economics from a philosophical and theological perspective. It explores the changing relationships between business, finance, social flourishing, and morality, suggesting that: ‘We are increasingly coming to see that the myopia of the market economy rests on a set of values and assumptions that prioritize the individual over the social, and wealth over wider concepts of flourishing.’ It describes the values that promote human flourishing and how they have come to be condensed in a single value of profit that has progressively dominated our lives and societies.

Chapter4 describes the history of how Economics of Mutuality emerged as a concept in Mars. It describes its roots back in the 1940s when Forrest Mars, son of Frank, the founder of Mars, set out the mutuality of benefits in a letter on ‘the Objective of the Company’. Those objectives were framed in terms of a mutuality of services and benefits among consumers, distributors, competitors, suppliers, government, employees, and shareholders.

What was striking about this was the emphasis that the company placed on the interests of parties other than the shareholders—the ‘stakeholders’ rather than the shareholders. That was the basis of the study that Mars Catalyst, the think tank of Mars Inc., then undertook in the first two decades of the twenty-first century.

The book discusses the meaning of mutuality in Chapter 5. In particular, it looks at how people in Mars regard the concept of mutuality as it is applied within the organization. What emerges is a considerable diversity of views about what it means and its significance. Even amongst the most senior levels of management and within the Mars family there is a significant divergence of attitudes towards it.

While this ambiguity might be thought to be a source of confusion, it has also allowed different approaches to its adoption to be pursued resulting in a greater degree of experimentation and innovation than might have prevailed in a more monoculture. To some, it is perceived as being predominantly about inclusive growth for the benefit of all parties; to others, it is the fact that it is neither charity nor amoral pursuit of profit that defines it; and to a third group, it is the long-term orientation predicated on enduring relationships that is of most significance.

This observation on diversity and ambiguity raises an important question about the leadership and implementation of responsible business programmes. Some people might argue that it is the role of the board and senior management to ensure that there is a consistent set of purposes and values in an organization that reflect its fundamental objectives. However, what Mars illustrates is more of a ‘letting many flowers bloom’ approach that devolves decision-taking to individual units to determine the extent to which they believe it appropriate to adopt mutuality principles. In turn, over time, as experiments succeed and fail then a more consistent set of views as to what is appropriate for the company as a whole might emerge.

Economics of Mutuality and Responsible Business Theories

Chapter 6 places Economics of Mutuality (EoM) in the context of a wider set of responsible business concepts, such as stakeholder theory and creating shared value (CSV).1 It considers whether these ideas represent fundamental ‘paradigm’ shifts in business or whether they are essentially just old wine in new bottles. It concludes that stakeholder theory was a significant shift away from shareholder centric views of the firm, whereas CSValue retains a firm-centric, financially driven concept of business.

In line with stakeholder theory, EoM places corporate purposes other than shareholder value at the heart of the firm and derives business practices on the basis of that. But it differs from stakeholder theories in emphasizing the importance of relations with stakeholders in delivering corporate purposes not the interests of stakeholders themselves. It also differs from existing models in looking at the boundaries of the firm beyond traditional ownership rights and contractual arrangements. It is therefore a problem-solving view of the firm as against a financially or stakeholder driven concept that embraces shareholders and stakeholders but does not put corporate purpose at the heart of either of them.

EoM is fundamentally different from corporate social responsibility (CSR), which regards responsible business as an add-on to the existing activities of the firm—philanthropic, societal, benevolent, and worthy— but not the core of what the business does. Real responsible business is the business. It is embedded in the corporate purpose and it drives the structure, conduct, and performance of the business.

Corporate Purpose and Ecosystem Orchestration

Chapter 7 begins by setting out the nature and importance of corporate purpose. The power and effect of corporate purpose depend on its authenticity and way in which it is specified. Striking a balance between breadth and vision, and specificity and precision determines its relevance and impact. Authenticity involves living the corporate purpose and translating it effectively into corporate actions. It should not be preserved in aspic but instead evolve steadily over time to promote its relevance.

