Strategy & Corporate Finance Practice

From principle to practice:

Making stakeholder
capitalism work
Just as with other business priorities, stakeholder capitalism is a
matter of execution. Here are five steps to get it right.

by Vivian Hunt, Robin Nuttall, and Yuito Yamada

© Dimitri Otis/Getty Images

April 2021
 At a time of change—which means all the time—
resilient companies do better, getting hurt less
during downturns and then coming out stronger
compared with the competition.1 Resilient
companies are prepared for bad times, are
relentless about improving performance, and
make decisions skillfully. An additional element
can knit all of these attributes together into a
stronger whole—“stakeholder capitalism.”
The principle of stakeholder capitalism requires
business leaders to define their mission as creating
long-term value not only for shareholders but also
for customers, suppliers, employees, communities,
and others. Profits and returns matter, of course;
indeed, they are essential. But stakeholder
capitalism defines “value” in broader terms.
For example, creating a safe and healthy work
environment above and beyond the minimum
might save money in the form of reduced workers’
compensation payments. But it may also create
more subtle benefits, such as greater employee
security, well-being, and loyalty.
Embracing an ethos of stakeholder capitalism is not
easy. Many companies, McKinsey included, don’t
always get it right. There is evidence, however, that
doing so can be good for companies regarding not
only their reputations but also their performance. In
a study that looked at 615 large- and mid-cap US
publicly listed companies from 2001–15, the
McKinsey Global Institute concluded that those with
a long-term view—something that is essential to
stakeholder capitalism—outperformed the rest in
earnings, revenue, investment, and job growth.
Other McKinsey research found that companies
with strong environmental, social, and governance
(ESG) norms recorded higher performance and
credit ratings; other research has found that such
companies perform better during crises.2
In a previous article, we explained the principles of
stakeholder capitalism.3 In this one, we set out a
five-step approach to help companies put those
principles into practice.
Step 1: Understand who the
stakeholders are
Several years ago, a researcher found 435 different
definitions of “stakeholders.” At the risk of adding a
436th, we suggest thinking about three broad
categories (Exhibit 1):
— stakeholders who are inside the company,
including employees, executives, the board,
and shareholders
— those who are outside the company but interact
directly with it, such as customers, suppliers, and
non-shareholder investors, such as banks
— entities that are outside the company but are
critical to its operations, such as governments,
communities, and the environment
Admittedly, the categories are not as clear-cut as
this suggests. Governments can be customers, too.
An employee can also be an investor, a consumer,
and a resident of the local community. And the
environment is everywhere. That said, these
categories provide a useful way to think about the
subject; moreover, understanding the varying roles
that stakeholders play can give deeper insight into
their needs.

1
Chris Bradley, Martin Hirt, Sara Hudson, Nicholas Northcote, and Sven Smit, “The great acceleration,” July 14, 2020, McKinsey.com.
2
Mary Johnstone-Louis et al., “Business in times of crisis,” Oxford Review of Economic Policy, 2020, Volume 36, Number S1, pp. S242–55,
academic.oup.com.
3
Vivian Hunt, Bruce Simpson, and Yuito Yamada, “The case for stakeholder capitalism,” November 12, 2020, McKinsey.com.

2 From principle to practice: Making stakeholder capitalism work

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Not all stakeholders will be equally relevant for all
companies, so it is important to decide where to start,
based on the company’s business model and values. A
financial-services company might choose to prioritize
financial-capability building because it is embedded
in that sector and has expertise. An oil refinery, on the
other hand, might decide to prioritize operational
impact and therefore choose to address the local
environment, such as air quality, traffic, or emissions.
Stakeholder groups are rarely homogeneous.
Understanding the segments within each group can
help companies to better understand their needs.
For example, employees can be segmented in many
different ways: by demographic characteristics,
such as ethnicity, gender, and age; by type of job
(manufacturing or office work), or by their position
in the organization (frontline or executive). In
addition, employees have nonwork characteristics,
such as health, debt, or family and caretaking
responsibilities, that are vital to their well-being
and productivity at work. Not everyone will want
to disclose such personal details to a company,
particularly if the level of trust is low. Those who
choose to share will hold companies to a high bar
for safeguarding that information and using it
responsibly. And some stakeholder needs
aren’t within a company’s remit to address.
But understanding stakeholders in all their
complexities is the first step to knowing what
can be done.

From principle to practice: Making stakeholder capitalism work 3

 The use of powerful analytics can help companies
negotiate this complex and shifting territory. For
example, while it is important to respect privacy and
other ethical concerns, by using big data, artificial
intelligence, and natural-language processing,
companies can analyze and better understand
what stakeholders are thinking.4 McKinsey’s
research on diversity in the workplace used a natural-
language-processing algorithm to discern employee
sentiment—positive, negative, or neutral—as well as
indicators of equality, openness, and belonging.
Sources included employee reviews about the
companies they work for on US-based public forums
such as Glassdoor and Indeed. In an entirely different
context, researchers applied this approach to
gauging attitudes toward gold mines and found a
positive correlation between positive stakeholder
sentiment and financial-market valuation.5
Step 2: Understand stakeholders’
needs and build trust
Creating change requires listening to stakeholders.
At this stage, it is important to be open to all
ideas and not to be constrained by feasibility
considerations; that will come later. Listening is not
a one-off exercise; needs may change over time, and
companies will want to keep up. And understanding
what stakeholders want or need doesn’t mean
companies have to act on all of those needs. For those
they do choose to address, there will be many options.
In all cases, however, listening is critical to building
trust—and without trust, stakeholder capitalism is
impossible to achieve. According to the January
2021 Edelman Trust Barometer, business is the most
trusted of the four institutions considered (business,
nongovernmental organizations, government, and
media) and is the only one seen as both competent
and ethical—something that was not the case in
2020. Moreover, among employees, trust in their
company rose in 18 of 27 countries; on the other
hand, 56 percent of those surveyed believe business
leaders sometimes are purposely misleading. Finally,
stakeholders want to be more involved: 68 percent
of consumers and 62 percent of employees
surveyed believe they should have a say in
corporate decision making.6
Internally, listening means understanding the
experiences, expectations, and concerns of
employees, executives, and members of the board.
For example, Japanese electronics company OMRON
encourages employees to share and develop their
ideas for solving social challenges through the
OMRON Global Awards (TOGA) program.7 External
stakeholders, such as government leaders and
community members, also need to be heard, such as
through conferences, summits, and town halls.
Companies can also learn from what other companies
are doing, such as by looking at the work of
companies who rank highly on ESG scoring lists.
Supplement the listening tour with data. For
employees, this could include items such as diversity
metrics and satisfaction surveys. For example,
Microsoft uses an internal sentiment analysis called
the Inclusion Index8 to understand whether
employees feel a sense of belonging at work.
For consumers, analyzing buying behavior, price
elasticities, relationship networks, and click-through
rates are possible options to use. Update this
information regularly to measure changes. The point
is to get a baseline reading of the company’s
reputation and performance—for better or worse—
and then to prepare to take action.

