Alex Edmans is Professor of Finance at the London Business School. Here he is speaking with Nicholas Brice, CEO Soul Corporations CEO, keynote speaker and performance culture consultant (interviewed in March 2021). They are discussing why we must put soul at the heart of business if we want to boost the bottom line results in tomorrow’s world …by leading in the world beyond the bottom line*.
(*with thanks to Claus Moller).
“I would say soul is all about growing the pie. So how can we create additional value? Note that the pie is not solely financial wealth. The pie is also value to society. How can we use our expertise and our resources to solve new problems that we’ve never considered in the past? So, it’s also about moving from just fairness to innovation.”
Nicholas: My first question is:
“What does the word soul mean to you?”
Alex: Soul, I think this describes the heart of an organization. So, “Why does the organization exist?” And the important thing is the soul of an organization cannot be to earn profits. So, profits are certainly important. Businesses are not charities. I see profits as a by-product of an organization fulfilling its purpose and being driven by its soul. So, let’s say you’re a telecoms company. I know Vodafone has a soul or purpose of using its technology to enhance socio-economic progress. And that leads them to do things which are clearly not profitable. So, it decided to launch this mobile money service in Kenya, M-Pesa, in 2007. And that was something where if their goal were to make money, they would’ve just focused on spectrum license auctions in the west. (A spectrum auction is a process whereby a government uses an auction system to sell the rights to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources). But here, their soul was, “If we can use our technology to do things such as bringing banking to the unbanked, then that is something which is part of our organization.”
Image: Creative Commons Licence 3.0: https://www.vodafone.com/content/index/what/m-pesa.html
Nicholas: Great. So, I get the sense that your concept of social value creation and soul are linked in the notion that this is good practice, is it about creating benefit for multiple stakeholders. And as a result, therefore, there are benefits longer term for the investors of the organization, as it enlarges the overall ‘pie’ that investors share in. And I also pick up from your book that it’s not just about being good to everyone and throwing money at it. It must be a business decision and it must be responsibly thought through, but that’s the essence of what you were talking about. So, in the context of organizational soul, do you think it’s becoming more important or less important as we move forward out of COVID?
Alex: I think it’s becoming more important. And I think the trend was even before COVID, but I think COVID has just further emphasized the trend. And why is there more emphasis on the soul of a corporation? I think there are two reasons. So, first I would say there is the moral case. It’s the fact that businesses have responsibility, not just to shareholders, but to wider societies, their customers, the environment, and employees. And the second is the business case. In the past, people thought that a business with soul or purpose, is a fluffy company, which is distracted from the bottom line. But my role in this as a business school professor and a hard-hearted finance person is to show that soul is not inconsistent with this motivation. It fully supports long-term business success. So, there’s both a business case and a moral case.
Nicholas: I’ll give you an example of a friend of mine who used to work for a major IT consulting firm to whom I said, “Can you give me an example of soul in business?” His first reaction was, “Well I’ve worked for a couple of small IT companies that had a lot of team spirit and a great culture, but they’ve all gone out of business.” He said the big IT consulting firm they were highly results orientated, somewhat of a tough place to work in some respects. But he eventually came up with a great example of soul there at the team level. His team had come up with a way to access a new market sector that they really wanted to go for and pushed this forward against internal resistance. They came together and gelled as a highly focussed and collaborative team and persevered, even against cynical opposition, and created a whole new channel for income that was worth millions to the organization.
And I argued with him, “Well, that was soul, but you did it at the team level. You created personal and collective focus, meaning and purpose and it was very results orientated. It was actually very entrepreneurial in its outcome.” There is this question isn’t there, “Is soul just pink and fluffy or is it really an enabler of business results?”
What do I need to be doing really with a team to really get them up and running when it comes to the soul of the team and the organization?
Alex: I think it’s to highlight what the actual soul of the business is, and then exemplify this in your own actions. So, let me give an example also from a professional service, where you might think, “Well, actually these are soulless organizations.” So, my old employer was Morgan Stanley. And one might think, “Well, investment banks, that’s the antithesis of soul.” But there was a time with my boss and me. He was a third-year executive director, that means he was just about to come up for managing director promotion. So, if there was ever time to put profit over soul, that was it.
Abbey National was our client and Abbey National say to Morgan Stanley, “We’re thinking of selling Porterbrook, which is our train leasing company. You need to pitch to us to tell us why we should hire you to do this.” And my boss in the pitch said, “Don’t hire us. Hire nobody because now I don’t think it’s the right time to sell your business. The market appetite is not great. You won’t get a good price for that.” And why did he do that? Because he thought the soul of Morgan Stanley wasn’t primarily to get up the market share league tables any way they could, but to be a trusted advisor. Clients come to you with their biggest problems and they’re going to trust you to do what is right for them, even if it’s not good for you in terms of generating fees at that time.
