Patrick Pichette, Google’s former CFO, explores the future of business at B Inspired

B Inspired took place in London on 10th October 2019 at the Bridge Theatre. The event was attended by over 600 people looking to explore the changing role of business in society.

My name is Patrick Pichette.

I spent a large part of my career advising and running large companies. I was a partner at McKinsey & Co. I was COO of Bell Canada, one of Canada’s largest companies. I was CFO at Google until 2015. All profitable companies. All profit maximising. As an example, Apple and Google today both have over $100bn of cash reserves. I would call that a good symptom of profit maximising.

But thanks to people like you and me, the world is now changing, and for the better.

I want to quickly talk about profit maximising. Because sometimes one person’s gesture can have large and profound impact on generations. And this is what happened 50 years ago.

On September 13th 1970, a renowned economist from the University of Chicago, Milton Friedman wrote an article in the New York Times with the title “The Social Responsibility of Business is to Increase its Profits”. In it, he argues that business has nothing to do with social responsibility, but only to work honestly within the rules of commerce, and give all its profits to its shareholders who can then decide how to do their own philanthropy.

In his own words, “there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

For the last 50 years, The Friedman Doctrine has fuelled the business world, and also policy makers all over the world. Friedman was very influential in his time and still today. Friedman was an adviser to Republican President, Ronald Reagan, and Conservative British Prime Minister, Margaret Thatcher. His political philosophy extolled the virtues of a free market economic system with minimal intervention.

Critics surrounded him, but mostly his ideas prevailed.

And yet 50 years later, we have enough evidence to know his position is plain wrong. For a few reasons.

1. First and easiest to point to — the environment.

The market and companies essentially work with the short term in mind. And so do most of you. Even with high aspirations, we get dragged back in this year’s objectives, this quarter’s targets, my next financing….a long strategic plan is now 3 years, maybe 5…

And yet the forces shaping our planet need to have horizons of centuries. Left to itself, without proper pricing of externalities (things that we can’t properly price, so they can lead to abuse — think of the true environmental cost of plastic — not embedded in the price today), the market is set to fail nature.

The whaling industry killed tens of thousands of whales every year in the early part of the last century, and would have killed them all left on its own, because every last whale is a profit for someone who has a boat, a crew to pay, and a market who is willing to pay. In fact, Some research points to the fact that without the great depression of the 1930s, which made petroleum very cheap substitute, most whales would have gone extinct. Talk about luck. So they were wrong, and we still have not learned to price the environment, otherwise we would protect it in a dramatically different fashion.

2. Second, we have seen the effect of the Friedman Doctrine, married with the huge technological and productivity progress of the last 50 years, and its consequences on the concentration of wealth. 

A famous economist, Piketty, wrote a very influential book on the topic a few years ago, pointing to this new age of wealth concentration, which isn’t so far removed from the Gilded Age of the 19th century.

With this concentration, we are witnessing the failure of the American system to deliver on the American dream, i.e. equality of opportunity to all, and a growing middle class. You know that things are pretty broken, when one of the richest men in the US, running one of the most successful hedge funds in history writes a post with the title, Why and How Capitalism Needs to be Reformed.

Ray Dalio is such a man, and his exposé is definitely worth a read. But in short, his perspective is not as much on the environment, but much more on the issues of social justice, and making sure that our economic system promotes equality of opportunity to all, a rise in quality of life to all, and some form of redistributive wealth.

In this essay, I think he summarises well the tensions at stake by the following statement:

“I think that most capitalists don’t know how to divide the economic pie well, and most socialists don’t know how to grow it well, yet we are now at a juncture in which either a)people of different ideological inclinations will work together to skillfully re-engineer the system so that the pie is both divided and grown well or b) we will have great conflict and some form of revolution that will hurt most everyone and will shrink the pie.”

3. Finally, we have to recognise that technology is creating a new wave of shocks and opportunities.

 Just like the industrial revolution transformed our world, and created massive changes such as the mechanisation of farming, and the movement to the cities, as well as mass production — we are upon a new age of transformation, coming with robotics, machine learning and AI, big data, etc. And these will also bring massive dislocations and changes, and with it huge new opportunities of wealth creation, many of them global in nature. And the corporations that will capture these new opportunities benefit from a nation state legal and taxation system, that is ill organised for these global corporations. Think of Apple who sells phones all over the world, but has an international structure which enabled it to pay little to no taxes on international revenues, until a few years ago.

