| ESSENTIALS FOR LEADERS AND THOSE THEY LEAD
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| Psychologists call it ‘surge capacity.’ It’s the mental and physical adaptive system we humans depend on for short-term survival when faced with chronic and perpetual stress. Now that the fog of late pandemic has cast a shroud over last spring’s sunny optimism about a quick return to normalcy, we’ll bet that you and those you lead are exhibiting surge symptoms and their ill effects. Feeling anxious? Unsettled? Does every problem trigger an emergency, every response an exercise in triage? We understand. Leaders can be forgiven if they’ve been fixated on one short-term crisis after another, but they shouldn’t abandon the long-term focus that sets the best leaders apart. This week let’s explore how, amid financial pressures, job departures, and the continued presence of our reliable pal, uncertainty, long-term thinking is still the way for leaders to manage across short- and long-term time frames—to keep themselves centered and to balance the needs of all key stakeholders. |
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| This pandemic has presented executives with the most challenging times in their careers. Stakeholders—employees, customers, partners, suppliers, and society in general—are looking at leaders’ decisions with a gimlet eye, and many shareholders are pressing executives to abandon long-term strategies to meet near-term financial targets. No question, balancing short- and long-term interests is a delicate act. But by understanding and fostering in yourself and your peers those behaviors that distinguish successful long-term companies, leaders and their boards can generate value, jobs, and growth over the long run and resolve much of the perceived conflict between stakeholders and shareholders. Executives’ most important investors, long-term shareholders, seem to agree. |
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| This may be the only number you need to illustrate the inherent tension between the benefits of long-term thinking and the intense pressure on executives to act with short-term interests in mind. In “Finally, evidence that managing for the long term pays off,” from Harvard Business Review, a 15-year research effort shows that average revenue among firms identified as focused on the long term was 47 percent higher (earnings were 36 percent higher, by the way). But here’s the rub: by contrast, other research shows that 47 percent of executives and directors say they would delay starting a new project to avoid risking a miss on earnings targets, even if doing so led to a potential sacrifice in value. The tyranny of short-term pressures on executives is relentless, but the better long-term choice is equally clear. |
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| So scribbled a scientist for Corning in his lab journal at the pivotal moment in the discovery of optical fiber in 1970. At the time, the project, whose goal was to figure out how to transmit information via light, was already four years old and highly speculative. Despite the literally eye-opening discovery, Corning would lose money on liquid crystal display glass for 14 years before it became an overnight success and a primary contributor to Corning’s profits. For such a life-changing invention to come to fruition required a long-term focus and sustained investment, notes Corning chief executive Wendell Weeks in this 2016 commentary. “I believe we can create a more balanced approach, between near-term payoffs and long-term investment,” he says, while offering insights on the role of directors and trustees in steering an organization’s mission. |
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Balancing the priorities of stakeholders and shareholders in an environment of trust and commitment is a delicate work in progress during a delicate time in business and society. “The fact that the [COVID-19] crisis had multiple vectors—health, economic, social justice, technology, and uneven effects around the world—really reminded business leaders that we have to respond in a different way,” says McKinsey senior partner Dame Vivian Hunt. In this podcast, she and former Unilever chief Paul Polman break down the basics of stakeholder capitalism, tap the strategies that address short- and long-term stakeholder priorities, and underline the dynamism that will challenge leaders in this new landscape. |
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| Where the rubber meets the road |
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| — Edited by Bill Javetski, an executive editor in McKinsey’s New Jersey office |
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Copyright © 2021 | McKinsey & Company, 3 World Trade Center, 175 Greenwich Street, New York, NY 10007
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