CAPTAIN CAPITALISM ON WHY CAPITALISM IS ‘SICK’
Can the head of one of the world’s largest cutthroat consultant firms rescue Canada’s economically uprooted? Justin Trudeau is banking on it,
Dominic Barton, head of global consulting giant McKinsey & Co., has surprising views for someone so closely tied to big business that his company is known simply as The Firm. To fix Canada’s economy — and the world’s — he says corporations must start putting society ahead of profit — or face ‘revolution’
As the head of a consulting company whose work for the corporate elite includes severe “downsizing,” Dominic Barton might strike some as an odd advocate for the economically uprooted.
His agency, McKinsey & Co., is the éminence grise of capitalism, so synonymous with blue-chip power that it’s known by that rarefied moniker, The Firm. It also incubates CEOs as if determined to sustain the species — 455 alumni are running $1-billion-plus organizations, including James Gorman at Morgan Stanley and Vodaphone CEO Vittorio Colao.
Yet so much about the London-based Canadian seems to not fit the mould.
He is mild-mannered and unassuming, with none of the sea-parting swagger honed by the barons of industry. “Call me Dominic” is his usual greeting. His boyish looks soften whatever advantage might come from a six-foot-four height, and he speaks with surprising candour of his long and ultimately failed struggle to balance family life with a job that keeps him on the road 300 days a year.
His diagnosis of capitalism, however — no matter how soft-spoken the delivery — must sound to some clients like outright heresy. “It’s sick,” says Barton, McKinsey’s 54-year-old global managing director.
He warns tax-dodging corporations worshipping at the altar of short-term share prices to heed the anti-establishment anger jolting countries in the western world, most recently in the form of U.S. president-elect Donald Trump.
He worries about the rise of racism and xenophobia, but sees at the core of mass outrage people cast aside by technological change and a globalization that has largely benefited the wealthy. He urges reform, and raises dangers as extreme as “revolution.”
Since becoming McKinsey’s top director in 2009, he meets two CEOs each day and often asks, “What are you doing for society? There must be a broader purpose than making money.”
Most Canadians have likely never heard of Barton, whose 90-year-old company has 25,000 employees distributed in 80 countries. In January, at the annual gathering of the capitalist elite in Davos, Switzerland, Prime Minister Justin Trudeau used him as the prime example of Canadians in international leadership roles whose national identity goes unnoticed.
“You may not know it because we don’t often shout it from the rooftops; some clichés about Canadians are true,” Trudeau told an audience of power brokers. “In fact, at least half of you have hired Dominic Barton at one point or another.”
Two months later, Trudeau’s government did so, too. Finance Minister Bill Morneau appointed Barton chair of the “advisory council on economic growth,” made up of 14 business and academic leaders mandated to help create “conditions for long-term growth and a strong middle class.” Council members agreed to a salary of $1, plus expenses.
Their prognosis, in a series of papers released this fall, sounds the alarm. Fully half of all jobs will be automated during the next decade, making massive retraining a social and economic necessity.
At the same time, the workforce is aging and shrinking. At the current rate, GDP and household incomes will fall steadily over the next five decades, likely forcing cuts to social programs. Barton’s council has proposed tapping private and public money for extensive infrastructure projects, and increasing immigration from the current 300,000 a year to 450,000 within five years, eventually settling at 600,000 annually.
Trudeau recently echoed Barton’s concerns that growing numbers of people left out of the economy could “start to lash out.” But federal Immigration Minister John McCallum hinted that managing anxieties about immigration need also to be considered, and dismissed the increase to 450,000 as “an enormous number.”
Barton replies that the long-term fate of Japan awaits, a society so geriatric that companies and young people take their investments and skills elsewhere. “In a world that becomes more crazy, hopefully Canada becomes an example of how it can be done.”
He has witnessed first hand the kind of public wrath unleashed when economic systems collapse. His trial by fire quite literally came two decades ago in East Asia, when corporate greed, real estate speculation and overextended banks formed a combustible mix.
Six months after his 1997 arrival at McKinsey’s Seoul office, the East Asian financial crisis brought the economy to its knees. Barton played a key role in restructuring the Korean banking system, reducing their number to eight from 34.
Thousands of laid-off workers wearing red bandanas would gather in front of a building where restructuring decisions were being made, pumping fists in the air and chanting angry slogans. Barton walked out the door one day and saw the crowd burning him in effigy.
