Purpose-driven strategies to create a more equitable world.

Understanding how to reduce the vast gap between rich and poor “is one of our time’s greatest challenges.” So remarked the chair of the Nobel prize-giving committee on awarding the 2024 Nobel Prize to three economists for their important body of work investigating prosperity differences around the world.

Recognizing the seriousness of this challenge, IESE’s Institute for Sustainability Leadership (ISL) held a conference in September 2024. Its title — “Business and Inequality: Rethinking ownership, governance and rewards to prevent societal collapse” — laid out in stark terms the consequences of inaction on inequality.

Opening the conference, IESE Prof. Fabrizio Ferraro commented presciently before the outcome of the U.S. presidential election was known: “As inequality increases, segments of society become disenfranchised, and populist movements grow and, in some cases, take power. This can threaten the very fabric of our societies, affecting all of us, not just as executives, but as citizens. I believe we have a moral duty to do something about it.”

Conference speaker Colin Mayer, of Saïd Business School at the University of Oxford, noted how time is running out: “The problem is not simply, as Keynes claimed, that in the long run we are all dead, but that we will all be dead in the short run.” We need to act now.

Admittedly, the challenge is huge and complex. Indeed, the work of the three Nobel laureates (James A. Robinson of the University of Chicago, and Daron Acemoglu and Simon Johnson, both of MIT) encompasses the historical role of Western colonization in institutionalizing inequality over centuries. When faced with challenges as overwhelming and as deeply entrenched as that, the temptation may be to throw up your hands and do nothing.

Yet there are things that business leaders can do, starting within their own organizations.

Here, we suggest how businesses can, in the words of Mayer, “profit from solving problems, not from creating them.” And we showcase inspiring stories of those who are being catalysts for change — so you can be, too.

How bad is it?

How big of a problem is inequality? It depends on whom you ask. Economists have been debating the topic for decades, but it was the French economist Thomas Piketty’s 2013 best-selling book, Capital in the Twenty-first Century — coming on the heels of the 2008 global financial crisis — that thrust the issue into the limelight, lending justification to the Occupy movement’s argument that increasing shares of wealth were going to the top 1% of society, leaving everyone else behind.

That inequality debate intensified when two other economists, Gerald Auten and David Splinter, used the same U.S. tax data that Piketty studied and came to a different conclusion: top income shares of wealth were lower and had increased less over the past half-century than believed. They admitted income and wealth inequalities had increased, but they disputed the degree.

Speaking at the IESE conference, the German economist Moritz Schularick explained the many different ways one could parse the data.

For example, if you compare U.S. households in the 1950s with today based on their access to, say, consumer goods like flush toilets and refrigerators, then you might well conclude that even the poorest U.S. households are better off today than before. But if you look at real household income over the same period, and compare those in the 90th and 95th percentile with the median, you see the former had “very, very high income gains, whereas the median household basically increased its income in real terms from $42,000 to $50,000 per year. And for the poorest 10%, things remained more or less stuck at around $10,000. So, while we can point to instances of real economic gains, it hasn’t trickled down in a way that benefits those at the bottom the most. And I think that’s the real tension.”

Referencing A Theory of Justice by the ethics philosopher John Rawls, Schularick reiterated Rawls’ idea of justice, that “inequalities can only be tolerated in society to the extent that the least advantaged derive the greatest benefit.”

The devil is in the detail — or in your chosen dataset. Income after taxes is one measure; another is the Gini index. So, if income or wealth were plotted on a graph, and everyone had the exact same amount, it would be perfectly distributed along a straight 45° line (0). Then, when you plot actual household income, you see how much it deviates from 0.

Writing in IESE Insight, the Serbian-American economist Branko Milanovic compared Gini values to temperature: “When it’s 25°C outside, it’s still a comfortable day; and it so happens that a Gini rating of 0.25, which we find in Nordic countries, could be a comfortable amount of inequality to live with. When the temperature is 35°C, it’s hot but still manageable. At 40°C, you really need air conditioning. In Spain, Gini is about 0.35. In the U.S., it’s 0.4. In Brazil, it’s a whopping 0.6. And globally, we’re off the charts at 0.7!”

The World Inequality Lab, synthesizing the available research, attests to this off-the-charts inequality. Though not uniform around the world, income and wealth inequalities certainly have been “on the rise nearly everywhere since the 1980s.” And it’s not inevitable, the Lab insists, but a choice. A choice that, for Milanovic, arises from the “changing nature of modern capitalism.”

What’s changed?