4
USAPP, “A new measure to assess companies’ external engagement,” blog entry by Witold Henisz, Dhruv Malhotra, and Robin Nuttall,
January 12, 2019, blogs.lse.ac.uk.
5
Sinziana Dorobantu, Witold J. Henisz, and Lite J. Nartey, “Spinning gold: The financial returns to stakeholder engagement,” Strategic
Management Journal, December 2014, Volume 35, Number 12, pp. 1727–48, onlinelibrary.wiley.com.
6
2021 Edelman Trust Barometer, Daniel J. Edelman Holdings, March 2021, edelman.com.
7
“Initiatives to support practice of the OMRON principles,” OMRON, omron.com.
8
Official Microsoft Blog, “The Microsoft Diversity and Inclusion report reveals momentum and learnings for the future,” blog entry by

Lindsay-Rae McIntyre, November 12, 2019, blogs.microsoft.com.

4 From principle to practice: Making stakeholder capitalism work

 Step 3: Define and measure ways to
serve stakeholders
Now it’s time to size up the ideas generated on the
listening tour, determining what kind of measurable
benefit they could have both on different
stakeholders and the company’s bottom line.
that they were in a much better position to restore
production.9 They are primed to pick up market
share while their competitors train new workers and
try to catch up. Thus the stakeholder principle—
protecting employment—could translate into
bottom-line performance.

Our analysis shows that serving all stakeholders is
an ethical good and that companies should seek to
maximize their stakeholder impact. And to do so,
companies must be financially sound. The goal is to
find balance. A high-cost idea that does not bring a
return to the company can be destabilizing. On the
other hand, not taking on low-cost, good-value
ideas can create cynicism and erode trust.
McKinsey has identified five major ways for
companies to create stakeholder impact (Exhibit 2):
financial and operational, satisfaction level, health
(both organizational and personal), capability
building, and environmental. The foundation for
all such efforts is the financial soundness of the
company. Companies that are doing well will have
more room to maneuver.

Serving stakeholders, if done correctly, can be a
source of competitive advantage. For example,
early in the COVID-19 pandemic, many companies
laid off workers to cut costs and preserve cash.
This was, in some cases, a necessary decision to
survive. However, as consumer demand recovered,
companies that avoided or limited layoffs found
For each type of impact, companies should consider
what the priority stakeholder needs are and which of
the ideas generated in step 2 could meet those
needs. When possible, identify and use metrics to
measure where the company is now and what
benefits improvements could bring.

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Exhibit <2>2of <2>

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There are
are five
five major
major dimensions
dimensions of stakeholder impact.
stakeholder impact.

Financial and Environmental Health and Capability Satisfaction

operational well-being building
Improvements Improvements
Improvements in in the natural Improvements Improvements in experiences
long-term financial environment in organizational in stakeholders’ for different
performance for through company health and relevant skills stakeholders,
the company operations personal well- not just customers
and in individual being
stakeholder’s financial
circumstances

Foundation: The financial soundness of the company, which includes corporate

financial and operating strength and executive leadership

9
Bob Tita and Austen Hufford, “Consumer demand snaps back. Factories can’t keep up,” Wall Street Journal, February 22, 2021, wsj.com.

From principle to practice: Making stakeholder capitalism work 5

 Financial and operational impact refers to improving
the stakeholder’s long-term financial well-being.
Shareholder capitalism has long focused on this,
in the form of dividends and stock prices. For other
stakeholders, financial impact could come in the
form of increasing employee wages or providing
scholarships for local students. Employee wages in
particular have become a focus. In recent years, a
number of major retailers and other companies have
raised entry-level wages well above local mandates;
they report seeing more employee engagement and
less turnover.10 For the economy as a whole, it can
mean greater purchasing power.
While improving the financial state of stakeholders
could represent a direct cost to the company, it can
also have valuable effects on the business while
literally enriching society. In 2019, PayPal committed
to improving its employees’ financial wellness and
net disposable income; it did so by increasing pay for
many employees, lowering the cost of healthcare for
hourly workers, and giving restricted stock units.
Although this was expensive, CEO Dan Schulman
has no regrets: “I believe it’s worth every dollar and
every resource and that it’s been essential to
making our workforce more resilient in the face of
COVID-19.”11 In the year after implementation,
PayPal found that its employees were four times
more engaged and three times less likely to leave
the company, and profitability grew 28 percent.12
One can’t assert cause and effect. Correlation is not
causation—but the correlation is at least intriguing.
Environmental impact takes into account a
company’s waste, pollution, emissions, land use,
consumption of natural resources, and other ways
its operations affect environmental health.13
Many companies are already capturing this type of
impact through their ESG reporting. Investing in
positive environmental impact can boost revenue
growth by helping companies tap new markets and
expand into existing ones. For example, Swedish
electric-vehicle-battery manufacturer Northvolt,
founded in 2015, has raised $1 billion in financing
and recently received a $14 billion order from
Volkswagen.14 Investing in environmental impact
can also decrease costs by increasing resource
efficiency. For example, all major US delivery
companies are converting their fleets to electric
vehicles, which reduces the total cost of ownership
by cutting the cost of fuel and maintenance.15
Reducing the risk of regulatory interventions is
another possible benefit. McKinsey analysis
suggests that one-third of corporate profits are
typically at risk from government intervention.
Getting ahead of the environmental curve can
certainly translate into shareholder value. Tesla, the
electric-vehicle manufacturer, for example, has a
market capitalization that makes it one of the most
valuable automakers in the world, even though it
sells fewer cars than other automakers and only
made a profit for the first time in 2020.16
Health has two dimensions: the organizational
health of the company and the personal well-being
of the individual. Organizational health is defined
as the ability of companies to create common
goals, to execute them, and to adapt in response
to market trends. It is closely associated with core
management practices. For example, improving
market focus boosts organizational health by
strengthening external orientation toward
customers, competitors, business partners,
regulators, and the community.

