RANJAY GULATI: How do we elicit that sense of pride in what we’re doing? We only do that when we’re able to help them see how we connect what they’re doing with the impact it has on others. At the same time, we connect it to their own life purpose.

CHARLES MIZRAHI: My guest today is Ranjay Gulati. Ranjay is a top Harvard Business School professor and Harvard MacArthur Fellow. His research has been published in the Harvard Business Review, The Wall Street Journal, Forbes and The Financial Times. His latest book is Deep Purpose: The Heart and Soul of High-Performance Companies.

CHARLES MIZRAHI: Ranjay’s research shows how companies can embed purpose much more deeply than they currently do. And, in doing so, they can deliver performance benefits that reward customers, suppliers, employees, shareholders and communities alike. I recently sat down with Ranjay, and we discussed how doing good and doing well are not mutually exclusive — and that businesses that can do both have an edge over their competitors.

CHARLES MIZRAHI: Ranjay, I want to thank you for being on the show. I’ve been looking forward to this since we spoke last week. I got a copy of your book, and we had a great conversation. I told you to hold off on a lot of thoughts and ideas that we had on the call because I wanted it to be on the podcast.

RANJAY GULATI: Thank you for having me. I’m really looking forward to our conversation. I had a great conversation with you, and I’m looking forward to continuing it.

CHARLES MIZRAHI: All right. So, the name of the book is Deep Purpose: The Heart and Soul of High-Performance Companies. Now, Ranjay isn’t your regular Ivy League professor. He’s a superstar. He has his Ph.D. from Harvard University, a master’s degree from MIT, and two bachelor’s degrees in computer science and economics. So, bottom line: You’re a smart guy. We’ll start there.

CHARLES MIZRAHI: There is one thing that I want to get into right off the bat. Why did you have to write this book? You know a lot about a lot of things. You’re around CEOs. They consult with you. You go to seminars and speak to people. Your students are senior-level executives. Why did you feel the need to come out with a book called Deep Purpose? What was missing in the marketplace that you had to fill?

RANJAY GULATI: Well, it’s one thing [to ask] what’s in the marketplace. But also, what’s in yourself? A book is a very personal project. So, let me start with the marketplace, and I’ll tell you about myself after that.

RANJAY GULATI: From the marketplace standpoint, I think we are facing a crisis of meaning today. We talk about the “Great Resignation” or the “Great Reshuffle,” but what we’re seeing is that human beings — and COVID-19 has made this much more extreme — are increasingly more introspective and looking to find meaning and purpose in their lives.

RANJAY GULATI: Now, having said that, there was a time when we could compartmentalize our lives and say: “There’s my day job, and then I’m living my life after 5 p.m.” But increasingly, people expect more coherence in their lives. They want their work to be an extension of what they feel their life [should be]. Are they making a difference in their work like they are in their lives? Deep down, all of us want to have an impact.

RANJAY GULATI: We have what Joseph Campbell called a “hero’s journey.” Deep down inside of us, we all have this idea that we want to do something. And as companies, we are failing miserably in this regard. Our knee-jerk response is: “I can pay them more.”

CHARLES MIZRAHI: Hang on. I’m not getting what you mean by “we’re failing.” Who is failing? The companies and corporations that are making billions of dollars? They’re profitable. They’re employing tens of thousands, upwards of hundreds of thousands and even millions of people. You’re telling me we’re failing? The business is failing? What’s failing?

RANJAY GULATI: Companies that are profitable and successful are increasingly struggling with the talent war. When you have talent walking out the door, it’s a lagging indicator. It doesn’t affect your financials — you know this better than me — but it has an effect that comes later. When your best talent starts to walk out the door, it doesn’t hit your bottom line right away.

RANJAY GULATI: Increasingly, in this knowledge economy, talent is your currency for the future. You need to provide interesting and meaningful work and compensate them well, too. And understanding that is one piece of the puzzle in the marketplace.

RANJAY GULATI: But I wrote this book for a personal reason. I, myself, was coming to a midlife stage in my life. I was taking a sabbatical. I was walking to a graduation ceremony for this executive program. And one of my students said: “You know, Ranjay, the biggest gift I got out of eight weeks on campus was that I figured out my purpose in life. I’m going to make some big changes in my life when I go back, and I’m going to expect more of my employer. Thank you.” And then he said: “Have you thought about it?”

RANJAY GULATI: I had been the one who put in place a coaching curriculum to help them figure out their purpose in life. But I hadn’t done it myself. And I was like: “Oh my God, I’ve got to think hard about this.” And then, he left me with this last curve ball: How do I know if my company is living with purpose? I didn’t know the answer to that.

RANJAY GULATI: So, that conversation really lingered in my head and forced me to think about this question. What is the purpose of a business? What is our own purpose? That led me on this purpose exploration journey — which landed me onto this project.

CHARLES MIZRAHI: Got it. So, now I’m going to ask you this. Back in the day, if you got a job and there was job satisfaction, you were challenged and you made a nice paycheck, then it was a happy day. You had job security and great benefits. There was a future. There may have been a corner office waiting somewhere with your name on it. And if you put in a lot of work and effort, you were going to get there one day. Now you’re telling me it’s not enough?

RANJAY GULATI: In this transition, it is not enough. It’s enough for some people in certain categories of jobs and certain sectors of the economy. So, let me be very clear: It is enough. But then, we saw in the last two decades that we went from job satisfaction — which was the holy grail — to job engagement.

RANJAY GULATI: Engagement was tied to having interesting work — what was called the “voice and choice” idea. Give people voice in the job. Give them some choices in the job. Give them autonomy, interesting work and the chance to speak up. And that became engagement. So, people started measuring engagement. Employee engagement scores were paraded up and down.

RANJAY GULATI: Then, we lead to more inspired workers — people who feel inspired when they come to work. Now, I want you to imagine one thing. In the classic model of economics, we talk about an organization as a nexus of contracts. Everyone comes to work and is contractually connected in some way or another. You exchange work. The idea here is a nexus of commitments, where people feel inspired at work. They feel they’re doing something larger.

RANJAY GULATI: How do you elicit that response from your employees? Similarly, [how do you elicit that response from] your customers — who trust your products and company and are much more loyal?

RANJAY GULATI: So, purpose is not just an employee-oriented exercise. It’s also externally oriented. How do you elicit engagement with your stakeholders? The biggest thing I discovered was that people confuse purpose with a purpose statement. Purpose is not a mission or purpose statement. Purpose is something bigger — it’s an ideal. It’s an organizing principle.

