In July 1989, McKinsey internally published a staff paper coauthored by John Stuckey with contributions from Rob McLean, who were then with the firm. The paper challenged a core assumption of corporate strategy at the time: that diversification itself created value. Instead, it proposed a more demanding test for ownership. Companies, the authors argued, should own only those businesses for which they are uniquely positioned to maximize the net present value (NPV) of future cash flows. This framework came to be known as the “natural owner” principle.
Nearly four decades later, this logic is embedded in how many strategists intuitively think about portfolio strategy, capital allocation, and value creation. In this conversation with McKinsey Partner Tim Koller and distinguished expert of strategy Whitney Zimmerman, McKinsey alumni Stuckey and McLean revisit the origins of the idea. Although the framework was initially conceived to help companies decide which assets to divest, its creators now see it as useful to companies’ offensive strategies. In this conversation, Stuckey and McLean reflect on why understanding who the natural owner of a business is matters more than ever in an era of activist investors, ongoing portfolio shifts, and rapid technological change.
This interview was edited for length and clarity.
Tim Koller: In 1989, you coauthored what McKinsey at the time called a “staff paper” titled “The market-activated corporate strategy framework,” which proposed the concept we later came to call “the natural owner.”1 How did you come up with this framework?
John Stuckey: We developed it toward the end of the conglomerate era, when many companies still believed internal diversification created value. In Australia, where I was working at the time, conglomerates were particularly common due to the concentrated industrial structure of the economy. One client, an industrial conglomerate with roughly a dozen largely unrelated businesses, engaged us because the portfolio simply didn’t add up. The CEO sensed something was wrong. The only supposed synergy was capital allocation, which we believed markets already did better. The businesses that made sense were a set of maritime assets, including shipping and stevedoring, that were historically connected and capability linked. The rest were unrelated. The framework emerged directly from working through this with the board and executive team. Rob coined the term “natural owner,” which immediately resonated and became a good discussion tool with clients.
Rob McLean: In the late 1980s, corporate raiders like Carl Icahn were scaring the life out of companies in the US, while in Australia, figures like Alan Bond and John Elliott were shaking up the conglomerates. We felt we needed a clear point of view on how to structure a portfolio. Traditional ROE analysis highlighted weak businesses, but the real insight came from setting a high hurdle: own only businesses where you are the natural owner and can uniquely maximize future value.
One example was a New Zealand forestry and building materials company that also had a fishing business. They considered acquiring a global tuna business, but after a close look, we collectively concluded that they weren’t the natural owner. That thinking ultimately helped rationalize diversified portfolios.
Tim Koller: Could you describe the framework itself for the audience?
John Stuckey: The framework is a two-by-two matrix. One axis measures a business’s inherent potential to create value going forward. This is not current earnings, but future value through growth or performance improvement. The other axis measures the degree of natural ownership, which is whether a company is uniquely positioned to maximize the present value of future cash flows from that business. At one extreme, you are clearly the natural owner; at the other, you are simply one of many possible owners.
When we plotted portfolios, many businesses clustered near the middle—those with moderate value potential and weak ownership advantage. Those were the units that prompted the hardest questions. The framework wasn’t meant to dictate decisions mechanically but to facilitate high-quality discussion with boards and management teams.
Tim Koller: How did the natural owner idea spread?
John Stuckey: It spread internally through staff papers, practice meetings, and informal networks. Several senior leaders, who strongly supported knowledge development, were enthusiastic about new ideas, particularly those that were practical. This was before email or the internet, so ideas spread through meetings, phone calls, and printed papers. We talked about it with clients. And then we started hearing from others working on studies that they were picking it up as well. Ultimately, the framework became one of the first codified corporate strategy tools widely used across the firm.
Whitney Zimmerman: How has the framework evolved from a defensive concept to an offensive one?
Rob McLean: What we were largely talking about back then was defensive. There were companies earning maybe 10 percent ROE, but with 30 or 40 percent of their businesses earning maybe 5 percent. And so, you can do the math: you end up with two or three or four points of ROE accretion by eliminating those low-ROE businesses. That triggered the conversation about who should own these businesses.
