Evan Davis
Hello, everybody, welcome to this session. I hope you’re not seeing Tom Chapel’s Chatham House screen anymore. Online Corporate Leaders’ Series continues, and we’re talking today to Rich Lesser, Chief Executive of BCG since 2013, Boston Consulting Group. A company some of us who’ve had a little bit of connection with business schools, famous in the 1970s for one thing, I think. The 2x2 matrix model of the corporation and its assets, the market growth versus market share matrix, with stars, cash cows, question marks or dogs. That was BCG to me.
Rich, as I say, has been Chief Executive since 2013. He’s been busy. He’s overseen the launch of BCG Digital Ventures, which is an accelerator of digital businesses; BCG GAMMA, which is a machine learning and AI team; BCG TURN, which is a rapid performance acceleration unit, and more recently, the BCG Center for Climate & Sustainability. We’re going to talk about climate and sustainability, among other things, tonight. Companies, of course, have been blindsided by the pandemic, as everybody else. And I’m not sure about consultants precisely, but Rich will help us understand, through the perspective of BCG and its clients, what is going on in the world of business right now.
Just a tiny bit of housekeeping. This is on the record. Please do submit questions. Now, the way we’ll do this, is we’ve disabled the hands going up bit and the chat box, but if you want to put a question in the Q&A panel, that is good, you can tap that, pop it down there, and I will pick questions. And you’ll – I will come to you, if you’d like, and we’ll get you up and you can unmute yourself, and I offer your question, or if you don’t want, I will just read it off the screen, and you’re welcome to indicate if you don’t want me to actually call you, I can just read your question. So that is how we will proceed.
But we will start, as always, with a conversation between Rich and myself. And Rich, maybe I can just start by asking whether that BCG, the famous BCG growth matrix, is that still a thing and do you use that at BCG?
Rich Lesser
It’s still at thing, because people still refer to it, but no, our strategy has come quite a long way since that. I’m 33 years in the firm, I don’t think I’ve used it yet, but maybe someday. No, we still do a tremendous amount of work on strategy and direction and corporate strategy, which was what the growth share matrix was designed in. It’s just, you know, over 50 years, tools can evolve quite a lot, and this is one of those places.
Evan Davis
Yeah, but it’s interesting, because I think people sometimes think Consultants have – they have not a gimmick, but some model, which they then just go out and apply and reapply again and again and again. Is there something I should associate with BCG at the moment, something…?
Rich Lesser
Actually, you should associate the opposite. It’s certainly true, we have tools and capabilities we’ve built over time. I think what’s distinguished BCG though, the reason it’s grown tremendously over the years, is the constant ability to learn. It is just an incredibly rapidly learning environment, and has a very, both a curious and a, sort of, a sceptical mindset to constantly want to challenge and look at things from a different angle, and then to think about what it takes to make impact really happen, within our clients, certainly, first and foremost, and in the world. And so, from my point of view, I mean, of course, you always want to build a current set of tools of how to take on an operation shunt or a strategy question or a marketing question. But if you ever as a Consultant think you’ve got it figured out, and that that’s now the toolkit, then you’re on the path to stagnation in life. Stagnation in a world like ours is the failure to constantly learn and innovate and push in new directions. And I think that spirit preceded me, that’s what led to the success of BCG [inaudible – 29:03], but it’s been even more true, in the last decade in many ways, because the rate of change in the world has just been so extraordinarily high.
Evan Davis
We should start just by talking about the pandemic. So BCG has survived the pandemic. I mean, what sort of pandemic have you had, actually?
Rich Lesser
We have to come at it from two angles. The first is in a human impact angle. I think, like every organisation, our people have just been through a massive amount of stress and challenge for themselves, for their families, and their communities. People, I think, everywhere, including in our workforce, are feeling mental and emotional stresses that they’ve never felt before, living their lives in ways they never expected, have concerns for their families, for how things will unfold in the future, that are enormous. And so, in that sense, the toll on our community has been high, as it’s been, I think, in every business and in every community, and because of the uncertainty now with the Delta variant, but whatever variants come next, that uncertainty doesn’t go away.
On the flipside, from a business point of view, the second quarter of 2020 was very challenging, many companies were quite skittish at that point, a lot of things, sort of, slowed down, whatever. Since, basically, this time a year ago, the business has been extraordinarily busy, for probably three reasons. One is, as mixed as the pandemic response has been from a health standpoint, where pretty much every part of the world had parts they did pretty well and parts they did less well, on the economic side, I think policymakers on average would get good grades, and have done a good job, and the strength of the global economy is much better than what might have been expected.
I think second, the rate of change is enormous facing business leaders, and I think they realise that now – maybe at the very beginning they thought the safe move was to slow down or to be very conservative, but very quickly there was consumers were moving online, the nature of work was changing, markets were incredibly dynamic, technology and digital are warring through the economy at an even faster pace and they needed to change.
And third, going back decades, I’ve always used the line that BCG is a place that is a consulting firm people turn to when they can’t use the past to predict the future, and that’s the world we’re living in now. So our growth has been exceptional, I mean, just well above our, you know, our past decade, which was around 15%, so it’s been a very good period.