Chapter 7 then argues that it is not only the internal organization of a company that should be aligned with its purpose but so too should its external ecosystem. Ecosystems include other businesses, non-profit organizations, local communities, and governments. Pharmaceutical companies, for example, are closely linked to patient organizations, hospitals, and government health agencies.

The co-creation of products and ideas depends on an alignment of the corporate purposes of participating organizations. They commit to devoting their resources to a common purpose and the term ecosystem orchestration refers to the coordination of multiple stakeholders in pursuit of a common purpose. It thereby extends the purpose beyond the individual corporation to a range of external as well as internal parties who help to internalize externalities. As Chapter 7 states, ecosystem orchestration ‘redefines a stakeholder’s “stake” in the corporate purpose as a forward-looking opportunity to co-create value, instead of a backward-looking opportunity to capture value created by the corporation on its own’.

The case in Part III of Sabka Dentist, which is the largest chain of dental clinics in India, is an illustration of the importance of clarity of purpose. The company’s mission is to provide affordable dental care to all people in India, with an emphasis on the poorest members of the urban population. At the heart of its business model is a high degree of standardization that involves fitting out clinics with pre-specified units that allow the company to set up a new clinic within three weeks. It invests heavily in training programmes and provides interest-free funding to patients. It measures its performance in terms of the number of patients it treats, its in-house audit scores, patient satisfaction, and average revenue per patient.

Chapter 8 describes the process of ecosystem orchestration in more detail. It sets out an eight-step process around: (a) establishing a purpose, (b) designing metrics that measure the purpose, (c) identifying the relevant stakeholders, (d) mapping their objectives, capabilities, relationships, and pain points (i.e. problems), (e) selecting the pain points in the ecosystem that the organization should address, (f) measuring the baseline performance metrics before the intervention, (g) identifying, testing, and implementing the interventions to address the pain points, and (h) measuring the impact of the interventions on purpose and performance.

The chapter emphasizes that the process of ecosystem orchestration involves the company placing the interests of the ecosystem and the ecosystem’s purpose as against the company’s own self-interest at the centre of its own purpose. In so doing, the company should embrace the creation of mutuality of benefits not for enlightened self-interest but on a commitment to delivering the ecosystem purpose. This involves the company acting as an orchestrator not a dictator of the ecosystem and performing this function by developing the right tools and partnerships. In the process, the company will create a strategic advantage for itself as well as the other members of the ecosystem.

The case of Mahindra Firstchoice in Part III provides a clear description of the process of ecosystem orchestration in the context of the second-hand car market in India. It describes how Mahindra Firstchoice mapped the ecosystem in relation to six key parties—consumers who were buyers, consumers who were sellers, car manufacturers, independent used-car dealers, independent car service workshops, and banks. It then identified the bottlenecks and ‘pain points’ that afflicted the six parties.

The used-car market did not function properly because of lack of trust, information, and transparency and Mahindra Firstchoice worked with the parties to identify solutions to the market failures. These involved, amongst other things, the creation of third-party car inspection services, the establishment of a multi-brand car dealer franchise, a warranty system, a bluebook of second-hand prices and transactions, and a car diagnosis and repair system.

Through building a clear understanding of the nature of the problems in the ecosystem, Mahindra Firstchoice was able to provide precise responses that allowed for cost-effective responses to the problem. It thereby avoided the higher costs associated with buying out the players in the ecosystem.

One of the most serious pain points that people and communities face is flooding. As Part III of the book describes, Zurich is one of the world’s leading insurance groups with a mission to help customers to ‘understand and protect themselves from risks’. It is seeking to reduce flood risk through preventive action and in 2013 it launched a global flood resilience programme. This involved building partnerships with several organizations including the Red Cross and Red Crescent, and Wharton Business School. It runs interventions with communities in Mexico, Indonesia, Nepal, Peru, and Bangladesh. Zurich believes that for every dollar spent on flood-risk reduction, five dollars are saved through avoided and reduced losses.

