Completing Capitalism: The Economics of Mutuality
How can businesses deliver greater value to people and planet while also creating superior business returns?
We spoke to Jay Jakub and Nadia Terfous about the Economics of Mutuality (EoM) – a groundbreaking management and investment innovation that aims to create an economic future where all stakeholders benefit.
Nadia is a former partner at McKinsey & Co. and has worked close to 20 years in the areas of business and economics. She joined the EoM platform in July 2020 as the Managing Director of EoM Solutions – a management consultancy fully owned by the public interest foundation, EoM Foundation, that supports organisations in activating mutual value creation opportunities.
Jay spent the last 15 years pioneering research and application of EoM with Mars Inc. and Oxford University’s Saïd Business School and is currently Chief Advocacy Officer of the EoM movement for the EoM Foundation, as well as a Senior Client Advisor for the EoM Solutions consultancy.
TBT: How did the Economics of Mutuality get started?
Jay: About 18 months before the global financial crisis of 2008, John Mars, who’s one of the three family owners of Mars, Inc., asked his CEO a really interesting question: what should the right level of profit be for the company?
Shareholders don’t typically ask that question because for them the answer seems obvious: as much as you can possibly squeeze out of the value chain. But John suspected there was an optimum level of profit – above which you’d start a squeezing effect on your value chain partners, which would in turn create a disequilibrium and disadvantage the company.
So his question was handed over to us at the Mars internal think tank. Economics of Mutuality began as one of many projects we were working on, but gradually over the years it became the raison d’etre for our unit. We realised that EoM was far too big for one company; it would actually appreciate more in value for Mars if they shared it with others. In August 2020, with Mars support, we moved outside of the company to work with other firms in other sectors of the economy as an independent entity.
TBT: Asking ‘what is the right level of profit?’ is a bold question for a business leader to ask – where did it come from?
Jay: It comes from the aspiration of Mars to be true to the mutuality principle. Mutuality is grounded in the concept of reciprocity: reciprocally beneficial relationships, not a redistribution. There is a letter from 1947 written by Forrest E. Mars, Sr. which had been lost in the family archives for decades, until our CFO at the time found it. The letter was remarkable because it really codified this mutuality principle in an unusual way, laying out that even competitors were above shareholders. Shareholders were almost an afterthought; they were listed at the bottom in terms of hierarchy. All the other stakeholders were listed above them in this letter Forrest, Sr. called “The Objective of the Company.” So, I think mutuality is one of the things that made Mars special, and still makes it special.
John Mars, whose right level of profit question triggered the EoM initiative, said that as a company, you’re only as strong as the weakest link in your value chain. So you really need to look after that weakest link. And so to be putting undue pressure by taking more than as your right is really disruptive to the business. But most business leaders don’t think that way, they are held to quarterly earnings reports by shareholders who just want more and more and more.
“When you’re trying to make money for one year, you ask certain kinds of questions. But if you want to make money for a hundred years, you have to ask very different types of questions.”Wendell Berry
Being from a family company that takes a longer-term view – generations rather than quarters – John was likely thinking much more expansively about how a company can stay resilient.
There’s a famous American writer and poet named Wendell Berry who took an interest in EoM. I had a chance to visit with him just as we were starting this work. He said some really profound things, one of which really stuck with me: “When you’re trying to make money for one year, you ask certain kinds of questions. But if you want to make money for a hundred years, you have to ask very different types of questions.”
TBT: Purpose is notoriously difficult to measure, but you’ve developed a tool to do just that. Tell us about the Purpose Scanner.
Nadia: In 2021, 18% of employees across the globe quit their jobs in the ‘Great Resignation’ phenomenon so it is really important to understand what drives people’s motivation and purpose. It has become much more important in the time of Covid. More than before people want to live their purpose.
“We build a picture of the organisation’s strengths and weaknesses in its purpose journey and also identify immediate short-term opportunities.”Nadia Terfous
The purpose scanner is a digital solution that helps an organisation measure and mobilise purpose. It’s based on 12 years of research and application, and integrates the latest developments in the field. It encompasses different dimensions, like working environment, career prospects, inclusion, trust and the relation of the individual to the organisational purpose.
For example, we want to understand whether purpose resonates with individual vocations, whether behaviours and decisions within the organisation are consistent with purpose and whether the organisation is truly driving improvement for people and planet through its purpose. We build a picture of the organisation’s strengths and weaknesses in its purpose journey and also identify immediate short-term opportunities.
Bridging the gap between the individual and organisational purpose is very important. Like Hubert Joly, the former CEO and Chairman of Best Buy says, “without linking it to individual drive, a company purpose has no soul and no legs.”
TBT: It’s such nuanced work and it can be deeply personal. We’ve found when bridging that gap between personal and business purposes that some people are resistant. What kind of challenges have you experienced when approaching businesses with the tool?
Nadia: Purpose is a hot topic today, and pursuing your purpose has become much more important, both at the organisational and personal levels. Overall, I think CEOs and business leaders understand that being purpose driven is crucial, not just to do good, but also as a driver of growth for the business.
It’s the role of the organisation to really connect employees’ personal purpose with the overarching purpose of the company, and connect how their job and their daily tasks have an impact on the rest of the world through purpose.
“Most leaders still think about purpose as something that needs to be pushed down from the top. With the purpose scanner and EoM, we take more of a bottoms up approach.”Jay Jakub
In the end, being purpose driven is about pursuing a transformation of the business, from the strategy, the operations and the performance management systems to the mindsets and the culture. And that takes time. It’s hard to articulate that transformation – it’s even harder to lead that transformation.
