Olivia: What if the most ruthless, profit-hungry thing a CEO could do is… give away their most valuable product for free? Jackson: Hold on, give it away? That sounds like the fastest way to get fired and end up as a cautionary tale in a business textbook. Olivia: It sounds like a career-ending mistake, but it might just be the secret to building a multi-billion dollar empire. We're talking about a fundamental flip in business logic. Jackson: A flip in logic is putting it mildly. That’s turning business on its head. What’s this all about? Olivia: That paradox is at the heart of Grow the Pie: How Great Companies Deliver Both Purpose and Profit by Alex Edmans. Jackson: Right, and Edmans isn't some starry-eyed idealist. He's a finance professor at London Business School, and he used to be an investment banker at Morgan Stanley. He comes at this from a place of hard numbers, which makes his argument so compelling. Olivia: Exactly. And the book landed with a huge impact in the business world, even winning a Financial Times Book of the Year award, because it provides rigorous evidence for an idea that feels almost too good to be true: that serving society is the most effective way to become profitable in the long run. Jackson: Okay, I’m intrigued but skeptical. Profit from purpose. Let's see it. Where do we even start with an idea that big? Olivia: We have to start with the book's central metaphor. To really get what Edmans means by 'growing the pie,' we first need to understand its dark twin: the 'pie-splitting' mentality.

Jackson: Pie-splitting. That sounds… aggressive. Like fighting over the last slice of pizza at a party. Olivia: That's a perfect analogy. The pie-splitting mentality sees the world as a zero-sum game. The value a company can create is a fixed pie. So, for my slice—the profit—to get bigger, your slice has to get smaller. Jackson: Your slice being customers, employees, the environment… Olivia: Precisely. And there is no more vivid, almost cartoonishly evil example of this than the story of Martin Shkreli. Jackson: Oh, the 'Pharma Bro'. I remember the headlines, but I feel like the details are even worse. Olivia: They are. In 2015, Shkreli’s company, Turing Pharmaceuticals, bought the rights to a 62-year-old drug called Daraprim. It’s a life-saving medication for people with compromised immune systems, like AIDS patients or cancer patients. It used to cost $13.50 a pill. Jackson: Okay, a pretty standard, affordable drug. Olivia: Overnight, Shkreli raised the price to $750 a pill. That’s a 5,500% increase. Hospitals couldn't afford it. The head of infectious diseases at Mount Sinai in New York said she literally thought it was a mistake when she saw the new price. She had to switch her patients to less effective, potentially more toxic alternatives. Jackson: That’s just monstrous. He’s taking value directly from the sickest people imaginable and handing it to his investors. That’s the definition of pie-splitting. But I have to ask the cynical question: was it illegal? Olivia: And that's the chilling part. It wasn't. When confronted, Shkreli was completely unapologetic. He famously said, "My investors expect me to maximize profits." He was playing the capitalism game by its most extreme, literal rules. He wasn't creating anything new; he was just re-slicing the pie, taking a huge piece from patients and society and calling it profit. Jackson: Wow. So he’s the poster child for everything people hate about capitalism. A system that not only allows that but, in his view, demands it. It’s hard to see how you come back from that. Olivia: Well, let's try. Because Edmans contrasts this with a story that is the complete polar opposite. It’s a story that shows what happens when a company decides to grow the pie instead of just splitting it. We have to go back to 1978, to a lab at the pharmaceutical giant Merck. Jackson: Okay, another pharma company. I'm braced for the worst. Olivia: Prepare to be surprised. A scientist at Merck, William Campbell, discovers that a drug they use to treat parasites in animals, called Ivermectin, might be able to cure a horrific human disease called river blindness. It’s a disease that affects millions in the poorest parts of Africa and Latin America. It causes intense itching, skin disfigurement, and eventually, permanent blindness. Jackson: And the people who have it are the least likely to be able to afford a cure. Olivia: Exactly. Merck spends years and millions of dollars developing a human version of the drug, which they call Mectizan. They prove it works. It’s a miracle cure. But they hit a wall. The governments and patients in the affected countries have no money to pay for it. The World Health Organization can't afford it. There is no market. Jackson: So, from a pure pie-splitting, shareholder-first perspective, the project is a failure. They should write it off as a loss and move on. Olivia: That’s what a spreadsheet would tell you. But the CEO at the time, Roy Vagelos, did something extraordinary. In 1987, he held a press conference and made an announcement that shocked the business world. He declared that Merck would provide Mectizan for free… Jackson: For free? Olivia: …to anyone who needed it, anywhere in the world, for as long as the disease remained a problem. Jackson: Hold on. For free, forever? How does a board of directors even approve that? I imagine the shareholders must have been furious. You're just giving away a potential blockbuster drug. Olivia: That’s the pie-splitter’s reaction. But Vagelos was playing a different game. He was growing the pie. The Mectizan Donation Program is still running today. It has delivered billions of treatments and has effectively eliminated river blindness as a public health problem in multiple countries. And what happened to Merck? Jackson: I’m almost afraid to ask. Olivia: Their reputation soared. They became known as one of the most admired and ethical companies in the world. The best scientists and researchers flocked to work for them, because who wouldn't want to work for a company with that kind of purpose? And the shareholders? Since that decision, Merck’s stock has delivered an average annual return of 13%. They created immense value for society, and as a byproduct, they created immense value for their investors. They grew the pie for everyone. Jackson: That’s… actually incredible. The contrast between Shkreli and Vagelos is night and day. One extracts value and destroys trust, the other creates value and builds a legacy. Olivia: And that’s the core idea of the book. It’s not about being nice versus being greedy. It’s about being smart. Shkreli’s approach is a dead end. There's a limit to how much you can squeeze from a fixed pie. Vagelos's approach creates a virtuous cycle of innovation, reputation, and talent that generates value indefinitely.