Evan Davis
In the good times, people can afford to hire Consultants, and in the bad times, they want to hire Consultants. It’s been a good period for Consultants. One of the big issues facing business right now, and it’s – it might seem like a rather„ kind of, homely one, but it’s working from home. I mean, what is – have you worked out what you’re doing on working from home, and what your – are you going to have a global approach to this now? Are you saying two days a week in the office? What are you going to do?
Rich Lesser
Well, if a global approach means a uniform new rule we apply, most certainly not. But if a global approach means we are globally rethinking our models to find more flexibility in the ways that we work and more ability for teams to choose archetypes that are right for the kind of work that they need to do, where their client is located, where their team is located, what experts they’re trying to involve from different parts of the world. And at every stage we have to look at the pandemic with enormous sadness, in terms of the human impact it’s wrought on the world and on so many families. But from a learning point of view, we will have learned so much through this period, and we will not go back. We’re not going to go back to 2020 and what we’ve had to do there. But we’re not going back to 2019 either.
And I am actually really energised about how much we’ve realised we can deliver enormous client value, as evidenced by the growth that you and I were just talking about, in ways that don’t require us to be with a client four days a week, in ways that allow us to bring them more expertise, not less, because now we can bring experts from all over the world, who were ready to fly around the world, but they spent half their time on planes flying, and now they can be in Asia in the morning and Europe in the afternoon and the US in the evening, and they don’t get on a plane, and they can help teams. And so, we believe that there’s a massive win-win-win coming out of this for us. Win, to deliver more value to clients to accelerate BCG, but first and foremost, to make it a more sustainable job for our people, who love the work, but honestly, the intensity and the sustainability of it, from a travel point of view, can be quite wearing.
Evan Davis
I mean, it’s interesting, isn’t it, because we didn’t – I was always sceptical that people would work from home very well, because I just see a lot of knowledge businesses as being conversations and intersections of serendipitous, kind of, comments made, little lessons learned, follow-up thoughts, and it does seem odd to me how well people have got on and how productive they’ve managed to be, you know.
Rich Lesser
But as we know, I think in the short-term, we’ve learned we can do better than we thought doing that. But there is a real cost, in terms of culture, apprenticeship, community, emotional wellbeing that comes from being with colleagues in very informal ways, the ability to spot issues, ‘cause in a meeting we all, sort of, put on a little bit of a façade and it’s often outside the meeting room that you see how someone’s really feeling. So there’s that. So yes, in one sense, we can get a lot of work done that way. But we can’t work like this all the time. You know, we do need teams to be co-located and to be together and to have a chance to build connection and get apprenticeship in a different form. It’s just it doesn’t have to be every day of the week, and it doesn’t have to be travelling every week.
And our clients realise we can be unbelievably productive together to drive change, without necessarily sitting in the same conference room. They don’t want their own people in the same room five days a week, and their people don’t want to be there either. So, I feel like we’re in – we’ve been in – I mean, the success of BCG over the last years, and the tripling of our revenues and the growth that we’ve had, has been about innovation on the client side and the, kind of, new offerings we’ve brought, and you ticked off a few of them at the beginning.
The innovation on how work gets done has been, I’d say, more moderate by comparison, and I think this decade ahead, not just for us, I’ve talked to so many clients, like, all of us are trying to work out how to bring the, kind of, innovation to our work models that we’ve tried to bring to our customers. And in pre-pandemic, we all thought the range that you can operate in was a very narrow range, and I think we’re now realising it’s a much wider range, and I think that portends well for employees and communities, and it portends well for business as well.
Evan Davis
It’s very exciting just to see how much – how resilient we are. We can make much bigger changes than we ever imagined. Just very quickly, before we move onto some issues around sustainability, which I want to talk to you about, the – I mean, that would be bad for business travel. I’m assuming, you know, the airlines will come back, but they’re not going back to where they were. Would that not be the right assumption?
Rich Lesser
Yeah, I think we’ll see a remixing of business and leisure travel. I think people have pent-up desire to see the world and to get out again. Once it’s safe, you know, I think we’ll see – and even now in parts of the world, when things seem better, pre-Delta, to start to see consumer travel bounce back, but I think business travel will come back to a degree, but I don’t think it’ll quite come back to 2019, for example.
Evan Davis
Never be the same. The other one is, actually, office design. I mean, this is a conversation, ‘cause even where I work, at the BBC, they’re not expecting everybody to come back five days a week, and you’re already seeing, actually, the desk configuration isn’t quite where we would have it if we knew that there were a load of people who weren’t going to be using those desks. I don’t know, are you doing any work on that? Is that something…?
