Here are brief excerpts from two articles featured by The McKinsey Quarterly, published by McKinsey & Company. I suggest you read them in the order in which they appear here, then click where indicated to read each in its entirety.

I presume to suggest, further, that you register to receive email updates on other resources that are also available at no cost. You can do that by clicking here.

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Capitalism for the long term, Harvard Business Review
Dominic Barton
Managing Director
McKinsey & Company

Dominic Barton, McKinsey’s managing director, argues that business must take the lead in renewing capitalism or risk losing popular and political support for the global economic system.

The near meltdown of the financial system and the ensuing Great Recession have been, and will remain, the defining issue for the current generation of executives.

Now that the worst seems to be behind us, it’s tempting to feel deep relief—and a strong desire to return to the comfort of business as usual. But that is simply not an option. In the past three years we’ve already seen a dramatic acceleration in the shifting balance of power between the developed West and the emerging East, a rise in populist politics and social stresses in a number of countries, and significant strains on global governance systems. As the fallout from the crisis continues, we’re likely to see increased geopolitical rivalries, new international security challenges, and rising tensions from trade, migration, and resource competition. For business leaders, however, the most consequential outcome of the crisis is the challenge to capitalism itself.

That challenge did not just arise in the wake of the Great Recession. Recall that trust in business hit historically low levels more than a decade ago. But the crisis and the surge in public antagonism it unleashed have exacerbated the friction between business and society. On top of anxiety about persistent problems such as rising income inequality, we now confront understandable anger over high unemployment, spiraling budget deficits, and a host of other issues. Governments feel pressure to reach ever deeper inside businesses to exert control and prevent another system-shattering event.
My goal here is not to offer yet another assessment of the actions policymakers have taken or will take as they try to help restart global growth. The audience I want to engage is my fellow business leaders. After all, much of what went awry before and after the crisis stemmed from failures of governance, decision making, and leadership within companies. These are failures we can and should address ourselves.

To watch a video during which Barton shares his insights, please click here.

To read the full article featured by Harvard Business Review, please click here.

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The remedies for capitalism
Paul Polman
CEO, Unilever

It is a sign of the world in which we live that the word “crisis” should appear so often in the introduction to Dominic Barton’s well-argued critique of capitalism. But what we have experienced over recent years is not, in my view, so much a crisis of capitalism as a crisis of ethics. As the author acknowledges, capitalism itself remains the “greatest engine of prosperity ever devised.” The issue, to pursue the analogy, is that maintenance of the financial engine has too often been left in the hands of young, untrained apprentices.

The central thesis of the article is that the “short-termism” of so much modern business—“quarterly capitalism”—lies at the heart of many of today’s problems. I agree and have said so many times, occasionally to my cost. At Unilever, words have been backed with action. We have aligned management incentives for the long term and invested heavily in R&D to build our pipeline of innovations. In addition, we have moved away from quarterly profit reporting; since we don’t operate on a 90-day cycle for advertising, marketing, or investment, why do so for reporting? And as Dominic Barton acknowledges, we have also been among those companies “to resist playing the game” when it comes to issuing guidance. The share price may have fallen on the day we announced an end to guidance but is now 35 percent higher. Nothing in the intervening two years has persuaded me that this was the wrong thing to do. We will therefore go on resisting.

For all these reasons, it is difficult to argue with Dominic Barton’s prescriptions for change—management incentives that encourage a focus on the long term, a broader form of stakeholder capitalism, and stronger, better-informed boards of directors.

These will all go a long way to addressing the problems of short-term capitalism. They are necessary. But they are not sufficient. Changes in policy will mean little if not accompanied by changes in behavior. That’s why we need a different approach to business—a new model led by a generation of leaders with the mind-set and the courage to tackle the challenges of the future.

Such challenges go beyond those arising from the financial crisis. We now know, in outline, what the future will look like. It will be a world where climate will change, water will be scarce, and food supplies will be insecure.

Business has a chance to become part of the solution to those challenges. Just as we need to ensure that we do not repeat the mistakes which led to the recent banking crisis, so there is an equal imperative to face up to the realties of a world where 9.5 billion people will put enormous strain on biophysical resources. The rapidly growing populations of India, China, and Indonesia will all aspire to the lifestyles and living standards enjoyed by the Germans and the Californians. There is nothing that we can, or should, do to stop that.

The challenge for business is to meet these needs in a sustainable fashion. Success will require completely new business models. It will demand transformational innovation in product and process technologies to minimize resource use, as well as the development of “closed-loop” systems so that one man’s waste becomes another’s raw material.

To read the complete article, please click here.