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Leading Off
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Value creation is the foundation of business. Whether for shareholders, workers, families and communities, or myriad other stakeholders, the ability to identify the sources of value and create it is the leader's enduring mark. It's also easy—amid market exuberance and the grip of crises—to lose sight of the foundational rules of value creation and the way it evolves with new societal demands. This week, with some help from Warren Buffett; the newest edition of McKinsey's flagship corporate finance book, Valuation; and other experts, let's build a nuanced understanding of value and how to spot it for you and those you lead.
Value creation is inclusive
Public confidence in large corporations has been shaken, and it's not for the first time. Globalization, climate change, the power of tech titans, and the behavior of some companies toward workers during the pandemic have called into question the system of shareholder capitalism in which value creation takes place. Amid this reflection on capitalism's virtues and vices, it's important to understand clearly what it means to create value and what actions—such as adopting a long-term perspective—best support the interests of shareholders and stakeholders alike.
“Price is what you pay. Value is what you get.”
That's Warren Buffett, investor extraordinaire. In this appreciation of the Sage of Omaha as he turned 90 years old, the core elements of his investment philosophy—patience, caution, and consistency—shine through. Buffett has earned millions of dollars for investors over his career, but very few of his decisions have been reactionary. Instead, his choices and communication have been and remain grounded in logic and value.
That's the number of the largest global companies tracked in a continually updated interactive on industry valuation since the pandemic began. Not all industries have performed equally. Take, for instance, the diverging fortunes of the commercial-aerospace and high-tech sectors. See where your industry stands and improve your perspective on shifts over the past year to your company's valuation and your strategic options.
photo of Kurt Kuehn
It's a purpose! It's a metric! No, it's … ESG! In the evolving debate over how companies can create value from societal engagement, no idea has leapt to the status of superpower acronym like the need to manage environmental, social, and governance (ESG) topics. During the pandemic, companies have become acutely aware of their vulnerability to the risks of ESG issues and how they are disclosed. In an interview, Kurt Kuehn, former CFO at UPS, explores how companies can develop the reporting means to reassure shareholders and stakeholders alike. For a deep dive on the topic, read “Five ways that ESG creates value.”
Personal value
abstract swirl
Mission. Values. Purpose. How does a leader assess the value-creation potential of terms that are at once vague and potentially powerful in a business context? In one recent poll, nearly half of disengaged millennial workers made it clear that they will change jobs if the job market improves in the next 12 months. Consider the risk to value embedded in such churn and also the value creation that could flow from engaging those workers with a corporate purpose and behaviors that speak to their societal sensibilities. No one leader can make that happen, but when a company finds the sweet spot between “me” and “we,” the benefits to employees, the company, and society can be immense.
Lead valuably.
— Edited by Bill Javetski, an executive editor in McKinsey's New Jersey office
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