Rich Lesser
Absolutely, so I just have to stop you, ‘cause you raised it. I’m sitting in London now. We were supposed to be physically together, but of course we can’t be, and so I’m at our new office on 80 Charlotte Street. It’s, like, a totally open design. It is the most inspiring, sort of, creative thing, and I think it will actually be, as soon as people feel fully comfortable, a magnet to draw people in, to build a sense of community, and to do it in ways that allow for more teaming and more openness. Of course, it needs to be done in ways respectful of the health situations and what authorities want us to do. But I do think we’ll get to a stage where this – where COVID is endemic rather than pandemic, and I actually think offices as places for teams to meet will grow in importance. Offices are places for people to sit by themselves and work on their computer, it’s like, why do I need to do that? You know, I could be doing that from home and avoid commute time. And so I think the challenge will be to reconfigure an office space as first and foremost a forum for innovation, collaboration, creativity, mentorship, and apprenticeship. And if we take that mindset, I think it opens up all sorts of possibilities.
Evan Davis
Okay.
Rich Lesser
Next time you’ll come over to 80 Charlotte, I’ll show you around.
Evan Davis
Right. Just in terms of what your clients are doing, do you see the same? Do you see – not about offices or business travel, but just in their approach to business, are they – is the mindset technology? Is the mindset doing things differently? Is it growth? Is it expansion? Or is it retreat and defensiveness?
Rich Lesser
I think they’re very good on retreat and defensiveness right now. I think most companies believe the underlying economic strength is real, the bounce back from the pandemic is better than they expected it to be. Of course, it’s taking a hit in the near-term because of Delta, and the uncertainty that Delta presents, in terms of future variants, and frankly, in many parts of the world, the struggle to even get vaccines into communities in lower and middle income countries. So I’m not trying to minimise those elements, but I think most companies have an underlying optimism right now for the medium-term, even if their quarterly outlooks, you know, go up and down, based on the situation. And I think most of them see incredible change, and if there was ever a time in the world where standing still is falling behind, it’s the world we’re living in right now.
That’s true in a digital and technology sense, that’s true in a climate and sustainability sense, that’s true in an adaptiveness and a resilience sense, as geopolitics change and supply chains are threatened and all the other things. On many levels, companies are realising that they cannot stand still without placing even more business risk on themselves, and so, I’d say it’s both an optimistic and a change oriented backdrop right now, which I think is entirely appropriate to the world we live in.
Evan Davis
Let’s spend a little time talking about sustainability, and as a corporate challenge, really, and basing this on, I suppose, the experience of your clients. We have this conversation in this series quite a bit, but it’s how, really, do companies balance the different requirements on them, because there is always a short-term pressure just to deliver the quarterly earnings. There’s long-term business strategy, or, if you like, long-term shareholder value. And then, of course, there is good citizenship, or long-term stakeholder value and so, it’s definitely in the minds of Executives. We know they’re not entirely shareholder focused. But I guess I don’t quite understand how companies weigh these things up when they face a decision about whether to – I suppose oil companies investing in new facilities, whether they do something that is manifestly unprofitable, but is good for carbon reduction, emissions reduction. I mean, just talk me through how companies are making those decisions.
Rich Lesser
I mean, first, you know, companies, I think, always – good companies, and most companies are, I think, well-run and good leadership, are focused on long-term shareholder value creation, and sustainable value creation. But how that gets defined is largely a function of the context in which they operate. And I think for many years, the main indicator that people used around long-term value creation potential was short-term profitability, and if that’s the yardstick you think is going to indicate your ability to build value in the long-term, then you tend to optimise to that yardstick. And I think that one of the things we’ve observed in the past, I’d say, two to three years, is increasingly companies are recognising, it’s just not the right yardstick. It’s not, you know, a yardstick you can ignore completely. A CFO I once worked with many years ago said, “You don’t get to have a long-term unless you have a short-term,” and there’s truth in that.
Evan Davis
Yeah.
Rich Lesser
But the interesting part is increasingly, you won’t get to have a short-term unless you have a long-term too, and if you don’t have a mindset about how you’re going to be more sustainable in the world, how you’re going to build value creation, how you’re going to recognise that, of course, the shareholder is an important stakeholder, and the customer’s an unbelievably important stakeholder, but there are other stakeholders too, in the form of employees, in the form of communities, in the form of society more generally. And increasingly, I think CEOs in leading companies are recognising they have those responsibilities, and that means thinking about value creation with a broader lens. A broader lens, in terms of time frame and a broader lens, in terms of multiple stakeholders. And once you look at it through that lens, then you start to realise you have to think about strategy differently.
One of my – I’m not such a Researcher, so I don’t want – I’m not someone – and if you Google me, you wouldn’t see a lot of papers I’ve written and so on. But the one I’m proudest to have been associated with, though I did not do most of the work, was one about four years ago that we published on total societal impact, which basically took a hardcore, like, this – the guys that used to do the growth share matrix now have much more sophisticated models. They took a hardcore look at multiple industries, and they found that companies that over-indexed on ESG performance outperformed what the models would have predicted on profitability and shareholder value, from all the other performance factors of their business. And it basically said that doing ESG right and embedding it in your strategy in the right way, was not dilutive to shareholder value, which was the ongoing narrative. Do you good for society or good for your shareholders? It was actually reinforcing.