Chapter 9 examines the creation of cross-sector partnerships in more detail. These partnerships involve building unconventional relations between organizations that have traditionally not worked closely together, in particular between businesses and non-profit organizations. To achieve this, the different objectives and participating organizations need to be acknowledged and reflected in appropriate key performance indicators (KPIs). For example, a company may be concerned with the number of bars of soap sold and the non-profit organization with the number of people responding to a hygiene awareness campaign. The partnership’s purpose is captured in the number of people addressing hygiene problems through thorough washing with soap.

Cross-sector partnerships go through several stages of development that move from philanthropy to transactions in the form of reciprocal exchanges between the partners, integration of the values and objectives of the partners, and transformation of these into values at the societal or community rather than the individual partner level. The most complex stage of development is the transition from transaction to integration and in many cases partnerships get stuck there. Completing the process of a full transformation of the partnership takes time and requires a sufficiently long horizon on the part of the partner organizations.

The case of the Bel Group in Part III of the book documents the way in which the company has worked together with a variety of different parties in marketing and selling its Laughing Cow brand in many countries around the world. The process began with investigating the structures and patterns of existing street vendors and then identifying those with whom it wished to partner. It involved running focus groups to determine pain points in the ecosystem and then providing training, health insurance, financing, and access to the formal sector of taxation, social security, and migrant registration. The programme became profitable within two years of its launch, graduated more than four hundred micro-entrepreneurs from training courses and provided health insurance to a thousand people. It is currently targeting eighty thousand street vendors around the world by 2025.

The case in Part III of Timberland, which designs, manufactures, and sells footwear, clothes, and accessories for the outdoor is a good example of a business–non-profit partnership. It has partnered with a Haitian non-profit organization, the Smallholder Farmers Alliance, with a view to creating a new supply chain to reintroduce organic Haitian-grown cotton and incentivize farmers to plant trees. From the start of the programme in 2010 it has grown to more than six thousand members in three thousand farms.

Metrics and Measurement

Chapter 10 turns to the measurement of performance in delivering corporate and ecosystem purposes. The metrics are designed to capture the pain points in the ecosystem that need to be addressed and the success of the intervention in addressing them. This requires measures of non-financial as well as financial performance.

Chapter 10 provides an overview of measurements of non-financial forms of capital: natural, human, and social. In examining natural capital, it contrasts input measures that record the amount of natural resources that are used in the production process and output measures that examine the impact of the inputs on products, emissions, waste, etc. It notes that measuring inputs is in general more straightforward than outputs and it therefore argues that natural capital metrics should be constructed around inputs rather than outputs.

An example is the resources used in producing a cup of coffee. This involves raw materials, air emissions, biodiversity and land used in agriculture processes, and raw materials, energy, water and waste production in packaging, distribution, and drinking. In essence, this approach measures the resources used at different stages of production from farm to consumption and seeks to diminish the environmental and natural capital input of the entire value chain.

The circular economy, in which manufacturers of products take responsibility for their disposal by recycling them back into the production process for their reuse in new products, is an example of mutually beneficial diminution of environmental and natural capital inputs across the value chain. As described in Part III, the computer manufacturer Dell runs the world’s largest electronics take-back programme. It has recovered more than 800,000 tonnes of electronics since 2008. In the case of individual consumers it partners with freight companies in retrieving equipment from consumers’ homes and partners with Goodwill, a notfor-profit organization that seeks to make people independent through education and training, in running two thousand locations across the United States where consumers can drop off any brand of used electronics.

Interface, a billion-dollar corporation and one of the world’s largest manufacturers of carpet tiles, is another example of a circular economy company. It uses discarded fishing nets to make carpets. Through a social enterprise, Net-Works, it collects and sells discarded fishing nets from local communities in the Philippines and Cameroon, generating income for the local communities, reducing the environmental impact of the discarded nets and providing an input for the manufacturer of new carpets.

Chapter 11 looks in detail at social capital, which it defines as ‘the quality of the social context in which exchange and teamwork take place: does the social context promote efficiency and coordination, or is it an impediment to trade and a source of distrust?’ Key to this is trust and the trustworthiness of parties to a relationship and exchange. This involves creating a group identity that promotes collective as against individual interests. Leadership and social norms are critical to the creation of group identities.