CHARLES MIZRAHI: OK, let me stop you. You and I are going to go into business tomorrow. We’re going to sell screws and screwdrivers. We’re opening up a hardware store. You’re in charge of hiring these people. I’m the money. You’re the working partner and the smart guy. I’m smart enough to know that you’re the smart guy. I gave you the check. You’re going to go hire a staff. You’re going to have people who worked in Home Depot and Lowe’s. And you’re going to have a whole bunch of questions you want to ask them to get this job. Basically, it’s selling screws and screwdrivers.

CHARLES MIZRAHI: Are you telling me that you’re going to try to find workers who not only want to do the job … And assume our salaries are comparable to everyone else’s and the benefits are equal. You’re telling me that we’re going to have a better life and business if you go out and find the people who wake up every morning and say: “I want to make the world a better place because we’re selling screws and screwdrivers to the average guy down the street”?

RANJAY GULATI: I think so. I’ll give you a real example of that. First of all, everyone wants to feel like they are having an impact on someone else’s life. Selling screws and screwdrivers — I think a lot of times we forget that what we were selling is helping other people. We’re solving someone’s material problem. Remember, without a screw or screwdriver, I probably won’t be able to hang those pictures up on the wall. And a lot of times, I might say: “I don’t care. What do you want? What size screwdriver do you want?” Or, I can ask the question: “Why do you want it?”

RANJAY GULATI: This was the classic story of Best Buy. It trained its blue-shirt workers, saying: “Don’t ask them what size TV they want. Ask them where they sit and watch TV.” Maybe they’re getting the wrong TV. How do you build empathy with your customer? You only do that when people feel a sense of pride around what they’re doing.

RANJAY GULATI: I didn’t believe any of what I’m telling you now until I came across some research by these two professors — one from Yale and another from the University of Michigan. They studied people at a hospital and looked at the workers — from the physicians down to the janitors. They wanted to see how they thought about their work. Was it “My work is a job I do for money. My work is a career. I do it to get ahead” or, “My work is a calling. I do it because it gives me meaning and purpose”? They also want to get paid, but which is the primary orientation? Why do you want all three? Why do you come to work?

RANJAY GULATI: And the physician number was not surprising — it was one third. The janitor number completely confused them because it was one third. Then, the question was: “Why would one third of janitors in a hospital say that their work is a calling?”

RANJAY GULATI: What they found was, [the janitors] said: “No, I don’t come to work to clean. I’m helping people. They’re so grateful to me when I do even the simplest of things for them. They’re in a vulnerable state, and the smallest of things make a big difference. I can see the difference I’m making. I’m really proud of what I do.”

RANJAY GULATI: So, employees experience a sense of pride. How do we elicit that sense of pride in what they’re doing? We only do that when we’re able to help them see how we connect what they’re doing with the impact that it has on others. At the same time, we connect it to their own life purpose.

RANJAY GULATI: Another company I looked at — KPMG — had every employee fill out a questionnaire. [It was on] one index card: Why do you come to work? You would think they’d all say: “I come to work to make money.” Some said: “Yes, I do [come to work to make money]. I’m the primary provider in my household.” But so many talked about [other reasons] why they come to work.

RANJAY GULATI: Everything we’ve discussed now is very focused on the employee. The idea of a company having a purpose — is it only for the motivation of employees? No, it does much more than that. So, I talk about the full benefits of purpose. The first we’re touching on is motivation.

CHARLES MIZRAHI: Let me stop you right there, before we get into it further. I’m not going to let you go on without challenging you every step of the way…

RANJAY GULATI: Absolutely.

CHARLES MIZRAHI: I’m not trying to be a wise ass to you. I want to tell you: I do believe in a lot of what you say. Because I wake up every morning with a purpose. If I wasn’t making money doing this, I’d still do it. Because to me, money is just a way to pay my bills. When I’m writing newsletters, giving people recommendations, answering questions, taking complexity and making it simple and getting emails from people saying “You’ve made a difference in my life,” that’s it — I’m in.

CHARLES MIZRAHI: Everything that you’re saying resonates with me. So, I’m not even trying to play devil’s advocate. I just want to fine-tune this a bit. And you’ll see where I diverge a little from your book.

CHARLES MIZRAHI: So, why do you come to work every day? You could be teaching anywhere. You could do anything. You could be consulting. You could’ve gotten 14 degrees in music if you wanted to. Why do you come to work every day? I’m asking you.

RANJAY GULATI: Yes. So, I totally buy into the mission of my institution — which is to educate leaders and make a difference in the world.

CHARLES MIZRAHI: OK. So, you’re not seeing a bunch of privileged, rich people sitting in your classes and paying you money so they can get richer off the backs of others. What do you see in your students instead?

RANJAY GULATI: We have a broad diversity of students in our classroom. Some are on financial aid, and some are not. They come from all over the world. They come from all walks of life. Many of them have overcome tremendous adversity to be where they are. And the one thing I know is that they are in a privileged position going forward — in that, once they graduate from here, they are going to have a chance to make a difference in other people’s lives.

CHARLES MIZRAHI: So, you don’t see that student taking the test and getting an A or writing a term paper. You’re seeing — in your mind’s eye — that student sitting in front of you, 10 or 15 years later, making a major decision that could impact their customer base, workers or competitors to make society a better place. Is that a fair statement?

RANJAY GULATI: Exactly. And I have to clarify to you that they all come from different backgrounds. And I see that if I can impact them and get them to think differently, it will have a force multiplier effect going forward — on the people who work for them, the customers and markets they will serve, the society and community they will be part of, and the environment. If we can shape their thinking now, how might it also have an effect on the world? That’s one [lesson].

RANJAY GULATI: The other part is research. You asked me: “Why did you write this book?” I wrote this book by looking at leaders who inspired me. And most of their stories are not told because they’re not people who are widely known. You wouldn’t have heard of a company called Bula — a private company in Switzerland. No.

CHARLES MIZRAHI: Let me just interrupt you. Folks, I’d get the book — even if you don’t agree or like everything Ranjay is saying. Get the book for one reason alone: You will learn so much about companies you have never heard of before, see how they operate, which niches they’re in and why their business works. I think one of your students should be doing a study on all of the companies you have in there. Chart how well they’ve done, why they’ve done better and what industries they’re in.

