Stakeholder capitalism: Securing the health of our physical and digital worlds
by Oliver Tonby, Chairman, McKinsey Asia
As Singapore looks ahead to the World Economic Forum meeting in August, McKinsey’s Asia chairman Oliver Tonby reflects on stakeholder capitalism at the virtual Davos Agenda week.
What a difference a year makes. Last January, I attended the 50th World Economic Forum held, as always, in the snowy alpine town of Davos in Switzerland. As I made my way through a roster of back to back meetings with delegates from all over the world, that last thing I expected was that next time we’d all convene, it would be through our computer screens.
This year, Davos took place virtually in the last week of January, and I dialed in from the much warmer city of Singapore, where I live. Although the challenges facing the global economy were not lost on delegates, I felt among the group a strong conviction for change. One theme that featured front and center during the week-long event was stakeholder capitalism, which, in part, gave reason for the forum’s cautiously hopeful mood. The theme resounded loud and clear, even over the technology hiccups, occasionally patchy connections, and calls to ‘Please unmute’.
First, what do I mean when I say ‘stakeholder capitalism’? I mean companies must think beyond revenue and returns, and shift their focus to the interests of a wide range of stakeholders, e.g., customers, employees, society, and the planet. Sounds a bit lofty? I also confess having felt a certain ambivalence to the term before Davos. Yet, it’s now clear to me that stakeholder capitalism is not just a clever buzzword. Instead, it’s perhaps the most critical mindset business leaders must adopt across decision making, and the key to our collective, long-term resilience and wellbeing. This proves to be particularly evident in thinking about two of the most pressing challenges facing the global economy today: sustainability and digitalization.
Working together to advance the transition to a sustainable world
We’ve emerged from the hottest decade on record, and the mercury is still climbing. The potential devastation of increasing climate risk — including the possibility of more frequent pandemics — has become almost undisputed. In McKinsey’s recently published analysis, Asia stands to be most affected if we take no action. By 2050, lethal heatwaves and floods could cost trillions of dollars in Asia’s annual GDP.
How does stakeholder capitalism come into play? By companies acting quickly and decisively to reverse course. We need to see the conversation shift from whether we should do anything to what concrete strategies will limit global warming to 1.5 degrees, which scientists believe will help us avoid the most adverse effects of climate change.
Businesses could tailor their strategies to capitalize on pro-environment government initiatives, like Japan’s plan to sell only electric cars by 2035. Another example lies here in Singapore, where the government is focused on installing electric charging points across the island. The idea is that initiatives like this will kickstart a virtuous cycle in which everyone — and the planet — benefits.
Industrializing economies in Asia could rely on sustainable and renewable energy sources to power their rapid urbanization. Governments can incentivize green investments to attract entrepreneurs across a range of activities. In addition to continuing to improve decarbonization technology to reduce our greenhouse gas emissions, better systems are needed to predict and prepare for adverse climate events, transform our agricultural practices, and shore up the resilience of our infrastructure. By some estimates, investments in climate change adaptation can inject 0.7 percent growth to global GDP and generate millions of jobs.
Now that we’re reaching widespread consensus around the critical nature of ESG (environment, social, and corporate governance), the next task is crafting a global lexicon so we all speak the same language. Shaping a common set of metrics requires buy-in and coordination of business, government, and civil society leaders around the globe. It was heartening to hear about recent initiatives led by the WEF and the International Business Council to articulate and codify clear and transparent metrics. These metrics not only help companies everywhere to measure and track their ESG impact, they are the essential building blocks to multilateral collaboration.
Implementing digital guardrails to improve the state of the world
According to McKinsey’s latest Future of Asia research, Asia is well-positioned to leapfrog the rest of the world. In the last decade alone, the continent captured 87 percent of new patents and countries like India have become hotbeds for a new generation of tech unicorns. Much of this is due to strong government support: China is growing its AI industry to be worth nearly $150 billion by 2030; India has launched a number of tech programs targeted at social development and inclusions; Malaysia has established digital free trade zones that are expected to see $65 billion in flows of goods and services between now and 2025.
The breakneck pace of digitalization has precipitated a host of issues — from data privacy to interoperability of tech platforms–that require a coordinated effort to address before they become intractable problems. Companies can play the crucial role of engaging regulators to help create an equitable and fair playing field. In a session I attended, Mohit Joshi, president of Infosys, called for a unified code of conduct to set behavioral guardrails around the commercialization of AI and other digital technologies to protect consumer privacy and cyber security while preventing bias. Andreas Kunze, founder of the Munich-headquartered Internet-of-Things startup Konux, advocated for a more harmonized way for companies to pool knowledge to further accelerate innovation.
Achieving all this, of course, requires coordination and consensus from a broad range of stakeholders, and businesses at the cutting edge of technology are best positioned to advise regulators on the legal frameworks that promote innovation without causing harm.
Creating the path forward, together
We’re at the beginning of a global recovery. How successfully we pave the path to the next normal will depend on how effectively leaders from government, the private sector, and civil society work together across diverse parts of the world.
That many pharmaceuticals chose to forgo proprietary ownership and pooled their research to develop effective COVID-19 vaccines in record time is a powerful example of stakeholder capitalism. Global vaccine distribution will be the next litmus test. The establishment of COVAX — an initiative of 76 wealthy countries working to ensure vaccines reach developing countries — is a step in the right direction. This suggests that while reaching widespread consensus on any single issue is often a lengthy and messy process, multilateralism and stakeholder capitalism offer us the best chance of success.
In his closing address, Singapore Prime Minister Lee Hsien Loong stressed the importance of global cooperation and regular constructive dialogue, both of which I predict will be themes at August’s in-person Davos event in Singapore. It’s another display of a global commitment to stakeholder capitalism, and I’m looking forward to gathering live with global leaders to spark ideas on how to take these ideas forward, together.