And then a few years later, completely unexpectedly, Santander made a takeover bid for Abbey National. And Abbey National remembered how trustworthy my boss had been. They decided to give Morgan Stanley the entire defense mandate. So that’s an example of a decision which was made through soul, not through profit. How can I be a trusted advisor? This might mean turning down business. And then ultimately it became profitable because that trust led to a greater revenue being generated down the road. So that’s why I say there’s the moral case: be a trusted advisor. And then the business case because of acting as a trusted advisor, when there’s a big-ticket item, where trust is so important, you develop the business.
Nicholas: Brilliant – and of course I’ve seen from your book, you talk about millennials. They seek purpose from their employers, they want meaning of course, but they still want to make money. They still want their employer to be profitable. As we move into the workplace of six generations, it’s quite possible to have a colleague who’s in their seventies, working with you, someone in their sixties, someone in their twenties, forties, fifties. It’s possible to be surrounded by six generations.
What challenge does working with multiple generations give a leader in terms of how to unite a group?
Alex: Well, I think that is the power of soul and purpose is that it can unite people from different backgrounds and different generations. And I think it’s also important to highlight that soul doesn’t mean, as you say, being fluffy. I think part of soul is being excellent, being motivated by excellence and purpose and passion. So, what drove Vodafone to launch this mobile money service in Kenya? They really cared about this problem of financial inclusion. The fact that people had to rely on cash, they got robbed and they were sometimes victims of forgery.
So, therefore soul can lead to excellence. If you were motivated only by, “How much money can we make from this mobile money service in Kenya?” That’s probably not much, because it’s not clear that you can monetize this, particularly if it’s in a developing country. But if you are motivated by, “How can we address this problem of financial inclusion?” I think that’s something that all generations should be able to rally around and I think it’s particularly important.
You mentioned at the start Nicholas, about COVID. When we have working from home, effort is more and more discretionary, right? We could choose to slack off in a couple of things if we don’t want to do them. And then soul is what unites people who are not even in the same office. If they have a mission that they can get behind, then this is something which is going to motivate them to go above and beyond the minimum that they need to do.
Nicholas: Okay, well, let’s just look at a definition of terms here. The word purpose has been used. I remember Jim Collins, I shared a platform with Jim Collins many, many years ago in helping define the purpose and the values of Sun International, the builders of the Atlantis Resorts in Dubai and the Bahamas, and other spectacular properties around the world. And their core value of “Blow away the customer” – came out of a heated debate between Sol Kerzner and his leadership team. The passionate desire to not only please, or satisfy customers, but to literally blow them away with truly outstanding experiences That’s the soul of what is now Kerzner International.
This Photo by Unknown Author is licensed under CC BY-NC-ND
We talk about purpose. We talk about values. Jim Collins talks about ambitious goals to unite people – BHAGs (Big Hairy Audacious Goals). These elements form the core ideology of an organization...
Is the soul the same thing as these? Is it different? Are we talking about the same thing or are they different?
Alex: Well, I think that there is an overlap. I think there is also a distinction. So, I think purpose is the objective. It’s why you exist. I think soul has parts of that, but it also incorporates culture and behaviours and norms. So, if my goal or let’s say my purpose was to be a fantastic professor, right? There’s a different aspect to that. So, there’s some who will be great at the technical rigour. And so, their soul will more be about accuracy and that, “Am I getting this right?” If you like, the left-brain aspects of it.
Whereas you can also be a great professor by inspiring and thinking about the softer side and the right brain aspect of the role. So, you can be both. Two people can be good, but just have different approaches even if they share the objective of creating and disseminating knowledge. So, I’d say there is this aspect of how you get there, not just the destination. And I’d say purpose is more the destination.
Nicholas: There is something elegant and graceful about someone who’s incredibly focused on the detail of doing things the right way, as well as there’s great elegance and grace in someone who’s very personable, empathic, persuasive, and connective and great at building rapport. So, as you say, soul to a certain extent is like the higher manifestations of all human qualities generally, isn’t it? It’s this idea of deeper, richer, practice of humanness. This is of the topic subjects we’re using in our book and some of these lovely things you’re sharing with us, we’ll certainly quote you in there.
