Global Crisis/Innovation Blog

Capitalism for the Long Term: The View from McKinsey

By Shlomo Maital

  

 

 

 Dominic Barton, McKinsey

Writing in the March issue of Harvard Business Review, McKinsey global managing director Dominic Barton addresses “Capitalism for the Long Term”.   Few people are better equipped to write about how capitalism should be reformed than the peripatetic consultants of McKinsey.  Barton’s main point:  Business leaders — rewire the way you govern, manage, and lead corporations to restore the public’s trust in a capitalist system jeopardized by the financial crisis and ongoing social anxiety.  If you don’t, the political system will reinvent capitalism, and you will not like the result at all.

   Barton says the business leaders of capitalism must implement three major reforms in the way they think and act.  

   First, “business must jettison its short-term orientation in favor of a  longer-term focus.”  The short-term focus that led to financial collapse did major harm to almost everyone, including those who committed the ‘crimes’.  “

   Second,  “executives must also infuse organizations with the perspective that serving all major stakeholders is not at odds with maximizing corporate value.“    In an earlier blog, published on Aug. 6, 2010 (timnovate.wordpress.com),  I noted the credo of Scott Paper magnate Tom McCabe, who insisted his managers seek the wellbeing of customers, workers, the community, thee nation, and finally, the shareholders – an old-fashioned credo that seems to be making a comeback.

   Finally, companies must bolster the power of boards to cure the ills stemming from dispersed and disengaged ownership.  The purpose of the Board of Directors is to give the CEO and top management a hard time, track everything they do and say, and challenge their decisions, making them provide hard data and clear rationales.  Failure of many boards to do this led to the fatal crashes of Fannie Mae, Lehman Bros., Citigroup, GM, and many other companies.   

   Investor – check your portfolio of stocks. Do the companies whose shares you hold understand these three ‘new capitalist’ principles? If not, perhaps it is well to find companies who do.

  http://e.mckinseyquarterly.com/10742fd80layfousubktwfcyaaaaaa2bdqgjshi2w4ayaaaaa