Such are the forces that are shaping the world of commerce today.

So these are the challenges that are ahead of us. Pricing the environment properly, making sure that we have equitable redistribution of wealth for employees and communities, while often organising ourselves to pay our fair share in all markets in which we participate.

Plus — the availability to not only maximise profits, but to make social responsibility a core element of any responsible for-profit corporation.

Such a time also creates a huge opportunity:

• An opportunity to seize the moment and set a new course in corporate structures, one that embraces the challenge of delivering more transparency, and a better balance across stakeholders.
• An opportunity to create a corporate structure that has a clear intent of understanding the real costs of our business to the environment, and to our communities; and to thus price our goods and services accordingly. Yes, if you use plastics, the cost should be much higher, and/or find ways to reduce or eliminate it.
• An opportunity to create a corporate structure that goes against Friedman’s doctrine, and instead has founders commit to invest part of their profits to specific causes that resonate with its employees, and the community at large. For example, I am chair of the Board of LightSpeed Retail, a cloud based point of sale service here in the UK.

Lightspeed and Green Earth Appeal have partnered to launch Carbon Free Dining, a ground-breaking initiative aimed at introducing a more sustainable model for UK restaurants. Under the program, Carbon Free Dining plants a tree on behalf of a restaurant for every bill they present. Lightspeed then gives their platform to any restaurant under the initiative, based on the number of trees that restaurant plants.

This is some of the promise of fundamental opportunities the B Corp structure enables. The courage to recognise that the current system does need an overhaul, and to take specific steps in your business to recognise the need for change, to be part of a community of like-minded businesses that, with scale, can show the way and influence the establishment, politicians, and other community leaders to lead more structural changes for good whether in matters of governance, employees/community, or environmental issues.

By following a standard process of evaluation, we can all benefit with a good look in the mirror on a regular basis, so that we can both encourage each other, and also have some accountability toward one another.

And this is why as a leader in my community in VC, I suggest to every tech company I meet, that they explore alternative corporate structures, including B Corp, so that they can help shape the future in a more balanced way.

Finally, I could not finish without touching on a key point that is more relevant to each of us. Business yes, growth yes, profits yes. And yes, to new corporate models.

But we should also remember our own personal, individual choices matter, that whether we like it or not, we are all leaders, and people will look up to us as role models.

Given this, let me at least share with you some principles that are easy to follow:

1. Encourage a plant based diet. 

My wife and I have now mostly walked away from red meat. Mostly mostly. But a big change. For obvious reasons.

2. Support environment and animal rights groups. 

Again my wife and I have an important environment project in Canada with Nature Conservancy, but we also support Earth Justice in the US, an organisation that sues the US government on environmental matters. Their moto is: “because the earth also needs a good lawyer.”

3. Become a conservationist and a minimalist.

Humans are hoarders. Three million years of starving has it bolted in our DNA. We hoard. We consume. We’re idiots. I have all the money in the world (in my mind at least), but I have one pair of running shoes. I cycle everywhere in London. I patch my clothes. And I never order food in — given all the waste it creates.

4. Focus instead on nourishing your body and soul. 

For me it’s adventures, cycling, climbing, or trekking. All non motorised. Plus my non profit work; I am building a hospital in Ethiopia with friends at the moment.

If everyone invests in these simple four types of actions, and pushes for changes at the corporate levels, the next generation may not be as critical towards us as this one is looking back at the last 50 years.

By the way, these four actions are inspired by a book from a good friend wrote. The book is titled, Age of Union, by Dax Dasilva. He is the CEO of lightspeed retail, the company I talked about a minute ago. It is not a B Corp (yet), but as you can see there are many paths to enlightenment.

This is our time. Let’s not waste it. Both in your corporate and individual endeavours.

Thank you for taking the time to listen to me today.

Thank you to Patrick for sharing these forward-thinking words to inspire our audience at the Bridge Theatre and the readers of Reinventing Business.

A first step for businesses interested in measuring their social and environmental impact is by using the free B Impact Assessment tool. Any company wishing to certify as a B Corp has its performance assessed by B Lab across all dimensions of its business. These companies are on a journey of continuous improvement to ensure business leverages its power to be a positive force in the world.