CHARLES MIZRAHI: Because I want to tell you … I love learning about LEGO, Mars and all these other companies in ways that you bring to light — that I would have never found out before. Really well done on that. I’m sorry to interrupt you.

RANJAY GULATI: Thank you for that. I appreciate you saying that. It took me three years to write, so I hoped somebody would read it. I was inspired by these leaders, and I wanted to share their message. The kernel of the idea is around the larger debate of whether or not you can make money and do good at the same time.

RANJAY GULATI: [These are] companies that are able to find ways to perform and have a purposeful orientation. And in your language, it also connects the short term and long term. Can I deliver a focus on long-term value creation while also delivering quarterly results? How do I do that?

RANJAY GULATI: People always frame these as orthogonal choices. And I wanted to see — can this be done? We have this endless debate right now about the future of capitalism. Can we actually survive? Can we actually thrive? And maybe we need to change our system. I was looking for inspiring examples of companies that have found a way forward. And to me, that was exciting to see.

CHARLES MIZRAHI: So, the answer is that it can be done. And it’s being done as we speak — with forward-thinking companies that do not see the [customer] as just a dollar sign or their workers as cogs in a big wheel.

CHARLES MIZRAHI: This is a sea change from the way we thought about business in the 1950s and 1960s. Damn the environment, damn the customer — just keep making and selling the product. Whether it was safe or not was irrelevant. It was the company’s bottom line that was important.

CHARLES MIZRAHI: So, that’s the way I remember reading about business back in high school. And that was taking a snapshot of the 1960s — when you had all these conglomerates. It really didn’t matter. There was no such thing as caring about society. Stop all that — what do you call it? A yoga kind of thinking? What was it called?

RANJAY GULATI: Yoga babble.

CHARLES MIZRAHI: Yoga babble. It was basically the bottom line. How was the company making money? Now, we’re changing that?

RANJAY GULATI: Since you mentioned that, let me talk about a dear friend of mine — who has now passed — the late Jack Welch. Everyone pinned on him this idea that he was the guru of shareholder value maximization. He was the one who started talking about it. So, they all put it on him.

RANJAY GULATI: He came to my class many times, and one point he made was: “Shareholder value maximization is a dumb idea. Shareholder value is a byproduct. It’s a byproduct of pursuing greatness in the marketplace — greatness in the eyes of your customers and employees.”

RANJAY GULATI: So, when people would talk about shareholder value maximization, they would say that it’s a byproduct. And some people flipped it around and said that’s the be-all and end-all. And what I’m learning in looking at even small ventures, [is that] the greatest entrepreneurs are not the ones saying: “I have a cool idea — my new product.” They say: “I want to change this marketplace. I want to think of a range of products and services that can change this market.”

RANJAY GULATI: They start with an ideal. And remember: That ideal doesn’t have to be to save the world or the Amazon forest. It can be a very commercial, market-driven ideal. So, how do we reshape our thinking and stop thinking of widgets we’re going to sell to maximize shareholder value? How are you going to reshape a marketplace and address a very important problem?

CHARLES MIZRAHI: Give me an example of someone doing that right.

RANJAY GULATI: I’ll talk about Gotham Green. Gotham Green came up with this idea that the way food is being produced and distributed is highly detrimental to the environment — water scarcity, space scarcity and spoilage. Some estimate in some categories — especially lettuce and herbs — that spoilage can be as high as 50%. And we have a huge amount of greenhouse gas emissions coming out of the food sector.

RANJAY GULATI: And then, there were these unutilized spaces. So, they had the idea to use urban rooftops for hydroponic farming — which has a very low usage of water, no spoilage and no transportation costs. So, you look at the environmental footprint, and you can make money doing it because these are unutilized spaces.

CHARLES MIZRAHI: No transportation costs from the farm to the store, right?

RANJAY GULATI: Exactly. In New York, actually, they’re using the rooftop of Whole Foods. So, you’re bringing it down the elevator.

RANJAY GULATI: You look at people like that, who are coming up with ideas for how to create a viable, profitable business. That’s what they’re trying to do. They’re not trying to save the world. They’re not cloaking themselves in green, saying: “We’re delivering lower-than-normal returns because we’re doing good for society.” No. They’re saying: “We’re delivering outsized returns and doing good for society.”

RANJAY GULATI: People also add [the question of] making tradeoffs. Can you do win-win? And they say: “No, you can’t.” So, one of the toughest decisions they had to make was about packaging. How do we package? And they end up using plastic because it’s detrimental to the environment, but they said that’s the only thing that keeps lettuce fresh longer.

RANJAY GULATI: Another company I looked at — a public company — is Etsy. When Etsy went public, in the first nine months, the stock tanked 60% to 70%. There was concern that it was going to be taken private. There was blowback against it. And the company kept saying: “We’re doing good. We’re saving the world. We’re doing all these good things. We’re a socially responsible company. We were a B Corporation. We don’t need to make money.” And investors said: “That’s not acceptable.”

RANJAY GULATI: Along comes Josh Silverstein. He says: “Look, you’ve got to make money. You can do good, but you can’t not make my money. ‘I’m doing good for society’ is not an excuse.” So, you start to see what I call the “practical idealists.” They have an ideal to do good for society and make a difference for their customers and the world. But they’re also practical and want to make money. And you know Etsy and its story. It’s a fantastic company. It did a phenomenal job. And it benefited a lot from COVID-19 and the purchasing of cloth masks.

RANJAY GULATI: So, you start to see leaders who try to understand. What is their role and place of business? And can [they] make money and do good? The challenge, of course, is embedding these ideas into an organization. It’s great to have a purpose statement. But how do you actually do something with it?

RANJAY GULATI: The thing that really confused me in this process was a lot of companies do what I call “purpose washing.” Theranos had a purpose, and so did Purdue Pharmaceutical. So did Enron, right? Everyone parades a purpose.

RANJAY GULATI: So, when in trouble, parade a purpose. We call it “virtue cloaking” — hiding in a virtuous cloak of “I’m a good person. Trust me, I’m going to do good.” And this makes people even more cynical about these ideas, saying that it’s business as usual. And I think they do a huge disservice. Companies like Theranos, by parading their purpose continuously, do a huge disservice to the people who actually think there might be something there.