10
Kate Taylor, “Retail giants like Walmart, Amazon, and Kroger are firing shots over rivals’ minimum wages. Here’s who actually pays $15 an hour,”
Business Insider, February 20, 2021, businessinsider.com; Courtney Connley, “Amazon, Facebook and 8 other companies that have committed to
raising their minimum wage,” CNBC, May 25, 2019, cnbc.com.
11
Ted Ideas, “How can you ensure your workers are not just surviving—but thriving? A CEO shares a new approach,” blog entry by Dan Schulman,
May 29, 2020, ideas.ted.com.
12
Minda Zetlin, “PayPal grew its profits 28 percent—by raising workers’ wages,” Inc., January 10, 2021, inc.com; Jeff Kauflin, “PayPal CEO Dan
Schulman explains his strategy for investing in employees’ financial health,” Forbes, October 15, 2020, forbes.com.
13
Witold Henisz, Tim Koller, and Robin Nuttall, “Five ways that ESG creates value,” November 14, 2019, McKinsey.com.
14
Jonathan Shieber, “Swedish battery manufacturer Northvolt receives a $14 billion order from VW,” TechCrunch, March 15, 2021, techcrunch.com.
15
Camila Domonoske, “From Amazon to FedEx, the delivery truck is going electric,” NPR, March 17, 2021, npr.org.
16
“Tesla overtakes Toyota to become world’s most valuable carmaker,” BBC, July 1, 2020, bbc.com.

6 From principle to practice: Making stakeholder capitalism work

 Culture can be the ultimate competitive
advantage in a world where business
models can be replicated—and it can
be the difference between doing well
enough and doing really well.

Companies that rank in the top quarter of
McKinsey’s Organizational Health Index deliver
returns to shareholders that are almost triple those
of companies in the bottom quarter.17 The same
research found that the benefits of good
organizational health show up quickly—in as little as
six months. Culture can be the ultimate competitive
advantage in a world where business models can be
replicated—and it can be the difference between
doing well enough and doing really well.
Human health is complex and is affected by a range
of social and economic conditions. Approximately
40 percent of an individual’s health status can
be attributed to underlying factors such as
income, employment, education, food, housing,
transportation, social support, and safety. In
addition, factors such as race, ethnicity, gender
and sexual orientation, disability, and age can also
influence health status.
Addressing both individual and systemic barriers to
health is critical to meet the healthcare needs of
stakeholders. This can mean investing in employee
healthcare, creating inclusive work environments,
or contributing to the development of healthy
communities.18 Globally, the link between healthy
people and healthy economics is clear. By adding up
all the ways that better health lifts the economy,
McKinsey found that better health could increase
global GDP by $12 trillion in 2040—an 8 percent
boost, or 0.4 percent faster growth a year.19
Such investments can also pay off for
companies. During the COVID-19 pandemic,
some manufacturing plants that invested in
health protocols which went beyond public-health
guidance have been able to minimize shutdowns.20
A public-sector employer in Britain used health-
assessment questionnaires to understand the
needs of staff and codeveloped a health-promotion
toolkit. The program, which included family days,
team-building days, and health walks, led to a
44 percent reduction in absences due to sickness.21
Capability-building impact refers to improving
stakeholders’ abilities and skills and has been a
longtime corporate priority for employees. In a
November 2020 McKinsey survey of global
businesspeople, 78 percent said that they
considered building their employees’ capabilities
important for long-term growth.22

17
Chris Gagnon, Elizabeth John, and Rob Theunissen, “Organizational health: A fast track to performance improvement,” September 7, 2017,
McKinsey.com.
18
Jaana Remes and Shubham Singhal, “Good health is good business. Here’s why,” July 9, 2020, McKinsey.com.
19
For more, see “Prioritizing health: A prescription for prosperity,” McKinsey Global Institute, July 2020, on McKinsey.com.
20
Christopher F. Schuetze, “On factory floors, a chime and flashing light to maintain distance,” New York Times, January 12, 2021, nytimes.com.
21
Local action on health inequalities: Workplace interventions to improve health and wellbeing, Public Health England, September 2014,
assets.publishing.service.gov.uk.
22
“Rethink capabilities to emerge stronger from COVID-19: McKinsey Global Survey results,” November 23, 2020, McKinsey.com.

From principle to practice: Making stakeholder capitalism work 7

 That much is clear and pretty much uncontested.
What may be less obvious is that companies can
also benefit from building the capabilities of other
stakeholder groups. For example, working with
suppliers to share expertise can increase
productivity and cut waste—and thus reduce costs.
Since 2009, Walmart has applied what it learned
from its internal sustainability programs to help its
supply chain to decarbonize. Not only has this effort
successfully reduced emissions—by more than
230 million metric tons of CO2 equivalent avoided
since 201723—it also cut energy use and
manufacturing costs for both parties.24
Sharing with suppliers can be especially powerful
when new technology is involved. IBM and Maersk
developed TradeLens, an open supply-chain
logistics platform for shipping. By providing a
comprehensive view of shipment data and
digitized document handling, the system reduces
administrative costs and minimizes delays and
disruptions. As of November 2020, more than 175
organizations have joined and more than 30 million
container shipments have been tracked this way.25
Different links in the supply chain can also achieve
outcomes together that they might not be able to
separately. For example, in 2011 Unilever’s largest
food brand, Knorr, set up the Knorr Sustainability
Partnership, which works with its suppliers and
growers to foster agricultural sustainability. The
partnership monitors farms to ensure they comply
with guidelines on factors such as soil quality,
water and fertilizer usage, animal welfare, working
conditions, and biodiversity. The highest-performing
farms are given “landmark” status, and Knorr
packaging features a logo when more than half
the ingredients are sustainably sourced.26
Satisfaction impact means improving the
stakeholders’ experience of interacting with a
company or its products and services. The idea
of customer satisfaction is well known, but the
concept can be extended to other stakeholders,
too. For communities, it could mean being part of
an effort to improve traffic around the company’s
buildings or subsidizing a local service. For
employees, it could be by asking them about
what they do and don’t like about their jobs and
seeking ways to improve the latter.27 For suppliers,
it could be about helping them through a rough
patch by extending credit or payment terms or
offering new technology.
Studies show employee engagement is directly
linked to customer satisfaction and business
results.28 In companies with a high level of employee
satisfaction, research shows there is lower turnover
and that workers are more productive.29 They are
also more likely to raise issues when things don’t go
well, leading to problems being fixed faster. Firms
with high employee satisfaction outperform peers
by 2 to 4 percent a year in long-run stock returns.30
Offering satisfying experiences also encourages
loyalty, which has all kinds of benefits—less
employee turnover, more repeat customers,
and longer-term investors.
Step 4: Define and execute a
stakeholder-capitalism strategy
To create a plan, start by using three attributes to
rank the identified ideas: the extent to which the
idea matches the company’s strengths, how well it
addresses a specific stakeholder need, and how it
captures long-term shareholder value.

