A seminal discourse from Saker Nusseibeh, CEO, Hermes Investment Management
The relationship between business and society is the focus of a recent interview (June 2019) between Saker Nusseibeh, CEO of Hermes Investment Management and Ioannis Ioannou of London Business School. In particular, Nusseibeh explains the crucial importance of integrating ESG factors (environment, social, governance) into investment decisions stating (0618 on timeline) “we integrate ESG in what we do at Hermes… and all of the CEOs/CIOs of asset management companies believe in ESG”. However, when comparing the authenticity of other asset managers, he adds “Do I really believe they integrate it? No. It is just ticking boxes.”
In 2017 the Maturity Institute (MI) was sponsored by Hermes Investment Management for our first major report into Banking Governance & Culture. In 2018 a senior executive at UBS, one of the banks covered in the report (and rated BB), recommended our work to Professor Christoph Loch, Director of Cambridge Judge Business School (CJBS). Prof. Loch asked one of his PhD candidates, in finance & sustainability, to analyse our data; to determine whether there is a connection between our OMINDEX ratings and Total Stakeholder Value metrics; the financial performance of the banks; and their wider responsibilities to society, under the headings of ESG. One of her preliminary findings supported MI’s thesis that financial performance and societal benefits are not mutually exclusive, noting that: –
“A company can maximise profits and create wealth for shareholders mainly by establishing a mature institution that enhances wellbeing for all legitimate stakeholders as well as create positive externalities to the environment and the wider society.” CJBS, January 2019
Nusseibeh also contrasts current, socio-economic thinking in China and the US. He remarks that “In China President Xi said … finance should do more than just make money, it should provide a service to society” while regarding the US as “.. the outlier… (where) their fiduciary duty is just to make money.” Nusseibeh also sees the world making a “societal shift” towards the interests of business and society being one and the same: mutually inclusive and forming a virtuous cycle of improvement. This is a very welcome paradigm shift away from the US’s adherence to the Friedman Doctrine, where ‘profit is the sole responsibility of a corporation’. MI’s view is that Friedman’s theory was always flawed: profit cannot be maximised unless corporations are maximising the value of all the people who work within, or otherwise form part of, an organisation’s whole system.
Nusseibeh goes further in identifying the obstacles still holding back progress in improving societal value. He is convinced of the need to teach “a new generation of business people that actually business skills are not just the skills of the balance sheet…. It’s understanding the people you work with, understanding the people you serve… It’s about service and being responsible to each other. So the skills that the new generation has to learn, … is the importance of people. …. Businesses do not exist in vacuums. Businesses exist in society. Your client base is society, your colleagues are society, your stakeholders are society. Learn to understand society.”
At MI we wholeheartedly agree with this philosophy. Our founders have been working on developing a very similar philosophy for many years and we have now reached a point where the same, core philosophy underpins MI’s new, enhanced MBA module entitled ‘Responsible Business and the New Stakeholder Economy’.
The Maturity Institute is about society coming first; but this does not mean it has to be at the expense of company performance. Our universal OMINDEX scale rates and measures Total Stakeholder Value (TSV), where the best interests of all stakeholders are best served. The TSV measures for all OMINDEX rated companies determine the extent to which they are starting to make this transition from a focus on profitability towards a purpose of societal value. Some still have a long way to go.
Our work helps investment firms like Hermes to see non-financial, qualitative, values-based data on companies in a way that has never been exposed before. It enables investment firms to highlight which companies are most likely to make a more successful transition to this new world. We can better identify the ones that are undervalued today and those that are more likely to perform better over the long term. This in itself helps to drive a mutually inclusive value system; where responsible businesses are encouraged to generate maximum TSV and rewarded accordingly.