CHARLES MIZRAHI: So, in your research, you’re finding what I thought was very difficult to do. It was to do good and make a profit. You were either a not-for-profit or you were the other extreme: You were totally for profit. And however you made that profit — as long as it was within legal limits — was OK. Because you were increasing shareholder value.

CHARLES MIZRAHI: You’re telling me that you’re now seeing a new movement in capitalism from the businesses you’re describing. They are not only trying to marry [doing good and making a profit]. They’re basically serving two masters, and it’s working even better than just serving one or the other. Is that accurate?

RANJAY GULATI: Yes, but it’s more complicated than that.

CHARLES MIZRAHI: It always is, right?

RANJAY GULATI: Yes. So, the idea you just said is absolutely true. And this is not new. This has been debated for the last couple of decades — that there are business models and ideals of companies that are trying to do good and well at the same time.

RANJAY GULATI: Here’s where it got taken a bit further and confused us. Some people said: “OK, I will only do things when they do good and do well. I’m going to look for the intersection of good and well.” Then, you have people on the left side saying: “No, that’s giving businesses a cop-out. They will only do good when it’s good for them. Tax them — it should be painful.”

RANJAY GULATI: Then, you’re like “woah.” Now, you go into this polarized debate about doing good or doing well — but not both. How am I going to do this? And companies are struggling. If you’re BP or Shell, you’re not going to get out of fossil fuels tomorrow. But maybe you’ll say: “I’m going to put myself on a transitional journey. I’m going to find my path. And I’m going to put out a public commitment about when I will be out of it. How do I get there? How do I manage the portfolio of my products?”

RANJAY GULATI: All this happened at Pepsi. Pepsi is not going to go out of the cola business. It’s not. But it has a portfolio of products to manage. It’s saying: “How am I going to have healthy and indulgent? I’m going to have to find a way to connect the two and have a portfolio of offerings. I’m going to try to take my unhealthy things and make them as healthy as possible.”

RANJAY GULATI: So, you start to see it’s not just pure form. I’m a goody goody. I do only good things, and I happen to make money doing them. Real life is messier than that. How do we navigate this complex balancing, trading off and giving up something for something else?

RANJAY GULATI: The challenge in this is who’s the first among equals? You say all stakeholders are equal. Who’s the first? Shareholders always win. And you’re saying to yourself: “Well, I don’t know. Not always. Sometimes, I’m going to have to trade off shareholder value for customer value. I have to give the customers more and shareholders less. Or, [I trade for] employee value, planet value or community value.”

RANJAY GULATI: So, you’re trying to find a way to thread across all these different mediums, and say: “What is the right course?” And having some kind of a yardstick around this journey is going to be a source of advantage for some companies. And that’s with the company that we’re looking at.

CHARLES MIZRAHI: OK, gotcha. Because I think if you have two CEOs, all things being equal — same business and business environment — and you ask: “Do you want to do good?” one might say: “Sure, but not at the expense of making profits.” And if you ask the competitor if they want to make profits, they might say: “Not at the expense of destroying the environment.”

CHARLES MIZRAHI: So, one of those companies is going to be at a disadvantage at some point. But you’re saying that we’re now seeing a lane that’s actually asking these questions when, 20 years ago, these weren’t even questions that were being brought up?

RANJAY GULATI: Exactly. Larry Fink’s letter came out today. And you can see what Larry’s new letter says. He’s saying that we can’t constantly frame these as oppositional constructs — long-term value versus [the] short term or the environment versus profit. These are not “or” constructs anymore; they’re “and” constructs. As business leaders, we have to recognize that we’re going to have to find a way to satisfy many masters. That makes some people uncomfortable.

RANJAY GULATI: In finance, we would like to say that by creating multiple stakeholders, you’re creating agency problems. Now, you’re giving managers a way out. When they can’t deliver returns, they’re going to point to the social impact. And you’ve seen a number of leaders who do that sometimes. If you can’t deliver returns, point to something else and say: “But listen, I’m making a difference in the world.”

CHARLES MIZRAHI: “My carbon footprint is small.”

RANJAY GULATI: Yeah. And investors don’t find that acceptable. They’re like: “You know what? Deliver returns and do your carbon footprint as well. But if you can’t deliver returns, I don’t want to…”

RANJAY GULATI: And that was the Etsy story. The turnaround of Etsy was all about saying: “Look, we cannot hide behind being good and say, ‘I’m not delivering adequate returns to my shareholders.’” But it makes people uncomfortable. Because suddenly, you’re trying to give people wiggle room in a tradeoff. You know that old saying: “The slave of many masters is a master”? Giving them an out is not acceptable.

RANJAY GULATI: So, I think this is going to be our challenge as we move into this next phase of our economy. How do we hold our business leaders accountable? What are we going to measure them on? How are we going to measure them?

CHARLES MIZRAHI: But I will tell you this, from my perspective. If there was a group of companies in one specific industry — let’s just use one metric: return on equity, earnings growth, revenue or whatever it might be — there’s one that’s clearly superior.

CHARLES MIZRAHI: My job, as a money manager, is to beat the S&P by as many basis points as I can. If I now have the choice to invest in company B in that industry because they’re do-gooders — and leave a smaller carbon footprint — am I making that decision? Let me choose company B over a company A because I’m going to save the world?

RANJAY GULATI: OK, great question. So, unless you’re an ESG-oriented investor, you don’t care. Unless you’re looking for ESG-certified…

CHARLES MIZRAHI: I’m looking to help as many widows and orphans — who rely on their pensions that I’m managing — in order to deliver the highest alpha.

RANJAY GULATI: OK, great question. And let me answer that. First of all, you have earmarked money. Unless it’s earmarked money for ESG investing, you don’t care.

RANJAY GULATI: But here’s the part that I want you to think about. As a money manager, you should not — and maybe you don’t want to — care about this. But let me tell you what the companies are missing out [on].

RANJAY GULATI: Companies that focus on the environment and deliver value on ESG are going to deliver greater earnings. They’re going to have more loyal customers, productive employees and a focused strategy.

RANJAY GULATI: And guess what? As a money manager, you are going to have to evaluate their environmental footprints. It’s going to show up in the earnings and revenue numbers that you’re going to be looking at. I think that’s what business managers need to understand. Don’t look for a way out. Don’t go in there saying: “Please, give me a break. I was doing all this good stuff. So, I couldn’t deliver the returns and top-line growth numbers.”