23
“Creating shared value,” Walmart, corporate.walmart.com.
24
2020 Walmart ESG Report, Walmart, 2020, cdn.corporate.walmart.com.
25
“TradeLens container logistics solution,” IBM, ibm.com.
26
“Knorr Sustainability Partnership,” Unilever, unilever.com.
27
Tera Allas and Bill Schaninger, “The boss factor: Making the world a better place through workplace relationships,” McKinsey Quarterly,
September 22, 2020, McKinsey.com.
28
Ibid.
29
Christian Krekel, Jan-Emmanuel De Neve, and George Ward, Employee wellbeing, productivity, and firm performance, Centre for Economic
Performance, CEP discussion paper number 1605, March 2019, cep.lse.ac.uk.
30
Alex Edmans, “28 years of stock market data shows a link between employee satisfaction and long-term value,” Harvard Business Review,
March 24, 2016, hbr.org; ForeSee Experience Index: 2014 U.S. Retail Edition, ForeSee American Employee Study, foresee.com.

8 From principle to practice: Making stakeholder capitalism work

 An idea matches well with a company’s strengths
if it’s aligned with a company’s purpose and is a
source of competitive advantage. For example,
when the 2014 Ebola virus epidemic came to West
Africa, a Canadian research team had developed a
promising vaccine but needed a pharmaceutical-
company partner to produce it. Merck had
experience producing vaccines with the types of
cells the vaccine was made in and also had the
facilities to scale production, making it better
positioned than many other companies to produce
the vaccine.31 They came together and were able
to create a solution. Merck may never recoup its
financial investment, but regards the effort as
positive in stakeholder terms, allowing it to
advance its mission (better human health), improve
capabilities (in vaccine development), and build a
sense of pride and mission among its employees.
How well the idea addresses a specific stakeholder
need depends on the value of the idea to the
stakeholder. This can be monetized when there are
clear metrics; there may also be research that
establishes a link between stakeholder impact and
value. For example, an affordable-housing developer
could calculate how much that affordable housing
adds to the purchasing power of families. For some
ideas, monetized value can’t be readily calculated.
For example, preserving a local wetland is surely
positive, but there’s no line item into which it fits. In
this case, impact can be measured through other
metrics, such as the number of bird species present.
For community-health initiatives, it might be
An idea matches well with a
company’s strengths if it’s aligned
with a company’s purpose and is a
source of competitive advantage.
31
Helen Branswell, “‘Against all odds’: The inside story of how scientists across three continents produced an Ebola vaccine,” STAT, January 7, 2020,
statnews.com.
From principle to practice: Making stakeholder capitalism work
possible to measure the number of hospitalizations
or deaths prevented.
Shareholder impact is the financial value of the
idea to the company, taking into account the cost,
the returns, and the implementation risks. Where
possible, that value should be translated into
monetary terms to enable comparison. For
example, an idea that attracts new customers
with sustainable products could increase revenue.
Once ideas are measured according to these three
attributes, they should be ranked relative to one
another. Given that not all ideas may have monetized
value, which makes direct comparisons difficult,
there are several ways to rank them. One is to ask
stakeholders to rank them in comparison with other
ideas. Another is to look at what similar organizations
are doing. Get enough information to be comfortable
making decisions, and then take action.
Once the ranked list of ideas has been created,
cluster them into themes, such as community health
or financial well-being. Use a portfolio mindset;
while every idea doesn’t need to score highly on all
three attributes, in aggregate, each theme should.
Concentrate on implementing the themes that fit
best. Few, if any, companies can do everything, and
ranking the ideas will help them to make the
inevitable trade-offs. Finally, make commitments
with timelines. This builds credibility and gives
people a goal at which to shoot.
9
 Step 5: Build an operating model that
can sustain long-term value creation
for all stakeholders
Sustaining value creation requires accountability,
communication, and updating. It is a process, not a
result. For stakeholder capitalism to take root, think
years, not months.
Companies foster accountability by being clear
and open about their goals and progress. Publish
commitments to stakeholders, communicate
implementation plans and metrics, and
acknowledge and discuss progress and setbacks.
Make the case for the company’s choices,
underpinning them with data and tying them to
value. For example, Enel, an Italian electricity
provider that has made long-term stakeholder value
a core component of its strategy, communicates its
sustainability goals in its annual reports.32
Stakeholder reporting still lacks standardization,
although there are several efforts under way. The
World Economic Forum has defined Stakeholder
Capitalism Metrics that can be used to align a
company’s regular reporting against ESG
indicators.33 EU rules34 require large companies
to report on social and environmental indicators,
with a variety of national, regional, and international
guidelines from which to choose. In Japan, the
Social Impact Management Initiative was
established by a group of nonprofits, businesses,
and others in 2016 to promote social-impact
measurement.35 In 2020, the Hong Kong and
Shanghai stock exchanges both announced ESG
reporting requirements.36
Accountability also requires companies to make
their governance and stakeholder strategies work
together. Today, government regulations, company
bylaws, and financial-reporting requirements often
reinforce the idea of the shareholder as the sole
stakeholder. Depending on the jurisdiction, however,
it may be possible to incorporate other stakeholders
into governance documents; it’s certainly possible
for companies to formally differentiate between
short-term and long-term value.
One model is that of John Lewis. Founded in 1864,
the British household-goods retailer is owned by a
trust on behalf of its employees (known as
“Partners”). Through a network of elected councils
and committees, Partners participate in the
decision-making process not only for how the
business is run but also for key governance
decisions such as choosing trustees and changing
the company’s constitution.37 In July 2020, when
John Lewis faced a sharp decline in in-store
shopping due to pandemic-associated lockdowns
and the long-term trend toward online retail, those
relationships helped the company navigate the
difficult decision to close some of its stores.
Simply embedding a stakeholder ethos in a
company’s statement of purpose can help to ensure
that a wider range of stakeholders is kept in mind.
Finally, nonfinancial stakeholders can be given an
official voice, such as via board seats or executive
roles. Compensation could be tied to stakeholder
metrics. Half of all FTSE 100 companies link
executive compensation to ESG targets,38 while a
number of private oil majors are doing the same
regarding climate targets. Beginning this year,
Starbucks will link executive compensation to
diversity and inclusion initiatives.39
Work closely with stakeholders to implement
initiatives, getting as much feedback as possible.
Unlike a stock price, there are no real-time
indicators of broader stakeholder sentiment—
although some companies are trying to change that
using big data and artificial intelligence to infer
sentiments in near real time. Work with shareholders
in particular to encourage them to stay focused on
the long term—and warn them that there could be
short-term challenges. In crises, companies may
need to pivot quickly, so ensure that there is spare
capacity to be able to respond.

