Author Talks: How you can future-proof your business for sustainable, long-term growth

In this edition of Author Talks, McKinsey Global Publishing’s Raju Narisetti chats with Lucy Parker, partner at the Brunswick Group, about her new book, The Activist Leader: A New Mindset for Doing Business (HarperCollins, September 2023), coauthored by Jon Miller. Parker highlights the importance of activist leadership and outlines a path for business leaders to achieve long-term gains while addressing the most critical challenges of our time. An edited version of the conversation follows.

How should leaders think about practical idealism?

In The Activist Leader, Jon Miller and I write about the need for a new kind of leadership in business. To be a successful business leader, you need to deliver financial value hand in hand with social value.

That concept has not been brought together as powerfully in the past. It is very relevant to the idea of an activist leader. A criticism which you often hear about activists is that they’re impractical, that they’re unrealistic. You may also hear that the idea might be lovely, but it can’t be executed in “the real world.” “Practical” in this context is really tapping into the enormous capability of business to be practical, to deliver implementation plans, to operationalize ideas, and to drive innovation to create new ideas, which is crucial.

The end result of combining those two elements is that activist leadership is about making real the concepts that need to happen related to change. Activist leadership is about the business implications of delivering on the big societal challenges that are impacting the business and determining where the business can impact the issue. That’s at the heart of the idea.

How do you get CEOs from ‘yes, but’ fear of inaction to ‘yes, because’ action?

We include the concept of the “yes, but” syndrome because we meet it so often in businesses. It is a trap for leadership teams. It will prevent them from making progress. For example, if you have plastic pollution and a big plastics producer, what you might get is a company going, “Hmm, I do see the problem of plastic pollution. It’s a very big problem, and it certainly needs to be tackled. But the problem is that we’re a big plastics producer, and we get criticized for it, so unfortunately, we can’t act in that space.” The same situation would apply to meat production and its connection to climate change, methane emissions, and more.

“Absolutely, we see the scale of the problem, but unfortunately, we’re a major meat producer, so we really can’t act on that problem because we’ll be criticized for it.” The key to that then is to turn it around, to flip it over and to say, “Yes, because.”

For example, when PepsiCo decided to move on water, it was because it was enormously challenged on the question of water (in India, where PepsiCo was criticized).

PepsiCo took a hard look at the issue and said, “We understand the scale of the issue, and because it is our major raw material, because it matters to us on that scale, we’ll act on it.” As a result, PepsiCo established a program that was the foundation to winning the World Water Prize on the very thing they’d been criticized on.

Since PepsiCo saw the scale of the problem and was integrally involved in it, the company could become part of the solution. That is positively switching “yes, but we can’t,” into “yes, because of it, we can and we need to.” That’s at the heart of starting on the road to activist leadership—seeing the problem, considering that it has something to do with you, and stepping into it—that is, speaking up. That’s at the heart of the idea.

How should leaders decide on speaking up versus staying silent?

The question of when to speak up and when to stay silent has really captured the attention of almost every business leader today. It is a direct challenge that is less about speaking up and more about action. The real question about whether or not you speak is whether or not the issue is connected to your organization, and whether you’re doing something about it.

You’re looking to know whether the question is one that this business had dealt with before, where it has perspective on the challenge and is already acting on it. When you are acting on the challenge, it gives you guidance to consider what needs to be done about it. If that’s where you start, then you’re on much firmer footing. Then if you decide to speak up, you’re making that decision based on a question you’ve already assessed and are acting on. That becomes your essential guiding principle. All over the world, and particularly in America, business leaders are caught in the crosshairs of a polarized political debate. Business leaders are being challenged either for being too active on societal issues or not active enough on societal issues. That can be quite a challenge. What’s interesting is that there are political forces aiming almost to draw you into their question, off balance and off your firm footing, into something that becomes fuel for their political debate.

You may decide that you want to speak up about the issue because you are already actively engaged in it, and it is worth using your political capital. IBM is a veteran in this area. IBM has honed this position since the 1950s when it spoke about and acted on racial justice. We cite the five questions IBM developed in The Activist Leader. I don’t know that they’ve been better spoken by any other business since.

IBM asks you to ask yourself:

1. Is the issue directly linked to the business?
2. Does the company have a history of engaging in it?
3. What are the stakeholders saying?
4. What are the competitors doing?
5. Could the company make a meaningful difference by engaging?

That last question is crucial. Are you speaking up because you think your voice in the arena will make a difference? Are you engaging because your voice could make a positive impact?

At the moment, attention is focused on saying and not saying. Actually, the question is this: where are you acting, could you or should you act? Use that framework as your central principle when you decide where and when to speak out and when not to.

There’s as much risk in not speaking up as there is in speaking up. And you have to consider those crucial questions—which issues you are prepared to focus on and which issues you are acting on and, therefore, might speak up about.