Chapter 11 notes that social capital can be detrimental as well as beneficial to firm performance if it encourages allegiances outside the firm, for example, in the form of corruption and nepotism. Avoiding this requires creating a sense of common purpose and values that embrace partners rather than either exploiting them or pandering to particular interest groups. As Chapter 11 concludes, ‘fostering mutual investment in reciprocal relationships has been practised by human societies since time immemorial to build social capital and achieve mutually beneficial exchange. The difference is that the approach here is applied to the market realm, which is known to be such a powerful mobilizer of human dynamism and ingenuity. It is this combination of old and new that makes mutuality such a promising avenue to joint prosperity.’

Three indicators of social capital appear to be particularly important: (a) inclusion and cohesion; (b) trust, solidarity, and reciprocity, and (c) collective action and cooperation. They account for a high proportion of social capital in vulnerable farming communities around the world and they are associated with the productivity of these communities. There is also evidence of a relationship between these measures of social capital, exchange of information and learning, and adoption of new agricultural practices.

JD.com is one of China’s largest e-commerce companies, capturing more than a quarter of the country’s $600 billion B2C market in 2017. Part III describes how it is seeking to become one of the world’s most trusted companies and is working with local farmers’ cooperatives, the Chinese, and a local internet business owner to create a programme called Running Chicken to source free-range chickens at scale from lowincome farmers in Wuyi County in northern Hebei Province. JD buys chickens at three times the average market price provided that strict standards are adhered to and monitored. The result has been increased farmer incomes that have raised hundreds of families out of poverty and removed Wuyi County from the national poverty list. Pilots are underway to replicate the programme in other poverty-stricken counties of China.

As Part III discusses, Novo Nordisk, the Danish multinational pharmaceutical company, has taken an innovative approach to addressing diabetes around the world in a programme known as ‘Cities Changing Diabetes’. This involves partnering with patients, policymakers, health care professionals, and non-government organizations to find policies based on life-style changes that help people living in urban environments to avoid, manage, and treat the onset of Type 2 Diabetes. Community engagement with health, health promoting policies, and health system strengthening were the types of initiatives that were trialled, and impact measurements were undertaken to evaluate the performance of the programme.

Chapter 12 turns to human capital. Human capital is typically associated with the stock of skills and experience that an employee accumulates through education and training. However, the chapter refers to it in a broader context of well-being at work. This is affected not just by wages and working hours but also by the degree of hierarchy in an organization, management style, wage differences, prospects for upward mobility, and corporate identity. Alongside hierarchy, status, career progression, and inclusiveness, corporate culture (defined as shared beliefs, understanding, values, goals, and practices) plays a key role in determining wellbeing at work. The chapter records that it is possible to construct actionable metrics of well-being at work based on these factors that can be used to identify pain points within firms and the actions that are needed to address them.

The case of Kate Spade in Part III is a good illustration of a company that has sought to create human capital in the form of women’s economic empowerment in an employee-owned social enterprise in Rwanda. The purpose of the company is to produce high-quality, highend products for the global fashion industry by investment in training and skills that empowers women to promote positive change in their communities. The lowest artisan salary in the business is higher than the median salary in the private sector in Rwanda and the company generated a positive net income in 2017.

The case of Marks and Spencer in Part III illustrates how the company has used a sustainability scorecard that awards provisional, bronze, silver, and gold ratings to participating suppliers to promote its sustainability programme. The scores are based on environment, human resources, and ethical trade, and lean manufacturing. Suppliers undertake self-assessments of the scorecard at least once a year, which are subject to audit and assurance. The programme has delivered substantial savings through waste reduction and environmental efficiency amounting to over £600 million since 2007. Marks and Spencer aims to source all of its products from silver and gold-level suppliers by 2020.

Accounting

Chapter 13 sets out the principles that lie behind designing a system of accounting for responsible business. It considers this in the context of accounting for natural capital. It describes how accounting in a mutual context has to be intrinsic in the sense of promoting the enhancement of natural capital for its own ends, not extrinsic to shareholder interests in being motivated by a desire to enhance profit and shareholder value.