32
Capital Markets Day: Strategic plan 2020–22, Enel, November 2019, enel.com.
33
Measuring stakeholder capitalism: Towards common metrics and consistent reporting of sustainable value creation, World Economic Forum,
September 22, 2020, weforum.org.
34
EU non-financial reporting directive (NFRD): Directive 2014/95/EU, European Commission, October 22, 2014, ec.europa.eu.
35
Social Impact Management Initiative (SIMI), simi.or.jp.
36
Nian Liu and Patrick Temple-West, “Chinese companies get to grips with tougher ESG disclosures,” Financial Times, January 13, 2020, ft.com.
37
“How we share power,” John Lewis Partnership, johnlewispartnership.co.uk.
38
Daniel Thomas, “Half of FTSE 100 companies link executive pay to ESG targets,” Financial Times, March 16, 2021, ft.com.
39
Heather Haddon, “Starbucks ties executive pay to 2025 diversity targets,” Wall Street Journal, October 14, 2020, wsj.com.

10 From principle to practice: Making stakeholder capitalism work

Finally, iterate, iterate, iterate. Repeat this five- may not be possible. Employers, customers,
step process regularly and whenever a major and investors may want more than a strong
shock happens. dividend history.

We believe that stakeholder capitalism is the future

Stakeholder capitalism is rife with trade-offs,
and any missteps—even inadvertent ones—can
become painfully public. Because of these very
real risks, companies may prefer to keep things
simple, focusing strictly on shareholders. But that
of business; indeed, many companies that have led
the way stand out for long-term value creation and
increased resilience as a result. The direction of
change is clear—and those who resist may well
find themselves not only out of step but also at a
competitive disadvantage.

Vivian Hunt DBE is a senior partner in McKinsey’s London office, where Robin Nuttall is a partner. Yuito Yamada is a partner
in the Tokyo office.

The authors wish to thank Krysta Biniek, Sebastian Leape, and Larissa Mark for their contributions to this article.

Designed by McKinsey Global Publishing

Copyright © 2021 McKinsey & Company. All rights reserved.

From principle to practice: Making stakeholder capitalism work 11

November 2020

More than a mission

statement: How the
5Ps embed purpose to
deliver value
Your company’s purpose strengthens resilience and
creates value—if it’s genuine. A new framework
highlights a detailed approach to embedding purpose
throughout your organization.

We’ve all seen it: companies that have the “it” factor, an enthusiasm and passion
that lights up employees, delights customers, and shines for investors. It’s not just
the company’s warmer fleece, or a more delicious ice cream, or even a breakthrough
technology. And it’s so much more than just a mission statement. It’s purpose. Purpose
answers the question, “What would the world lose if your company disappeared?” It
defines a company’s core reason for being and its resulting positive impact on the world.
Winning companies are driven by purpose, reach higher for it, and achieve more because
of it. Competitors wonder where they can get some of that magic and how they might
sprinkle it on.

If that’s your expectation—that purpose can be added easily to your mix—get ready
to be disappointed. A superficial approach to purpose doesn’t work. In fact, it can
do considerable harm, opening up your company to accusations of inauthenticity
or “purpose-washing,” turning off customers or driving them away completely, and
disaffecting employees up and down your organization. Poor outcomes follow when
purpose is a patch job.

Yet the positive corollary also holds: companies with a genuine, lived purpose radiate
authenticity and do well by doing good. Customers, suppliers, partners, and investors
recognize the value proposition. Senior leaders allocate capital and resources with
purpose in mind. And employees think about purpose all the way, making it a part of their
decision making as a matter of course. Building those dynamics doesn’t come easily. It
requires leaders to embed purpose throughout the organization. As we’ve described
 before, purpose must connect with your company’s “superpower”—its unique ability
to create value.1 Purpose is not the same as ESG (see sidebar, “Purpose, ESG, and the
5Ps”). Purpose is your company’s raison d’être.

In this article, we describe a framework that organizations can use to make purpose real,
steer clear of potential vulnerabilities or blowback, and help unlock meaningful value. We
call this framework the 5Ps.

A framework for purpose: The 5Ps

It’s relatively easy to develop a mission statement or kick off a purpose initiative. Most
organizations have sought to define their purpose at some point or other, and many think
it important to ensure that the company’s purpose is embedded in everything it does.
But leaders also know that’s not easy. Perhaps that’s why companies announce purpose
changes so often. “We’ve had so many purpose initiatives,” one European group CEO
told us, that “at this point, they just wash over me.” A useful analog is transformations;
about 70 percent of them fail to reach their stated goals, in large measure because
they fail to change—and sometimes fail to even think of changing—the mindsets and
behaviors of employees. Purpose should be systemic and rational, but also emotional;
it should resonate with members of your organization and inform their decision making.
Five major elements are critical:

1. Portfolio strategy and products: the products and services your organization provides,
and the “where to play” and “how to play” choices you make to best serve your
customers

2. People and culture: the talent—and the talent management—your firm deploys

3. P
 rocesses and systems: the operational processes you adapt to meet purpose-related
targets; the ways you ensure that behavior up and down your value chain is in line with
your purpose

4. P
 erformance metrics: the target metrics and incentives you use to measure what you
wish to achieve, how your firm is progressing, and the way you create and distribute
incentives to make your organization’s purpose tangible

5. Positions and engagement: how you align your external positions and affiliations to be
consistent with, and consistently deliver on, the purpose your company has defined

These elements are depicted in the exhibit on the following page.

These five levers consistently elevate purpose over the long term, but they must
be regularly, and rigorously, adjusted over time. Don’t kid yourself; there may be
uncomfortable decisions to make, and often hard trade-offs as well. In every case, start
by understanding the sources of your company’s strength, and address the areas in
which it is vulnerable. Then, build out your purpose infrastructure in a programmatic way.

1
“Purpose: Shifting from why to how,” McKinsey Quarterly, April 2020, McKinsey.com.

2
 Web <2020>
<McKQ: More than a mission statement: How the five Ps embed corporate purpose>
Exhibit
Exhibit <1> of <1>

To embed purpose in your company and deliver value, follow the 5Ps.