CHARLES MIZRAHI: I would have thought you were crazy if I didn’t interview former Honeywell CEO, Dave Cote, a couple of shows ago. Dave decided. His predecessors polluted the Baltimore Inner Harbor. And he had the choice to keep paying the fines, litigating and stalling it or clean it up. And cleaning it up was definitely not delivering shareholder value as we would determine that.

CHARLES MIZRAHI: By taking out $1 billion, you’re not actually seeing any planted equipment’s capital expenditures that are going to return more than the $1 that he invested. So, we could agree to that. And he told me that he did it because it was the right thing. He was not expecting any payback. But he wanted the people who work for Honeywell to feel good about working for a company that cares.

CHARLES MIZRAHI: You mentioned how the payback does come, and [the business] does better. I don’t remember the situation exactly, but he said he ran into a senator who saw what he did with the Baltimore Inner Harbor and said: “If Honeywell ever needs a favor, call us. We’re here for you.”

CHARLES MIZRAHI: That’ll never show up in the balance sheet or income statement. But that is a competitive advantage when something goes down the road — two, three or five years later — that could be run adversely against Honeywell. Someone’s going to remember the good that he did.

RANJAY GULATI: That’s a great story. I love that example because it shows that what you might say is working against shareholder value is actually working for shareholder value. That’s why you have people like Larry Fink and others saying: “You’ve got to get people to think long term. Understand the value proposition of trying to build for the enterprise while delivering short-term results.”

RANJAY GULATI: You can’t be obsessed with the myopic view of the world and ignore the long term. So, his predecessors probably ignored the Baltimore Inner Harbor because they were focused on the short term. [They were probably] saying: “This is going to be a quarterly hit. There is going to be not one but two or three quarters where I’m going to take hit. I don’t want to take that pain.” And they ignored the possibilities that it could have opened up for them.

RANJAY GULATI: And sometimes, companies will do this. We had the former CEO of Walmart come to class. He talked about how, after Hurricane Katrina, he came to the realization that global warming was real. We needed to do something about it. So, he came up with this idea to put solar panels on Walmart rooftops. Economically, it was not the right thing to do. It wasn’t viable. The cost of solar panels hadn’t reached the point where they could [afford it].

RANJAY GULATI: But he said: “I’ve got to do it.” And what’s interesting is, in the next couple of years, they made it economically viable. But somebody took that leap of faith based on a set of moral principles. He didn’t even think: “It’s going to motivate my employees. They’re going to say Walmart is a good company. I want to work harder for Walmart.”

RANJAY GULATI: Sometimes, there’s this leap of faith on the right thing to do. And then, you find a way to make it work. Some of these people are willing to take a leap of faith. I think that’s the key. You can think of this in very narrow terms or broaden your lens a bit.

CHARLES MIZRAHI: It’s like that old story of the kid at the beach. A whole bunch of starfish land on the beach, and they’re stranded there. So, this kid picks up one starfish and throws it back. Then, he picks up another and throws it back. A man passes by and says: “What are you doing?” He goes: “I’m throwing the starfish back into the ocean.” The man says: “There are millions of them here. You’re not making a difference.” And the kid picks up one, throws it back and says: “Well, it made a difference to that one.”

CHARLES MIZRAHI: So, what I’m hearing from you is that companies are making a difference. And sometimes, [they make] what you call “leaps of faith” — which might seem ridiculous in the confines of the way we measure things.

CHARLES MIZRAHI: One thing that I’m thinking of now — there’s no way to measure this yet. If there was a way to measure how taking $1 billion and cleaning up the Baltimore Inner Harbor — or putting solar panels on a rooftop for a ridiculous amount of money — was going to pay back in some way, it’d be needed for decisions. So, I think the leap of faith is the fact that it’s not quantifiable. We can’t throw it into a spreadsheet. Would that be a fair statement?

RANJAY GULATI: Yes and no. It is hard to quantify, but companies are now aggressively moving to quantify it. One of the companies I looked at was Ernst and Young. And who better to ask about quantifying than accountants? They are quantifying the impact of their work on society and the environment. And they’re measuring their partners and bonuses on more than just billable hours.

CHARLES MIZRAHI: But on what — on doing the numbers well or putting it all into spreadsheets? What is their metric? What are they looking at?

RANJAY GULATI: So, they’re looking at a number of things. They are looking at social, community and customer impact. And they’re trying to come up with a way to say: “I want to measure you — not just on billable hours.” So, how do I force you to imagine what this might mean? We believe that this will not be detrimental to shareholder value — immediately or in the long term — because it is good for our business.

RANJAY GULATI: I’ll give you one more: Veeva, the public company. Veeva has re-listed itself from being a classic C Corporation to being a public benefit corporation.

CHARLES MIZRAHI: Describe for our listeners what a public benefit corporation is.

RANJAY GULATI: A public benefit corporation is [a company] where the corporate charter … Remember, the charter of the corporation says that you are in existence. A classic C Corporation is for shareholder value. Even legally, they say there’s more wiggle room in there. But basically, it talks a lot about shareholder value. That’s what a C Corp [defines itself] around.

RANJAY GULATI: A public benefit corporation lays out that it exists for the benefit of the public. So, the fiduciary responsibility of the board of directors is being able to measure and hold management accountable for the public benefit. Now, how is this going to help Veeva? And why would the management team … It voted [almost] unanimously. Because you need to have over 90% of shareholders voting in favor to do this. I think it’s a 90% threshold. It’s a very high threshold, and they got it comfortably. But why would the CEO, founder and largest shareholder want to do this?

RANJAY GULATI: And he said: “It’s good for our business because we are selling into pharmaceutical companies. And we are selling them more and more of the IT footprint. It makes them uncomfortable that so much of their IT footprint is coming from one company. And we are a classic, quarterly-driven C Corporation. Peter Gassner, you’re here today, but you’ll be gone tomorrow. I’ll be stuck with your idea. So, then, you can gouge me because I’m beholden to you.”

RANJAY GULATI: And he says: “I’m going to put it in our charter. And that should make our customers have trust in us.” So, there are reputational benefits. It will also help employees. They should feel proud of where they work.

RANJAY GULATI: So, you ask yourself: “Why would a publicly-listed company — of their own volition and with no pressure — want to do this? It’s not like they want to make less money. They’re highly profitable. Go look up Veeva, and you’ll see for yourself. A highly profitable, very successful company is saying: “It’s good for business.” Doing good can be good for business. And somehow, we’ve lost our way on that simple idea.