That might be a consequence of the enhancement of natural capital but it should not be the motive. Secondly, the accounting system should reflect the full impact of a company on natural capital, not just reporting the improvements that are being achieved but also recording the detriments. It needs to recognize that the starting level of a firm’s natural capital may not be sustainable because it has fallen below a level at which it is capable of regenerating itself. Investment in natural capital may therefore be required to restore it to a minimum critical threshold.

Third, accounting needs to recognize the strong non-linearities in natural capital—for example, threshold levels below which it is prone to collapse—the complex nature of biological ecosystems, and their time dependency on external conditions—for example, growth might result in a deterioration in a company’s natural capital at the same time as it makes substantial improvements to its utilization and maintenance of natural capital.

Finally, and linked to the first point, accounting for natural capital should reflect a corporate purpose that places the intrinsic benefits of natural capital at its heart. While one might not be able to manage what one does not measure, one does not necessarily appropriately manage what one measures. There is therefore a limit to what accounting can achieve without the determination of corporations to achieve it.

Chapter 14 records how Mars is seeking to implement a mutual profit and loss (P&L) statement in its management accounts. It is being used to align the management systems of Mars with its purpose and signal to the business that performance in terms of human, social, and natural capital is as important as financial performance.

The mutual P&L reflects the observation made above that the boundary of the firm should not be restricted to its legal and contractual rights and obligations but should also embrace the ecosystem that is relevant to the delivery of its purposes. It includes expenditures in the ecosystem as part of its activities and crucially recognizes these as investments not just current operating expenditures where they contribute to human, social, and natural capital as well as material and financial capitals. In line with traditional accounting methods, it values these investments at cost not at market values.

As Chapter 14 states: ‘the mutual P&L is an extension of the financial P&L that takes into account selected human, social, and environmental issues that are relevant for the organization and its ecosystem toward a stated purpose.’ It describes four phases in the construction of a mutual P&L. The first is selection of relevant material issues; the second is the measurement of the creation and depletion of human, social, and natural capitals; the third is the valuation of impacts at cost as capital investments or depletion; the final stage is the integration and presentation of the mutual P&L in the company’s management accounting system.

Chapter 14 then describes how Mars and Oxford University are monitoring the impact that adoption of mutual P&L management accounting is having on the management of different parts of the Mars business. Incorporating expenditures as investments in human, social, and natural capital is expected to encourage management to engage in activities that have effects on, amongst other things, sourcing supplies, packaging, and storage. It encourages the leadership to promote activities that at present are discouraged by concerns about the firm’s bottom line but in future will be recognized for what they are, namely investments in assets that contribute to the delivery of the corporate purpose. The chapter acknowledges that this process will be constrained not only by the adoption of appropriate accounting systems but also by the degree to which the firm’s financial, investment, ownership, and engagement arrangements are conducive to the adoption of innovative practices and investments.

The mutual P&L is one example of many attempts that are being made to incorporate non-financial considerations in company accounts. Integrated reporting is another and Solvay, a global chemical company headquartered in Belgium with revenues in 2017 of €10 billion discussed in Part III, is an example of a company that is seeking to adopt integrated reporting. It has developed a sustainable portfolio management tool to assist the company with reducing the environmental and social risks of its products and producing an integrated financial report. The tool maps the environmental footprint and costs and risks to society of all products, investments, research and innovation projects, and potential mergers and acquisitions.

Finance, Investment, Ownership, and Engagement

One way in which sharing traditionally occurs is through financial instruments. Equity is the form in which different parties to a firm share its risks and rewards. Over the past two decades, there has been an explosion in funding in the form of debt that has been available to micro-entrepreneurs and borrowers through microfinance around the world. This has allowed individuals and communities to promote the development of new businesses and entrepreneurial activities that were previously unfunded. However, it has also driven people into debt for consumption as well as investment purposes and placed substantial repayment obligations on those with little means to meet them.