Mayer has charted the changing nature of capitalism over the course of three books: Firm Commitment (2013), Prosperity (2018) and most recently Capitalism and Crises: How to Fix Them (2024). Capitalism, a system that he acknowledges has brought “remarkable prosperity, growth, employment and poverty alleviation” to the world, is also increasingly the cause of inequality and social exclusion, which “threaten our politics, societies, economies and environment.”

As a consequence, “our democracies are on the way toward more polarization and populism,” warned Schularick. “Once you let a populist come to power, something breaks with the body politic, and it’s bad for the economy as a whole. And it doesn’t matter if they’re left populists or right populists, the effect is equally bad. Their policies don’t help the people they pretend to help. They do lasting damage to the things that we economists think are key for growth and development in the long run: competition, a free press, fair elections, good courts, a fair legal system. Worst of all, inequality doesn’t change.”

How to prevent this? For Mayer, it starts by getting back to the original purpose of business. For Milton Friedman, that purpose was to make money. While Mayer doesn’t disagree with the need to make money, he takes it further, asking: Is the profit motive aimed at solving the problems we face as individuals, communities, societies and the natural world?

Capitalism, he argues, has become unhinged from a fundamental purpose of being profitable for the sake of people and the planet, not to line one’s pocket. He says it’s as if the business world embraced Adam Smith’s The Wealth of Nations while forgetting his earlier work, The Theory of Moral Sentiments — accepting the get-rich-quick parts of the story while ignoring “the moral preconditions that are required for this to work and without which, markets, far from being benign, become perniciously malign.”

But we have the power to write a better story. He urges: “We have to think about inequality not just in terms of a public policy ex post redistribution of wealth, but an ex ante activity that business is involved in and contributing toward achieving.”

What can be done ex ante?

First, we need to distinguish between wealth inequality and income inequality. Wealth includes how much money is held in bank accounts, property, stocks and other investments. A country’s tax system, including capital gains and inheritance tax, is essentially designed to redistribute such wealth across society. Redistribution is an important lever of governments and policymakers to try to make societies more equal — to “level up,” as the slogan goes.

Income, on the other hand, concerns the predistribution of wealth in the form of how people get money in the first place, and that is where business “most affects inequality in the different salaries and wages it chooses to pay different groups of people within the same company,” explained Schularick.

There is also inequality of opportunity, and that, too, is an area in which business can play a key role.

As such, let’s consider the following levers available to business leaders to help tackle inequality and, in the words of the IESE conference, “prevent societal collapse.”

1. Get your purpose straight

Why does your business exist? And by this, we’re asking a much deeper philosophical question than “to make widgets” — it’s about your raison d’être.

For Mayer, the purpose of a business is to produce profitable solutions for the problems of people and the planet.

If you recognize that as the ultimate purpose of your business, then “profit” becomes something derived from solving, not creating, problems for others. And that is not something extrinsic, imposed by regulation or taxation, but inherent to the way the company conceives of itself, its ownership structure, its governance, its performance metrics, its finances — everything. (See Mayer’s SCORE framework.)

All else flows from this starting point. Adds Mayer: “One significant way companies exacerbate problems of inequality is by how they produce and sell goods, and how they price them — the extent to which food, housing, energy, clothing and other life necessities are unaffordable.” And those are basic areas where businesses have enormous power to effect real change — if they operate with the right purpose in mind to begin with.

2. Lock it in

Once you make “positive impact” central to your business purpose, it’s important that you stick to it for the long haul.

Speaking at IESE, Chris Oskam, head of sustainability at the purpose-driven chocolate company, Tony’s Chocolonely, explained the extra step her company took to future-proof its purpose. It’s called Mission Lock, and it involved adopting a special legal structure to prevent future shareholders and chief executives from deviating from its commitment to always pay above the Living Income Benchmark and to ensure that no child or forced labor is used in its supply chain.

Tony’s Mission Lock, as an independent legal structure, has a “golden share” of ownership (a non-economic stake), overseen by Mission Guardians. The leadership team is legally required to follow the company’s mission and agreed sourcing principles; if they stray, the Mission Guardians have the right to intervene and take action, including the right to publicize their concerns in the company’s annual report or in the national press where the company has a market presence. They even reserve the right to take matters to the courts, if all else fails.

This is a powerful structural mechanism to ensure, in the words of the CEO, “our hard work does not get undone. Not now, not in 10 years’ time, not ever.”

Juvencio Maeztu (IESE MBA ’94) is Deputy CEO and CFO of Ingka Group. Speaking as a member of IESE’s International Advisory Board, he described how IKEA embedded its purpose (“to create a better everyday life for the many people”) into its corporate structure.