CHARLES MIZRAHI: And what is the pushback on this idea? Because prior to speaking to you and reading your book, I had a whole bunch of biases against this. What do you hear a lot of? If you were pitching this — with your deck of facts — and went to the S&P 500 companies and knocked on their doors, what would be the biggest pushback you’d get?

RANJAY GULATI: Well, there are several. First of all, I think the world has become very cynical about these kinds of statements.

CHARLES MIZRAHI: Rightly so. You mentioned some of them. It’s like they cloak themselves in a sense of higher purpose — at the expense of making shareholders money. You’re supposed to excuse that?

RANJAY GULATI: As I was saying earlier, Theranos’ purpose was to facilitate the early detection and prevention of disease and empower people everywhere to live their best possible lives. It’s statements like this that turn people off and [make them] say that it is purpose washing and virtue cloaking. Someone called it: “virtuous side-hustles.” So, there’s the first thing — them saying: “I don’t buy this.”

RANJAY GULATI: The second thing — which you already turned to — is that it’s a tax-on business. “Ranjay, all you’re describing is a tax-on business. You just want to take a bite out of the apple. You’re saying: ‘Shareholders, you can’t have the whole apple. You’ve got to share some of that apple.'” So, companies do a little CSR on the side. It’s like giving away a percentage of your giving so that you know you’re a good person. Give it away on the side.

RANJAY GULATI: So, how much are we going to give away? And let’s figure out what that threshold is. What’s the corporate tax rate going to be? That was another one.

RANJAY GULATI: Or, it was like: “You know what? This [idea of] doing good or doing well — it’s only when you can do it simultaneously.” So, I think this idea to hold attention to — that there are things you do to do good, things you do to do well and things that involve both.

RANJAY GULATI: You’re trying to connect the dots across this portfolio of activities. But you realize that, as a business, to deliver long-term value, you need to understand how you’re going to solve environmental and social problems.

RANJAY GULATI: And guess what? Customers pay to solve problems. If you find a solution to an important problem, somebody is going to be willing to pay you for it. So, find ways to solve important problems.

RANJAY GULATI: That’s how great businesses start. Look at your newsletter. It started by saying: “I want to solve a problem.” People are confused. I’m going to help solve the problem. And I’m going to do it in a way that [shows] good understanding. Competence is very important. But I do it with good intention. I think these are words we should reflect on: purpose and intention.

CHARLES MIZRAHI: And you’re seeing this trend start to pick up steam because of what? What is the impetus? What is the catalyst that’s making this start? Because I’m hearing more of it. But five years ago, I didn’t hear much of it. You’re seeing a lot more of this now. I thought this was all yoga babble and totally dismissed it. Now, I’m starting to see a trend. Five years from now, where do you see this?

RANJAY GULATI: Well, first of all, I think you saw a lot of corporate PR going into hyper-spin about this…

CHARLES MIZRAHI: I remember looking into tech companies making a chip or something — “We’re going to save the world!” It became silly after a while. That’s why I started off with my screwdriver [example] and nothing else. “We’re going to save the world by doing…”? Come on.

RANJAY GULATI: We had a [Harvard] professor in the 1960s — Ted Levitt — who once said: “When a customer comes in to buy a drill or screwdriver from you, they’re not there to buy a drill. They’re there to buy a hole in the wall. Try to understand what kind of hole they’re trying to build and where they’re going to build it. Then, you help them find a solution to the hole in the wall. Don’t try to sell them a drill.” I just wanted to get that off my chest.

RANJAY GULATI: But back to your question: Where is this building from? So, the first thing you see is regulatory pressure. There is market or peer pressure. Let’s also give credit to people like Larry Fink — and his letter gets read a lot — who are putting out it there and saying companies need to think about this. He was trying to tie it to saying: “Understand long-term value, folks. I’m not asking you to do charity work. This is not charity. It’s in your best interest to solve problems. A long-term value focus delivers value to shareholders.”

RANJAY GULATI: And I think he was reflecting on how he built BlackRock. BlackRock is what it is today — with over $10 trillion under management — not because it was chasing the next big buck. It had a clear idea: a fiduciary to the client. We’re not going to run our own money. We’re not going to do any of the things that cause a conflict of interest in this industry. We are a fiduciary to our client. And if we can do good by our client, then good things will happen for us.

CHARLES MIZRAHI: I don’t want to comment too much on Larry Fink and BlackRock because I don’t know them as well as you. But I just want to throw this one thing at you. A couple of shows ago, we talked about the book Trillions by Robin Wigglesworth. He talked about the whole indexing phenomenon and John Bogle. And Vanguard wasn’t a money management firm. His sole mission — and he became evangelical about it — was to take this idea and get those costs to zero as quick as possible.

CHARLES MIZRAHI: He became obsessed with driving down costs — which might have seemed ridiculous at the time. Because you had 200 basis points and mutual funds with 8% loads. And look what happened. Doing good and striving created an industry and colossal businesses that would have never existed in that old framework. Never. They could never have done it.

RANJAY GULATI: It’s a great example, also. Think about what he was doing. You see this a lot in founder-led enterprises and ventures. Not all of them. Some are chasing the next big buck and want to flip the company, do an IPO, sell it or raise money as quickly as they can. There are enough hustlers out there. So, I don’t want to be ignorant and say there aren’t.

RANJAY GULATI: But there are some who start with an ideal. Not only an idea — but an ideal. You ask yourself [what that ideal is], then Google and search. Or you look at Apple. You look at some of these companies’ foundational ideas.

RANJAY GULATI: And that’s why I used the Lego example. In Lego’s case, it lost its way. So, along comes a turnaround. Lego says: “I want to go back in time — to our beginning. Why did we start? Why do we exist as a business? And if we can just reflect on why we exist, it’ll force us to think about a clear strategy — which customers and products we want to sell and how we serve society and make a difference.”

RANJAY GULATI: But to your question, customers and employees are going to increasingly put real pressure on companies to deliver them a value beyond shareholder value.

CHARLES MIZRAHI: The other day, I was reading about the Carlsberg Group. It’s interesting. It found where its patriarch had carved this phrase in stone for use as a corporate motto: “semper ardens,” or “always burning.” Now, a team within the company took the phrase as the name of a new line of handcrafted micro-root beers.