More recently, we’ve seen enormous value creation when companies offensively acquire assets where they are the natural owner. Facebook acquiring Instagram and eBay acquiring PayPal are classic examples.
John Stuckey: It’s not enough to just be the natural owner; you have to do something differently once you own it. What are you bringing to the party? What will you do and how will you do it? You’ve got to be rigorous about that.
Going back to the question of defensive versus offensive, it is true that this began as a defensive concept—helping companies think through what they should divest. But, of course, if someone is the unnatural owner of a business and they divest it, they look for the natural owner to sell it to, because they’re likely to be willing to pay the most. So, there was always an element of thinking about both sides of this, even for companies that were divesting.
It’s important to remember: Being the natural owner of something doesn’t necessarily mean it’s a glamorous business that everyone loves. Sometimes it just means realizing that remaining the owner is the best option. Many companies own businesses that don’t have a very positive NPV. Now, if it’s negative and no one else can do better, you’ve got to close it or at least get out of it as best you can. But if you’ve got a business that’s got a small positive NPV going into the future, even if you pull all the levers you can, you might still be the natural owner of that business. Even though it’s not a glamorous business, if it’s got a positive NPV, then you hang onto it. In fact, you might even buy a couple more to go with it, to get some scale, if there are advantages accruing to that. Now, you might argue that if you throw executive bandwidth into the equation, and this thing chews up more than its fair share, that could be a reason not to continue.
Tim Koller: Let me play devil’s advocate for a moment, using an argument that I’ve heard. Over the past 20 years, enough unexpected combinations have created tremendous value, challenging the validity of the natural-owner concept. In light of that, is the framework as it was originally devised still applicable today?
Rob McLean: I think the natural-owner concept is still valid and pertinent in new ways. The world we see today is one in which analysts and shareholders have very strong views about what your portfolio should look like. Companies don’t have the luxury anymore of just sitting there and doing what they want. They’re under pressure to be owners of businesses they’re actually good at running. You can see that in companies like BHP and Rio Tinto. They had businesses they didn’t like or didn’t see a future in, and they moved out of them. BHP got out of steel, for example.
John Stuckey: Yes, I do think it still holds. A good example is Disney’s acquisition of 21st Century Fox in 2019. Rupert Murdoch concluded that Fox was no longer the natural owner of those assets, given the way the television and streaming industries were evolving. The story, at least as it’s been told, is that Murdoch effectively approached Disney and said something along the lines of, “You guys are at least one of the potential natural owners of this business. Would you like to buy it?” And they did.
Whitney Zimmerman: The advent of generative AI adds an interesting evolution to the use of the natural-owner concept. AI’s growing potential to rapidly change companies’ capabilities means many are or should be rethinking who they are and what they could become. This means the definition of a natural owner is less fixed than it used to be. At the same time, AI is lowering the cost of creating new businesses, which will increase the number of potential assets companies could find themselves owning. These two dynamics make it more valuable than ever to regularly ask the question, “Am I or could I be the natural owner of this asset?”
John Stuckey: Yes, AI introduces enormous uncertainty. No one knows exactly how it will settle. For most companies, the right response is not to bet the company, but to create options cheaply, experiment, and learn. Ultimately, AI only matters if it either increases revenue or lowers cost. If it doesn’t do one of those two things or reduce capital intensity, it doesn’t create value.
Although AI is new, the companies we’ve worked with on the natural-owner concept have always had to grapple with these ideas in some way. There have always been different versions of what this company could be in the future, and hard choices for the leaders. They’ve always had to ask, “What are our unique capabilities?” And, “Why are we the natural owner?” And it has to be a better reason than something like, “We’ve owned it for 100 years” or the “It’s in our DNA” cliché.
Tim Koller: Any final thoughts on what companies should be doing to create more value?
John Stuckey: They shouldn’t lose sight of the eternal truth that being in growth businesses is the most reliable way to make superior returns—if, that is, you are the natural owner, of course.
Rob McLean: As we have seen, there are huge value-creating opportunities in making acquisitions where you are the natural owner, especially, though not exclusively, in tech. Orienting strategic planning around whether or not you are the natural owner brings a sharp edge to a process that is too often limited to incremental change.
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