And the interesting thing there, so we wrote that in 2017. It was, like, the first article of its kind. But then Goldman, [inaudible – 43:42], City, a bunch of firms took different analytic approaches, used different methodologies, and all came to the same conclusions. And it takes a while, but I think most CEOs now increasingly get that, and so now, increasingly, they’re figuring out, what do they have to do to embed those elements in their strategy? That doesn’t mean they can ignore all the other pressures they feel about delivering near-term performance and other things, it’s just a different weighting.
Evan Davis
Yeah, I wonder – I mean, companies have always operated – they’ve operated within the law and a little bit more than within the law, haven’t they? They don’t do absolutely anything, typically. Some perhaps, but they typically won’t do anything as long as it’s legal. They constrain themselves, and they see themselves as citizens and have a self-image as companies, and they like to do that. And maybe there’s just been a, kind of, a shift in, if you like, the non-legal restraints on the ways companies behave, particularly towards…
Rich Lesser
I must say that I think that most companies, going back over decades, realise that it was critical to have a value statement that you try to live, in addition to of course being respectful of the law and of premise. And we have a set of values around integrity or respect or other responsibilities, then that factors in, and to your point, I mean, your values is not just about following the letter of the law. But what has changed markedly, in the last five years, is recognising that values is only half of that other equation you need. You need values and you need purpose, and purpose is not the same as, values are, like, core, you know, what kind of an organisation do we strive to be?
But purpose is, like, who we are, why do we exist, what’s our distinctive reason for being in the world, how do we distinctively want to create value? And when you operate with purpose, first of all, you’re almost always forced to think about multiple stakeholders. You have to think about it in a broader lens. It often links back to your history. Why were we founded? What was our intent? And sometimes companies that still make a lot of money have really drifted from the real purpose that they originally stood for, and it helps guide some of these very important choices about what you do and you don’t do, in ways that go beyond just, sort of, what’s the impact on next year’s P&L?
And if you look into – I mean, we feel like we were at the front end of that. We acquired a firm called BrightHouse five years ago, that was the first purpose consulting firm. It’s been at the core of a lot of our bigger transformation efforts with our clients. But now, if you look into purpose, you see it all over the place. And it does – and frankly, it gets attacked from the left as being insincere, it gets attacked from the right on, why aren’t you just making money for your shareholders? So it doesn’t sit firmly at either end of the spectrum, but in the middle, which is where I think a lot of companies sit, it becomes a very motivating force to try to help guide action in a very challenging world, where you need to have a compass of where you’re trying to go.
Evan Davis
Yeah, no, purpose is – a purpose-driven business has been a very, very fashionable way of looking at what business is doing. How worried should I be that – well, and it’s called greenwashing when it comes more narrowly to the, kind of, dressing up of eco policies. I guess it’s not – I’m not just concerned about companies pretending they’re doing stuff, or, sort of, persuading themselves they have a purpose when really they’re just churning out the same products and don’t really know what the purpose is. But it’s that, I suppose, companies sometimes focus on tiny little things when they’re persuading themselves that they’re being green. So it’s the corporate equivalent of saying, “Well, we’ve removed the plastic cups in the – by the water fountain, and we’ve replaced them with card cups, you know. This is all part of going net-zero.” Or – and it’s whether it just – it’s whether sometimes the whole agenda that you were talking about, which we hear a lot about, just engenders a lot of what one might call corporate bullshit, focus on small signals rather than actual big, big issues.
Rich Lesser
A fair concern, and I think companies themselves sometimes struggle. You know, they’re in competitive marketplaces, they’re trying to position themselves to have long-term success, they want to do the right thing. I think often what is stated as purpose is sincere, not intended just to deceive. I’m not saying – that’s not saying every company acts perfectly or that some companies aren’t insincere. I’m not saying that. But I think most companies are sincere. But you’re absolutely right, part of the challenge, part of what we need governments to help with, I think, is to make sure we have the right metrics that are identified that indicate what progress is being made, there’s a responsibility to be transparent, there’s a responsibility to set goals that are on the things that matter most, and I’ll give a couple of examples in a second, and that, you’re right, if everybody gets to design their own measures, and gets to decide what they’re going to be held accountable for, we can’t be surprised if some people choose to define the yardsticks that are easier for them to succeed on, but not necessarily the ones that are the most important for them to succeed on.
So, I’m a part of this group at the World Economic Forum called the Alliance of CEO Climate Leaders, and we’re up to 113 members. Our group, in total, emits more carbon, including scope 1, 2 and 3, than the third biggest country emitter in the world. So it’s, like, a meaningful group of companies that are committed to net-zero, that are committed to being fully transparent and disclose and we are pushing, in our policy writings, exactly several points. One is a yardstick around a carbon price would make this much easier and go much faster. Governments supporting innovation and investment would really help quite a lot. But to the point you just raised, the ability to set a common set of metrics and expectations is incredibly important, and I – and that will help, because once we all measure on this and we all measure on the same financial yardstick. Everybody knows, you know, what your revenues mean and what your profit means. It’s common yardsticks, the accounting boards have approved it. We, kind of, need that on climate too, if we’re not going to be in the situation that you described, where people are vulnerable, is it the right stuff, does it really matter, and so forth?