CHARLES MIZRAHI: So, this company was doing everything that you mentioned generations ago. They had to rediscover it. It had a different name at the time. So, I’m seeing this as a rediscovery of why people went into business and what they were trying to do. They lost their way. And now, it seems to be coming full circle. You see that?

RANJAY GULATI: A great example of that is Johnson & Johnson. It had the Tylenol crisis — where it came out looking so good — to a whole decade of crisis after crisis, a testimony in front of Congress by the CEO and being punished and fined.

RANJAY GULATI: Then, Alex Gorsky became the CEO. And he said: “We’re going to challenge our credo. We were known for having a clear purpose of who we are as a business and why we exist. Let’s go back to where we began.”

RANJAY GULATI: The challenge, though, is that it’s easy to get nostalgic about the past when you look backwards. And the tension these leaders describe is: Use the past, but look forward.

RANJAY GULATI: There’s this example I use of a Ghanaian bird — the Sankofa bird — that flies forward with his head looking backward. How do you connect this to the idea of being nostalgic? Because it’s so easy to get caught up in the past.

RANJAY GULATI: I happen to be employed by an institution that is hundreds of years old. It’s very easy for us to bask in the glory of the past and not think about the future. But we don’t. The idea is to have the past to remind yourself of, but still look forward.

CHARLES MIZRAHI: Why did we get into this business to begin with? You sometimes get so deep into it that you totally forget that. And your point with the deep purposes is, in many examples in your book, these companies had it. They just lost it. And now, they’re rediscovering it.

RANJAY GULATI: This purpose decay seems to be endemic in most organizations. You see these boomerang founders. Why did Howard Schultz come back to Starbucks? And when he came back, he said that Starbucks had lost its soul.

RANJAY GULATI: They talk, in spiritual terms, about what was lost. And with this book, I’ve tried to put my finger on exactly what “it” is and how to sustain that in an organization. Especially today, when I think of what our customers, employees, communities and even our governments are going to demand of business. I think there are greater expectations.

CHARLES MIZRAHI: I agree with you. And as a consumer, if both products are equal and the same price, I’m going to go with the one that does better. The problem I have is with the distance between what I’m paying and the do-good part. How much am I willing to pay for that?

RANJAY GULATI: You got to the crux of it. What is the marginal benefit and cost of that thing? The difference has to be very negligible — if none at all. And that’s why the do-gooders have to learn to do well. I think that goes for both sides and extremes. The do-gooders have to learn to do well, and the do-wellers have to learn to do good. We can’t be one or the other.

RANJAY GULATI: And I think you’re absolutely right in faulting the do-gooders when they say: “I’m a do-gooder. So, I want to charge you 50% more than the others.”

CHARLES MIZRAHI: Yeah. That’s like: “We give 10% of all our profits to help save the whales.” All right. But if your prices are 15% or 20% higher than the competitor, I’m really not interested. I’ll write a check to the organization. So, I think that from the consumer’s perspective — really, I speak from my perspective — I have no problem with supporting the do-gooders, all things being equal. Because it’s not even negligible to me. It’s totally transparent. I don’t even feel that.

CHARLES MIZRAHI: If you’re running your organization much more efficiently — where you can do good — all the power to you. If I have the choice between both, I’m going to pick you. There’s no question about it.

CHARLES MIZRAHI: It’s when you start to ask: How much am I willing to pay? Maybe 5%, 3%, or in some cases, 0.25%. But I think that’s the challenge of those businesses. If you price yourself out of the marketplace, at the end of the day, the customer wants to get value. Price is what you pay, value is what you get. So, saving the whales is great. Don’t get me wrong, I’m all for it. But at what cost? I don’t want to be charged for that.

RANJAY GULATI: That’s a great example. And actually, some of the amazing companies that I looked at don’t even talk about all the good they do. There’s a small company called One Mighty Mill. The founder first founded B. GOOD, a fast food chain. And One Mighty Mill is amazing. If you haven’t had its bagels, bagel chips and breads, [try them]. I don’t know if they have them where you are, but they’re definitely available here in Massachusetts.

RANJAY GULATI: But the company has all this amazing outreach. In its town, it provides food to public schools [with] people who live in the less privileged communities — where the factories are located. It chose that [location] on purpose. [People] can come and buy at a discount. And, of course, it responsibly sources — all that stuff.

RANJAY GULATI: But it’s something it just does. It’s not on its packaging, saying: “I’m charging you 30% more because 20% of that is going to these charitable efforts.” Nobody wants that. It has to be competitively priced and have an outstanding product.

RANJAY GULATI: And if the company commands a premium, it’s because of the value it’s delivering to the customer. It’s not because it’s going to say: “By the way, I did this. So, I’m charging you more.” So, a company like One Mighty Mill delivers outstanding product. And it happens to be doing all these good things, too.

CHARLES MIZRAHI: I think the tipping point is going to be when we can identify — when there’s some type of number or variable — great CEOs and managers who have a purpose gene. They want to build shareholder value and a better society. And we can discern the contenders from the pretenders. I don’t know if there’s a way to measure that now. Maybe there is.

CHARLES MIZRAHI: And the second thing is [identifying] the companies that don’t shout it out. Those are the companies I’d love to see — like Dave Cote with Honeywell. You don’t know how much added value there’s going to be from doing something that amazing.

RANJAY GULATI: So, in your language, the hunt is on for this. People are already showing tentative correlations between TSR — five or 10 year moving TSR averages…

CHARLES MIZRAHI: TSR stands for “total stock return.”

RANJAY GULATI: Right. They’re also trying to link it to other short-term indices of performance. Because, in your language of alpha, the idea is if purpose-driven companies are truly driving value to shareholders along with everybody else…

CHARLES MIZRAHI: That’s when you got it big.

RANJAY GULATI: So, can we measure that? You might say: “I’m going to measure your ESG footprint” — which means I’m also going to give you out, saying: “The shareholder return is not good, but you are very high on the ESG scores.” No, the idea is to correlate what you are doing with TSR.

CHARLES MIZRAHI: Total stock returns. So, you could do good, but you had better produce a return for me?

RANJAY GULATI: Yes. There are a lot of people trying to see if this is a fact. There are tentative studies that show correlation. Because they are only able to look at a one-year time horizon. They need to look at it for longer to make a definitive causal argument. But this is the question that is being researched now. I myself am part of a study, where we’re getting large sample data over time and trying to see if this purpose orientation can explain future financial returns.

