“Business leaders have to know stakeholders well enough to make decisions that are in the long-term interests of shareholders”
Rachel O’Brien speaks to Dame Vivian Hunt, a senior managing partner at McKinsey and Co.
Rachel O’Brien: You have worked in very different contexts, including different countries. How has this shaped your thinking?
Vivian Hunt: I served in the Peace Corps for a few years doing primary healthcare and assisting as a midwife, a wonderful introduction to healthcare, the field that I worked in most exclusively for 15 to 20 years in the public, private and third sectors. This and my later experiences have taught me three things.
First, that the overwhelming amount of need I saw requires system interventions. At some point, your individual action doesn’t move the average. Being committed and advocacy-based just didn’t scale. I understood that I needed to do more, particularly when working with groups that are historically underrepresented in decision-making and outcomes for business.
Second, there are multiple factors that change economic and human behaviour. Growing up in a military family in a multi-cultural context, I spent a lot of time as a child in Asia and America and, more recently, in Europe. I’ve learned there are many ways to build credibility, some of which are concrete, others which are social, cultural or contextual. Our actions may all have the same economic outcome but can be received very differently. So, how you do things – the language you speak, the cultural authority, the engagement, the system skills, the relevance of community engagement to local populations – these things are crucial.
The third thing that has influenced my thinking is the power of ideas and platforms in bringing and shaping ideas. Organisations like the RSA are so important, as they sit between many different spheres of influence. People want an informed, evidence-based point of view – they don’t necessarily want neutrality, which can come at a cost.
Many academic studies and datasets in the institutional investor space show that high-performing organisations tend to be systematic in how they think about allocation of financial, human, technological and other types of capital to drive their decision-making. Good companies encourage and nurture their teams better. They might have a different understanding of how to capture and scale innovation, or be more open to critique and, therefore, improvements. They might have more diverse teams and more inclusive practices.
O’Brien: So, if this data is right, why don’t more managers and leaders use it?
Hunt: Because they need more courage to act. The fear you are not going to serve your investors, customers, supply chain or employees well is a real one but, perversely, over-serving your shareholders is not correlated with higher performance in the long term. Organisations like McKinsey are, fundamentally, counsellors and advisers to businesses, helping to build an argument so that managers and leaders have the courage to act.
Another factor can be biased decisions in hiring. I know the acuity of exclusion and I also know that without my having had the privilege and access of a ‘tier one’, globally competitive education (for which I’m grateful), I would probably not be any different from another Black woman of moderate means struggling to make ends meet. If you can influence decision-makers at the right time, you can create more equitable opportunities for all types of capital – including human capital – to flow and, I would argue, better outcomes.
We need to encourage business decision-makers to introduce a more holistic, sustainable, inclusive approach to capitalism early in their decision-making tenure. Shareholder returns are, of course, core, but as the ongoing economic pressures and crises in the UK and other places illustrate, the really high performing companies can manage multiple goals over time.
The question for leaders is how to build in – in a quantifiable, metric-driven way – stakeholder outcomes so they are not engaging with a false trade-off between shareholders and other stakeholders. What is in the shareholder’s interest should also be in the interest of employees, customers, supply chains and communities.
In the same way we no longer accept that we don’t know our diversity statistics, we cannot any longer accept that a company has not thought enough about or is not able to implement a successful business strategy that serves planet and people, as well as profit. It’s no longer acceptable to say there’s a trade-off between those things because many businesses are showing that there’s not.
O’Brien: What does this mean in practice?
Hunt: First, this must be built into your existing strategy and operating plan to understand its impact on the planet and environmental outcomes, and on social factors.
Second, when it comes to ESG [environmental, social and governance] frameworks, what is meant by the ‘S’ can really vary, but at its core it is an employee proposition. Employees may be the biggest source of pressure and change. They are in your community, their spouses and partners and other business partners are in your supply chain, they experience and live on the planet, they represent all the stakeholders in one.
Third, this is about governance and ethics; how you show accountability internally and externally. This is not just about regulation, but involves mapping out where you need to be.
