Answering society’s call: A new leadership imperative

January 5, 2020

 

Here is an excerpt from an article from the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

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How do transparency, empathy, and meaning work in practice?
Society’s expectations for business are rising. Customers—particularly younger ones—want to know what the companies they engage with are doing for, with, and to the world. Nine in ten Generation Z consumers believe that companies have a responsibility to address environmental and social issues. Younger people think that environmentally and socially focused companies are better prospective employers, and the vast majority say they would be more loyal to companies aligned with those values.As demands for social accountability rise, so do demands on leaders. This article, based on a range of McKinsey research and case studies of leaders in action, provides a glimpse of the emerging new leadership imperative.
Sometimes it’s about boosting transparency—for example, the moves a few fashion- and consumer-oriented companies are making. Empathy also looms large, as shown by new McKinsey research based on surveys and interviews with a group of fellows at Ashoka, one of the world’s leading communities of social entrepreneurs. Also critical: a sense of meaning, say two CEOs who recently described their work during a panel discussion marking the 50th anniversary of Pepperdine University’s Graziadio Business School. Transparency, empathy, and meaning — timeless and increasingly timely — are all starting to define a new leadership benchmark.

Transparency

A McKinsey report from last year—The State of Fashion 2019, written in partnership with The Business of Fashion—offers one lens on socially demanding consumers.

The data make clear that today’s shoppers care deeply about the social impact of the companies they patronize. They are also willing to dig, often deeply, into the provenance of products they’re considering, to assure themselves that these products meet a desired social aspiration. Some two-thirds of consumers around the world say they would switch, avoid, or boycott brands for their stances on controversial issues. What’s more, 52 percent of millennials say that they always research background information before buying goods or services, compared with 45 percent of Generation X consumers and 41 percent of baby boomers. One response is transparency, as the following examples show:

  • Mass-market retailer Arket (owned by H&M) lists where each of its products is made and in many cases shows pictures from the manufacturing floor.
  • The apparel retailer Reformation not only applies its RefScale methodology to measure the environmental impact of every garment it sells but also discloses the results to customers. RefScale tracks the amount of carbon dioxide generated and water used during production.
  • After Europe’s 2013 horsemeat scandal, Marks & Spencer made all its beef products completely traceable. The retailer can track the origin of a single beef patty with such detail that it can name the breed, age, and even the specific cow and farm of origin. Individual identities are logged using a series of letters and digits based on a DNA profile taken at the abattoir.
  • Following the lead of companies such as Ben & Jerry’s and Patagonia, more and more fashion businesses are being structured as B corporations, allowing them additional leeway to consider the impact of their decisions on people, society, and the planet (Exhibit 1).

Retailers and other companies don’t have to go it alone as they strive for transparency. Swiss tech firm Ambrosus, for example, uses high-tech sensors and blockchain technology to record the entire history of products for food and pharmaceutical companies. With a smartphone, anyone in the food chain—producers, suppliers, retailers, or consumers—can access tamper-proof data about a product at any stage of a company’s supply chain.

It shouldn’t be surprising to see companies such as the aforementioned on the leading edge of the drive for transparency. A fashion statement is by definition a form of self-expression, and the best designers and retailers must stay ahead of emerging trends to survive. Leaders in other sectors should study the industry’s rapid response to heightened customer awareness.

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Here is a direct link to the complete article.

Anita Balchandani is a partner in McKinsey’s London office, of which Marco Beltrami is an alumnus and Dale Kim is a consultant; Achim Berg is a senior partner in the Frankfurt office; Saskia Hedrich is a senior expert in the Munich office; and Felix Rölkens is an associate partner in the Berlin office. Imran Amed is the founder, editor in chief, and CEO of The Business of Fashion.
The authors wish to thank Burcu Kazazoglu Taylor, Dany Matar, Chuck Redmond, and Jens Riese for their contributions to this article.
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