“They were burning a white guy with big ears and buckteeth,” he says describing what would become a weekly ritual. “One day an associate came over with bug eyes saying, ‘Hey, they’re burning an effigy of you.’ I said, ‘Well, it’s Monday.’ ”
Fixing the fixers
Barton refers to periods at the cusp of fundamental change as “inflection points.” It becomes clear, during a recent three-hour interview at the Four Seasons hotel, that he’s entering one now.
His third and final three-year term at the head of McKinsey ends in June 2018, but the election of his successor happens six months earlier. Part of his remaining time involves “getting ready for being irrelevant.”
His legacy includes shoring up the company’s reputation after two former senior directors, including one of Barton’s predecessors, Rajat Gupta, were convicted of insider trading.
The criminal charges hit shortly after Barton took over, and as the global economy tanked. “It was a very challenging time for the firm,” he says. “Our partners and alumni were actually very angry, because this was such a violation of how we work with clients and the trust that they put in us.”
Barton personally met hundreds of clients to reassure them. And he overhauled internal checks and balances for ethical standards.
He prohibited McKinsey employees and their families from trading in the securities of any clients, and required pre-approval for trades of companies that are not clients. He introduced a mandatory hour-long online exam on McKinsey’s investment policies and values — at the top of which sits “put client interests ahead of the firm’s” — and a software program that lets employees confidentially comment on the behaviour of senior partners.
“Other professional service firms have had these crises and never recovered,” says David Court, who recently retired from McKinsey after 30 years as a partner and director. “Dominic got us through that, and today, younger partners don’t even know it happened. That’s the sign of success.”
Barton also modernized the firm, hiring about 3,500 software designers, “big data” analysts, and people who help companies digitize the way they work.
“Those are very different people from the classic Harvard MBA doing strategy and organization, which is what the roots of McKinsey are,” Court says. “McKinsey is a much more diverse place than it was 10 years ago, and Dominic pushed a lot of that.”
Barton is focusing his remaining time on “locking in innovation.”
“At McKinsey we like to tell other people what to do but we often don’t take our own medicine,” he says.
He has triggered a process that got younger members of the firm to express how McKinsey should be organized and run. “That caused a lot of stress for the senior people, because they’re saying, ‘These people don’t know how the place works; what are you doing?’ That’s been hard,” Barton says.
He wants to raise the proportion of female consultants on staff to 40 per cent from 24 per cent, open more offices in Africa, and reduce what he calls the “beyond Cadillac” benefits package McKin- sey employees receive.
He also wants to hire five people who don’t have university degrees. McKinsey gets 350,000 job applications a year from top scholars, but Barton has what he calls “the Zulu factor” in mind, named after Zulu Khan, an impressively intelligent high school dropout he befriended more than three decades ago during a summer job at a B.C. sawmill. Why miss out on people who can contribute to McKinsey “just because they didn’t go to the right schools?” Barton says.
At the same time, he is separating from his wife, Sheila Labatt, a glass artist and member of the Labatt brewing dynasty. He met her 26 years ago in Toronto, when she worked as a securities lawyer. They have two adult children, a son and daughter.
“It’s amicable,” Barton says of the separation. “I’ve just been travelling, I think, too much.”
He recalls a typical week when serving as McKinsey’s chair in Asia, from 2004 to 2009: a day trip from his base in Shanghai to Mumbai, an overnight flight to Singapore, another overnighter to Melbourne and a final one to Tokyo before returning home.
He would tell his wife he would have more control of his time when he climbed up the ladder, and ran out of excuses when he got to the top.
“I’m embarrassed about it,” he says. “I get sort of obsessed with my work. I love my work. I could do it 24 hours a day because there’s always something to do. But if you don’t spend a lot of time together, you do tend to just grow apart. And that’s basically what happened.”
Barton now makes a point of scheduling time with his family, including running marathons with his daughter, and visiting his parents in Victoria.
The impact on his personal life makes his almost forced removal from McKinsey early in his career all the more striking. It took him three tries to be admitted as one of its 1,700 partners.
The first time McKinsey’s evaluation committee rejected him was shortly after he joined the firm in 1986. He was told he was far from having the right stuff, and had best forget about becoming partner for a while.