The company is owned by a foundation. Net income is invested in two ways: it stays in the company to support the long term, and it is distributed as a dividend to the Ingka Foundation, which supports charitable activities through the IKEA Foundation, with €2 billion in grants given to fight poverty and climate change. No dividend goes to private shareholders. This is another form of “locking in” the purpose.

3. Change your metrics

How do you measure profit? Is it merely revenue minus the cost of labor and materials? As Mayer points out, that crude calculation “doesn’t take account of the extent to which a business is paying its employees below a living wage or paying people in its supply chain below a fair price, nor the degree to which a business is polluting the environment and failing to clean up its mess.”

In other words, are you accounting for the true cost of doing business? Until the true cost is internalized, “no amount of regulation, taxation or government policy will rectify the inequality plaguing our societies,” says Mayer.

Meanwhile, firms that are incurring their true costs cannot compete on a level playing field against firms that aren’t; and because they cannot compete on earning the same levels of return on their capital, “what we end up with is a run to the bottom instead of a run to the top,” he says.

In measuring success, always be open and honest about your progress, reporting what you have achieved — as well as what you haven’t. “Be proud of your half-full glass and inspire others,” said Maeztu, “as well as being transparent about the half-empty glass too, publishing what you are doing to close the gap. And if you track the data and keep acting in a consistent way, you will build trust.”

“We’re living and operating in a more polarized world. As such, it’s more important than ever that companies have a positive view, are grounded in values and have a vision in order to stay on track and avoid swings in society, ultimately contributing to a less polarized world.”

4. Close pay gaps

IESE Prof. Marta Elvira has done extensive research on income inequality.

In one study involving the financial sector in 12 countries, she found that financiers were 2.8 times more represented, on average, among the top 1% of earners. What’s more, their earnings go up and tend to stay up, even after a financial crisis like in 2008. How so?

The logic is that, during boom years, banking professionals are rewarded for their perceived contribution to the success of the firm; and during bust years, they continue to command high wages by playing off firms’ fear of losing top performers and suffering even greater losses.

This shows one way in which inequality becomes entrenched and hard to reverse. Even regulatory attempts to tame this, like bonus caps, have had limited effects, merely seeing remuneration switch from variable to a greater fixed component, but still at disproportionately high levels compared with the average salaries in the economy.

The takeaway is not to blame bankers for inequality, “but to think about how we can set income levels appropriate to their contribution to society, considering the value added by other sectors of the economy,” says Elvira.

Every organization can introduce compensation structures commensurate with their long-term contribution to the common good.

The discretionary component of compensation features in another study by Elvira with Isabel Villamor, revealing it to be a factor in pay disparities between men and women.

Performance-based pay makes up a large share of executive compensation, and men who are positioned to perform at high levels early in their careers also get promoted; the more they get promoted, the more this generates a self-reinforcing loop, enabling them to ascend to higher ranks and higher pay.

Women, meanwhile, could be held back by various reasons including bias (“What if she leaves to have a baby?”) so they get promoted later and spend more of their time trying to catch up with men who got a head start.

For there to be less pay disparity between male and female executives later in life, it’s key that task assignments and early promotion decisions be based on objective evaluation criteria, to avoid gender biases creeping in. Mentorships are also helpful. For women, leaning into promotions early has a defining impact on income levels later in their careers.

Although the previous study used data from U.S. high-tech manufacturers, a sector with generally fewer women, one should not conclude that pay inequality is easily explained by women working in sectors and professions that pay less: i.e., teachers or nurses vs. bankers or business managers. It’s not so simple, as a further 15-country study published in Nature Human Behaviour indicates.

Specifically comparing the same jobs in the same occupations in the same firms, Elvira and her co-authors found that gender still accounts for sizable pay differences (albeit diminishing over the past two decades).

As recommended before, removing biases and barriers in hiring, promotion, career development and remuneration will do more to reduce income inequality than dismissing it as a natural consequence of women choosing lower paid professions. Thus, equal pay for equal work remains an essential policy.

Another Elvira study, co-authored with Halil Sabanci (IESE PhD) of the Frankfurt School of Finance and Management, looked at temporary work. Although the dataset is from Spain, the observations resonate widely.

Temporary contracts are usually framed as a means of job creation, giving employers and employees alike greater flexibility, and helping to reduce unemployment. However, Elvira warns of the unintended consequences of this prevalent employment practice. Temporary work falls disproportionately on low-wage workers, who struggle to make the transition to full-time, stable employment. Rather than being a stepping stone to permanent work, it becomes a precarity trap, once again exacerbating wage inequalities.

The COVID-19 pandemic exposed this sharp division of labor, between full-time, salaried professionals protected by a permanent contract who could afford to work from home, and the working poor who had no such choice and were often employed as “essential workers.”