1 Portfolio strategy and products 4 Performance metrics

• Redefine product portfolio—eg, • Set performance targets and
withdraw some products, introduce metrics in line with purpose
new products
• Introduce capital-allocation
• Revise pricing in line with purpose metrics in line with purpose
for decisions (eg, capital
• Review portfolio and test expenditures, M&A)
purposefulness of individual assets
against common criteria
5 Positions and engagements
2 People and culture P
U
• Tailor external engagement and
communications to purpose
• Align recruiting, people develop-
ment, and career pathways R • Revise external positions in line
to enable purpose P with purpose
• Define purpose KPIs and hold O • Align affiliations (eg, trade-
employees accountable/give them S association membership)
incentives to meet targets with purpose
E
• Articulate and role-model desired
individual mindsets and behaviors
linked to purpose

3 Processes and systems

• Adapt operational processes to
meet purpose-related targets
• Ensure supplier behaviors are in
line with purpose

1. Portfolio strategy and products

Demonstrating purpose in the products and services you offer is a two-step process.
First, make sure that your business portfolio aligns with your company’s purpose. While
most companies will not, of course, be able to start from a clean slate in terms of the
industries and sectors in which they compete, almost all can identify ways to reshape
their business mix in an active, purposeful way. Second, once you have chosen your
portfolio, fill out its businesses with products and services that match your company’s
purpose, and winnow out those that don’t. Fight the tendency to approach purpose with
a “this is the hand I’ve been dealt” resignation. Of course your company’s endowment
matters, but you have greater freedom than you might expect to choose what your
company does and how it can make a positive difference.

Consider bp. The former British Petroleum has been an energy company since its
founding, over a century ago, operating in extractive industries around the world. Yet that
legacy has not constrained bp from reimagining what an energy company can be. The firm
has pivoted sharply, adopting as its purpose “reimagining energy for people and planet”; it
has not only exited its petrochemicals businesses but also announced a plan to shrink its
legacy oil and gas businesses by 40 percent by 2030, to scale up its low-carbon energy
businesses (such as bioenergy, hydrogen, and electric-vehicle charging) significantly, and
to put itself on a path to become a net-zero carbon emitter by 2050 or sooner.

In fact, there is ample precedent for bold, purpose-based portfolio shifts. For example,
DSM (Dutch State Mines), a Netherlands-based company, was originally incorporated
to mine coal and, over a century, evolved into one of Europe’s largest bulk chemicals

3
 companies. But, by going deep on purpose and insisting on a “triple bottom line” of
people, planet, and profit, DSM showed that it could set a radically different course. From
2001 to 2015, the company not only divested from businesses such as petrochemicals
and ammonia but also made more than 25 acquisitions in food, feed, and nutrition, among
other business lines, transforming itself into an innovative specialty-chemicals leader.

S&P Global offers another illustration: to meet its purpose of accelerating progress in
the world by providing intelligence that is essential for companies, governments, and
individuals to make decisions with conviction, it shifted from a wider range of more
generalized information and publishing businesses to a focus on research and analytics.
Over a decade of change, it remained an information company, but it transformed itself
into a different kind of information company—and a manifestly more purposeful one,
seeking to meet the information needs of its stakeholders and broader society.

Creating value for all of your stakeholders by having a positive social impact is a bold
decision and can require hard choices, such as CVS’s decision in 2014 to remove tobacco
products from its pharmacies. But, as our research has shown, strategic fortune—
measured across industries, and considered in the aggregate—favors the bold. In fact,
companies that keep a static portfolio serially underperform.

Few companies have embedded purpose as thoroughly as Patagonia does. The

California-based outdoor-equipment and -clothing business has always been purpose
driven; it was the first company in its state to become a benefit corporation (a corporate
form that enables directors as a matter of law to extend their duty of loyalty beyond
shareholders), and is also a certified B Corp. For decades, Patagonia’s mission had
been “Build the best product, cause no unnecessary harm, use business to inspire and
implement solutions to the environmental crisis.” Yet in late 2018, founder Yvon Chouinard
made the company’s purpose even more bold: “to save our home planet.” Purpose gives
Patagonia the impetus to expand into multiple new businesses, such as food, in an effort
to spur on new advances in regenerative agriculture. The company also creates films
and books about environmental activism and launched Patagonia Action Works (PAW), a
platform for matching volunteers with activist causes across different communities.

As Patagonia’s example suggests, your company’s purpose should drive decision making
about portfolios and then inform your choices about the products and services you offer
within those portfolio businesses. Your decision making will be sharpened further by
following the heuristics of superpower (“what is the unique way that our company can
create value and drive progress?”) and vulnerability (“what choices could we make that
would be particularly discordant with our stated purpose?”).

Alphabet, for instance, prioritizes its mission to promote “freedom and focus.” It makes
sense, therefore, that the Google Play app store no longer offers apps for personal
loans that carry excessive annual percentage rates, such as those of predatory payday
loans. Toy companies are profitably replacing dolls with unrealistic body images with
offerings that are more true to life. Banks and financial institutions meet customer needs
by introducing green auto loans, green mortgages, and green insurance; Swedish fintech
Doconomy, for example, offers credit cards with built-in CO2 -emissions limits. Purpose-
washing? Not when the products and services offered are moored to an organization’s
authentic, lived mission.

4
 2. People and culture
The second lever for embedding purpose could, just as plausibly, be considered the first:
people and culture. Purpose begins with human beings. Your employees, indeed all of
your stakeholders, are your sources of strength and a hard check against inauthenticity.
That’s why employee sentiment is often the single greatest force undermining insincere
claims of purposefulness. Think, for example, of digital-native companies that have
bold, change-the-world mission statements but nonetheless find themselves tripped
up by accusations of “bro cultures,” or businesses called out for marketing aspirational
messages while using labor from prison systems. In other cases, companies that have
championed inclusivity have subsequently been accused of discriminatory behavior at
the front lines.

Purpose can be aligned at critical points with your people and culture. That starts with
hiring. Managers can actively screen for individuals who share the values that support
the company’s purpose. As a senior leader of one high-performing activewear company
told us, “We hire people who reflect the values of the company. We never hire bad people
hoping we can change them.” Human-resource decisions grounded in purpose should
also be reflected in people development and career pathways; being consistent and
genuine will reinforce a virtuous circle throughout your organization. Managers should
also articulate and role-model the mindsets and behaviors linked to company purpose
and hold employees accountable for meeting targets. As the CEO of one Asian company
recently told us, alignment with a company’s purpose can’t just be “management saying
some nice words and calling it a day.” But when the company identifies what it wants in a
key performance indicator (KPI), good managers “get it done.”