Evan Davis
Yeah, you said you would give us some example of goals that matter. I mean, what are the goals that matter?
Rich Lesser
So let me give – so, I’ll take a normal, sort of, industrial company, so not a bank or an investment firm. Looking – I will start with climate, and then I want to move it out to sustainability. On climate, I think that scope 1 and 2 are really important, but for most companies, they are a small fraction of their total footprint. And so if you look at scope 3, for – not for the upstream companies, not for steel, for aluminium, for people like that, but for auto companies, food companies, construction companies, retailers, apparel companies, the vast majority of their emissions sit in their scope 3, the things that come from their supply chains, not in their scope 1 and 2. It doesn’t mean they shouldn’t make progress on their scope 1 and 2, but…
Evan Davis
Could you remind everybody of scope 1 and 2, Rich, for those who don’t know this, for a second?
Rich Lesser
Scope 1 and 2 was the energy you use and the carbon, in your own operations, inside your own four walls, so to speak. Scope 3 are the carbon that goes into your product, but that are made by your business partners, if you look upstream of your business, or used by your customers, if you look downstream. Here I’m focusing more on the upstream part. If you take an auto manufacturer or a food manufacturer, yes, there is some scope for 1 and 2. They do emit their own carbon, and they need to use renewable energy, and they need to make their offices green offices, and they need to do that. But it’s a small fraction of the energy versus what they buy. The nitrogen that goes into the wheat that’s in the food product, that’s made in very energy intensive ways. The steel or battery or aluminium that’s in an automobile, that’s made in very carbon emitting ways. And among them, the most real things that companies can do is own it, it’s hard, it’s super hard, I don’t want to minimise it, but own your scope 1, 2 and your scope 3, and report it honestly and set goals for it.
The good news, ‘cause there’s a good news here, is that we hear about all the stories about how hard it is for the hard to abate sectors to reduce carbon and how expensive it’ll be, and it’s true. If you’re a steel manufacturer, it’s incredibly expensive to go to hydrogen produced steel or other technologies. But when you’re the car manufacturer, you can go to a net-zero car for much less than people realise. So just to make it very tangible. A car sold in 2030 in Europe will average about €30,000. That’ll be the selling price of the car. If you said, “How much incrementally would it add to the price of that car to make it a net-zero car?” Most people think it’s in the multiple thousands of euros. It’s about five or €600 to make it a net-zero car. And then people will say, “Well how can that possibly be true, ‘cause there’s steel and aluminium?” But when you actually look at how much the really hard to abate products sit in a car, they don’t actually spend that much relative to the $30,000 price. So even if the price of those components goes up double digits, the total price of the car goes up two to 3%.
And that’s true – we did that first in automobiles, and we’re a bit surprised, but then we replicated it in food and apparel, and it’s always in that one to 4% range. That is not unaffordable. One to 4% is what people pay for the wheels or the extra stereo system or whatever, in their car. An audio system, I sound very old. But the point is, it’s financially more affordable, it’s operationally incredibly challenging. You have to measure your suppliers, you have to convince them, you have to retrain your procurement departments, you have to design your products differently and the components they use. The whole thing is super hard to do. That’s what it means on climate.
And then beyond climate, there’s a diversity agenda that comes around ESG that matters. There’s a circularity agenda and a water agenda. There is sustainability, environmentally, that goes beyond just the carbon that’s emitted. There’s a lot of work to be done and transmit the – transparency on those kinds of measures really matter too.
Evan Davis
And we’ve got a couple of questions in the Q&A box. Anybody who wants to put a question in there, put it in there. But we’ve got one from John Mason and one from David Paddiaro, and I will come to you guys in a moment. I just will ask – so, be ready to unmute yourselves. I will, though, just ask you, Rich, this is a, kind of, broadening it out a bit from the challenges of sustainability. The world is facing all of these challenges at a very odd time, really. Not just the pandemic, but the geopolitical tensions, China, US, all of that. I just wonder whether you feel or worry or celebrate. Are we in a period of deglobalisation? Are we in a period in which the benefits of putting stuff in China have reduced, all sorts of reasons, partly the cost of labour in China? Bring it back home, then you don’t get into trouble with Politicians who want to put up trade barriers, then you don’t have the issue around shipping costs and shipping impact on climate. I mean, is that where we’re going, a, sort of, not localisation, but at least a deglobalisation?
Rich Lesser
I don’t think deglobalisation is the right word, in all honesty. I do think there are specific trade corridors that will see a decline in trade in the years ahead, US-China being the one we talk the most about, which is real, but you know, maybe other countries, including parts of Europe and China, maybe there’ll be some – there’ll also be parts of the world that see increases in physical trade. Certainly South Asia to the world is going to increase. South Asia to China, back and forth, is going to increase. And so net-net, I don’t think trade will grow in the way that it has historically, as completely in line with global GDP growth and for some decades actually leading global GDP growth, but I don’t think we’re about to see it fall off a map.
