Stakeholder Capitalism

At the age of 50, is Davos going through a midlife crisis?

A general view shows the the congress center, the venue of the World Economic Forum (WEF) and the Alpine resort of Davos, Switzerland January 22, 2020.

Image: REUTERS/Arnd Wiegmann

Silvio Dulinsky
Deputy Secretary-General, International Organization for Standardization (ISO)
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This article is part of: World Economic Forum Annual Meeting
  • The Annual Meeting in Davos remains as vital as ever.
  • In the next decade there will be a massive transfer of economic and political power to the next generation of leaders.
  • Stakeholder capitalism is taking root around the world.

The famous meeting at Davos in the Swiss Alps, first convened in 1971, this year celebrated its 50th anniversary.

Nevertheless, the conviction with which nearly 3,000 participants from 130 countries participated in this year's event - which boasted the highest concentration of economic power in the world - suggests the World Economic Forum is not experiencing a midlife crisis.

On the contrary, the Forum's vitality resembles that of a young and successful entrepreneur with dreams, energy and the ability to change the world.

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Over five days, 60 heads of state, 250 ministers, 1,000 CEOs and 800 vice presidents of global companies, 300 young leaders and 450 representatives of civil society, media and the academic sector discussed the main challenges of society, their paradoxes and possible solutions.

We are at the beginning of a new decade. A decade in which we need to deliver results. The decade in which we must build an economic system capable of repairing our wounded societies and the diseased planet. Companies have a huge responsibility in this process. The private sector cannot solve all of society's problems, but most of the structural problems that afflict us cannot be solved without the private sector.

The Forum was the first organization to defend the idea of stakeholder capitalism in 1973. The 2020 meeting focused on renewing the license to operate - not of any specific company, but of capitalism itself.

The US Business Roundtable, the most influential group of companies in the US, recently announced that it would embrace stakeholder capitalism. The question that arose was what impact this will have in practice. The Forum's platform has the content and the power to convene that can make this commitment a global reality, enabling the transformation of companies so that they continue to be the engine of society's development as they have been for the past 150 years.

Professors Paul Collier and Colin Mayer, both from Oxford, illustrated the case in a debate on Davos' first day with a good dose of English humour. The two professors explained that in the traditional view the boss of a company knew what had to be done, but that the “evil employees” did not want to follow the path he proposed. This conception of the world was based on the idea of “homo economicus”, present in economic theory since Adam Smith and his invisible hand.

Consequently, a system of sanctions and rewards was established which, according to the speakers, works well with laboratory rats. But the human species was able to build a more sophisticated system of trust and motivation than “carrots and sticks”. In nature there is only one type of leadership: domination. People, on the other hand, have created another system that is based on respect.

This model demands a leader capable of establishing a purpose that channels the creative force of workers to solve problems for people and the planet. Not only a vague and aspirational mission, but a purpose supported by the corporate culture, processes and metrics that guide the company's daily and strategic decisions. When widely adopted by leading global companies, we have a reorientation of capitalism, in which long-term sustainable profit becomes a consequence of solving problems, of serving society.

In a private meeting, one participant told a CEO - who happens to sit on the Forum's board of trustees - that the latter had started from a comfortable situation when building and communicating his company's purpose. Our trustee leads a company that produces nutritious components for food and generates renewable energy in its large industrial facilities. The troubled participant considered his own case much more complicated because, according to him, his company contributes nothing to the world. Our supposedly lucky trustee didn't want to be rude; however, he couldn't help but question why this other company exists.

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One of the most important initiatives launched in Davos this year was the creation of a global network of board members committed to the goal of eliminating their companies' net CO2 emissions by 2050. This initiative is based on the corporate governance framework that the Forum published in 2019.

Companies at the forefront of this movement are making a commitment to eliminate net CO2 emissions as early as 2030, and the most ambitious, as announced by Microsoft's Satya Nadella, will offset the emissions generated by the company since its creation. The United Kingdom, France, Italy, Malaysia and Canada already have groups of directors sharing experiences, influencing their peers and giving a concrete mandate for executives to transform companies for the future. In Brazil, discussions are underway to create a similar group.

Latin America has excellent companies that compete on an equal level with the main global leaders in their industries. However, when it comes to sustainable business models, inclusive corporate culture and commitment to different stakeholders, we have a great learning opportunity. We need robust and committed corporate governance to make necessary and courageous decisions.

Larry Fink, the CEO of BlackRock, argues that companies must hurry, as in the next 10 years there will be a massive transfer of economic and political power to the next generation of leaders. These young people have strong social, ethical and environmental commitments and their expectations regarding corporations - as consumers, investors and regulators - are clear.

Together with these future leaders, we have a unique opportunity to develop a corporate governance that places Latin American companies on the same level as their global peers - not only in financial and operational performance, but as leaders of an increasingly complex society that requires effective public-private collaboration.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Stakeholder CapitalismForum InstitutionalLeadership
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