Decision making about your people and culture also includes capturing opportunities
as they arise. At a 2019 annual general meeting, a bp employee raised her hand to
ask, “When is bp going to give [employees] jobs that are meaningful?” Impressed, senior
executive (and now CEO) Bernard Looney promoted her a short time later to the role
of “purpose engagement manager,” with the remit to work with employees to further the
company’s vision of reimagining energy.

The quest for meaning is part of the human condition and is embraced, not squelched,
by purposeful organizations. Our research shows that employees at purpose-driven
companies are four times more engaged at work—a powerful source of competitive
advantage. Consider Best Buy. Former CEO Hubert Joly transformed the consumer-
electronics retailer to a model in which customer service, powered by the human touch,
would be the differentiator. Under his direction, the company moved to invest heavily in
employee training; provide employee discounts to encourage its own people to buy, use,
and then recommend products to others; and advance Geek Squad, enthusiastic agents
who help choose, install, personalize, and support products that Best Buy sells. That
reinforced Best Buy’s purpose to enrich lives through technology and helped make the
business more enjoyable for customers and employees alike.

Indeed, it’s hard to overexaggerate the importance of employee commitment. London

Business School professor Alex Edmans demonstrated that companies that invested
significantly in employee well-being outperformed their peers in stock returns by 2 to 3
percent a year. That makes sense; how enthusiastic, really, should we expect employees to

5
 Sidebar
Purpose, ESG,
and the 5Ps
What’s the difference between purpose and
ESG—and how do the 5Ps fit in?
A useful framing, we find, is to compare the
breadth of ESG with the uniqueness of purpose.
ESG encompasses society’s wide range of
expectations about the role of business. There
are a multitude of ESG options, requirements,
and variations—from community service to
inclusivity, transparency in reporting, and waste
management, to name just a few. Purpose, on
the other hand, helps your firm prioritize from
among all the things it can (and sometimes
must) do in ESG. It directs you toward the areas
where you want to “win” as opposed to the areas
where you want to “play”—that is, where you can
meet the societal bar but, for want of time and
resources, can go no higher, at least for now.
Once you’ve determined which ESG initiatives
are your “musts,” the next step is to embed
them in your organization. The 5Ps can serve
as a practical checklist. Consider governance.
Effective governance can strengthen an
organization’s bond with its people and culture
(for example, through employee safety and
nondiscriminatory hiring and promotion); enforce
principles and standards about portfolio strategy
and products (such as product-safety guidelines
and the effects of those products on society and
the planet); help processes and systems work to
best effect (ensuring, for example, that suppliers
are accountable); and assure that performance
metrics and positions and communications are
true and transparent. Good governance may also
provide the impetus for a company to form or
reconstitute as a public-benefit corporation, or
seek B-Corp certification.
When leaders actively seek to embed purpose
throughout their organizations, ESG feels less
like a cost of doing business and more like a
source of competitive advantage. That comes
from your purpose being authentic and infused
throughout your organization, not forced or
tacked on.
6
be if they are just punching the clock? Thus,
when PayPal CEO Dan Schulman dramatically
boosted employee pay in 2019 and
increased benefits and made all employees
shareholders in the company, he did so
precisely with purpose in mind. Passionate
employees radiate enthusiasm to customers
and communities alike.
Your people can also be your best
barometers of progress. Investigations into
the banking industry over recent decades
are littered with examples of early-warning
signals from employees of poor conduct,
the misselling of products, and faulty
product design. Many of these signals either
fell on deaf ears or were willfully ignored.
Ensuring that your people have appropriate
mechanisms and tools supported by a
“speak up” culture to identify gaps is critical
to embedding purpose.
3. Processes and systems
The third lever, processes and systems,
addresses a core “how” of your business
model: the operational initiatives, incentives,
and governance mechanisms your firm
relies upon to create value and to realize its
purpose. It takes robust systems to keep (or
start) the purpose engine humming. Some
elements, of course, will be industry and
business dependent. For example, food
companies can identify and source healthier
ingredients from their farmers, and more
environmentally friendly materials from
their packaging suppliers. But, regardless
of sector, most companies can embed best
practices, from cafeteria composting to paid
leave for community service.
Your processes and systems initiatives
should do the same, with considered
planning for the present and future. Take,
for example, Microsoft’s approach to carbon
emissions. The company already worked
to be carbon neutral (a goal it achieved in
2012), and has since aimed even higher: by
2025, Microsoft expects to consume only
 renewable energy at its data centers, buildings, and campuses; and the company plans
to completely electrify its global campus operations vehicle fleet by 2030—the year
the company has announced it will be carbon negative. While some organizations track
carbon to create nominal (though meaningful) “carbon-adjusted” financial reporting,
Microsoft already assesses an internal carbon fee on its business divisions. Funds from
the assessment are used to invest in further carbon-reduction efforts within the firm, and
to contribute to environmental causes worldwide.

Indeed, when embedding purpose in your company’s processes and systems, it’s vital
to look beyond the firm’s four walls. Walmart’s Project Gigaton, for example, embraces
its entire supply chain: the program aims to help suppliers eliminate one gigaton of
greenhouse gases by 2030. As part of the initiative, Walmart identified six categories in
which suppliers should reduce emissions: energy, waste, packaging, forests, agriculture,
and product use and design. It then built a platform to help suppliers chart their
emissions reductions. Suppliers come up with their own emissions-reductions goals,
which must be “SMART”—specific, measurable, achievable, relevant, and time limited.
They are also required to report their progress annually, and top achievers receive
recognition on Walmart’s sustainability hub website. Hundreds of suppliers currently
take part, and Walmart expects even more to join.

As BHP’s CEO, Mike Henry, recently shared, embedding purpose throughout the supply
chain is proving to be a source of resilience, even in the face of COVID-19.2 From the
start of the pandemic, BHP moved to support its small, local, and indigenous suppliers
by reducing payment terms from 30 days or more down to seven days. The company
understood that these suppliers would be vulnerable, and sought to play a role in
supporting them. That resonates. “When [suppliers] have seen that we’re there for them
in their time of need, they’ll be there for us in our time of need,” Henry explained. “And
that’s what we’ve seen. They’ve invested greater effort to ensure that they can continue
to support BHP and keep the commitments they’ve made to us.”