But even more important than that statement is the nature of how we think about trade is evolving. Trade has always been synonymous with physical goods trade. But services and the ability to bring R&D to the world – BCG’s a more global company than we were two years ago. We were always international, we’ve been international for decades, but we use our global talent to help different parts of the world so much more seamlessly. These sorts of technologies that we’re using tonight is a way to globalise the world in a different way than we’ve thought about it before. I think one of the learnings about this pandemic is you need more resilient supply chains, and more resilience doesn’t necessarily mean just concentrating in one market, even if it’s your own market. I think we’re going to see people saying, “Yes, I don’t want to be single country dependent, whether it’s China or Thailand or anywhere else, but I need to be having global supply chains to reduce that risk and have more adaptiveness.” So yes, global trade’s going to certainly evolve. This will be a big decade for the changes in global trade.
But this, sort of, headline of deglobalisation of trade, I think, misses the shifting of trade flows, it misses the services and the other components beyond physical goods, and it misses the resilience point, which encourages more diversity of trade sources, of good sources, rather than single market dependency. So, I think it’s more complex.
Evan Davis
Right, okay, let’s take a few questions, thanks, Rich. John Mason, do you want to come up and ask your question? I’m hoping this will work. If not, John, I will just read your que – if we don’t hear from you in ten seconds, John, I will just read your question.
Rich Lesser
We’re rooting for you, John.
John Mason
Okay, here I go. Okay, are we now in 2020, that’s a Freudian slip, are we now in 2021 closer to 2040 than 1960 was to 1990? And if not, what will be the unimaginable difference at this point?
Rich Lesser
Right, can you just say that one more time, John? I’m not sure – I want to answer it correctly.
Evan Davis
John, we’re definitely closer to 2040 than 1960 was to 1990, ‘cause there were 30 years between 60 and 90, and 20 years between now and 2040.
Rich Lesser
Oh, now I get the question, though. I actually think there’s going to be as much change between 2020 and 2050, maybe more, as there was between 1990 and 2020. And we all know, we’ve seen extraordinary change, change in the world from geopolitical events, the rise of China, the post-9/11 world, on so many levels, changes in technology, changes in the ways people live their lives. I think we’re going to see at least as much in the 30 years ahead.
We’re going to see fundamental innovations. The innovations of the last 30 years have been particularly concentrated in software and analytics and things like that, that what’s coming in physical goods, as evidenced with MRNA, sort of, designed products that we see, is just the beginning, whether it’s synthetic biology, nanotechnology, quantum, I think these are going to be fundamentally reshaping technologies. I think people are going to learn so much from these last few years. We’ll see more innovation in how people live their lives, the kind of work they do.
Geopolitics is going to have at least as much uncertainty, let’s hope for the good, but we all know that it can go either way, and we should never take for granted the societies we live in, the peace that we’ve all enjoyed for the most part, not everywhere, for much of the last three decades. So, I think we’re going to have enormous change. And there’s a tendency always, I think at any point, to say, “Well, it’s changed so much, but now I can use a linear projection to project the future from today.” And I think we’re on an S curve that’s still quite steep.
Evan Davis
Okay, while you mentioned that, before I go to David Paddiaro, I’ve got one here from an anonymous questioner, so I won’t come to you, anonymous viewer, but it’s, “How does BCG manage its own geopolitical risk? How do you balance and filter, which countries and sectors you work with?” This is an interesting one, actually.
Rich Lesser
I think we’ve tried to recognise that our clients need – want and need us to be a global firm and to work around the world, and we have a very distributed global partnership, and I think we feel like we’ve navigated it well. We are quite thoughtful about work we take on and work we don’t take on. We have a – but we’ve tried to apply the common standards for, “We’ll do these kinds of work, and not those kinds of work,” whether it’s at the sector level or at the global level. We try to create a community within our partnership or within our firm, that is aligned around values and purpose, and we talk about both of those, like, all the time, and what it means to lead with integrity in a challenged world. And we know there’s uncertainty, and we know there’s risks, but I think we feel like our responsibility is to understand the world and the way the world works to help our clients navigate it, and to build a certain amount of resilience and adaptiveness into our model to be able to deal with the changes that come. That’s not easy always, but that’s what we try to do.
Evan Davis
I think, I mean, it’s true, but these are difficult, aren’t they? So, last year The New York Times carried a piece about consulting companies, including yours. I mean, a whole panoply really of professionals, and the work they were doing for Isabel dos Santos, Angolan businesswoman who’s related to the former leader there. And I suppose, I guess, there’s just a degree to which sometimes you’re going to find yourself in bed with the wrong people. She’s your client, you’re probably thinking you’re doing a great job for her, but actually, you’re, sort of, sustaining something that’s not…
Rich Lesser
So two separate points. One, she was not our client, and we corrected that when it came out.
Evan Davis
And I apologise.
