In this recent Harvard Business Review article, Arabesque’s Gabriel Karageorgiou and Dominic Selwood argue that a company’s ESG performance is merely a quantifiable reflection of its culture; a notion they call “Corporate philotimy”.
By Gabriel Karageorgiou and Dominic Selwood
Companies’ priorities are rooted in the culture of their times. The East India Company, for example, systematically asset-stripped the Indian subcontinent for more than 200 years — and was largely celebrated by its shareholders as a roaring success. Now we look back in horror at the bloodshed, slavery, drug money, corruption, and exploitation that were its daily currency, and we note that today’s leading companies (hopefully) have strikingly different definitions of success.
Today, most people would argue that successful companies are not just financially sound, but must also be socially responsible and environmentally sustainable, which can be assessed with various environmental, social, and governance (ESG) metrics. We propose, however, that ESG metrics are merely the observable result of a more fundamental set of values: a notion we call corporate philotimy.
Find a Greek friend and ask what philotimo (φιλότιμο) means. The reaction will probably be a starry-eyed smile from deep inside. Then ask for an English translation, and that smile will turn to a look of bewildered helplessness. While the word’s etymology is simple — philos, or friend/love, and timi, or honor — philotimo carries a universe of rich meanings. It is decency, dignity, honesty, altruism, and a dozen other ideals encapsulating what it means to live with integrity. It is greater than the individual, with a person’s act of philotimo reflecting positively on his or her family, community, organization, and society. It was first spoken of by the pagan poets of antiquity, and St. Paul — a native Greek speaker — included it in his letters numerous times, urging his readers in Thessaloniki to fill their lives with philotimo. It is a universal, transcendent good, an internal ethical compass of fairness, compassion, and justice.
In the context of an organization, corporate philotimy is the immutable DNA that determines how a company operates at the cellular level. It is the principle that guides a company’s sustainability behavior, which can then be quantified with ESG metrics.
Corporate Philotimy Creates Corporate Value
A recent PwC report identified investment in ESG as the “growth opportunity of the century.” Over the past 10 years, investment strategies focused on nonfinancial parameters (that is, strategies prioritizing companies with a strong sense of corporate philotimy) have exploded. And those strategies are paying off: Investors are finding that companies with a strong sense of philotimy consistently outperform less-virtuous companies. The reason is fourfold:
- Companies with a culture rooted in sincere empathy treat their employees well. They are therefore able to attract and retain the best human capital, which enables them to create the most-innovative products and services.
- These companies are mindful and respectful of the communities in which they operate. They acknowledge and address community concerns, increasing engagement and facilitating smooth interactions and collaborations.
- Compassion for all stakeholders inspires these companies to take care of the resources — human, environmental, and others — on which they rely, making their success more sustainable.
- These companies are managed with transparency and accountability, so all stakeholders understand their processes and key competencies and are able to make better-informed decisions.
Ultimately, a culture of corporate philotimy enables companies to build trusted brands, leading to loyal customers, engaged employees, and supportive shareholders. As a result, many companies are experiencing increased pressure from regulators, asset owners, and society to improve their ESG profiles, spurring a race to better performance. In this new arena, some companies have been accused of “greenwashing” — that is, of publishing shiny corporate social responsibility reports without living the values behind them. But although ESG metrics can be padded, corporate purpose is much harder to fake. Corporate philotimy requires strong virtues to be held as an end in and of themselves, not merely invoked for a quick win.
Building Corporate Philotimy Starts with Hiring People with Philotimo
How do you build a company with a strong sense of corporate philotimy? It starts with people. The notion that aggressive employees drive success is long dead. Research has definitively shown that productive teams are the direct result of positive work cultures — of deeply held corporate philotimy. In such environments, individuals feel a moral responsibility not to let their teams down. When they see colleagues struggling, they react with compassion. They give credit for collective achievements and avoid blaming others for failures. As a team, they forge a strong “we are in this together” bond, focused not on the bare minimum they are asked to do but on anything and everything they can do to contribute to the team’s success.
Both academic and anecdotal evidence support this. In 2012 Google launched a now-famous project to understand what makes a perfect team. The study — dubbed Project Aristotle, in honor of the philosopher’s well-known dictum that the whole is greater than the sum of its parts — found that cultures of empathy and kindness give teams a psychological safety net. This structural reassurance translates into greater levels of trust, respect, and engagement, enabling individuals to take initiative and share new ideas without fear of judgment. Other research confirms these findings, showing that demonstrating strong ethics and providing a sense of safety are among the most important competencies for leaders looking to build positive, productive workplaces.
How, then, do you hire people who will bring a strong sense of philotimy to your team? Virtue can be tricky to assess, but there are tells: candidates who use “we” rather than “I,” who share credit, own errors, and enjoy contributing to collective success. There are no easy answers or foolproof recruiting practices, but prioritizing individual philotimy in your hiring process is central to building organizational integrity.
How Investors Can Identify Corporate Philotimy
There’s another piece of the puzzle: ensuring that companies that demonstrate philotimy get the support they need to grow. Investing in sustainable companies is a sensible strategy both financially and ethically, but how can investors identify those opportunities? It’s challenging, because ESG disclosure is not yet universal, and many companies don’t voluntarily disclose or self-regulate their behavior. Moreover, even when companies do share some metrics, it can be hard to tell the difference between genuine, values-driven performance and a marketing stunt. But understanding a company’s true culture is not impossible.
To start, ask the following questions: Is the company’s core business opportunistic, or does it serve a wider social purpose? Does it prioritize short-term benefits over long-term opportunities? Are management and shareholder interests aligned? And what is the company’s track record on employee, customer, and stakeholder loyalty? Evaluating performance in these areas will provide an indication of the ethics and priorities driving the company’s actions.
Societies increasingly expect companies to be genuinely sustainable. They expect the businesses they support to look after their customers, their employees, their communities, and the planet. These characteristics — the hallmarks of corporate philotimy — demand a deeply ingrained sense of individual and organizational responsibility, and they create a positive work culture that inevitably translates into higher productivity. Companies that embrace philotimy don’t promise more than they can deliver, and they deliver more than they promise. To paraphrase Socrates, an undying sense of philotimy is what inspires individuals and organizations to behave as they would wish to be remembered.
Tackling the world’s most-pressing social and environmental issues will take authentically self-motivated, purpose-driven organizations working together to build a global business culture of corporate philotimy. In a world where more often than not, politicians and regulators fail to address these vital issues, companies must act with philotimo, embracing their moral obligation to serve as a force for good in their local communities and around the globe.
Gabriel Karageorgiou is a Partner at Arabesque Asset Management Ltd.
Dominic Selwood, PhD is a journalist, historian, author, barrister, and a co-founder and Partner at Arabesque Asset Management Ltd.