What is “inclusive growth” and what needs to change to achieve it? Harvard’s Dr. George Serafeim, keynote speaker at the upcoming Palladium Positive Impact Summit in New York City, talks to Summit MC and Fast Company Editor-in-Chief Stephanie Mehta.

This interview has been edited for clarity and length.

STEPHANIE MEHTA: Dr. Serafeim, you'll be speaking at the Palladium 2019 Positive Impact Summit on the topic of inclusive growth. What do you mean by the term "inclusive growth"?

GEORGE SERAFEIM: Inclusive growth is about opportunities and outcomes. By inclusive growth, I mean an economy that works both by giving equal opportunities to everybody to participate, while capturing value.
Both elements are important, so people need to have the opportunity to participate in globalized value chains in the work that our global corporations are doing, but also, at the same time, they need to be rewarded for their efforts.

While doing that, we cannot destroy the planet. We need to think about how we can actually create an economy that works and be productive, while also protecting our planet. So, we need to find sustainable business models. For me, that's what inclusive growth is all about.

STEPHANIE: What or who is driving the paradigm shift? What is the impetus for this shift to a conversation around more inclusive growth?

GEORGE: I think we are all driving that conversation. I think employees are driving that conversation. A lot of what we see is that employees are trying to find meaning at work, caring about the contribution of their companies in society. You see that happening right now at Amazon, Google, BMW, and so forth.

I also think customers are driving that change. I think some investors are driving that change. Large institutional investors have raised their voices and concerns about many of those issues, in terms of inequality or climate change.

Increasingly, some governments are voicing these concerns. But at the same time, they have lacked concrete actions that they need to take in order to address many of those problems. For example, we have a fundamental lack of carbon pricing, or efforts to increase access to healthcare or education in many places. As a result, we need more action and less talking.

STEPHANIE: How big a shift will this be for the majority of corporations operating around the world today? There was a period of time when it seemed like corporations focused mostly on stockholder or investor value. It sounds like you're talking about a much broader ecosystem of stakeholders. What needs to change for corporations to really embrace inclusive growth?

GEORGE: Stephanie, this is a fantastic question. The first answer is to say this is not easy. I think many people pretend that this is going to be easy. It's not going to be easy. Changing culture, changing incentives, changing institutions; they're very, very difficult tasks.

We have heard so much about making America great again, or making France great again, or any other country. I often point out that America has always been great for investors. You need to ask the question, “Making America great again for whom?"

We need to make many places great for workers, great for customers, great for suppliers, as well as investors, and I think that needs to be part of the discussion.

STEPHANIE: What needs to change inside companies?

GEORGE: If you want to have an inclusive growth strategy as a company, first of all, you need to build accountability systems. Accountability systems tend to operate both from a top-down perspective, and bottom-up.

Top-down, the board of directors needs to be both responsible and accountable for a much wider set of outcomes, and a much wider concept of what performance is and what value is.

It also needs to be bottom-up, which means culture. You need an environment where employees feel that the organization has a broader sense of purpose, and as a result, a sense of the value that's created in society.

Once you have in place those accountability systems, you need to follow the value chain of strategy, operations, and product development in your markets.
Many companies confuse what strategy is. Strategy is about being humane.

Strategy is about building a competitive advantage. It's not about following the fad of the day and what every other competitor is doing.

You hear that all the time, in terms of developing human capital, or in terms of environmental activities and so forth. Many of those things are just common practices. They’re elements that are becoming common throughout the industry.

So, the question is, how can you not fall behind compared to your competitors, but at the same time, build a competitive advantage?

Then, the question is how do you build an organization that supports that strategy?

STEPHANIE: And how can you do that? Build an organisation that supports your strategy?

GEORGE: Let me tackle two elements very briefly.

The first is organization design. Many people are putting together, for example, chief sustainability officers. The question of understanding when that can work is one of understanding what is really material for that company. So, for example, if you're a financial company, maybe your chief sustainability officer needs to be your chief risk officer, or your chief investment officer. If you are a consumer goods company, maybe your chief sustainability officer should be the chief brand officer, or the chief marketing officer. If you are an electric billing company, maybe it should be actually the chief operating officer.

So, where you locate those authorities makes a big difference in understanding whether you can drive performance forward.

The same applies to how you build momentum and drive performance forward in the organization. One of the things we have found in research is that setting ambitious and bold targets makes a big difference in terms of motivating performance inside the organization.

The last piece is, you can be doing all those things. You can be taking all those activities, and then you're not creating real impact, if your products and services don't change.

Imagine an organization like a tobacco firm, or an oil and gas company, or a consumer goods company that is just basically in the business of selling sugar. At the end of the day, you can be doing all those changes in terms of governments, in terms of accountability, in terms of culture, in terms of strategy, in terms of operations and so forth, but you're selling the same products.

We need to start understanding product impact. I think everything that I just discussed needs to be communicated in a coherent way to investors, because at the end of the day, if you don't get investor support for whatever your strategy is, then you're not going to be able to go, at the end of the road ... because this is going to be a big culture.

STEPHANIE: But, based on what you've described, it seems that, given the complexity of organizational change and the length of time that organizational change may take in some of these big organizations, newer companies are advantaged when it comes to building systems from the ground up that have more of an inclusive approach.

Is there any hope for big companies trying to, essentially, re-organize and re-orient?

GEORGE: I think the answer is absolutely yes, for multiple reasons…

Watch for Part 2 of this conversation next week. Join George and Stephanie in person at the Palladium Positive Impact Summit in NYC on 25 June 2019.