Rich Lesser
That’s a separate – but your point, actually, though, there’s a deeper point within your point that I do want to address. We all need to keep learning as organisations and including how to learn in a very challenging world. So, like, we’re constantly going back and saying, “If we had to do it all over again, we’d do this work or not that work. How do we make that call? How do we strengthen our compliance procedure? How do we help our partners navigate?” So while the specific of the way that was portrayed, we didn’t think was accurate, fair, the opportunity to learn is continuous, and I would say, you know, our risk models, how we think about it, the way we try to educate partners, the way we try to create systems underneath it, like, we’re just in a different place than five years ago. We were better five years ago than five years before that, and I just hope in 2026, we’ll be better.
Like, if companies don’t acknowledge the challenges in the world, and their own flaws, that none of us are perfect, and that constantly look internally and say, what – you know, “How do we get better?” just like on every other dimension. You have to do that, and the world is getting more challenging. Society is scrutinising what we do, and we are – and we need to be really, really careful around that, and everybody does.
Evan Davis
Okay, taking into account your denial on that, or your correction to The New York Times, I mean, did the company do stuff that it now would not do in relation to that, to her and her network of companies, just out of interest?
Rich Lesser
Not in the way that it was described. But there are learnings from that period of time that we certainly have applied. Like, so in the narrow form of your question, no, in the broader form of your question, yeah, absolutely. We just keep trying to get better, and that includes on this stuff. And our Chief Risk Officer is constantly engaging with our teams, so, like, here’s the challenges, here’s some challenges other firms have encountered. How would we – how did we avoid them before? How do we make sure that we would again? Sometimes it’s things that we’ve done. Like, you have to keep pushing yourselves to learn.
Evan Davis
Yeah, we make mistakes, I mean, let’s be honest. Right, David Pagliaro, do you want to just give your question? It won’t take long for you to ask it, but I’m interested to – it’s just nice to get a different voice in. David.
David Pagliaro
Yeah, I was just wondering what he expects the COP26 impact to be on your business and the business sector in general?
Rich Lesser
I don’t. I mean, look, we all have a hope of what it will be. We have a hope that we’ll get more aligned ambitions from governments around the world to reduce carbon faster. We have a hope that there will be some understanding, whether you call it emissions trading schemes or carbon pricing or other means to start the price, the enormous externality that carbon represents. We hope we’ll see acceleration in innovation and investment in adaptiveness, because many parts of the world are already going to be affected in negative ways and need support, in the developing markets, because a huge portion of the world can’t afford all the changes we need as fast as we need them, unless they get support from the most developed parts of the world.
What I hear, I’m not in any of these negotiations, so just, please don’t take this as any inside information, is that it’s genuinely uncertain. Like, people that are close to it are genuinely uncertain as to how far we’ll get on those dimensions. And it will take leadership from – particularly from some of the largest countries in the world, but others as well, to work together to get to agreements, even when those countries don’t necessarily get to agree on so many other things right now, if you start with the US-China, where there are profound disagreements on different topics. We’re hoping they work together on this.
And so, I think anyone who can give you an assurance that COP26 is going to be great, or COP26 is going to not work at all, I think is underestimating the genuine uncertainty that exists right now and will, I think, literally, until, like, the day before the announcements are finally finalised. And we’re hoping, and you know, we’re the consultancy partner to COP26, where our focus is in particularly how do the business world and the governments connect, and we’re doing everything we can to provide as much support as we can, but I don’t want to minimise the challenges that we’re all being presented with.
Evan Davis
No, it was interesting to see China saying to John Kerry, when he was over there last week, “Well, we’re not just going to co-operate on climate, if you, you know, if you treat us as an enemy in every other respect, then we’ll have a problem.” And I – it is very much up in the air. But Rich, do you think businesses are lobbying for more for carbon tax, for more action? Or is business getting in the way of more action? ‘Cause I slightly feel if business was a bit more vociferous about it, governments would do more.
Rich Lesser
If you read the letter from the Alliance of CEO Climate Leaders that we published in June, and the one that will come out in a few weeks, that we’re in the middle of right now, I don’t think there will be any doubt that there’s a leading edge set of companies. I’m not saying it’s every company, I’m not speaking for all of the business world. It would be incredibly arrogant to put all of business under one brush. But there is certainly a leading set of companies now that realise we need to act and we need governments to work together, and clearly doing it in a way that supports economic growth, that supports job creation, that supports a just transition. Because when we shut some assets down or transition them to [inaudible – 67:31], that’s going to touch communities and jobs, and we need government to work in partnership with business to do that in ways that take care of those people, provide retraining, provide the support that’s needed.
So, there’s an enormous agenda where government and business can work together. I think business rightly will – rightly – will probably push back on elements that if things don’t – the trade-off of the amount of what’s intended, good intent on climate, will be more than offset by negatives on the other side. But that doesn’t mean there isn’t enormous space to work together, and not every company, but I think many companies, sort of, see that, and are trying to be helpful there. I mean, that’s how we see – that’s, like, well, the first and foremost, we’d have to improve ourselves, and we have our own net-zero by 2030. We have to help our clients, and we’re doing hundreds of those engagements. But we see it as a direct responsibility of our firm to contribute to the world as well, whether it’s COP or WEF or the World Business Council for Sustainable Development or SBTi, you try to help wherever you can.
