| This week, corporate boards are intervening in more ways these days. Plus, innovation in Latin America and Jeffrey E. Garten’s new book, which goes behind the scenes on why Nixon abandoned the gold standard 50 years ago this month. |
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| Onboarding. Have you hugged your corporate board today? OK, that might be a little dramatic, but boards deserve credit for doing more than ever to help set a company’s course on competition, digitization, risk, and more. What is emerging is a model in which the core mandate of the board is unchanged but its scope for intervention is expanding. |
| Adapting. Faced with the global COVID-19 crisis that began in 2020, board directors and executives reported an appropriate focus on corporate resilience, as reflected in our latest McKinsey Global Survey on boards. Now, as boards (and the rest of us) look toward a recovery, the survey responses suggest that the boards that were the fastest to adapt to the crisis are now planning to focus on specific external risks more than on overall corporate resilience. |
| Preparing. There’s no question that the crisis accelerated operational changes and stronger collaboration among directors and managers that are key to a board’s success. “Shareholders tend to see the board’s annual enterprise risk assessments as tick-the-box exercises to meet stock-exchange requirements,” Gordon Orr, a nonexecutive member of several companies’ boards and a McKinsey senior partner emeritus, said in a recent podcast on boards and resilience. “But if they are done well, they are foundational elements of being prepared because you discuss the range of risks the organization faces and how those risks play into the financials.” |
| Refocusing. With that relationship forged by fire, our survey respondents told us that they expect boards to maintain many of the operational changes that they made in the past year. In addition, they want to focus more on three specific issues: geopolitical and macroeconomic risks (up 19 percentage points since 2020), political risks (up 15 percentage points), and climate-related risks (up ten percentage points). To tackle this growing set of responsibilities, respondents that are part of the most adaptable boards also plan to spend much more time than their peers do on board work this year. |
| Broadening. More often than other board directors surveyed, the directors on the most adaptable boards also cited as agenda items several trends and topics that are more cultural or organizational in nature, including corporate social responsibility, company purpose, workforce capabilities, and the diversity of leadership teams. |
| Transforming. Recent discussions with dozens of board members reveal that they are also focusing on digital transformations as a crucial strategic priority that can create new sources of revenue, gain competitive advantage, and sustain value creation for the long term. The goal for the board isn’t to understand the technology at an expert level but to understand its implications. |
| Engaging. As more and more companies and economies begin to plan for recovery, now is the time for boards to engage deeply in all these issues. Part of the challenge may be in communicating more clearly what, in fact, boards do. Dambisa Moyo, a global economist and board member of several large organizations, talked with employees and others while doing research for her new book, How Boards Work: And How They Can Work Better in a Chaotic World, and found a lack of information about directors’ roles. |
| Clarifying. “There was a negative narrative about boards being described as a group of people who just played golf and drank fine wines,” Moyo told McKinsey recently. “I wanted to be very clear on not only what the mandate is but also to explain why it’s so difficult and challenging to do a lot of things that people think should be easy and straightforward, such as firing a CEO or implementing some of the big ESG agenda questions that are very pervasive these days.” Read more of her interview here. |
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| OFF THE CHARTS |
| India Inc.’s new chapter |
| Indian companies could create substantial value by selling businesses, and now may be a particularly favorable time to divest. Our research shows that companies should consider private-equity buyers, which have historically paid higher enterprise value to EBITDA multiples than strategic buyers in India from 2014 to 2020. |
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| PODCAST |
| Fueling innovation in Latin America |
| A lack of early-stage capital in Latin America has hampered start-up creation and scaling, but MAYA Capital’s Lara Lemann and Monica Saggioro are determined to change that. In this episode of the McKinsey on Start-ups podcast, the cofounders of the Brazil-based firm talk about the hands-on approach they take with their portfolio companies, what they look for when making investment decisions, the issues facing the broader Latin American start-up ecosystem, and more. |
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| MORE ON MCKINSEY.COM |
| Why retail outperformers are pulling ahead | Investor expectations embodied in stock-market valuations provide crystal-clear directions for where retailers should head—and they need to get there fast if they hope to remain competitive. |
| Serving the Black American consumer | Black consumers in America continue to be underserved in areas such as food, housing, healthcare, broadband access, and banking. Yet with deeper analysis, companies may find that meeting this consumer segment’s real needs will allow them to tap into significant value while contributing to a meaningful economic revival. |
| How automakers can succeed in a postpandemic China | A new McKinsey survey shows that Chinese consumers have drastically changed their vehicle preferences and car-buying habits in the wake of the COVID-19 crisis. How can OEMs adjust? |
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| THREE QUESTIONS FOR |
| Jeffrey E. Garten |
| It’s been 50 years since President Nixon unilaterally ended the last vestiges of the gold standard. In a new book, Three Days at Camp David: How a Secret Meeting in 1971 Transformed the Global Economy (HarperCollins, July 2021), Jeffrey E. Garten, the former dean of the Yale School of Management, chronicles the secret meeting in August 1971 when Nixon transformed the global monetary system. This is condensed from a recent McKinsey Author Talks interview.