One of the things we talk about is the difference between transactional leadership and transformational leadership. It’s this idea of transactional leadership, which is primarily just trying to maintain the status quo. The leader is trying to manage, control, get things done, but they’re not necessarily trying to innovate. I met someone who’s very transactional last week, who just for everything I suggested came up, all she had to contribute was whatever corporate policy or rule would prevent the proposal it from being possible. And all she did was sat there, apparently enjoying spitting out all the rules and the regulations and the blockages she had memorized, rather than saying, “Well, how could we find a way do that within these parameters?” Or – “Yes, there’s some value in that. How can we make that happen?” When it comes to transformational leadership, we see this as much more evolving, much more dynamic, much more growth mindset orientated.
What have you discovered about the difference between transactional and transformational leadership, and where soul fits in there?
Alex: Well, there was this adage which was, “Managers are people who do things right. Leaders are people who do the right things.” So transactional is making incremental improvements to things that are already being done. And I think transformational is to have a vision, to perhaps address completely different problems to what we’ve seen in the past. So again, just to go back to Vodafone, right? They could have said, “Well, how can we just expand that market share in the west?” But instead, they opened their eyes to, “Right, there’s this big problem: financial inclusion. It has nothing to do with telecoms, but we’ve got this expertise in communications. Maybe you can use that to help implement mobile money.”
And then going back to COVID. This time has led to some great visions. Mercedes might’ve thought, “Okay, COVID has nothing to do with us. We make Formula One engines.” But they thought, “Oh, no, our expertise is not just engineering, it’s precision engineering. So, the same precision that we need when designing engines and pistons, that precision is needed to design breathing machines.” So, they partnered with University College, London hospital to make CPAP breathing machines, which are less invasive alternatives to ventilators.
So, I think another way of having the distinction is transactional is problem solving. We’ve got an existing problem and let’s solve it in a better, more efficient way. Maybe transformational is problem finding, right? So, what are the new problems that we can address with our current expertise? Is this Vodafone going to mobile money? Is this Mercedes going into breathing machines? And so, I think our capacity to solve more of the world’s problems is going to be much more greatly enhanced if we move from the transactional to the transformational, from the problem solving to the problem finding.
This Photo by Unknown Author is licensed under CC BY-SA
Nicholas: So, you’re touching on Blue Ocean Strategy here, aren’t you as well? The transformational leader in the customer experience sense of the word is looking for entirely new ways of serving customers in ways they will value highly. That might open new markets, new revenue streams, whereas a transactional leader is just simply saying, “Well, this is our customer service process. How do we do it better and better and better?”
Alex: That is the power of soul and purpose and therefore it’s not just something fluffy, but it’s something with a business case. It’s by changing your perspective from the short-term financial results and looking up and saying, “Well, what else can we achieve with the expertise of our company? How can we open up the possibility to new markets?” This means working in a different way to one where you would not have even seen the possibility, even if you have the greatest management consulting two-by-two frameworks looking at, “How can we improve in this little market area?” I think it just lifts your horizon to these bigger picture opportunities. Some of which might seem crazy, but some of which might ultimately become extremely successful, not just for society, but also for your long-term profits.
Nicholas: Terrific. I’ve got one final question. And then of course, if you want to add something, you’re welcome to.
What are the three most important challenges that we need to be overcoming now in the midterm as we come out of COVID?
Alex: I think one of them is to redefine what it means to be soulful or purposeful. So often people think it’s about equality and fairness and splitting the pie fairly. So, we often think the value that a company creates is given by a pie and the soulful or purposeful organization is one that pays its workers as well and pays fair taxes and makes sure that the profits are distributed. Absolutely, fairness is important, but I’d say it’s not enough. I would say soul is about growing the pie. So how can we create additional value? Note that the pie is not solely financial wealth. The pie is also value to society. How can we use our expertise and our resources to solve new problems that we’ve never considered in the past? So, it’s also about moving from just fairness to innovation.
I think number two is to reset the perception that soul and purpose are fluffy and at the expense of profits. So, the reason I wanted to write my book is, as again, as a hard-hearted finance professor, people might say, “Oh he should be somebody who’s the antithesis of soul, thinking it’s just fluffy.” But what research suggests is that if you are driven by soul and purpose, this is supportive of financial returns. So, if soul were to remain part of the CSR department of an organization, that would be a big barrier. But if CEO’s and CFO’s realize that this is part of the company’s long-term financial success, I think that will be important.
And I think the final thing is, is our attitude towards risk, right? So often we think that companies should do no harm, not make mistakes. And if you do make a mistake, you get hounded in the media. I think we need to realize that some of these Blue Ocean ideas, they will fail. And it’s important as a society, not to play gotcha – the way the media respond sometimes when some company tries something and does it incorrectly. Or sometimes companies are accused of doing U-turns where they try something, it doesn’t work and that they stop doing it. But if we forget, if we discourage trying, then all the potential for innovation gets suppressed. There’ll be so many potential value creating opportunities that people don’t have, don’t exploit, just because of the fear of failure. And that goes back to the growth mindset you mentioned Nicholas, because that’s the idea that if we are willing to push ourselves outside the comfort zone, as a person, we’re going to realize that our capabilities were much broader than we thought. And that doesn’t just apply to people, that applies to companies as well.
