As part of the Becton Fellowship Program, McKinsey Managing Director Dominic Barton visited the Yale School of Management last Thursday to share his thoughts on recent developments in the economy.
Barton has been a prominent name in the business world for many years. He was the head of McKinsey’s office in Korea from 2000 until 2004, then McKinsey’s chairman in Asia from 2004 until 2009. Since 2009, Barton has been the global managing director of McKinsey and Co. This will be his last term as managing director, and as a result, he has done a great deal of thinking about his legacy in leadership.
Barton remarked that capitalism is facing an important turning point. Trust in business is at its lowest level in thirty years—almost, as Barton joked, as low as faith in politicians. He noted that many activists have been protesting the rise of corporatism, and though he does not agree with all their views, he stressed that some of their concerns are valid.
The thrust of Barton’s talk emphasized a need for a long term view of capitalism. When Barton moved from China to London to become managing director, he resolved to meet with two government leaders and CEO’s each day. In doing so, he was struck by the short-term mindset of many CEO’s. Most CEO’s complained that they felt pressure from their boards, and many feared that they might be removed if they did not deliver short-term results. Indeed, the data supports these anecdotes. CEO tenures are shrinking; the average tenure went from 9.5 years to 6.2 years. Thus even if CEO’s would prefer to think in 5-year spans, they realistically only have 1-2 year timeframes.
Barton cited other examples of short-term thinking in the market. He emphasized the rise of high-frequency trading and the disproportionate attention paid to stock prices. He said that “we’ve seen a shift to quarterly capitalism. We’re holding stock for less time.”
Barton suggested that this short-term thinking is dangerous for businesses. The average break-even period for a MNC going into China is 6-8 years. If people only pay attention to the short term, they will not make important investments in China. Furthermore, CEO’s who only care about the short term will neglect important issues such as social justice and environmental health.
However, Barton expressed optimism for the future. He listed several business leaders who are trying to solve these problems. Mark Wiseman from the Canada Pension Plan cares a lot about the environment, governance, and social responsibility. He strongly believes these issues affect the performance of his portfolio. Long-term players like Wiseman have the potential to change the market.
Barton said that he has gathered a group of twenty-five leaders who are pushing businesses to think in long-term timeframes. So far, $2 million has been put into the initiative. The group established a long-term index, which aggregates important data. Many companies would like to be approved by the group – but they demand that the companies make legitimate long-term plans first.
Barton includes this long-term thinking in his own leadership as well. Since this is his last term at McKinsey, he quipped that he has 12-14 months to get stuff done before he becomes irrelevant. In order to establish the company’s long-term prominence in consulting, Barton will emphasize attracting the right talent. He believes that hiring the right people is key to securing the firm’s future. He also will emphasize client services. McKinsey does not charge clients for the services that it provides; instead, it charges for the effects it achieves. Barton believes this system will incentivize consultants to make larger impacts. Finally, he aims to emphasize technology. He believes that software such as Periscope is the future of consulting – and he looks forward to developing McKinsey’s IT sector.
Clearly, Barton is a durable influence in the business world. He is an adept long-term thinker, and his remarks point to an acutely tuned acumen for navigating markets. He is a leader among his peers. Surely, we all look forward to seeing the results of his last term as managing director.