“When we see such structural differentiation,” Elvira says, “we must ponder which employment policies and practices can avoid that segregation at the level of our own firm.”

Equally important, regulations should not impose disproportionate burdens on employers that would discourage them from offering permanent contracts.

Temporary contracting goes hand-in-hand with related practices like outsourcing and subcontracting, along with the business world gravitating toward deindustrialization, offshoring, downsizing and digitalization. This seismic restructuring of business over decades has led to higher earners becoming increasingly isolated from other employees, in what Elvira and her co-authors term The Great Separation.

Reporting on their 12-country study, Prospect magazine states: “Top earners are more and more often surrounded by other top earners and are isolated from lower earners … This leads to higher earners being cut off from other workers, their norms and ways of thinking. In turn, this can alter how elites engage with the rest of society, and how lower earners see them.”

Schularick echoed this assessment when describing globalization: “Blue-collar workers in Western industrial societies have been put into competition with an enormous workforce in the rest of the world. We are living with the consequences of this happening right under our eyes.”

He likened the situation to the metaphorical frog in a pot that doesn’t notice until things have reached boiling point — too late.

The polarization, disconnection and disaffection plaguing our societies endanger the very foundations on which we live, work and operate. It’s time for responsible business leaders to take the pot off the boil.

We must try to reduce The Great Separation, both in terms of pay but also in our social interactions, facilitating mutual understanding, especially between those at the top and those at the bottom.

Ask yourself:

> What changes can I implement, starting today, to encourage more members from multiple levels of the organization to cross paths and share their reality at work?

> How can I foster more integration, bringing people together around shared values and shared concerns?

“By definition, a workplace is supposed to be a place where people work together, but it can’t be taken for granted,” says Elvira. “It requires a proactive, positive effort to get closer.”

5. Provide more opportunity

Another way companies can alleviate problems of inequality is through the skills-and-capabilities training and education they offer, enabling individuals to develop their full potential and access better, higher paying jobs.

Nowhere is this more urgent than in the area of artificial intelligence. “AI has altered everything we used to think about the rate of technological change, making it hard to predict which jobs are safe anymore,” said Schularick.

What is clear is that “there’s a link between income inequality and skill levels. The best insurance against becoming poor is having a good education. So, invest in your people to make sure they stay up-to-date and trained. The more educated and productive people become, the higher wages they will attain, and inequality falls. Education is really, really central.”

People with lower skill sets are often the first to be let go when firms make cutbacks. When this happens, these are also often the people with fewer resources to fall back on, in terms of accumulated wealth, so they burn through their savings in no time and end up in even more precarious predicaments, trapped in a downward spiral. Unemployment doesn’t have to be the foregone conclusion of more artificial intelligence.

Business can stop causing inequality by not laying people off at the first sign of trouble. It goes back to the mindset shift Mayer mentioned earlier — of business conceiving itself as a problem-solver rather than being a problem-creator. “The answer to any big disruptive change, like AI, should not be to end people’s employment, but instead to provide more opportunity, contributing to the well-being of people across society.”

6. Work in partnership

Although there is a lot that a business can do individually to alleviate inequality, it’s true that the impact will be greater if done in collaboration with likeminded partners. A purpose-driven business will have a much harder time rectifying inequality without, say, a supportive government sharing the same agenda — not if the government is corrupt or divisive, or it prioritizes “macroeconomic austerity over investing in the human capability and physical capacity required to address inequality in opportunity and income,” says Mayer. “It definitely helps when business and government objectives are aligned.”

The same goes for an aligned corporate sector. Chris Oskam of Tony’s Chocolonely testified to the challenge: “It’s difficult because we’re competing with companies that don’t uphold the same values as we do.” That puts their product at a different price point on store shelves, and until all businesses are on the same page — as profitable partners instead of profiteering ones — purpose-driven firms, like hers, will have to work harder to build consensus and change the tide.

Mayer calls for public policy partners to support those pioneering companies operating beyond the boundaries of what is commercially viable under the current paradigm, by using their legislative and regulatory powers to subsidize problem-solving and co-invest with the private sector until those as-yet unprofitable solutions become profitable.

He is optimistic, though, that “we’re going through a transformative moment.” Technological advances, particularly with AI, are fast leveling the playing field. As more information becomes visible to us — regarding the provenance of every product, what workers are paid and whether there is exploitation or parity — we will soon all be able to see exactly what’s going on within companies and among competitors.

Add the amplifying effect of social media, and “we’re moving to a position where boards of directors and business owners are going to have to own up to the impact they’re having on their people and on the world around them. And that is really going to drive radical change.”

