Moreover, the conventional wisdom that missing an replace their CEOs. The average tenure of a CEO at estimate means immediate retribution is not always a large-cap company is now about five years, down true. A McKinsey analysis found that in 40 percent from ten years in 1995. A recent Harvard Business of the cases, the share prices of companies that Review study of the world’s top CEOs found that missed their consensus earnings estimates actually their average tenure was 15 years.3 One critical rose. Finally, an analysis of 615 US public companies factor: close and constant communication with their from 2001 to 2015 found that those characterized boards allowed them to get through a rough patch as “long-term oriented” outperformed their peers in and go on to lead long-term success. earnings, revenue growth, and market capitalization. Even as a way of protecting equity value, then, Like Adam Smith, we believe in the “invisible earnings guidance is a flawed tool. And, of course, hand”—the idea that self-interest plus the network there can be no bad headlines about missed of information (such as the price signal) that helps estimates if there are no estimates to miss. economies work efficiently are essential to creating prosperity. But Adam Smith also considered the Along the same lines, stop assuming that pursuing rule of law essential and saw the goal of wealth shareholder value is the only goal. Yes, businesses creation as creating happiness: “What improves have fundamental responsibilities to make money the circumstances of the greater part can never and to reward their investors for the risks they be regarded as an inconveniency to the whole. No take. But executives and workers are also citizens, society can surely be flourishing and happy, of parents, and neighbors, and those parts of their which the far greater part of the members are poor lives don’t stop when they clock in. In 2009, in and miserable.”4 A more recent economist, Nobel the wake of the financial crisis, former McKinsey laureate Amartya Sen, updated the idea for the managing partner Dominic Barton argued that 21st century, stating that the invisible hand of the there is no “inherent tension between creating market needs to be balanced by the visible hand of value and serving the interests of employees, good governance. suppliers, customers, creditors, communities, and the environment. Indeed, thoughtful advocates of Given the trillions of dollars and other kinds value maximization have always insisted that it is of support that governments are providing, long-term value that has to be maximized.”2 We governments are going to be deeply embedded agree, and since then, evidence has accumulated in the private sector. That isn’t an argument that businesses with clear values that work to be for overregulation, protectionism, or general good citizens create superior value for shareholders officiousness—things that both Smith and over the long run. Sen disdained. It is a statement of fact that business needs to work ever more closely with Start focusing on leadership and working with governments on issues such as training, digitization, partners to create a better future and sustainability. McKinsey research defines the “long term” as five to seven years: the period it takes to start and build Accelerate the reallocation of resources and a sustainable business. That period isn’t that long. infrastructure investment As the current crisis proves, huge changes can take Business leaders love words like “flexible,” “agile,” place in much shorter time frames. and “innovative.” But a look at their budgets shows that “inertia” should probably get more attention. One implication is that boards, in particular, should Year to year, companies only reallocate 2 to 3 start to think about just how fast, and when, to percent of their budgets. But those that do more— 2 Dominic Barton, “Capitalism for the long term,” Harvard Business Review, March 2011, hbr.org. 3 “The best-performing CEOs in the world, 2019,” Harvard Business Review, November–December 2019, hbr.org. 4 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, London, UK: W. Strahan and T. Cadell, 1776. 88 What now? Ten actions to emerge stronger in the next normal September 2020