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| What is the book is about? |
| Nixon and his top advisers went into a meeting to make a momentous decision to sever the link between the dollar and gold. At that moment—actually, since 1944—$35 could buy one ounce of gold. That link created a level of stability around the world that fueled the recovery of Japan and Germany from World War II and that created enormous prosperity in the US for over two decades. |
| There are several reasons why the US had to sever that link. One was that the currencies of Japan and Germany were much too cheap, which meant the dollar was overvalued. |
| Second, with an overvalued dollar, a trade deficit suddenly began to appear—the first in the 20th century. So there was enormous concern about American competitiveness and a major outburst of protectionism in Congress. To deal with these two problems, the US had to delink from gold. |
| But there was a third issue that was even bigger: the world economy had grown so fast and had become so big—and the need for dollars was so great—that the US printed many more dollars than it could back by gold. By 1971, the pledge that an ounce of gold was worth $35 became void. |
| So for all these reasons, they decided to cut the link to gold. And they did it in secret. They announced it at the end of the weekend. And it created enormous turbulence in the global economy and enormous strain among political allies.
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| How does this help us understand the global economy right now? |
| When the dollar was delinked from gold, the world changed in the way it saw money. Before that, money was a stable concept. If you held any currency, you could change it into dollars. And if you held dollars, you could change it into gold. |
| But once the link between the dollar and gold disappeared, the value of currencies became an assessment of the credibility of a country’s policies and the integrity of its financial institutions, such as its central banks and treasuries. |
| So we unleashed an era of floating exchange rates, which had two major effects. First, it created a world economy that was much more unstable; the values of currencies went up and down in substantial amounts. This resulted in a kind of financial casino because there was a chance to make money by speculating on currencies. That led to a whole industry of financial engineering. So all of the things we see today—derivatives, derivatives of derivatives, the fear of global banking crises—all of that really comes from the disconnect between currencies and something that is very tangible. |
| On the other hand, we made globalization much more possible because we reduced the odds of protectionism, since currencies took the hit rather than economies. We allowed for a much larger and faster flow of capital and a much greater volume of trade. I would argue that, on balance, this really helped the world. |
| What surprised you most about writing this book? |
| What surprised me the most were all the parallels that exist between August 1971 and August 2021. At that time, there was a growing trade deficit and a real fear about how the US was going to compete in the world. |
| There was a fear that Japan in particular had an economic system that was very different from ours, which was going to cause enormous problems. There was a feeling that the US had to focus more on building its society at home and that the Vietnam War had gone on too long and really had become not only a tragedy but an enormous distraction. And in 1971, there was also the beginning of an inflationary period, and that made people nervous about holding the dollar. |
| But substitute China for Japan, look at the inflation, and look at some of the possibilities for cryptocurrencies, particularly central-bank digital currencies, and you have to ask the question: Is the dollar going to come under enormous pressure again? I didn’t start out thinking there were parallels between these two periods. But when I was done, I said, “I think that a lot of things have either come full circle—or maybe they never changed.” |
| — Edited by Barbara Tierney |
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| BACKTALK |
| Have feedback or other ideas? We’d love to hear from you. |
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