In the meantime, lest you still think you’re too small or insignificant to change the world, draw strength from this apt analogy from Oskam: “Just try going to sleep with a mosquito in your room.”

A relatable reminder! Time for us all to get buzzing.

WATCH a video summary of the Business & Inequality Conference, co-organized by IESE’s Institute for Sustainability Leadership (ISL) together with Conscious Capitalism and Acció (Catalonia Trade & Investment).

Every organization should embed these five components, using the SCORE framework co-developed by Colin Mayer (pictured).

1. Simplify

Clarify your corporate purpose so that everyone inside and outside the organization really understands and appreciates its significance in addressing a meaningful challenge, like reducing inequality.

3. Own it

This relates both to formal ownership by shareholders as well as to every employee and the board having a clear sense of how they are contributing to the purpose, with appropriate structures, values, culture and processes in place, right down to the shop floor.

5. Exemplify

Use narratives that bring the purpose to life. Demonstrate its authenticity through vivid images of its success.

Don’t be afraid of also communicating the challenges and how far you still need to go to deliver on the purpose. This shows transparency and lends credibility to your efforts.

Dunia Reverter (pictured) is Co-founder of Krisos.

Dunia Reverter is in the business of transformation. The name of her private equity firm, Krisos, derives from the word “chrysalis,” the casing for a caterpillar before it emerges as a butterfly. Krisos buys up traditionally managed SMEs and, true to its name, transforms them into self-managed organizations, ready to fly. And though the end game is always to sell them, Krisos makes sure they have sustainable ownership structures locked into place, so these rebirthed firms can maintain their independence, profit-sharing and prosocial purpose for the long term.

Here, Reverter illustrates how it works, citing the 2023 acquisition of Indaero, a small Spanish company that manufactures parts and equipment for the aerospace and medical sectors.

Organizations may be broken, she says, but “we have good news: we can do it differently.”

You and your partners have developed this successful organizational transformation model over 20 years. Why do you think it works?

Because we walk the talk. We are very clear on the kinds of actions we expect to be coherent with the values that we profess — values that we genuinely believe in.

First is transparency — about salaries, about the strategy; people can access any of the meeting minutes and any of our governance forums. Transparency is an important foundation for trust. And trust is important for a culture to flourish.

We also believe strongly in respecting people’s freedom. And with that freedom comes responsibility. We don’t control people because we trust them. And because we trust them, we leave them to work in self-managed teams and make their own decisions collaboratively. The management is not top down. The recruitment and feedback are done 360. We decide collectively on decisions that affect everybody. For any business transformation, at least 80% of the people in the organization must have voted yes to it.

Having a sense of shared ownership in our collective future is key for fomenting a long-term vision, rather than only ever looking for short-term results. It really pays off.

Those are some systemic things, changing structures, procedures and methods of governance to be less opportunistic. What about at the personal level?

We also support personal development. We train everyone, not just the leaders, in competencies like emotional intelligence and conflict resolution, and we offer everyone coaching, too.

One of the biggest problems in the world right now is the concentration of power and who holds that power and their refusal to give it up. So, in all our transformations, we make sure that the power is very distributed and we don’t let it accumulate. We spread the decision-making and the responsibilities among a wide group of people, so a lot of people can be part of the leadership and the governance of the organization.

The people in those groups are elected by their peers. They aren’t put there in a top-down manner by me, for example. The teams decide who represents them, and if they decide they don’t want to be represented by that person anymore, they can elect to change their rep at any time.

Salaries are often a touchy subject. How do you deal with that in a way that doesn’t generate conflict and disparity?

We believe in salary equilibrium. Achieving that equilibrium may start by raising salaries, ensuring all employees are paid above the national average. We make sure the salary differential between the top and bottom percentiles is never more than two times.

We share the profit, with 25% of our net profit paid in bonus to everyone, not just to a few people, and we also agree with them how they want to distribute that, whether the same amount to everybody or proportional to the salaries.

We also don’t fire for economic reasons. Because we firmly believe we are stronger together, if there’s a crisis, we buckle up and navigate it together. Amputating a part to survive is not a good strategy.

Having that safety, not having to live in fear, significantly changes the way people fight for their organization.

Tell us about how this works in the company you acquired, Indaero, in Spain.

We began by setting up a group of volunteers to co-create the new organizational model together. And the key when reorganizing is figuring out: where are we going to put all the bosses?

It’s a delicate problem to solve. These are the people who know the most about the company, so we need to appreciate the value they bring; at the same time, they are going to lose a lot of power, so we must treat them gently and with care, because we need their ongoing support to help grow the business.