Jackson: Okay, the Merck story is really powerful, but it also feels like a one-in-a-million case. They’re a huge company, they had a miracle drug. Most businesses can't just give away their core product. How does a normal company, a tech startup or a local retailer, apply this pie-growing idea without just becoming a charity and going bankrupt? Olivia: That is the perfect question, and it’s where Edmans gets incredibly practical. He says this isn't about blind altruism. A leader's job isn't to solve every social problem. It's about being strategic. He proposes a three-part filter, three principles to guide any decision about investing in society. Jackson: A filter. I like that. It implies not everything gets through. What’s the first one? Olivia: The first is the Principle of Multiplication. It asks a simple question: does spending one dollar on a stakeholder create more than one dollar of benefit for them? Jackson: What does that actually mean? Give me an example. Olivia: The book uses a great hypothetical about Apple building a super high-end gym for its employees. Let's say it costs Apple $500 per employee per month to run this amazing facility. But right next door, there's a fantastic commercial gym that costs only $100 a month. Jackson: Right, so Apple is spending $500 to provide a benefit the employee could get for $100. Olivia: Exactly. The investment fails the multiplication test. It would be better for Apple to just give the employees a $100 raise and let them choose their own gym. The company would save money, and the employee gets the same benefit. A pie-growing leader doesn't just throw money at perks; they make sure the value created is greater than the cost. Jackson: That makes sense. It’s about efficiency of social impact. What’s the second principle? Olivia: The Principle of Comparative Advantage. This one asks: is our company uniquely good at delivering this value? Better than anyone else could? Jackson: It’s like, I’m a good podcaster, but I shouldn't try to fix the studio's leaky faucet, even though it needs fixing. I should call a plumber who has a comparative advantage in plumbing. Olivia: A perfect analogy! And Edmans gives a brilliant real-world example: Coca-Cola's "Project Last Mile" in Africa. Many charities can get life-saving medicines to airports in developing countries, but the hardest part is the "last mile" of delivery to remote villages, especially for things that need refrigeration. Jackson: I can see where this is going. Who has one of the best refrigerated logistics and distribution networks in the world, reaching even the most remote villages? Olivia: Coca-Cola. So, through Project Last Mile, they don't just donate money. They share their expertise, their supply chain knowledge, and their infrastructure with local health ministries to help them deliver medicines. They have a massive comparative advantage. That is smart, strategic pie-growing. They’re using their unique superpower for good. Jackson: Okay, so first, does it create more value than it costs? Second, are we the best ones to do it? What's the third filter? Olivia: The third is the Principle of Materiality. This asks: is the stakeholder group we're helping actually material—or central—to our business and purpose? It's about focus. A company can't solve all the world's problems. It should focus on the areas most related to its core operations. Jackson: So, a mining company should focus on environmental impact and worker safety, not necessarily funding the local opera. Olivia: Exactly. A great example is the sandwich chain Pret a Manger. Their core business creates food. A material issue for them is food waste. So, they donate their surplus food to homeless shelters at the end of each day. This passes all three tests. Multiplication? The food is worth far more to a hungry person than its near-zero cost to Pret. Comparative Advantage? Pret is already there, with the food, at the end of the day. They're better positioned to donate it than anyone else. And Materiality? It directly addresses a core issue of their business—food waste. Jackson: So when you put it all together, it's not about being a saint. It's about being incredibly strategic. You're looking for these sweet spots where your company's unique skills can create massive value for society at a relatively low cost to you, which then pays off in reputation, talent, and eventually, profit. It's a framework for smart purpose. Olivia: That’s it precisely. It transforms the idea from a vague, feel-good slogan into a rigorous business strategy. It’s not about growing the pie at all costs; it’s about growing it intelligently.

Jackson: What I’m really taking away from this is that the whole debate of "shareholders versus stakeholders" is maybe the wrong way to frame the question. Olivia: I think Edmans would argue it is. The pie-splitting view forces a choice. The pie-growing view says that choice is an illusion. The big shift he's pushing for is moving from an 'instrumental' view of social good to an 'intrinsic' one. Jackson: What’s the difference? Olivia: The instrumental view says, "I will invest in my employees in order to make more profit." Every decision has to be justified on a spreadsheet first. The intrinsic view, the pie-growing view, says, "I will invest in my employees because that is our purpose. That is who we are. And I have faith that if we serve our purpose well, profits will follow." Jackson: And that intrinsic motivation is what unlocks those big, bold moves like Merck's, right? You could never prove on a spreadsheet in 1987 that giving away Mectizan would lead to 13% annual returns for decades. Olivia: Never. It was an act of purpose. And that's the ultimate takeaway. Purpose isn't just a nice-to-have mission statement on a wall. It's a compass. It's a strategic tool that allows a company to navigate complexity and make decisions that create enduring value, for everyone. Jackson: It really makes you look at the companies you work for or buy from differently. Are they just playing a zero-sum game, trying to squeeze out every last drop for shareholders? Or are they genuinely trying to make the whole pie bigger? It’s a powerful question for all of us—as leaders, as employees, and as consumers. Olivia: It is. And we'd love to hear your examples. What companies have you seen that truly live this pie-growing mentality? Or maybe ones that are stuck in a pie-splitting rut? Let us know on our socials, we're always curious to hear what our community thinks. Jackson: This is Aibrary, signing off.