Learning new ways of thinking and new ways of doing things requires patience. So I think that’s the main area of complexity. The tool is there to help an organisation in that purpose transformation journey by defining the key areas of attention, the steps to take and mobilising its people.
Jay: Most leaders still think about purpose as something that needs to be pushed down from the top. With the purpose scanner and EoM, we take more of a bottoms up approach. Discovering how your organisation’s purpose is being lived out among the workforce and engaging the workforce in a dialogue that will help them understand how their individual purpose fits into a larger operation is the objective. This can lead to talent attraction, improved retention, and optimised performance.
TBT: EoM champions education as a key tool to pursuing a more purpose-driven world. How have you found that journey working with Oxford and rolling out education programs for business leaders?
Jay: We were looking for an academic partner that was passionate about creating a curriculum and a management theory around EoM that was teachable, and that shared our vision of elevating business as a way to create profitable and scalable solutions to the problems of people and planet. Oxford was the place to go, and we’ve now partnered with them for eight years.
When Covid hit, we realised that by spreading the EoM executive education courses we run with our Oxford partners over a number of weeks and doing it virtually, we were able to attract a lot of additional senior executives from Mars as well as from other companies. We just graduated a class of 85 – 50 of whom were senior Mars executives, and 35 of those were from other companies around the world across different sectors of the economy. Our next virtual EoM course at Oxford launches in October and is open to all who apply.
“We want to help change the way companies operate by helping them to adopt a mutual value creation model. That way, they not only become become part of the solution, but they also prosper and thrive.”Nadia Terfous
But perhaps where we see the biggest long term advantages is in winning the hearts and minds of the next generation; the best and the brightest – the ones that are coming up through the MBA, MA and management programs who will go on to become the next generation of business leaders.
There’s been a lot of co-creating in the EoM research space too, including the publishing of our latest book, Putting Purpose Into Practice: The Economics of Mutuality, which came out last year from Oxford University press and had about 30 co-authors. A free download is available on our website, eom.org.
TBT: Is there an answer to the question of what the right level of profit is?
Jay: You might be disappointed, because the answer is really that it depends. But we have developed a simple tool to help organisations find the right level of profit for themselves. A “mutual profit-and-loss” statement helps redefine profit by accounting for externalities – both good and bad – in the bottom line.
We now know that the amount of social, human and natural capital that is created or destroyed by a business is strongly correlated to economic performance. Once you discover that the non-financial forms of value actually can translate into economic performance over time, then you can pretty much start to move away from this notion that you have to trade profit to do some good for people and planet. Removing the profit trade-off enables scaling, which in turn can bring true transformation.
TBT: You’ve developed amazing tools to solve some of the big problems around purpose and with the purpose scanner and the Mutual P&L. Where do you want to go with these tools? Where do you see it integrating with the real world and with the business world?
Nadia: We want to help change the way companies operate by helping them to adopt a mutual value creation model. That way, they not only become become part of the solution, but they also prosper and thrive.
In that respect, we do three things. One is advisory along the mutuality journey. It could be helping them define their purpose, or translating it into strategy. Or it could be building the “S” or “E” as part of the ESG imperative.
Second is the analytics or solutions part, which is much more tool based. We believe the analytics part is very important because we can’t just be working with a few large organisations. By developing tools that are accessible and easy for companies to adopt, we have a much broader way of encouraging more businesses to pursue mutuality and purpose. The Purpose Scanner is one of these tools.
“The amount of social, human and natural capital that is created or destroyed by a business is strongly correlated to economic performance.”Jay Jakub
The last piece is adaptive leadership, which is about developing the right leadership attributes to be more purpose driven. It takes the form of executive education programs for senior leaders and customised training for a select audience of people. It fits in with the logic of broadening the appeal and the reach of purpose as a business concept, because it trains people to be able to develop a purpose approach within their own organisation.
We’re also in the process of developing a Mutual Value Initiative that is actually carried out by the EoM Foundation. It’s a cross-industry and cross-stakeholder initiative which aims to design a purpose framework at the industry level to drive mutual value creation by identifying problems of people and planet that a particular industry can tackle. It’s a move away from organisation logic – it’s not just for one organisation, it’s for the entire industry. I’m really excited about it because I think it can create change at scale – an entire industry, rather than a single company.
“A philanthropic dollar only has one life, but an entrepreneurial dollar has many lives.”Muhammad Yunus, Founder of Grameen Bank
TBT: Who or what inspires you?
Nadia: For me, the concept of collaboration is really inspiring: how do you help emerging and developed markets become better at sharing? I think all stakeholders – whether governments, local authorities, businesses, communities, NGOs, etc. – are necessary and have an important role to play. What is critical is to develop bridges and relationships between all these stakeholders towards common objectives.
The complexity of what we’re trying to achieve is so huge, that we must have an entire ecosystem of players who are steering in the same direction – and it is beginning to happen. That’s what I find inspiring.
Jay: Muhammad Yunus, the Grameen Bank founder said: “A philanthropic dollar only has one life, but an entrepreneurial dollar has many lives.”
It’s important to understand that the EoM is something that makes sense for business. It’s not altruistic, even though it does good. It’s whole purpose of it is to answer: how do you create profitable solutions for the problems of people and planet through your business model?
And another extremely influential quote for me is from Martin Luther King: “We are caught in an inescapable network of mutuality, tied in a single garment of destiny, whatever affects one directly affects all indirectly.”
I think that cuts right to the heart of what it is that we believe in.