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Grow the Pie

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Grow the Pie

How Great Companies Deliver Both Purpose and Profit

Cambridge UP,

15 min read
6 take-aways
Audio & text

What's inside?

“Pieconomics”  asks leaders whether they create value or just reallocate pieces of the economic pie.

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Editorial Rating

8

Qualities

  • Analytical
  • Eye Opening
  • Inspiring

Recommendation

Economics professor Alex Edmans recasts the concepts of corporate social responsibility and shareholder value into what he terms “Pieconomics.” He posits that increasing the economic pie for everyone is better – and more profitable – than just reallocating its slices to some. He cites numerous instances of companies that are “pie growers,” creating value for society as well as their bottom lines. Executives and business students will find this a refreshing take on an increasingly important task for companies.

Summary

Businesses must decide whether they want to split the existing economic pie or increase its size.

Consider the total contribution a business makes to society as an economic pie.To illustrate, take Martin Shkreli, who was CEO of Turing Pharmaceuticals in 2015 when he increased the price of Daraprimby 5,500%, from $13.50 to $750 per pill. Doctors use Daraprim to counter toxoplasmosis, a parasitic infection that can cause severe complications and even death, if left untreated.

Society has different constituencies – including local communities, the government, investors and customers. But Shkreli wanted to please only one constituency: investors seeking higher profits.He regarded the pie as limited. Shkreli had previously set up two hedge funds that failed. He then decided to buy rights to approved drugs, restrict their availability and jack up their prices. On August 10, 2015, Turing acquired Daraprim for $55 million. The next day, he sharply increased its price.

Compare his behavior to the track record of how Merck handled its drug, Mectizan. In 1978, a Merck scientist found that the drug Ivermectin, which the company discovered...

About the Author

Alex Edmans is a finance professor at the London Business School and the academic director of the Centre for Corporate Governance.

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