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Perspectives | Issue 11

Navigator’s folio of ideas, insights and new ways of thinking

In conversation with Dominic Barton

December 16, 2022

To get to the heart of some of the many existential challenges facing Canadian businesses, we spoke to Dominic Barton, one of Canada’s proudest expatriates and a leading authority on global business. Barton is chairman of Rio Tinto and LeapFrog Investments, serves as chancellor for the University of Waterloo, and recently joined the Eurasia Group as a strategic counselor. He previously served as Canada’s ambassador to China and as global managing partner of McKinsey & Company, where he spent the majority of his career.  

Barton is known for helping some of the world’s top CEOs navigate challenging transformations and has provided advice to heads of government in Canada, the United States, Singapore and South Korea. Drawing on this experience, Barton helped us make sense of the “new form of globalization” he sees on the horizon, the probable recession and challenges for the environmental, social and governance (ESG) movement. Despite volatile social and economic conditions, he is optimistic about the opportunities that lie ahead for Canadians and Canadian businesses.  


At the outset of the COVID-19 pandemic, the rise of stakeholder capitalism captured the attention of investors and media alike. As we face an affordability crisis, has the pendulum swung the other way?  

We’re at an inflection point; there are just so many forces coming together at one time: technology shifts, economic power shifts, rising inequality, declining levels of trust, supply shocks and the war in Ukraine. Governments and businesses are worried about supply chain security. We’re moving towards a new form of globalization.  

We’ve spent a humongous amount of money trying to get through COVID-19. We’ve got an inflationary bogeyman that we’re all facing. It feels like the tanks are drained, patience is low and brittleness is high. People are frustrated.   

In university, I studied financial and economic crises and, like many economics students, I read Charles Kindleberger’s Manias, Panics and Crashes. He refers to the five-stage life cycle of a bubble. The fourth stage of this cycle sees insiders selling off their shares and the fifth stage sees outsiders running for the exits, causing a bubble to burst altogether. I think we’re somewhere between stage four and five. After an initial high with cheap borrowing and easy-to-access capital, nearly $11 trillion in stock market value has disappeared since the January 2022 peak. We’re likely going to have a recession; we’re going to have dislocation and we’re going to see unemployment go up. There are also political cycles, with governments seeking an evolving balance between national and global interests.   

You have to think long term. This can be a time when you actually build, when people are running for the hills. Think about investing in your competitive advantages, your talent, critical capabilities, including R&D, and your suppliers, as counterintuitive as that might be.


Can you elaborate on the new form of globalization you see on the horizon?  

Globalization is not going away. We’re not going to suddenly become nationalistic countries and stop importing and exporting. Consumers won’t put up with it. Companies won’t put up with it because they’ve gotten used to the efficiencies within the system that have improved our quality of living. Trade as a percentage of Canada’s GDP has increased three per cent from the global financial crisis and global trade nearly tripled from the beginning of the century to 2018.  

But there have been challenges since then. With more emphasis on supply chain security and countries like Canada and the U.S. embracing the concept of friend-shoring, it’s likely that we will see a reduction of trade in goods. 

Countries want to make sure they’re secure, and for good reason. For example, Ukraine accounts for half of the world’s neon production, an essential ingredient for the lasers used to make chips, but its two leading suppliers had to shutter their operations following Russia’s attack. This had immediate knock-on effects on the world’s chip-manufacturing capacity and the production of cellphones, laptops and cars. So there’s going to be conversations about identifying vulnerabilities and strengthening domestic capacity in certain areas.  

And there are trade blocs forming. You’ve got the Eurozone, you’ve got North America (USMCA). That’s a really important bloc. There is ASEAN (Southeast Asia) where there are 600-million-plus consumers in that economic region. You’ve got MENAP, which is Middle East North Africa Pakistan. There is sub-Saharan Africa. You’ve got the South American and Central Asian economies that are going to be doing more together. Right now, 75 per cent of our trade is in North America and we must broaden it and see how Canada is positioned in all these key blocs. 

It’s easy to overstate the decline of globalization, but what we can expect is a different type of globalization. There’s going to be more in the commercial services category – with people outsourcing work. And information will continue to flow quickly across borders through platforms like Facebook, YouTube and TikTok. There’s information that’s connecting people in the United Kingdom with people in Indonesia, on entertainment and e-commerce. In my view, we’re nowhere near the peak on that side.  


What can we learn about the way Canadian consumers and political leaders responded to the Russian invasion? 

The Russia situation has shown us that there are red lines in terms of international trade and commerce. Companies have to do the scenario analysis that asks what are our plans if we’re cut off and have to stop all trade and investment activity? What are we going to do when a critical ingredient we need for a solar cell or for a chip in a cellphone is not there?  

It’s one of the areas where banking regulators may be the most sophisticated in assessing risk because they say to banks: you have to be prepared for these tail risks – think about the “Taiwan risk,” for example. Even though the probability may be low, you have to be prepared. It’s not zero. Ten years ago, I wouldn’t even be thinking about it. 


Do you have any advice for leaders who want to focus on long-term goals while contending with intense short-term pressures to cut costs? 

You have to acknowledge that there are economic cycles and parts of those cycles are obviously deeply unpleasant. There are significant ups and downs. A lot of companies can go bankrupt and disappear. It’s serious.  