We mentor them, getting them to realize that the best way they can contribute value to the organization is by helping their colleagues rise to the occasion. It’s not an easy step: dealing with that loss of power is probably the most difficult change to accept.

Once we create our self-managed teams and agree our new governance structure, we then decide what the salary equilibrium is going to look like — the salary bands, the criteria for going from one level to another, in terms of experience but also in terms of the skills and aptitudes necessary.

Then, colleagues calibrate each other collectively, so the whole salary-setting process is bespoke to them.

Given the emotional weight around salaries, how did you manage that?

Carefully, sensitively and progressively. This is where our core value of being transparent becomes extremely important.

For example, maybe there was past injustice around pay. We had to have a lot of conversations about how things were changing now, how we were going for this new model, and how we were going to figure it out together. Maybe things hadn’t worked properly in the past, but we said, “That was then, and now we are moving on.”

It takes time — months, maybe years even — for people to digest that reality, especially if there was past trauma. We need to let people go at their own pace as they process the changes. As well as being transparent, the process needs to be safe from an emotional perspective.

We also made it clear that we didn’t have any predetermined agenda, other than closing income gaps and profit-sharing.

Beyond that, we asked what was important for them regarding compensation. What other benefits were important? These may look very different in each company. We look at it together for the budget: Can we afford it or not? And if we can, let’s do it! It’s not about what’s important for me but about what’s important for this organization. We set the budget like this, collaboratively.

At the moment, Indaero is doing better than budget. This small company with 2 million in revenues is expected to be at 3.2 million after just one year, and we are going to give 25% of the bonus to the employees.

We are very pleased with this transformation because, not only were we able to create better jobs for people, but we were also able to achieve good financial results.

What other effects did you see from eliminating hierarchies and equalizing salaries?

In addition to shifting salaries from being 4% below national average to 23% above national average, we’ve also seen an explosion in women in leadership. We went from 22% to 52% of women in leadership positions.

The fact that we create these governance forums, in which everybody learns how to be a leader and gets a chance to participate in the decision-making, means that, whereas before maybe only 10% of the organization would participate, now 50% participate.

When you suddenly see a colleague of yours in leadership, and you know that next month or next year, that can be you, too — that’s a huge leadership development boost.

How do you see this rippling out into the world?

Gradually and organically. Once you get the basics straight — like salary, feeling it’s fair, that it’s enough and people don’t have to count their pennies to make it to the end of the month — then you are free to start thinking bigger. Who are the next group of stakeholders to worry about? That’s the next natural step, reaching out to customers and suppliers, considering what they need from us and what we need from them.

The thing I’m most happy about is that, when you actually give people the ability to own their own destiny, they begin to act responsibly, they start thinking outside themselves, without any push or demand from our side to do this.

I’m seeing this happen, right before my eyes: Indaero decided to create a forum for ethics and sustainability; they decided to pursue certifications like ISO 14001 and do good for the planet for themselves. They know they can now steer the company to do things that are common sense for all humanity. I love it!

Dean Carter (pictured) is Chief People & Purpose Officer at Guild. He previously led Global People & Culture, Legal and Finance teams for Patagonia, reporting directly to the CEO.

With decades of experience innovating people management practices across multiple companies, Dean Carter has learned what it takes to build a purpose-driven organization.

COVID-19, he says, exacerbated workplace inequalities, prompting many to reassess their priorities. “A lot of things changed,” he says. “The social contract of ‘you pay me just for work’ has shifted.”

Here, he explains what he’s doing to be “a catalyst for change,” and he hopes “you see yourself as a catalyst for change, too.”

Numerous surveys, especially among millennials, indicate a growing majority want to work for purpose-driven companies. What does that mean?

It means people are stoked about working for a company that’s doing something in the world that makes a difference beyond making some rich guy an even bigger billionaire!

The purpose has to be genuine and authentic; it has to serve society; and its impact must drive long-term, not short-term, value.

This implies running a company as if it’s going to be around for 100 years. How would knowing you’re going to employ the children of your employees change the decisions you make today?

A purpose-driven company thinks in those terms and works to create a better world as part of its mission.

How does such a mission change the business model?

A business motto you see is “Do no unnecessary harm.” Google used to say “Don’t be evil” before it changed to “Do the right thing.” Patagonia shifted to: “We’re in business to save our home planet.” That’s a lot different from “Do no unnecessary harm,” which can simply mean destroying things slower than everyone else.

“Saving the planet” rather than “killing it slower” requires a completely different business model.

So, Patagonia gives 1% of revenue — not profit, revenue — to environmental groups dedicated to preserving and restoring the natural environment. A few years ago, a bunch of employees got together and said, “What if we gave 100% of Black Friday revenue to the planet?” So we did that, too. Every single penny, on the biggest sales day of the year, we gave to small, grassroots environmental causes.

