MANAGEMENT SPECIAL................ DOMINIC BARTON

MANAGEMENT SPECIAL DOMINIC BARTON

LONG VIEW

GLOBAL MANAGING DIRECTOR, MCKINSEY & CO.
THE BIG IDEA: SHORT TERM QUARTERLY THINKING IS BAD FOR STRATEGY AND BAD FOR SOCIETY

The world is changing at a far higher
clip than it ever has and that would lead to opportunity with lots of volatility. The world we are going in to for the next 20 years is fundamentally different than the previous years and that means the leadership context has to change. In the past it was about what leaders do, but the future will be about what leaders are. Character of leaders will be tested time and again because you cannot predict what new issues are going to crop up. To prepare leaders, companies will have to expose them to high-stress fast-changing situations. When the temperature gets really high some keep going, others crack like glass. Samsung is an organisation that is always ready to handle what they call the ‘seven torpedoes.’ They believe that if you have a reputational crisis, it quickly turns into a financial crisis, which then leads to an operating crisis, and that turns into a people crisis. Trouble comes in clumps, not in nice sequences and some leaders cannot handle that. Leaders also need to get the right balance between the short and long term. Under stress, you might be obsessed about survival and how to stay afloat but at any time long term actions need to be in place. People are not able to anticipate trend breaks: has the industry really changed or is it just a short-term phenomenon? Walmart had to deal with a financial crisis which became an economic crisis, and at the same time they had online challengers like Amazon. Imagine your core capabilities are building and designing stores, and merchandising but 6-7% of sales have moved online and up to 40% of sales are being influenced by websites. You have to innovate and sometimes that means attacking yourself, most leaders get cold feet thinking about that idea. Then there are situations where leaders see the train coming but do not react fast enough. You have people in the organization saying, go faster or go slower. At the end of the day, the leadership is going to have to make the tough calls. I have attended CEO conferences where people just want to talk and commiserate and complain, whine, fire each other up. Shortening tenure of CEOs is leading to problems of its own. A lot of CEOs face a tremendous pressure from their boards and short term investors to be able to get quarterly results, I think our capital has become too short term and that is a challenge when you have got big issues to be able to deal with. A very different set of capabilities is required when you are changing your business model as compared to when you are just changing a product. If you do not have a lot of time you probably do not want to challenge a lot of the orthodoxies and so you may slip in to obsolescence. Longer tenure CEOs are actually bolder in how they change their portfolio. Under tough circumstances, I believe the best leaders are servant leaders, who help other people become successful. They have more humility, less ego. They pick up on the signals better and are able to cut out the noise. They listen and empathise. They make it easy for people to complain, to raise issues. They have high relationship quotient, and are able to build trust and understand the nuances of what is going on, that in turn allows them to survive and thrive. In the last 30 years we have become more narrow and selfish. There was a famous article by Milton Freedman in 1971, The Business of Business is Business where he said business should focus on shareholder value, and the taxes you pay are your contribution to society. The problem with that is if you go back to Adam Smith and his first book, The Theory of Moral Sentiments, he says it is the duty of entrepreneurs to take care of the society in which they operate. Very few organizations today espouse the view that they are here to make as much money as they possibly can, because then you are not going to last very long. Talent now wants to work in a place that has a purpose. Business has to focus not just on shareholders but stakeholders and that’s not a tradeoff. You cannot have high shareholder value without having high stakeholder value. You have to be more long term and our business has become too short term, quarterly driven since about 1970 and that is a problem, because it is bad for strategy, it is bad for society. There is a group of business leaders, including myself, who are pushing for a longer term view. Paul Polman at Unilever wants to double his company’s profitability while halving their carbon footprint. That motivates people. Rio Tinto is big in education and it’s very much business driven. Communities like having Rio Tinto in their midst because of what they are doing. Businesses have to think about their role in society. Those which don’t will be around for long.^CD
As told to Vinod Mahanta

CDET140103