But if you look at the major crises that the world has gone through, like the Global Financial crisis of 2008-2009 and the Asian Financial Crisis of 1997-1998, there’s considerable research to show that companies that invested and were competitive in critical areas, like R&D, in the middle of these crises actually came out of them with better financial performance. In the middle of the crisis, their stock prices may have lagged compared with others who did not invest, but in the long run they were rewarded for investing strategically.  

If I think about Korea and Singapore in the middle of the Asian Financial Crisis, most foreign companies were shutting down, scaling way back or leaving the region, saying we’re done. It’s done. It’s all over. 

As a consultancy, Booz Allen held the top position in the Asia region in the 1990s. And they cut back when the Asia crisis hit. Our view at McKinsey was that Asia is and will be an important market over time despite those 1997 challenges. We wanted to be a relevant and significant player in Asia, so we actually invested and hired a lot of people, including many who were leaving Booz Allen. Now, McKinsey is the leading strategic consultancy in the region today.   

It’s one example of many, but it’s important to “look through the cycle” you’re in and see through it to actual opportunities. Senior management needs to be honest that it will be difficult. That you’re going to have to operate as efficiently and cheaply as possible. But that investing in priority areas will get you through the other side better positioned. It takes guts to do that.  

Having the strategic thinking to say this is going to be a pivot point where we develop a competitive advantage because we’re more focused, aggressive and disciplined than our peers. That’s what long-term companies are supposed to be. Warren Buffet is the epitome of this, right? Remember, he invested $5 billion in Goldman Sachs in 2008.  

At the same time, we have to ask: what are the cuts we each have to take? I’d rather meet with the executives and pare it back. We may need to suffer. That means no bonus. We’re going to cut the non-fundamental stuff. But don’t touch the core elements, particularly people, R&D and priority customer and supplier relationships.  


Has political polarization created an added challenge for the ESG movement? 

Since I’ve been at Rio, I’ve seen a bit of a shift. There was a lot of investor excitement and interest in ESG and our decarbonization goals. It’s sort of dropped down. People have said, imagine what your dividend would be if you kept met coal.  

I’ve explained that we didn’t because we’re committed to making a shift. We’re a 150-year-old company with a with a 20- to 30-year investment horizon and getting this right on climate is the right answer. So we will continue to aggressively pursue our decarbonization objectives. There are short-term costs, but we’re positioning ourselves to win the real war. I’m finding myself even more determined.  

The other issue is that different aspects of ESG can conflict with each other. They don’t all neatly go together. In Rio’s case, for example, we have been seeking a “win-win” compromise with local Indigenous leaders in Arizona on our Resolution Copper project. We know that respecting and working with host communities is imperative. 

We need this project because the U.S. and the world needs copper. If we don’t have copper, we’re not going to do the energy transition. Since humankind has been on the planet, we’ve produced 700 million tons of copper. If we’re going to meet the Paris goals, we’re going to have to produce the same 700 million in the next 20 years. The project makes sense from an environmental perspective, but obtaining the social licence takes continued work.   

My view is that you have to accept that an answer may not be perfect, but you have to have a point of view and go for it, and don’t let “perfect be the enemy of the good” because then nothing gets done. We’ll just sit here and be paralyzed and burn the planet down. That’s not acceptable. 


Picking up on that point, what role should mining companies be playing in the climate transition? 

They have a critical role. We won’t be able to do decarbonization without mining companies. A 1.5 MW wind turbine alone uses 1,900 pounds of copper. Electric vehicles use six times more critical minerals than conventional cars.  

So mining is critical, but it needs to do better to get the social licence. Even people who understand its importance don’t always want it in their backyard. The minerals are where they are, including some of the most remote parts of the planet. You have to work with that environment and engage with host communities in a responsible manner.  

At Rio, we want to be carbon zero by 2050. We want to reduce our own Scope 1 and Scope 2 emissions by 50 per cent by 2030, but we need to do a better job explaining what we do and why it’s important for the world.   


We’ve spoken about several challenges for Canadian businesses. What makes you optimistic?  

I see huge potential for Canada, especially in these times. When you look at what’s happening in the world — we’re eight billion people going to 10 billion. There is this long-term set of fundamental forces that are underway — technology, climate change, demographics, income inequality. I can’t think of a country that’s better positioned to deal with all this.  

You have to think about the water we have, the energy, the mineral resources. That’s one dimension. The second is the people. Our values are very global, multicultural. That’s a huge advantage in this tricky world. 

We’re a technology leader; we just don’t talk about it. Go back to Nortel, to BlackBerry. AI is something I’m very excited about because we have three global-class centres in Canada and I think we’re leaders. We have all the active ingredients, but we sometimes lack the ambition.  

Our political extremes are a hell of a lot less than what you see in the U.S. We shouldn’t take it for granted, but they’re a hell of a lot less. We’re a reasonable people. That matters over the long term. We have amazing pension funds that are truly world class. I’m just keen that we unleash these capabilities.  

I think, in Canada, we should have 50 leading global companies that are number one or two in their industries. Because that creates its own cycle: R&D, innovation, leadership development, talent development. Maybe because of our strengths we are complacent, but I go very long on Canada. 

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