This is a very different model from accumulating wealth. I remember the day when Patagonia founder Yvon Chouinard made Forbes’ billionaire list: he hated it! So he set up a trust and nonprofit to give the company away and get him off that list. Now, all the profit from Patagonia, after paying expenses and people and everything, will go to small, grassroots efforts to save the planet, around the world, forever.

And when you act positively and sustainably, when you do the right thing, you find your business ends up better off. This is absolutely true for Patagonia.

What are some other things a company can do to change its focus, particularly in terms of people management?

At least two tools need to be reconceptualized. One is the performance review. I don’t know a single person who looks forward to the end-of-year performance review, only to be told they’re average. It’s ridiculous!

The other ridiculous tool is the engagement survey, which is a manipulative way of getting people to put in more discretionary effort in addition to the work they’re already doing. It’s no wonder people are leaving the corporate world in droves. As Stanford professor Jeffrey Pfeffer has written about in his book, Dying for a Paycheck, long hours, job stress, work-family conflict and economic insecurity are literally harming people’s physical and emotional health.

At Patagonia, we compressed the work week, and every other Friday we either worked a half-day or closed the company entirely, which gave us 26 three-day weekends a year. Then, instead of doing an engagement survey, we did an experience survey.

What did you find?

Well, we never saw any statistically significant loss in productivity as a result of making this change, yet we did notice some significant improvements.

First, people drove less, which had a positive impact on the environment. We know because we measured the carbon emissions and gallons of gas saved per year, just by closing our company one day a week.

We also discovered that employees reported a better relationship with their spouse. How many of you can categorically say that working for your company is improving your relationship with your spouse? That it gives you more time to spend with your kids? Or do you think of how many life moments you’ve missed with your spouse or kids because of work?

What about pay?

That’s another ridiculous question on company surveys: “Do you feel you are fairly paid?” No matter the company, the answer is always “No.” Instead of fair pay, I’d much rather talk about value. What is the value you get from work?

This is more than just paying a living wage, which, according to the strict definition, is a penny over poverty. Companies that say they’re committed to paying a living wage isn’t any big boast: it means they’re paying entry-level employees to live just above the poverty line. And not all companies even promise that!

Is it better to pay the market rate then?

Just because it’s market pay doesn’t mean the market is right. For some roles, particularly childcare, we believe the market pay is below what it should be.

At Patagonia and Guild, we provide on-site childcare, and we pay higher than average, more like what you would pay a school teacher. Wouldn’t you want to pay more for the people who are spending most of their time with your children?

Likewise, for some of our warehouse workers, there were pay differentials that we didn’t think were right, so we paid not just a living wage but a wage that would enable people to have a life.

I don’t think the market pays right for CEOs, either. I think it has gotten out of hand, to be honest. At both the high and low ends of the spectrum, I think the market is way off.

Can pay inequalities be compensated with other benefits?

I think the whole way we handle pay and benefits is antiquated. HR heads spend an inordinate amount of their time on executive compensation packages when what we should be focusing on is our entire employee experience. Instead, we talk about pay and total benefits and rewards.

I don’t know a single person who thinks having healthcare or childcare is “a reward.” If I’m sick or my child is sick, I’m going to have a terrible experience at work, so we should be thinking in terms of how to help those people have an extraordinary experience in their circumstances. One is through pay but it’s only one element.

It’s really about changing the system. For example, instead of having a system that forces new mothers to miss out on opportunities, we must change the system to make it work for the people involved. So, if you are a new mom and have to take a work trip, we pay for a traveling companion, so you can bring your baby with you and continue breastfeeding and have help during your trip, if that’s what you need.

To my mind, the only question that really matters on any employee survey is this: “For what I put into this company, do I believe it gives back equal or greater value to my life?” You can discover a million things in terms of what’s going on in your organization just by asking this single question.

Now that is pay. Or rather, it’s value, which means different things to different people in different parts of life. To someone who is single, that value looks different from someone with children or who is taking care of an elderly parent at home.

What other systemic changes do you recommend?

I’ve worked for two female CEOs (Rose Marcario at Patagonia and Rachel Romer at Guild) and one thing we did away with was negotiation on pay. The offer was the offer, take it or leave it. That’s because men tend to be better at negotiating higher salaries for themselves. But we decided to be open, honest and transparent upfront and not negotiate. And when we did that, we saw a huge change in terms of pay parity for women at both places.