Equity in principle offers the potential for more mutual funding arrangements. Chapter 16 describes an experiment that is in progress in Kenya to encourage entrepreneurial activity through financing investment by micro-equity rather than micro-debt. The experiment involves individuals distributing Wrigley chewing gum products alongside other goods in Kenya, in particular in areas of the country which were previously impenetrable by existing distribution mechanisms. To assist with their activities, funding arrangements were put in place to allow the distributors to purchase bicycles.

The study investigates what happens when the distributors were offered alternative forms of finance ranging from traditional debt instruments to more equity forms of risk (revenue) sharing. At the time of writing, a pilot study has been undertaken which reveals that equity financing performs better than debt in terms of repayments. If confirmed in a larger study this will have important implications for designing financing instruments for promoting activities beyond traditional boundaries of the firm (in this case the self-employed distributors of Wrigley products) and for evaluating the benefits that may be conferred from developing more mutual sharing funding arrangements.

Important though finance is, mutuality encompasses much more than just risk-sharing funding. Indeed, it has been traditionally associated with particular types of organizations (mutual organizations) that were established to prioritize the interests of their customers and employees. Mutual ownership was viewed as key to aligning the interests of businesses with their members in contrast to stock corporations where shareholder interests diverged from those of their stakeholders.

But as Chapter 17 describes, the concept of mutuality described in this book extends well beyond that of mutually owned businesses. Mars itself is entirely owned by the Mars family. Many of the companies described in Part III of the book are stock corporations with external shareholders. One of the ways in which family firms can retain a focus on the common purpose of the business after the family has withdrawn or sold out to other shareholders is through ‘industrial foundations’ that confer a substantial fraction of the ownership of firms on foundations. These are particularly commonplace in Denmark and Germany, and some of the most successful companies in the world, such as the shipping company Maersk and the media firm Bertelsmann have these ownership forms.

The principle of the Economics of Mutuality is about aligning the interests of diverse parties to a common purpose. This can be adopted in companies with any type of ownership but where it takes the form of, for example, mutuals or foundations, then it creates a commitment to the common purpose that may not be observed to the same degree elsewhere.

Divine Chocolate, a UK-based Fairtrade confectionary company described in Part III, has an innovative ownership model in which a Ghanaian farmer-owned co-operative supplies its cocoa and owns 44 per cent of the Divine Chocolate business. The co-operative shares in the profits of the business and has a say in the running of the company, including being represented on the board of Divine Chocolate. It thereby seeks to address the numerous challenges facing the chocolate industry of farmers’ income, low productivity, price instability, child labour, and deforestation, driving many people to leave cocoa farming.

Mondragon in Part III is a federation of industrial co-operative associations with over 260 company subsidiaries in thirty-five countries, founded in 1959 in Spain’s Basque Region. Today it employs seventyfive thousand workers producing revenues of approximately $14 billion. Membership of the co-operative gives employees equal rights to vote and ownership; management boards consist of employees from all levels of the organization; the highest managers earn no more than six times the salary of the lowest paid workers; no more than 20 per cent of workers can be temporary contractors; and the general assembly of workerowners decides how to distribute 70 per cent of profits after tax. An illustration of the effect of the structure came with the collapse of the white goods manufacturer and one of Mondragon’s largest co-operatives, Fagor. With 1,800 jobs at risk, Mondragon invested in cross-training employees to take on different roles at other co-operatives, transferred capital from stable to vulnerable co-operatives and placed 1,500 people in other co-operatives in the group.

At the other end of the spectrum from microfinance institutions are the institutional investors, such as the mutual funds, pension funds, and life insurance companies. Their importance stems not only from the financing that they provide but also from the governance that they exercise over companies by virtue of their ownership of corporate equity. The concern that this has raised is the failure of institutional investors to recognize their responsibilities as owners as well as their rights as shareholders. Those responsibilities relate to the stewardship function of their corporate investments, promoting corporate purposes, and ensuring that companies have the resources and support they need to fulfil them, and correcting their management when they fail to do so.

