Hi, this is Dan Morrell, host of Skydeck.

Parsec Ventures CEO Richard Steel (OPM 45, 2014) has had a wide range of professional experiences, including everything from running both private and public companies to serving on nonprofit boards to advising the White House Business Council. Which means that he has spent a lot of time speaking with leaders in both business and government about the factors that are driving their organizations’ strategy. Over the last several years, there has been a dominant theme in those conversations: ESG. Environmental, Social, and Governance.

And Steel wasn’t just hearing it, he was seeing it. At some point, it felt like he would see a new story every day about companies that were grappling with climate change, racial justice, or diversity and inclusion. He was watching a sea change take place.

His recent book, Elevated Economics: How Conscious Consumers Will Fuel the Future of Business, is his effort to explain the implications of this watershed moment—and help readers understand what it takes to succeed in the new economy it has created.

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DM: You note in the book that the world was very different when you started your first business in 2000. And I wonder if you can talk about your career evolution—how your professional experience sort of offered you a perspective on the ideas that you elaborate on in the book?

RS: So I bootstrapped a company and ran that company, a technology company, for about 10 years and sold it to another company. We then took that company public. And along the way, I was advising the White House Business Council, and I had worked on innovation policy and economic policy.

And the issues that we were grappling with in the early 2000s, like you said, are so different than what we’re grappling with now. You know, that Wayne Gretzky quote comes to mind about skate to where the puck is going, not to where it is.

And things are changing so rapidly. And it's fundamentally different. And it seems as though the pace of change itself is accelerating such that it is very, very important to skate to where the puck is going.

DM: You started to see these big changes and you talk about this in the book. Can you talk about what those signals are that offered you evidence of the significant change that was underway?

RS: So the first thing that hit me, hit me like a ton of bricks.

It was a headline in the New York Times that said "Shareholder value was no longer everything, top CEOs say." That was the headline. It was 8/19/19. I refer to that day in the book as the day the shareholders died.

This was a group of CEOs of America's largest companies. We're talking Jeff Bezos of Amazon, Mary Barra of General Motors and Larry Fink of BlackRock and Brian Moynihan from Bank of America and Tim Cook from Apple and Robert Smith from Vista Equity Partners. And the list goes on and on. There's about 133 more CEOs of America's largest companies that agreed with this statement that shareholder value is no longer everything.

These are the folks that make up the Business Roundtable. And the Business Roundtable is a group of 140 CEOs of the largest companies in America. And they got together and they said there is a new purpose for a company. There's a new purpose for a corporation.

And they listed five things. And in order those five things were number one, delivering value to customers. Fair enough. Number two, investing in our employees. Okay. Number three, dealing fairly and ethically with our suppliers. And again, in order, number four, supporting the communities in which we work. And number five, the fifth and last was generating long-term value for shareholders—not short-term value—long-term value for shareholders.

So you know, it really changes from a shareholder-focused purpose to a stakeholder-focused purpose.

DM: One of the causes of all this that you lay out in the book is what you refer to as the “great wealth migration.” Can you talk about the great wealth migration? Define it and tell us a little bit about its impact on the economy.

RS: So the great wealth migration refers to $68 trillion of wealth. That's trillion with a “t.” $68 trillion of wealth transferring from baby boomers and older generations to millennials and younger generations over the next 25 years. Most studies suggest that 80 percent or more of the heirs of that wealth will look for a new financial advisor after inheriting their parents' wealth.

And if you look at the consumption habits, the buying habits, the investing habits of the folks in the generations that will be inheriting that wealth, they are completely and totally different, completely different than those of previous generations.

There's a study from Morgan Stanley, for their Institute for Sustainable Investing, that shows that 80 percent of individual investors in those next generations are interested in sustainable investments that can be customized to meet their interests and goals. 86 percent of millennials are interested in sustainable investing. 71 percent believe that companies with leading sustainability practices may be better long-term investments. Vikram Gandhi, a professor at HBS, did research and he shows that about 22 percent of baby boomers express an interest in impact investing. For Gen X, that’s 31 percent. And for millennials, they report a massive 71 percent interest in impact-minded companies. And then Gen Z of course, is reported to take that percentage even higher. So these are the folks that are checking the kite marks on products. Kite marks are those little icons that will say, you know, fair trade or sustainably sourced, organic, vegan, et cetera.

And millennials are most responsive to sustainability actions and messaging as well. They are the ones that are most likely to pay extra for sustainable products. We talk a lot about willingness to pay in business school, right? So you drive willingness to pay by having sustainable practices and sustainable products.

They're the ones checking the packaging and labeling to ensure that there is a positive social and environmental impact message as well, specifically on consumer products. And they prefer to work for sustainable companies as well.

There is a lot riding on these next generations.

DM: Why do you think this new generation cares more about the idea of purpose?

RS: This next generation, I think, sees the world differently. They have grown up with these catastrophes, with these hundred-year floods and hundred-year storms. They see literally the rainforest being depleted on a daily basis. Right. They understand what climate change will mean for them. And they're the ones that have a 50-, 60-, 70-year time horizon on this planet. Right?

DM: So, we see all this great evidence out there of this huge movement, transformational change for leaders of firms: How can they react to that change? How can they address it? What are the things that leaders need to do to ensure their firms can succeed in this new era?

RS: A couple more points on the consequences if they don't change. Because I do think that there is a little bit of carrot-and-stick here, and I think the stick needs to be emphasized a little bit more.

Unilever announced that they're going to spend a billion euros attempting to align their products with their customer's values. They're spending that money on ways to cut fossil fuels from their detergents. In response to climate inaction, Amazon employees created a group called “Amazon employees for climate justice” and they staged a walkout. They walked out of the Seattle headquarters. When they did, they were joined by employees from Google, Microsoft, Apple, and Facebook, who all walked out the same day as well. Guess what happened? Two months later, Amazon pledged $2 billion to the climate crisis. You had Wayfair employees refusing to work because they didn't want their company to sell mattresses to the government, who was planning on using them at their detention center at the border.