Why not ask your employees what their top issues are and focus on those?

Employees are a crucial stakeholder in the question of how a business decides to deliver social value, and they are very active.

There’s no doubt at all that people want to work with businesses that are delivering societal impact positively. Employees matter, but polling does not matter as much. There’s an interesting story of a global pharmaceutical company which set out to ask its employees in America, where they were based, what societal issues really matter to you?

The answer was gun crime. Now there’s certainly no doubt that gun crime is a significant societal issue in America, and it means a lot to many people, and likely to the employees of that company. But whether or not the business can make a difference on gun crime is a different question.

If you are a pharmaceutical company, gun crime is probably not the area where you have the greatest expertise to bring to bear or that is material to your company. Nor is it necessarily an area where you could make a material difference to the issue in the outside world.

Once again, the approach revolves around what your company is, systemically, because you are a systemically significant company. Where can you actually make a difference? Well, if you’re a big global company in the healthcare sector today, there are many areas you could be addressing. How well do health systems operate? How can you address the problem of pricing? Can people across the world afford your drugs?

There are multiple issues that, as a healthcare company, are material to your business and where you, as a big, systemic player, are material to that issue. Gun crime may not be it. What you typically find is that employees asked as individuals will be answering in terms of what matters to them in their locale, of what they can actually care about in their lives.

But companies have a different question on the table in front of them. They are systemically significant. They operate in ecosystems where the shift needs to happen. An activist business leader is saying, “How can we help drive systemic change in the system in which we operate? Where are our biggest levers for doing that?”

You can then give your employees a sense of engagement, a part in it. Tesco has a huge systemic program globally on how they engage with food waste, from the fields right through to product promotion and what their consumers buy. They gave their employees a very powerful role in donating food in the locality where they live. But the business responsibility is to work across the entire ecosystem to drive change if you want to deliver social value.

So leaders are ‘playing the game’ while activist leaders are ‘changing the game’?

The difference between changing the game and playing the game is what in The Activist Leader we call the “corporate mindset” and the “activist mindset.” It’s a bit cheeky to put it like that. Yet if you talk to companies about whether you are really playing the game on what you consider to be ESG [environmental, social, and governance] activity, you often get a smile and shrug along with, “Well, we’re doing what must be done. We’re sort of going as far as we need to go because regulation has asked us or stakeholders have pushed us into a position, but it’s not central to this business. We’re playing the game.”

You could argue that many, or even most, businesses are in that space. These businesses consider their point of view of the impact of these issues on them: the amount they cannot do, and the littlest amount they can get away with doing. The end result is incremental change on something that doesn’t change the business model.

We’re saying that to deliver social value today, you actually need an activist mindset. That means addressing the issue in the world that you are intrinsically involved with, because of the nature of your business, the footprint of your business. It means asking yourself what are we to that issue, and what is that issue to us?

Whether it’s meat production, carbon emissions, water, living wage, or any other such question, that question impinges on our business, and we impinge on that issue. The focus really becomes what can you do in your business that positively steps into the future, where you can say, “We could make a difference on that?” For example, consider Apple dealing with aluminum in their laptops. Apple wanted to minimize the footprint of aluminum production. They found that the aluminum they were using in their laptops couldn’t be recycled multiple times. So they opted to invent a new form of aluminum.

Another example is a company looking at lighting, like Philips, which examined the problem of the environmental footprint of their bulbs and said, “How about we actually create lighting as a service, as an idea?”

Philips shifted its business model. When you do that, you’re on a different plane; you’re actually changing the game. That’s because you’re systemically important, and you’re prepared to reexamine your own ways of operating, even your own business model. You’re considering this question, “What would make a difference? How can we move the business forward on this challenge and deliver business value and impact in a positive way?”

That’s leading the game. Interestingly, McKinsey was talking about offensive and defensive on climate issues. These days, in the transition storyline on energy, you don’t win from a defensive position. You win by moving into the offensive and saying, “What’s needed here?” That and then stepping toward it constitutes an activist mindset.

How should leaders decide between what to speak for versus what to speak against?

When the Ukraine war began, businesses were asking themselves how to respond to that. Some moved into action immediately, because in one way or another, they felt that was a clear dividing line. They needed to say where they stood on the dividing line.

It’s inherently a political question. The move these businesses could make was to step away from Russia as much as possible. This is not the same situation as long-term societal demands, climate, or living wage, for example, which actually touch their business model. It’s more a response to a political complexity. The reason China is interesting is that so many businesses are embedded in their supply chains in China. They’re being asked to think about questions like human rights in China. Some businesses choose to say, “Our role is, because we are intimately involved with the supply chains into this country, we will work with that country to lift the supply chain standards—the human rights standards in those supply chains.”