Another thing we did was create leadership roles outside of the normal tracks. We are a highly distributed workforce, with clusters of employees working across the country, and there is generally a community lead who organizes social activities for employees in a given area to help them be community together wherever they are. And just by having a community lead, we found belonging and engagement were sometimes higher among those groups than in the corporate office. After being in those roles for a year, many of those community leads get promoted.

Another example was at Patagonia, where environmental activism is a core value. If any employee ever got arrested or put in jail for peaceful protest, Patagonia would pay bail for you and your spouse, and for your court time off work, too.

We also paid for environmental internships. You could go anywhere in the world for three months for an environmental cause. This was another systemic way of helping people engage, because there’s little chance an hourly worker could otherwise afford to take three months off work just to fly to Hawaii and save sea turtles, for instance.

By the way, when those people come home and show their pictures to their family and friends, everyone else wants to work for your company. It’s a growth opportunity as well as a magnet for talent.

Guild, which partners with companies to skill the workforce, insists that companies pay for employees’ education — not tuition reimbursement but paid in advance.

Take a cafeteria worker or a laundry worker in a hospital in rural America: a company would pay for them to do an education program and, within a year, they become a medical assistant; in two years, a nurse, going from making $10 an hour to eventually being able to buy a home for themselves and building intergenerational wealth. This is yet another example of systemic change.

Any final advice on being a catalyst?

If you’re running companies or consulting companies, seek meaningful purpose and find it in your organization.

Ask yourself:

• Is the world a better place as a result of what you do?
• Are you leaving things better than you found them?
• Are your people better off as a result of working for you? Are they healthier? Do they have better relationships with their families?

And it isn’t about getting to the end of the journey but continuing to push the needle every single day. Because it is possible to do extraordinary things, to make a profit and not lose your soul in the process.

By Fabrizio Ferraro

In organizing a conference for business leaders, you might wonder why we at the Institute for Sustainability Leadership chose inequality as our theme. After all, when it comes to sustainability, there’s no shortage of topics: climate change, stakeholder capitalism, the Corporate Sustainability Reporting Directive (CSRD) and other regulatory requirements affecting companies directly. What does inequality have to do with sustainability? And how does it pertain to business? Isn’t it more of a social issue best dealt with by governments through redistributive taxation?

As our report makes clear, inequality is a global challenge that is indeed relevant to business. Income and wealth inequality are fueling growing discontent and anxiety in many countries around the world, which translate into economic and political risks.

From an economic point of view, we observe increasing polarization between a few large and powerful corporations and many small and medium-sized firms struggling to reap the benefits of disruption.

The greater the polarization, the more we risk losing our common ground as societies; ultimately, the basis of our democracies is undermined. This is a risk as existential as climate change for the long-term survival of any business.

Most people’s immediate experience of inequality occurs in their workplace. As such, how we choose to govern and lead our organizations can greatly transform this experience.

Business leaders have the power to shape a fairer economy, not just through the redistribution of wealth but by ensuring fairness in how wealth and opportunity are generated in the first place.

As our conference speakers insist, it starts by having a corporate purpose that, in the words of Colin Mayer, produces “profitable solutions for the problems of people and the planet,” rather than profiting from creating harm.

Examples like Tony’s Chocolonely and IKEA illustrate how purpose-driven governance and novel ownership structures can sustain long-term positive social impact. Employee ownership and foundation-based governance models represent tangible pathways for aligning corporate interests with the common good.

Steen Thomsen, of Copenhagen Business School, calculated what would happen if all foundation-owned enterprises in Denmark were instead owned by the top 1% richest Danes. He found that the country’s equality ranking would slide from its current 9th place to 18th out of 27 countries.

Other areas where our organizational choices have influence over wider economic realities relate to pay and career development. My colleague Marta Elvira’s research on pay disparities and temporary work reveals how structural inequalities can be entrenched or dismantled based on organizational policies.

Addressing these issues is not merely about fairness; it’s about unlocking human potential and fostering innovation.

A final area where we can make a difference concerns our investment decisions. ESG and impact investing, one of my areas of research, channels capital toward for-profit enterprises that prioritize sustainability and equality. As businesses and investors increasingly align with ethical imperatives, we can catalyze systemic change in how wealth is created and distributed.

We hope you read this report as a call to action to embrace your own role as a steward of societal fairness and progress.

Inequality is a complex and multifaceted issue, but businesses have the tools to drive meaningful change. By rethinking purpose, governance, ownership, people management and investment, businesses can become powerful forces for a more equitable and sustainable future.

This is sustainability leadership. Your work begins now.

Fabrizio Ferraro is Professor of Strategic Management and Academic Director of the Institute for Sustainability Leadership (ISL) at IESE Business School.

This Report forms part of the magazine IESE Business School Insight 169. See the full Table of Contents.

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