Capitalism for the Long Term

As the current financial crisis and the Great Recession begin to ease, executives may be tempted to heave a sigh of relief and return to the comfort of business as usual. But doing so would constitute a serious mistake for their companies-and a grave disservice to capitalism itself, argues Barton, the global managing director of McKinsey & Company. Rising income inequality, high unemployment, and spiraling budget deficits are fueling public distrust of business, while the shifting balance of power between East and West exacerbates these tensions. But perhaps the biggest danger is that short-term approaches to investing in and managing companies-the "quarterly capitalism" that led to the financial meltdown-still persist. The time is ripe, Barton says, to restore capitalism's founding principles so that it can deliver the sustainable growth the world needs. Business leaders have a choice: They can initiate the necessary reforms, or they can let the system be reformed for them. They should consider three concrete steps in particular: changing their organization's structure and incentives to focus on the long term; disseminating the perspective that serving the interests of all major stakeholders is compatible with the goal of maximizing corporate value; and putting together more effective boards, ones with the knowledge and heft to govern like owners. None of these steps will be easy, Barton acknowledges, but they are all necessary to make capitalism stronger, more resilient, more innovative, and more equitable-a system once again worthy of the public's trust.

• Corporate governance
• Organizational structure and design
• Society and business relations
• Capitalism
• Business growth