In particular, the dispersed ownership systems of the United Kingdom and the United States are associated with a plethora of institutional investors each holding a small proportion (e.g. less than 5 or 10 per cent) of the shares of large listed companies. As a result, they have little incentive to engage in active governance of the companies in which they invest. Instead, they ‘free ride’ on markets in corporate control from hostile takeovers and hedge-fund activism to intervene on their behalf at lower cost.

However, there is increasing interest amongst some institutional investors in more engagement with their corporate investments. A number of Canadian pension funds and several countries’ sovereign funds are leading the way in this regard. Chapter18 describes the approach that these funds are taking. It involves them acquiring significant blocks of shares in companies that are held for extended periods of time and managed directly by asset owners themselves instead of by intermediary asset managers.

Critical to this is the way in which the performance of their investments are monitored and measured. Alongside measuring financial performance over longer periods of time than is conventionally the case, performance needs to be assessed in relation to other indicators of performance related to human, social, and natural capital. Increasing weight is being placed on environmental, social and governance (ESG) measures of performance in this regard and there is mounting evidence of a positive association of ESG with financial performance over the longer term. There are, however, limitations of the reliability of ESG metrics and the application of mutual P&L statements may provide a more useful management tool for institutional investors as well as corporations.

It is not only institutional investors that should exert influence over companies to promote the adoption of corporate purposes that extend beyond profit. Consumer groups, employee forums, and non-governmental organizations (NGOs) are also increasingly being recognized as powerful influences over corporate activities. Chapter18 describes the work of NGOs in aligning corporate with social and environmental purposes.

Historically, the relationship between corporations and NGOs has been antagonistic. However, as Chapter 9 describes increasingly corporations and NGOs are working in partnership to achieve common goals. The role of NGOs in influencing corporate activities is not restricted to such partnerships. They have been adopting activist campaigns to achieve desired outcomes in a form that is not dissimilar to those of institutional investors. Indeed, in some cases, they have acquired shares to strengthen their influence over companies.

These campaigns have often been seen by companies to be shareholder-value destroying. Chapter19 records that this is by no means always the case and NGO campaigns can be mutually beneficial for firms as well as society. It sets out how NGOs can bring knowledge of a local community or a technical and legal expertise nature that firms may lack. They execute projects in common with companies, set agendas for various constituencies, exchange complementary knowledge in diverse areas, and provide access to networks.

Conclusion

The book documents how EoM offers a powerful approach to putting purpose into practice. At the heart of it lies a clear articulation of corporate purposes and an alignment of different constituencies associated with the firm in the delivery of those purposes. What distinguishes EoM from other responsible business concepts is its recognition of the need in the process to extend the boundaries of the firm beyond their legal and contractual limits to achieve the full potential for delivering corporate purposes.

Ecosystem creation and mapping, and pain-point identification are critical to the internalizing of these external engagements of companies. They are the reason why it is feasible for companies to internalize what are traditionally regarded as externalities and to address the market failures that have previously been regarded as the remit of governments to solve. In the process, they often involve companies working with local and national public bodies, not just in the form of the public organization setting the rules of the game and the private one implementing them, but as true mutually beneficial partnerships.

Alongside ecosystem creation and mapping, measurement and metrics are crucial to the fulfilment of corporate purposes. These measures extend beyond financial and material assets to include human, social, and natural capital. The measurement of these involve the accumulation of very different data from financial and material capital but are capable of being evaluated in a form that permits their practical adoption by companies in their management processes.

These measures should furthermore be incorporated in companies accounting systems to develop mutual profit and loss statements. These appropriately recognize expenditures on human, social, and natural capital as investments that should be capitalized and depreciated in an analogous manner to material assets. They also create liabilities that reflect the obligations on companies to preserve and promote non-financial forms of capital.

The Economics of Mutuality involves not just innovative types of partnering, measurement, and accounting but also financial instruments, forms of ownership, institutional engagement, and ways of working with civil society. In particular, outside bodies such as institutional investors and NGOs need to adopt some of the practices and forms of measurement and management that are required of corporations. They too should recognize the importance of investments in human, social, and natural capital and the potential financial as well as societal benefits that can thereby be derived.

___

Note

1. See Porter and Kramer (2011).

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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