Very few businesses elevate it to being a single issue they would take on. There’s a much finer line in China between a political question and a business question. Mostly, businesses which are operating within complicated business questions find a way to stay there and up the game if they’re serious about activism.

Do you stay with oil and gas companies if you’re a bank, or do you come away? The guiding principle there is do you stay, because through your business operations you can authentically make a difference in raising the standards on the issues that matter to your business and to the world? Or are you getting drawn into a political debate? These questions are finely but fundamentally different.

How should leaders measure ROI of deploying their ‘leadership capital,’ either in engaging on an issue or staying silent?

People are asking themselves about the business benefit. What is the commercial benefit of engaging in these questions? When asked, we sometimes respond, “What do you think the business case is of not engaging in these questions?” Typically, the question is more about value over the long term.

If your perspective on value is that it has to turn over by the quarter, sometimes it’s hard to make the business case. But the businesses that are operating in the vein of leadership on societal issues are taking a long-term view of the questions that will impact their business. They also take a long-term view on what they have to do to make sustainable, profitable businesses a reality.

Maersk is a very interesting example, because their ships remain on the ocean for decades. Maersk made a breakthrough when it created and designed ships. It put them on the ocean for green fuels, at the same time invested in the scaling up of green fuels.

For a short-term horizon, those ships are more expensive, and the investment in scaling up green fuel is speculative at one level. But Maersk said, “All our customers are committed to various forms of net-zero commitment, and they want us to prove that we can deliver shipping without the carbon emissions that have existed in the past.”

If we put ships on the ocean today, they will be there in 2050. So unless we break the pattern now and do something radically different, we will not meet those goals. We won’t meet the goals for the system, and we won’t meet the goals for our customer.

Therefore, once you’ve asked that question and examined that perspective, you conceive of innovative ways to meet your goals. For example, Maersk partnered with its customers to underwrite the investment in green fuels.

So the question is less where and when you step in as much as how you step in. Essentially, you’re saying, “Look at the long-term trajectory of this business. We’re going to need to act on this.” Then you take a view on what you invest in.

One of the things that a lot of companies miss today is how fast these issues are approaching. This summer, the whole world is beset by fires, droughts, and floods. Increasingly, we understand these are consequences of climate change.

Recently, an energy business in Southern Italy announced that part of its problem in supplying energy was the melting of its underground cables. That’s a pretty dramatic and immediate business impact. What’s the cost of not investing in something that will protect your cables for the long term? Many people have a problem with directly assessing that long-term trajectory and making decisions now. This is about long-term, sustainable business. It’s not whether or how. It’s selecting areas where you will make a difference for your business—where you can drive systemic change that you can then enter into your ecosystem.

Amid short leadership tenures in companies, how can activist CEOs think long term?

It’s a great question to think whether the tenure of a CEO or, indeed, an executive team around the CEO actually matches with the kind of long-term perspective needed to deliver long-term, sustainable profits. It may be less difficult than it sounds in theory.

The most creative, imaginative conversations one can have with a leader is when the leader thinks, “The reigns of this business are now in my hands. And all my career has led to the point where I was going to have the reigns in my hands to do something. What kind of a leader do I want to be?”

Business leaders today would want to take that into account—issues like drug access and climate impact on the footprint of the business. We wrote The Activist Leader because more and more business leaders are saying, “I see this is what I need to do and want to do as a business leader. The question is how.”

The temptation is to think it is unrealistic. It doesn’t happen, but wouldn’t it be great if it could? That’s why we filled the book with examples of people doing it already, because this is actually happening. There are many business leaders who are saying, “This is the kind of leader I think the business needs and I want to be.” You also need it as people start to come to the end of their tenure and wonder, “Have I left the business better than I found it?”

This is about future-proofing the business. Logically, you might say the tenures don’t match up. Yet our experience is that as people think of themselves as leaders, it becomes quite compelling. They become the kind of business leader they wanted to be. When you look at the portfolio of products and services, typically, those things take years. Many products and innovation projects are about something that’s going to have a long-term trajectory. So if you start applying the lens of social value into the way you deliver financial value already, you’re in a completely different space. You have to bring financial and social value together.

It’s not new that businesses have wanted to deliver social value, but it’s always been something else, maybe something on the edge. Now what you’re looking at is businesses really thinking, “I have to deliver financial value. That’s not a mystery. That’s how I got the job. That’s why I’ve got the job: I know how to do that.”

But how do you overlay that concept with a lens that says, “And while you do that, are you actually working out how you deliver positive societal impact so that your business is not responsible for the externalities that regulators have to crowd around? Are you working it out so that your business will have a long-term sustainable, comfortable future, working in an ecosystem where you’re prepared to change the game for the rules of the future?” That’s the question on the table for any business leader today: how do you do that?