- Better Business is one of the main themes of Davos 2020.
- Forum sees a renewed push for 'stakeholder capitalism'.
- Measuring companies' performance will be key.
"There is one and only one social responsibility of business," said Nobel prize-winning economist Milton Friedman: "to use its resources and engage in activities designed to increase its profits."
That maxim, coined in the 1960s, was already being questioned when the World Economic Forum was founded a few years later. According to the Forum's 1973 Davos Manifesto, the purpose of company leaders was: "to serve clients, shareholders, workers and employees, as well as societies, and to harmonize the different interests of the stakeholders."
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The idea that social and environmental goals should be priorities alongside making money is not, however, one that most companies have fully taken to heart. Five decades after he founded the World Economic Forum, Klaus Schwab concedes that, "shareholder capitalism [is] currently the dominant model". But changing attitudes in boardrooms and among the public means this could be about to change.
Issues that were less prominent, or even completely unknown, five decades ago - such as climate change, big data and soaring income inequality - have increased the relevance of the stakeholder economy and are reflected in an updated manifesto that the Forum published on its 50th anniversary.
Companies should pay their fair share of taxes, ensure the safe, ethical and efficient use of data and be "steward(s) of the environmental and material universe for future generations," it says.
'Better business' is one of the major themes of this year's Davos meeting and several sessions will be devoted to seeking ways to ensure business is striving to improve, and not destroy, the environment and people's well-being.
Companies are taking this increasingly seriously.
Last year, the Business Roundtable, a grouping of nearly 200 major U.S. corporations, issued a new definition of what the purpose of a company should be: "we share a fundamental commitment to all of our stakeholders ... We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
What the experts say
Ahead of Davos 2020, here are some insights from participants who have written for Agenda.
"It’s the end of an era for corporations," write Orit Gadiesh and Andrew Schwedel of consultancy Bain.
"For 50 years, companies focused on delivering shareholder value above all else – but a rapidly changing world is undercutting the shareholder primacy paradigm ... It’s a wrenching change, but an urgent one."
Similarly: "2019 may yet turn out to be a watershed year in the evolution of corporate governance, and 2020 should herald a sharper focus by boards on stakeholder governance," write Milton Cheng, Beatriz Pessoa de Araujo and Julia Hayhoe of law firm Baker McKenzie.
"[T]here is one area where the laws or approaches of various countries are beginning to converge and that is in the area of stakeholder engagement. Directors are increasingly required (or expected) to take into account the interests of the company's stakeholders."
Bank of America CEO Brian Moynihan writes that a clear priority is defining a way to measure companies' performance in meeting social and environmental goals, in a similar way to which their financial performance is measured now:
"One challenge for corporations and investors is that there are many competing standards, metrics and measurements and no well-established or generally accepted framework for assessing long-term viability as defined through the prism of societal value."
At Davos, business leaders will discuss the work that the Big Four accountancy firms are undertaking to create such a framework of metrics - a way for companies to judge themselves, and each other, on their performance in creating 'stakeholder value'.
That may mean more work for industry leaders, but the upside of 'better business' should be a healthier planet, happier employees and an improvement in people's trust in corporations.
During the last 50 years there has been unprecedented progress in human indicators – life expectancy has increased to record levels; infant- and maternal mortality has fallen; more girls are staying in school; more people have been lifted out of poverty than ever before; and inequality between nations has narrowed. The market system has served us well.
But deep fractures are beginning to show: gaping inequality within almost all countries; record environmental degradation and species loss; and the broader impacts of irreversible climate change. Our markets are unsustainable – and we need a new economic model.
To tackle these challenges,Transforming Markets is one of four focus areas at the World Economic Forum's 2019 Sustainable Development Impact summit. A range of sessions will bring stakeholders together to take action that places human and environmental health at the core of market systems and value chains. These include building sustainable markets, responsible supply chains, moving beyond disposability, circularity and scaling solutions of the Fourth Industrial Revolution, among others.
You can follow all the sessions from Davos here, and follow the meeting across social media using the hashtag #WEF20. Highlights about better business will appear here. And you can submit your own ideas on how to make business better, and six other ways to make the world a fairer place, here.
Three of the best:
- Stakeholder Capitalism: What Is Required from Corporate Leadership? Tuesday 21 January 18.00 - 18.45, with Marc Benioff of Salesforce, Brian Moynihan of Bank of America, Ginni Rometty of IBM, and Feike Sybesmaof Royal DSM.
- The Future of the Corporation, Tuesday 21 January 09.45 - 10.15, with Sir Paul Collier of Blavatnik School of Government, University of Oxford and Colin Mayer of Saïd Business School.
- Stakeholder Capitalism: Creating Common Standards for Corporate Governance, Wednesday 22 January, 09.15-09.45, with Carmine Di Sibio, Global Chairman and CEO of EY.