During the second failure, Barton recalls someone saying, “We’re not sure
“There’s a large group of people that are completely disenfranchised. They feel that no one is listening to them and they’re mad as hell.” DOMINIC BARTON
you’re very smart.” His mouth broke out in sores from the stress. His ultimate rejection would not have been unusual; the company’s harsh “up or out” policy — advance as a consultant or be gone — forces an annual turnover rate of 21 per cent. But on his third try, while toiling in the Toronto office in 1994, Barton made partner, if barely.
“That gave me the courage of a dead man,” he says. “I almost in a sense was fired three times from the place. And the third time I was ready to accept it and say, ‘OK, this isn’t my life.’ ”
The way Roger Martin describes Barton raises the possibility that McKinsey evaluators simply didn’t know what to make of him. Martin, director of the Martin Prosperity Institute at the University of Toronto’s Rotman School of Management, calls Barton a “frame breaking” consultant in a field filled with “insufferably, intellectually arrogant” people.
“You’ve got to be really, really, smart to be the global head of McKinsey; there’s just no two ways about it,” says Martin, who spent13 years as director of the Cambridge-based Monitor consulting company. “And he doesn’t act that way. His intellectual humility is distinctive and appreciated.”
“For a phenomenally powerful guy, he couldn’t be nicer,” Martin adds. “I’m not sure he’s got any enemies.”
Martin, who is friends with the sister of Barton’s wife, believes Barton’s demeanour was shaped by his early roots.
His paternal grandfather was a British physicist working on radars in the U.S. during the Second World War. His maternal grandfather, also a physicist, calculated for the German military the trajectory of V2 rockets hitting England. When the families were eventually united through marriage, the different backgrounds made for interesting if sometimes strained dinner conversation.
Barton’s father, John, studied biology at Uof T, becoming an expert in mosquitoes and later claiming he had been bitten so many times he’d become immune to their effect. The woman he would marry arrived in Montreal thanks to Allied forces determined to keep scientists like her father from potentially falling into Soviet hands, and sending many of them to the West.
John Barton eventually became a mis- sionary and a minister with the Anglican Church of Canada, spending eight years in Kampala helping develop a theology college that would become the Uganda Christian University. His wife, Barbara, worked as a nurse. Dominic was the older of two sons and one daughter born there.
Their home was at the edge of a jungle. It was commandeered one day by a general who had yet to become internationally notorious, Idi Amin Dada, and used to launch raids against rebels hiding in the bush. Barton was 6, and recalls the whole family having to sleep in his bedroom.
The young Barton loved Land Rovers. Amin — a physically imposing man who would later lead a military coup and ruthlessly rule Uganda — had an especially attractive one.
“I used to play in the back and pretend I was driving it,” Barton recalls. “At one point, it drove off, so I hid under a blanket.”
Barton, dressed only in a pair of shorts, struck up the courage to eventually bang on a window and watch Amin at the wheel look back in miffed surprise.
“He pulled over, came around and picked me up by my shorts and put me in the front seat,” Barton says. “I remember I couldn’t see over the dash. He drove me back home and I could see my dad looking around for me.
“Amin picked me up again by my shorts and said to my dad, ‘You should watch where your son is playing.’ Then he put me down and drove off.”
In May, Barton returned to Uganda for the first time in 25 years to advise the government and receive an honorary passport. He told the story to the country’s president, Yoweri Museveni, who quipped: “You’re probably one of the few people who actually got saved by Idi Amin.” Among the many killed during Amin’s rule — estimates range from 80,000 to 500,000 — was Anglican archbishop Janani Luwum, Barton’s godfather.
When he was 7, Barton’s family moved to Toronto and, a year later, to Chilliwack, B.C. He recalls canoe and camping trips, youthful ambitions of wanting to be a radio commentator and, later, a 747 pilot. He built a large model of a cockpit in his room to memorize where all the dials were.
One summer job during his university years was on a fishing trawler, hauling in lead lines heavy with salmon as it worked its way up the coast of B.C. “It’s probably the hardest job I’ve ever done,” he says. During down times on the boat, he read philosophy — “I was a complete whackjob nerd” — and a fellow worker, “a gun freak,” would take that as a cue.
“I’d be reading David Hume and he would shoot paint cans five feet away from me, just to distract me,” Barton says.
He then spent four summers working in aFort Nelson sawmill. He became friends with the union shop steward, a man who changed his name to Zulu Khan after doing jail time for shooting up cigarette machines. Zulu was an autodidact who could hold court on everything from the cosmos to forestry. With an education, Khan could have been anything, Barton says.