4. Performance metrics
Purpose can and should be measured rigorously. In practice, this means identifying
the key performance indicators that tie to your company’s purpose, tracking them over
time, and incenting your organization to meet purpose targets. What gets measured
gets managed, as Peter Drucker famously observed. The converse is perhaps even
more apt: what you seek to manage should be measured, and on a consistent basis. Too
often, companies mistake, and then conflate, ESG benchmarks with purpose metrics.
Standards from third-party organizations such as the Global Reporting Initiative (GRI)
and the Sustainability Accounting Standards Board (SASB), while important, should
never become the ESG reporting “tail” that wags the purposeful company’s dog.
Purpose should come from within and guide the unique metrics you measure and track.
If your company starts with ESG reporting and then “backs into” a purpose, it’s getting
purpose backward.

Since purpose expresses what your company is and aspires to be, purpose metrics
should inform not only day-to-day operations but also allocation decisions such as
capital expenditures and M&A, as well as company-wide transformation initiatives.

2
“Prioritize people in times of crisis: An interview with the CEO of BHP,” McKinsey Quarterly, August 2020, McKinsey.com.
7
 A number of energy companies, for example, now tie executive compensation to
emissions. One leading retail bank, to take another case, found itself prominently
featured in a national scandal in which several financial institutions in the country
had committed different regulatory breaches. The harsh negative publicity prompted
hard thinking about the bank’s fundamental purpose and its relationships both with
broader society and individual customers, and about how to identify, measure, and
improve its purpose-based performance. Part of that purpose focused on improving
customer outcomes. One way the bank oriented toward a more purposeful outcome
was to redesign incentives. The bank’s previous incentive structure included volume-
based targets. Although financially not significant, reducing the weight of volume-
based targets in performance evaluations was regarded by the bank as critical to its
purpose shift, if only for symbolic reasons. But, remarkably, after reducing the weight of
volume-based targets, the bank proceeded to financially outperform its peers. Quality
of purpose, and the broad activities and behaviors that underpin its purpose, proved
to be more influential than quantity. The bank now takes a more balanced approach to
the measurement of, and reward for, the performance of frontline staff and managers.
It incorporates a broader set of metrics related to customer outcomes, including, for
example, the number and extent of interactions with customers to better understand
their needs.

There are a range of tools and KPIs that companies can use, but, because purpose is
bespoke, off-the-shelf solutions almost never have the same impact as those that are
carefully tailored. Moreover, measuring and activating should not be limited to monetary
incentives. Companies can encourage community outreach by celebrating offices
and employees who contribute measurably to the organization’s mission. Businesses
can also use behavioral economics to “nudge” for positive behavior, such as energy
saving or waste reduction. We’ve found, too, that simply showing employees and other
stakeholders how the organization is progressing along metrics such as diversity or
sustainability—information that can be presented clearly in standardized reports—
reinforces purpose and builds momentum for more.

It’s a fair critique to say that purpose can feel orthogonal, particularly at the start of a
purpose-focused initiative, because, in a prior way of doing things, it may indeed have
been orthogonal. But as employees and other stakeholders are presented purpose-
based metrics on a routine basis—numbers of employees from underrepresented groups,
for example, or contracts with minority suppliers or customers—purpose will feel more
comfortable. It becomes standard procedure.

5. Positions and communications

What’s true within your organization should be consistent beyond it: purpose should
be embedded into how your organization conveys information to and engages with the
public. It’s within this “P” that charges of “purpose washing” are most likely to arise—
and understandably so. Artificial expressions of purpose ring false, and stakeholders
recognize inauthenticity. The Edelman Trust Barometer, for example, found that two-
thirds of respondents agreed that “[a] good reputation may get me to try a product,
but unless I come to trust the company behind the product, I will soon stop buying it.”3

3
E
 delman Trust Barometer Special Report: In brands we trust?, Edelman, June 18, 2019, edelman.com.

8
 More than half of respondents also believe that every brand has a responsibility to get
involved in at least one social issue that does not directly affect its business.4

The growing ascendance of the belief-based consumer is a powerful opportunity

for many companies to step up much more visibly on the “S” element of ESG and
strengthen their social license to operate. One way to do so is to consider the trade
associations your firm supports—or perhaps no longer should. Both Royal Dutch Shell
and bp, for example, undertook extensive reviews of those receiving their support and
ultimately withdrew from a number of trade associations because they were deemed
inconsistent with the company’s purpose. Another action is to step up your philanthropy
and corporate giving, making those efforts of a piece with your business model. Doing
so in an authentic way, linked to your company’s superpower and demonstrable to those
around you, can strengthen your organization’s ties with its community and burnish
its social license. General Mills, for instance, aligns its 150-year old philanthropic
foundation to share food expertise by partnering with employees in the communities
in which they live and work. As well, Philippines-based conglomerate Ayala Group
spearheads “Project Ugnayan,” a private-sector partnership working with hundreds of
local companies to help feed millions of people in the Greater Manila area.

When purpose is hardwired, your company’s positions, communications, and external

engagement become logical extensions of your business model; purpose eliminates the
gap between walk and talk. Consider Takeda, headquartered in Japan, and one of the
world’s largest pharmaceutical companies. The organization strives, as CEO Christophe
Weber explained, to “put [its] employees and patients first.”5 When COVID-19 hit, it
was among the first pharmaceutical companies in many countries to pull its field force
and put a hold on marketing calls. “For us,” Weber related, “that was an easy decision.”
Or Microsoft, which has a strong commitment “to empower every person and every
organization on the planet to achieve more.” The company announced that it would be
closing all of its brick-and-mortar stores and focusing its retail operations on digital
storefronts. That hard decision was a while in the making, and was finalized during
the economic downturn brought about by COVID-19. Remarkably, however, Microsoft
decided that the store workers will now continue serving customers from corporate
facilities and remotely, providing digital sales, training, and support.

Purpose is a source of competitive advantage, but it must be genuine and infused in

your organization’s business model. The 5Ps provide a framework to help companies
embed purpose in a systematic, holistic way. It helps organizations unlock sources of
value, identify points of vulnerability, and do well by doing good.

This article was a collaborative, global effort among Sebastian Leape and Jinchen Zou (consultants
in McKinsey’s Washington, DC, office), Olivia Loadwick (an associate partner in the Sydney office),
Robin Nuttall and Matt Stone (partners in the London office), and Bruce Simpson (a senior partner
in the Toronto office and leader of McKinsey’s purpose and ESG initiative).

Copyright © 2020 McKinsey & Company. All rights reserved.

4
Ibid.
5
“How Asia’s largest pharma is leveraging its values to navigate the COVID-19 crisis,” McKinsey Quarterly, July 2020, McKinsey.com.
9