Those are just a few examples of the consequences. And on the positive side, firms that do well on the ESG spectrum—environmental, social, and governance spectrum—and run their businesses with purpose, show a massive benefit in attracting and retaining talent—which is by the way, a huge cost savings as well. There's been studies that link a strong environmental, social, and governance proposition to value creation, both in top line growth, cost reductions, regulatory and legal interventions, and avoiding some of those interventions, productivity uplift by their workers, and asset optimization.

So there's, there's a lot of ways that this is good, but your question was: What do leaders in firms do? And so this is, this is part of the big reason that I wrote the book. Anybody who's in a leadership position now, or even aspires to be in a leadership position within their company can leverage the knowledge that we have—the facts and figures and trends and incontrovertible data—and know where things are going and help their firm steer in that direction. On the environmental side, if we just take ESG, right, and run through some of the issues associated with that: Looking at your air emissions and air quality, looking at your energy use and conservation, looking at waste management and water quality. All of these things are cost savings by the way. Your natural resources and land use, right. And any issues with hazardous materials, as well.

Those are ways that companies can align themselves. And by the way, tell a good story. Do all the things, do all the right things, and then tell the world how great you are at it. Right? That's legitimate. That's not greenwashing. Greenwashing refers to people saying that they’re doing things and they're not actually doing them, specifically in the environmental side of ESG. On the S, the social side, that talks about your relationships with employees, suppliers, and clients, and the communities in which you operate.

So labor standards, employee relations, local community impact will be another one. Equal employment opportunities, health care education, and even housing services for employees. So that's on the S side of ESG.

G, governance. This is really how a company behaves. What are their standards for leadership? What's the makeup of the board? What are their risk controls, shareholder rights, voting rights, board independence and diversity. Ethical business practices. Voting rights, things like that. And so if you break down some of these, at times, difficult to understand topics into their component parts and act on those, it can be a huge boon.

I had a friend who runs a huge construction company in New York, just massive. And they were bidding on a contract for a huge tech company. And the tech company had them as part of their bidding process, write an essay on their approach to ESG in their business. And thankfully this person was a leader in their field and could articulate their ESG message.

They were told that they won this contract because of their ESG message.

This huge construction project was basically a commodity, right? Almost anybody, any firm could have done it. These are one of the big firms, but the tech company was a very forward-thinking tech company, told them after the fact that it was their ESG statement that was the deciding factor in the contract negotiations.

DM: So in your own business, you've been in this position where you were faced with choosing purpose over profits. Can you talk about those circumstances and the choice that you made and how it impacted your business?

RS: I think that the anecdote that you're referring to is an opportunity that we had in the early stages of my company to accept a contract from R.J. Reynolds.

We were at a crossroads. We needed the money, we needed the contract, but I really, really, really did not want to do business with them. How I explained it to my fiance, now wife, at the time was I don't want to get rich off tobacco money. That's not how I want to be successful. That's not what I want my company to stand for.

And I didn't want our employees to think less of the business that they were working in if we were to take that contract as well. And don't get me wrong, we needed the money, and it was a big contract. But at the end of the day, I put my foot down.

I just said no. And I had a great leadership professor at HBS who said, it's important to know what you'll say yes to, but it's more important to know what you'll say no to. And I credit that with helping me be able to make that decision. We weren't going to make money that way.

I'm glad that we made that decision. It was difficult. It was extremely difficult. The salesperson who brought the deal to the table was not happy with that decision. But I am, and I think I said in the book, I didn't want to take my kids on vacation with tobacco company money, you know?

And so yeah, I do feel, I do feel good about that.

DM: So Richard, we've been speaking a lot about what business leaders, what firm leaders can do. They see this big movement ahead of them, and how they can react. What should we be doing as consumers?

RS: It's important to drive home the optimistic side of all this.

I think that, you know, profit margins and revenue predictions aside, we are engaged in this really thrilling age for business. And that doesn't mean just businesses, but it's consumers. We're in a really exciting time. So what can you do? Every time you spend your money, you're casting a vote for the kind of world that you want.

And the exciting part about this is we've had the power ... as consumers, we've had the power the entire time. That's never gone anywhere. But because of all of these moments of reckoning, this confluence of factors that we've seen, there are things that we can do concretely every day.

Vote with your dollars, right? Buy locally from companies that align with your values—and just as importantly—shun companies that don't align with your values. Put your money where your mouth is. And what I mean by that is: Decide how your investments align with your values. Two years ago, there were 500 ESG mutual funds. Today, there’s over 3,000.

It's easier now than ever before. You can look up ESG scores on any financial website for any publicly traded company. You can talk to your wealth manager about various ways that you can invest that align with your values and various themes that you can instruct them to use with your investment portfolio.

Choose who you bank with. There are some banks out there supporting some really bad actors. And you can choose who you bank with. Which bank is supporting the things that you believe in?

If you're in an organization, whether you're a leader of that organization or aspire to be in a leadership position, be that value change agent in your business. You know what's coming—help your company position itself to win in this elevated economy, as I call it.

Speak up, right? Make your voice heard on social media, write a letter to the editor, to your congressperson, and support candidates and causes that align with your values as well.

So again, every time you spend your money, you're casting a vote for the kind of world that you want.

This episode of Skydeck was edited by Craig McDonald, with additional production by PRX Productions. It is available at iTunes and wherever you get your favorite podcasts. For more information or to find archived episodes, visit alumni.hbs.edu/skydeck.

Featured Alumni

Richard Steel

OPM 45

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