Nicholas: You’ve given me inspiration for one final one, just to comment on. I’ve got one client who’s currently looking at repurposing a huge number of buildings, because they’re going to go to a hybrid work model. So, they’re going to take a large amount of cost out of that business and still deliver what they’re trying to deliver. I’ve had conversations with this person saying, “Well, how are you going to establish the identity, the soul of that group of people when they’re now not together in the office?” And she has said to me, “Well, it doesn’t really matter. My son, he’s working for an accountancy firm. He’s hardly ever been in there, but he really feels connected to his team in that firm. He’s fine.”
But I made the point and I said, “Yes, but everybody has COVID in common right now. I’m talking to you because of COVID. We’re sharing this platform because of COVID. We’re using the same tools because of COVID. We’ve got something in common every time we log on. But one day that won’t be the case anymore. You’ll be somebody and I’ll be somebody else.” So, what’s your message for people who are responsible for re-purposing organizations in a distributed way with some at home, some at work, some up the top of a crane, wherever they’re going to be on a mobile phone. What’s your message to them about how to use soul to make sure that they are united, focused, and successful?
Alex: So, I think it’s to find the purpose of why is your company in existence beyond just profits? So again, going back to an investment bank, one could say it’s to win M&A mandates and to move up the league tables, or is it to be a trusted advisor to a client where they trust you with their biggest problems? You might tell them something which sometimes they don’t want to hear, but they need to hear. And sometimes it’s to not do a deal, even if that involves you forgoing your fee income. So that’s something which we can apply to say professional services firms, let’s say a bank. Banks are often seen as evil and profiteering from customers, but maybe your soul is to provide financial opportunities to people and small businesses who didn’t have them before.
And if that is truly your soul, don’t just make that your mission statement, try and measure it. So, there are banks I know, which try to measure the number of business loans they give to small companies who had never taken a business loan from any bank before. And so that’s one way of trying to measure that. And then if you do that, then that will get people excited, because if you can say to your employees, “Well, this month or this year we gave loans to X companies who’d never had loans before,” Then that’s something which is really empowering and will keep people motivated.
Nicholas: So, what you’re describing there is there’s then an ongoing dialogue around that simple organizing concept that keeps uniting people. So, I get the sense that these conversations keep coming back to that simple idea and that measures are put in place that track implementation.
Alex: Yes. So how can we best be a trusted advisor or how can we best create opportunities and financial inclusion to people who were excluded from this in the past? And if this is a constant part of the dialogue, then that’s something which I think will motivate people much more than how can we become number one in terms of market share? Or how can we beat the FTSE 100 in terms of stock price appreciation?
Nicholas: Anything else you’d like to add Alex before we close off?
Alex: Yes. It’s just these concepts that we’ve talked about, they might seem idealistic. They might seem to people too good to be true. What are we discussing you and I? We’re say, “Well, if a company is going to be soulful, magically it’s going to become more profitable in the long-term.” But I’d say this is not just wishful thinking. This is backed up by data and evidence. So, therefore I wanted to write the book is that a lot of this evidence is rigorous, but it’s written for academic journals and turgid to read.
So, I wanted to make this research available in the simple accessible language with some practical frameworks and examples of how to put it into practice. So, it is something which is not only backed up by evidence, but it’s also practical and actionable. And so, I think any leader wanting to inject soul in her organization, isn’t swinging in the wind or putting her faith in the unknown but is riding on the tailwinds of evidence with practical examples to guide her.
Nicholas: Brilliant. Well, Alex, we look forward t. I’ll share the transcript with you. We’ll certainly quote from this in our blogs and publications. We’ll certainly use some quotes from your book in our book if that’s OK.
Alex: It sounds great, Nicholas. Thank you very much for your interest in chatting with me.
Nicholas: My pleasure. Have a lovely day and a great weekend and see you soon.
Alex: Take care, bye.
Nicholas: Cheers Alex, bye.
This interview is one of 65 I’ve now completed this past year with a mix of past customers and other leading industry figures. Do connect with me on Linked In or get in touch via our website if you’d like to know more about the research findings and/or explore how to drive your business forward…with soul.
You can book me to speak personally at an event or meeting, online or (circumstances allowing) face to face.