Finally, if you want to link economic outcomes and development with multiple goals, you have to do this systematically. It won’t happen by accident or all at once. If you understand your priorities and trade-offs, then if you do have to pause or pivot because of unexpected shocks, such as the pandemic or a regulatory change, you can do that in a coherent way.
O’Brien: There must be times when there are real conflicts between where the company might want to go and the legal requirements of the board in relation to shareholders?
Hunt: I would describe it as a tension and a trade-off which must be informed by evidence. The impact of climate change and the need to get to net zero outcomes in an evidence-based, systematic way is urgent and impacts everyone, but the responsibility is borne on the shoulders of the companies that are developing the energy on which we are all dependent.
Another major issue is technology, which is providing a level of analytic clarity and data that allows us to make decisions that are much more individualised by business, customer and person. We can get into a level of analysis that we couldn’t before and, if companies don’t do it for themselves, outside entities – regulators, activists, investors – will do it for them. This is a game-changer in stakeholder capitalism.
People want good jobs with fair wages and non-fragile work, they want engagement, they want to trust their manager and have good outcomes. People do forgive mistakes if you admit them, show contrition and are willing to respond to feedback. But business leaders have to know stakeholders well enough to make decisions that are in the long-term interest of shareholders.
O’Brien: Is it particularly the big businesses that are getting the hit? When we think of trust in business, we tend to think of the globally known brands.
Hunt: My expectation of what big businesses can do in stakeholder capitalism is higher than it is for small businesses. Big businesses have a higher obligation because they employ more people and therefore the economy, household businesses and supply chains are more dependent on them. They also set the operating practices and norms that smaller companies are then dependent on.
According to the Edelman Trust Barometer 2022, business leaders are now more trusted than media and politicians. That has put more pressure on businesses, but it has also shown that employees and people in society want businesses to do more to address societal problems.
O’Brien: Given that the fourth revolution is a different one, what does that mean for the role of states and governments?
Hunt: The principles of stakeholder-informed decision-making, resource allocation and outcomes apply in the public sector just as much as the private sector. That’s why public/private collaborations are actually a good idea when they are well-structured and you can bring in the cutting-edge technologies and skills, innovation and new capabilities that the private sector might naturally develop more quickly.
The public sector’s ability to use the principles of stakeholder capitalism can be just as effective. If anything, the need for the public sector to play a role that no other part of society can play is greater than ever.
O’Brien: Is there, though, a gap between internal reasons for why decisions are being made – what is driving institutions to make change – and communicating this with the public?
Hunt: I would say the policy architecture and implementation approaches need to be communicated in a way that people understand. If your constituents don’t know why you’re making a change, if you haven’t made an evidence-based argument in a narrative that’s also emotionally compelling, why should they believe you? You may still make decisions they don’t like, but at least you can document and explain what you said against the strategy.
O’Brien: We have a piece of work happening in the RSA on the future of audit. Where does audit fit with your vision?
Hunt: Audit is at the cutting edge of how you shape the environment in which business and the public sector operate. That is what regulation and audit do. It’s not just about rule setting but an intersection and combination of skillsets. It’s very exciting.
The architecture for stakeholder capitalism could be another exciting place in which to innovate. Look at what happened with the 17 Sustainable Development Goals, and how regulatory and audit have really strengthened and informed the changes there. Those are hugely motivating and noble goals but come with a real need for a robust audit and regulatory framework.
This is a very exciting time for stakeholder capitalism to be able to be built in concrete ways into business plans, policy outcomes, and audit and regulatory frameworks. I’m not naïve. I know how challenging it can be, and I look forward to differential outcomes because we will be able to see the companies and governments that are doing well, and put more capital into the businesses and companies that are more innovative and doing the right things. I look forward to evidence, it helps us make better choices around good outcomes for stakeholders.
Dame Vivian Hunt is a Senior Partner for McKinsey & Company; she previously served as Managing Partner for the UK and Ireland for seven years and led the Life Sciences practice in EMEA
This article first appeared in the RSA Journal Issue 3 2022.
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