A rolling series of global dislocations are creating intense new challenges for leaders. We face an ongoing global pandemic, a war in Europe, accelerating climate change, rising inequality and polarisation, volatile energy and food prices, tech disruption, a deep realignment in working patterns, and rates of inflation not seen in decades. These dislocations are compounding questions around the resilience of political systems, the efficacy of our multinational institutions and the very future of our interconnected global economy.
Periods of dislocation are not new. I’ve witnessed many in my nearly 40 years of advising global businesses. What feels unique about the current period is the intersection of so many highly consequential forces at a time when the fault lines between East and West, industrialised and developing economies, democracy and authoritarianism are on full display.
To navigate these disruptions, leaders should get “reinvention ready.” This means boldly transforming the company to be part of the long-term solution to society’s dislocations. The business community—along with governments, communities and civil society—has an unprecedented opportunity, and responsibility, to lead. Specifically, business leaders should focus on two things: transitioning to a more responsible form of capitalism that drives value for all stakeholders, and resetting corporate agendas with an eye toward long-term outcomes. Although leaders can’t forget short-term results, it is these deeper shifts that are the keys to sustained success for both business and society.
We must reframe how we come together around the big societal challenges we face. I am a strong believer in the power of companies to unite people in creating the kind of positive change we need to solve our toughest societal problems while also delivering value for shareholders. Now more than ever, we need true stakeholder capitalism, in which businesses are guided by a clear purpose to deliver value to society and all stakeholders. This is the best recipe for building trust and delivering sustained success for both business and society.
Considering all stakeholders isn’t altruism. It makes solid business sense. Focusing on shareholders alone to the exclusion of other stakeholder groups can hurt shareholder value. I agree with Larry Fink when he said that stakeholder capitalism ‘is not woke. It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers and communities your company relies on to prosper.’
While the call for stakeholder capitalism is nothing new, the relentless rise of stakeholder expectations is a challenging reality that few leaders have internalised. PwC’s upcoming 2022 Global Consumer Insights Pulse Survey paints a vivid picture of these shifting power dynamics. Individual stakeholders and consumers are increasingly willing—and able—to hold companies to account. Companies must therefore anticipate being accountable to a greater, more diverse set of stakeholders across a broader set of societal and business issues. Leaders must be responsive to changing stakeholder demands, from employee expectations for hybrid working to consumer expectations around diversity to policymaker expectations for ESG performance.
To build positive relationships with these stakeholders, companies must be trusted forces for good in society. While this may sometimes result in some level of short-term cost, it is absolutely essential for maintaining long-term social licence to operate. For example, many companies decided to cease operations in Russia—sometimes at significant financial cost—due to Russia’s invasion of Ukraine. In my view, this was absolutely the right thing for PwC to do.
Highly visible, complex decisions such as these are all but guaranteed to continue in the months and years ahead. In making these decisions, business leaders should consider how every action connects with stakeholder expectations and societal implications. In practice, this will require integrating stakeholder interests into all business decisions, from the managerial board setting strategy to the supervisory board overseeing operations. Addressing the concerns of multiple stakeholders should be factored into executive compensation and treated with the same level of focus as financial performance. In these ways, companies can build a multi-stakeholder orientation into their DNA.
In the face of today’s dislocations, the temptation for some leaders might be to focus solely on short-term outcomes and the bottom line. This would be fundamentally misguided.
Here’s why having a long-term mindset, while sometimes difficult, is critical: periods of rapid change create space for new ideas and latitude for C-suite leaders and boards to present new visions for the future. Our natural tendency in tough times can be to batten down the hatches, turn inward and take a defensive posture. This stifles creative thinking, innovation and strategic risk taking—exactly the types of behaviour that are needed in times of rampant dislocations. Companies that set brave long-term visions today will define the future. Therefore, business leaders must balance the need to defend against near-term threats with a long-term vision of the company’s place as a creator of value for multiple stakeholders.
Take the issue of tackling climate change. Forward-thinking companies are doing more than reacting to immediate pressures to reduce carbon emissions. These companies are pursuing a long-term vision of how to survive the upheaval of a warming climate and be part of building a sustainable economy. They are getting ahead of dislocation, boldly making a place for themselves as part of the solution, and earning stakeholder trust in the process.
PwC’s 2022 Global CEO Survey demonstrates that bold moves anchored by a strong vision build long-term business value. For example, our research shows that companies that more actively reallocated their resources—for instance, acquiring or divesting businesses, scaling up high-potential projects or stopping low-potential ones—enjoyed stronger profit margin benefits. On the other hand, companies that frequently changed course on business initiatives without effectively committing to them—in other words, companies that lacked a consistent vision—saw weaker performance.
The winners of tomorrow will boldly define their place in a rapidly evolving context and accordingly recalibrate strategy and operating models for the long-term. Organisations that adopt this approach will not only build resilience but define the markets of the future and shape the world we live in.
Companies that embrace a role as a valuable, purpose-driven contributor to society—and whose leaders make bold, long-term decisions consistent with that role—will earn trust. Trust builds loyalty with stakeholders, drives long-term resilience and is the foundation of sustained outcomes. In fact, the latest PwC CEO Survey shows that among the factors we analysed, trust is the single most powerful predictor of a company’s past and future financial performance. You could say that trust is the most important currency business leaders can earn today.
In conclusion, the key to sustained success is meeting today’s disruptive challenges with a long-term view of the company’s purpose in creating value for society. This is what it means to be reinvention ready: to boldly re-envision the company’s place as part of the long-term solution to the biggest challenges of our age. Doing so will deliver value not only for business but also for the global communities of which business is an inseparable part.