CHARLES MIZRAHI: Boy oh boy, if you do that, call me at 3 a.m. I’d love to get the jump on that because that’s going to not only be of value but a differentiator and competitive advantage. If you’re able to do that as a company, you’re going to stand out head-and-shoulders. It’s a cycle because you’d attract more capital and better people. You’d be able to drive down your costs and provide more. It just feeds upon itself.

RANJAY GULATI: Yeah. It’s the holy grail. So, we are trying to figure that out and see. There are two pathways to it. One is to say: “Well, I don’t have the financial returns, but I have these other returns that I hope you will count for something.” And the other is to say: “No, measure me on my financial returns. And guess what? I’m going to show you the hidden nuggets that are going to deliver value in the future.”

CHARLES MIZRAHI: Wow. So, I’m thinking about a deep purpose index — like how we had Case-Shiller, we’re going to have a deep purpose index. We’re going to come out with some new thing. And if you could find that, I think it would spur a movement in greater numbers than any letter Larry Fink can send out from BlackRock. Because you’re going to show it in black and white. That’s really the bottom line.

CHARLES MIZRAHI: Because at the end of the day, you want to increase shareholder value. But you don’t want to destroy the planet or people. You don’t want to make them cogs. You don’t want to go home at night saying that you run an organization that could have been run as a mid-century slave ship or something. You don’t want to do that. Who wants to do that?

RANJAY GULATI: And this is an absolutely fair challenge that you are posing: OK, Ranjay, you’re asserting that the employees are more motivated in purpose-driven companies? Great. Show me the money. Where’s the bottom line? Does that translate into better returns? You’re saying talent stays with you. Oh really? Show me how that translates into a better strategy.

RANJAY GULATI: We have a common denominator here on understanding the bottom line. Does it matter? And if it doesn’t, that’s OK. Then, tell me that you’re going to take a haircut. The question is how much of a haircut is it going to be? And then give me a measure of the social impact. So, I just want to know what I’m getting myself into here. I think that’s an absolutely fair question.

CHARLES MIZRAHI: But even from the human resource perspective, you can say: “Every time we hire someone, it costs us X thousands of dollars if we hire the wrong person. Since we’ve done this, we have a purpose and everyone knows it. We have longer employee retention. We’re not turning over people. Our customer retention has gone up.”

CHARLES MIZRAHI: We all know exactly what the CPA is — cost per acquisition. Now, cost per person and cost per customer are quantifiable. If you could show me, over time, a company that did that … Say I have a Ph.D. from MIT and could work here or there for the same salary. I choose there because it has a deeper purpose. Case closed.

RANJAY GULATI: Yeah. I think that’s the next wave of work that you’re going to see. There’s a lot of interesting work happening with trying to empirically test some of these ideas. My idea was to inspire. I was doing this as an exploratory study to say that there were companies out there that were doing some extraordinary things. Hopefully, we can learn from them.

RANJAY GULATI: Now, the question is: Is it just a biased little sample? Have I had a convenient sample over here? Is this generalizable? Can others do it? Can we do it [on a larger] scale? And what might that look like? I think all those questions are absolutely fair. But I think we will see answers to them in the coming year or two. So, you’re going to see people able to empirically back up — or disprove — these claims. I think that’s going to be the next exciting part of this conversation.

CHARLES MIZRAHI: Yeah. Now, with a lot of millennials wanting more purpose in their jobs — especially after the pandemic — who knows where that can go? You could see employee retention, job satisfaction and a whole bunch of halo effects happen from this.

RANJAY GULATI: I agree with you — maybe millennials are considered to be the ones who are more purposeful. But I think the rest of us are, too. Who doesn’t want to have a purpose in their life? Who wants to work for an organization where they don’t buy into the purpose and say: “Just pay me more, I don’t care what you think of me”?

RANJAY GULATI: I had a friend of mine send me a message a few years ago. It was a one-line text that said: “I quit.” He’s a dear friend of mine who was doing very well. I immediately texted back and said: “What happened?” He said: “I was becoming the kind of person I didn’t want to be.” And when I followed up with him, and he said that he had been introspective about his life, what he wanted to do and where he wanted to be.

RANJAY GULATI: I go back to the exercise that KPMG made all of its employees do. Every employee had to fill out an index card and answer the question: “Why do I come to work?” Of course, you can ask the larger question, “Why do I exist?” or “Why am I here?” and then connect it to: “How does my work allow me to live my life with purpose?” I think all of us — at all ages — should expect more out of our lives and our work.

CHARLES MIZRAHI: Let’s leave it here because it doesn’t get better than that. The name of the book is Deep Purpose: The Heart and Soul of High-Performance Companies by Ranjay Gulati. And I want to say one more thing about your book. I know you’re an academic, so I expected terrible sentence structure. But you kept this book moving with a lot of great stories. I like how you start off every chapter with a story — or almost every chapter. There are so many new companies I learned about that kept circling throughout the book.

CHARLES MIZRAHI: Look, I think you’re in the early innings on this. And the fact that you asked the question and brought it to life gives a lot of food for thought for companies. So, kudos for that. That’s absolutely fantastic. And as we mentioned on the previous call — we spoke together privately — the fact that people are asking the questions is a win.

RANJAY GULATI: I learned a lot from this conversation. So, I want to thank you for making this a really insightful and provocative conversation. Thank you for that.

CHARLES MIZRAHI: It doesn’t get better than that. When a Harvard professor and MIT guy says to me — a guy who barely did one year of Brooklyn College — that he learned something, I couldn’t have a happier day. And my parents are very happy because they spent very little on tuition.

RANJAY GULATI: Ranjay, all the power to you. And best of luck. I hope this book goes on and boardrooms across America — across the world, really — start asking the question. And if 10% of these companies start on that path, it’s a happy day. Ranjay, thanks so much.

RANJAY GULATI: Pleasure. Thank you so much.

CHARLES MIZRAHI: Thanks for listening to this episode of The Charles Mizrahi Show. If you’re a new listener, welcome! If you’ve been listening for a while, we’re glad to have you back. Either way, we’d love to know what you think of the show. Please leave a review if you listen on Apple Podcasts. Reviews make it easier for others to find the show. You can also see the video of the interview on The Charles Mizrahi Show channel on YouTube.