Evan Davis
Right, look, we’re coming towards our time. These online sessions, we try to keep them to about 45 minutes. Just going to take another quick one from Rebecca Dugard She’s asked me to read this, and then I’ve got one last question of my own, Rich. So Rebecca asks, “How do you balance purpose with urgent business need, with the chaotic year focus on purpose feels like a luxury?” So it’s – I guess it’s – yeah, it’s just sometimes you’re just hosing down a fire and someone coming along and saying, “It’s all about purpose,” is…
Rich Lesser
Well, it depends how you – so, just to be personal on that answer, you know, BCG’s purpose is unlocking the potential of those who advance the world, and we say we do that with five things. Bringing insight to light, driving inspired impact, conquering complexity, leading with integrity, and grow by growing others. And my observation in trying to lead a team through that, lead a team both to keep our own employees safe, to make sure that we can help our own crisis, but also to help our clients invest in our communities, is that purpose became a stronger guiding light through the pandemic, even than it was in the years leading up to it.
It was not a trade-off. But what I agree with the comment, is that the specific priorities to align your purpose have to deal with the world as it is, not some idealised view of it. You know, when the world’s turned upside down with a pandemic and people are stuck at home and people are in hospitals and economy supply chains are disrupted, of course, if you don’t shift your priorities to match to the moment, you’re missing something. But you can shift your priorities from a business to something that’s truly urgent and not lose the sense of having purpose at the core of how you’re trying to act. And that’s – I don’t think we’re more perfect than anybody else, but that’s certainly the mindset that we try to be, to stay true to our purpose.
But you know, I spent a big chunk of the last 15 months working on COVID. I never thought of myself as an Epidemiologist or anything, but I had access to CEOs who were thirsting for knowledge of what was going on in the pandemic and what was [inaudible – 70:31] and we were working with governments in many parts of the world, when you’re trying to do the right thing to help as much as you can. I feel like that’s as purpose driven as things we’ll do in other environments.
Evan Davis
Yeah, no, I suppose that’s true of our daily lives as well as in business life. Thanks all for the questions. We’ve been through those now. Let me just ask a last one. I think it’s been a difficult year for the US, hasn’t it? The politics, pandemic has been – it’s been a ragged US experience of COVID, starting from New York, really, through to the wave that’s now running through, the Delta wave. I think there’s also a sense, is there not, that maybe American capitalism is in – has produced so many great stars in the world, the tech type companies from Silicon Valley, but that the shareholder value model has run its course, and that other forms of capitalism may be stronger. I just wonder where you are. Are we in the period of American decline? Are you negative about American capitalism? Or are you still excited by its ability to innovate and create?
Rich Lesser
Yeah, so I think America, the US, is facing many challenges right now, societally, and the level of division that exists is very real, and that creates undercurrents that are going to be quite challenging to navigate. But you didn’t ask about – although you asked about American capitalism, on that, I am optimistic, because I think the fundamental feature of American capitalism is this willingness to innovate and try new things and push in new directions. And I think what we’re seeing is an element that was associated with American capitalism, of focus on short-term profitability and quarterly earnings and so on. I mean, it was probably always overstated relative to how much weight that had in a CEO’s mind, but it featured prominently. It would be wrong to deny that it had a very prominent feature.
I think – but right now, innovation is more important than ever. The role that technology is playing is more important than ever. The need to retool society with business at the core, whether it’s around climate, whether it’s around health, on many dimensions, is more important, and the opportunity for people with good ideas, whether they sit in big companies or as entrepreneurs, has never been higher. And I think we see a retooling of where American investment dollars are going, how companies are focusing their energy, how they’re trying to gear themselves in different ways, and I’m optimistic they will not be the only people succeeding in the world.
We’ll have great companies from Europe and China and many other parts of – Japan, other parts of the global economy contributing to that. But I see no reason to believe that American companies, big and small, can’t be major contributors in that. But no one country is going to dominate the world economy the way US companies did in, like, a post-World War Two, sort of, where those days are gone, but that’s a healthy thing, that we have great companies in many parts of the world. We just need to make sure they’re focused on the right thing and measured on the right things.
Evan Davis
Alright, well, look, it’s ten to eight, as we record this event live. Rich, it’s been really good talking to you, and we’ve covered a massive, massive expan – you know, terrain of topics, and you have been fluent on all of them, which I suppose is very much the Consultant’s job, actually, but it is – you’ve demonstrated the art very admirably. Thank you to those watching live for your questions, and to those of you catching up with this not live, I hope you’ve found the conversation as stimulating as I have. Rich, thanks so much, Rich Lesser from Boston Consulting Group.
Rich Lesser
Thank you, Evan, I really enjoyed the conversation. Have a great evening.
Evan Davis
Thanks.