“He was really well read, but different,” he adds. “I learned a lot from him. Who cares what people are? It was a real wakeup call about people.”
In 1984, Barton graduated with a B.A. Honours in economics from UBC, and went to Oxford on a Rhodes Scholarship, where he earned a Master of Philosophy in economics. He was a currency analyst for Rothschild in London before receiving a head-hunting letter from a company he had never heard of.
“At the first interview, I almost didn’t want to join because the (McKinsey) person was so arrogant,” Barton says. Then, as a test, he was asked how he would turn around a struggling sawmill. Barton knew about sawmills. Twenty-three years later, he was running The Firm.
The Jesuits of capitalism
“We get called a lot of bad names,” Barton says of a company that in 2015 made $10 billion (U.S.) in revenues. “The one I don’t mind is being known as the Jesuits of capitalism. We should fight for the system but that doesn’t mean it shouldn’t be modernized or fixed.”
Serving a client list of 2,000 companies and governments with the rigour and discipline of Jesuits has led to McKinsey sharing in the success of companies such as General Electric and the small North Carolina National Bank, which it helped transform into the giant Bank of America.
But it has also identified McKinsey with heartless practices. Duff McDonald, author of the 2013 book, The Firm, has argued that “McKinsey might be the single greatest legitimizer of mass layoffs in history,” noting its work with companies that shed workers even in good times.
There have also been failures, the most spectacular of which was Enron. The U.S. energy company was a McKinsey client when it went down amid high-level fraud, and its CEO at the time was a McKinsey alumnus. Jeffrey Skilling is serving a 14year prison sentence for his role in the collapse.
Another alumnus, J. Michael Pearson, recently became a poster boy for the kind of capitalism making many furious. As head of Quebec-based Valeant Pharmaceuticals he voraciously gobbled up other companies, laid off thousands of employees, gutted research and development and jacked up the price of life-saving drugs.
The strategy seemed driven by the goal of consistently boosting the value of company stock, and fueled by the fact that compensation for Pearson and other executives was largely tied to the share price. The price initially soared and eventually plunged, brought down by unsustainable growth, public outrage and scandal.
Without mentioning Valeant, Barton makes clear it’s not a model he upholds. He preaches against “quarterly capitalism,” the short-term, share-boosting mindset that helped bring about the 2008 financial crisis.
He’s also fond of citing a statistic on corporate existence: in 1935, the average lifespan for an S&P 500 company was 90 years. Today, it’s about 18 years. Technological disruption and a failure to plan for the long term are significant factors in the reduced life expectancy. “One CEO told me, ‘You have to have a microscope in one eye and a telescope in the other,’ ” Barton says.
In the 1990s, three of the biggest employers with sky-high market capitalizations were Ford, Chrysler and GM. Today, Facebook, Google and Apple “have 10 times the market cap but employ only a tenth of the people,” he says.
He describes the trend as both inevitable and desirable, one McKinsey has positioned itself to assist. But the question is: what happens to hundreds of thousands of truck drivers in Canada, for example, when driverless trucks take over the road? Do they join the swelling ranks of workers who saw their well-paying manufacturing jobs disappear, or who struggle with precarious contracts without the safety net of benefits?
“There’s a large group of people that are completely disenfranchised,” says Barton. “They feel that no one is listening to them and they’re mad as hell.”
“How do we make sure capitalism is more inclusive so that the people who are disrupted have the ability to get back on their feet?” he adds. “Because, it will happen more often and it’s become more extreme.”
What business leaders need to understand, Barton argues, is that retraining workers can no longer fall solely on the shoulders of government.
He cites as a model AT&T’s Randall Stephenson, the “arch-capitalist” chief executive who is helping his 280,000 employees pay for classes so they can master the digital skills needed for the company to compete with Amazon, Google and others. Part of the retraining is being done through online programs the company developed with the Georgia Institute of Technology.
“I think there’s a recognition among some leaders that you got to do this or you’re not going to have a (social) licence to operate,” Barton says, referring to how public anger can make operations difficult for companies.
There’s no doubt in his mind that Zulu Khan would agree.
“For a phenomenally powerful guy, he couldn’t be nicer. I’m not sure he’s got any enemies.” ROGER MARTIN DIRECTOR OF THE MARTIN PROSPERITY INSTITUTE