At the 50th Davos, a corporate midlife moment (or is it a crisis?)
There will be plenty of big names in Davos this week, from Donald Trump and Prince Charles to Greta Thunberg and Will.i.am. But if the spotlight focusses on one subject, it may be a more inanimate figure: the corporation.
The World Economic Forum is launching its 50th session in Davos this week, and as the WEF concedes, the most powerful economic instrument in history — the corporation — is facing questions like never before.
Is this a midlife crisis for the multinational? Climate change, income inequality, cybersecurity: there’s no shortage of issues requiring more business leadership in the 2020s, and will be on the table at Davos.
As a bastion of corporate thinking, the WEF is marking its 50th with a new manifesto that declares “a company is more than an economic unit generating wealth.” The Davos Manifesto — a favourite socialist word, ironically — calls on global companies to pay their fair share of taxes, show zero tolerance towards corruption, uphold human rights throughout their supply chains, and advocate for a level-playing field, especially in the platform economy. It further implores companies to better prepare employees for tech disruptions, ensure the use of consumer data is safe and ethical, and do everything in their power to protect the biosphere.
The Forum was created, in some ways, to advocate for this kind of balanced approach to business at a time when, coming out of the 1960s, the global protest movement was setting its sights on multinationals while in the U.S., the ethos of Milton Friedman — “a corporation’s social purpose is to make money” — was still in the ascendant.
The European Management Forum, as the Davos group was known in its early years, was launched in January 1971, and quickly got behind the ideals of a liberal order, advocating freer markets, open borders and international rules for business.
As the Forum grew, it gave voice to government and corporate leaders from emerging markets — China, India and the Arab states, most notably — as well as access to investors advocating the benefits of global capitalism. As it grew, the Forum also became a symbol of elitism.
“We bring together people of influence, and we hope that they use their influence in a positive way,” the Forum’s founder Klaus Schwab recently told the New York Times.
The Business Roundtable last year issued its own manifesto calling on its members, who include most major U.S. corporations, to look beyond shareholder-centric capitalism. Larry Fink, the CEO of BlackRock, the world’s largest asset manager, added to the chorus last week in his annual letter urging companies to factor climate change in their economic calculations.
The latest cover story in Foreign Affairs asks if there is another form of capitalism yet to emerge between the two that dominate the world today. The economist Branko Milanovic argues that while capitalism is here to stay, its future is very much a tug-of-war between the American-led market model and the Chinese-led state model of capitalism.
When the Forum launched in 1971, profit was seen as a necessary pre-condition for companies to serve customers, communities and suppliers. Today, stakeholder relationships are seen as a pre-condition for profit. Companies that are more committed to environmental, social and governance, or ESG, standards are more inclined to be profitable, and less susceptible to fraud, corruption or litigation.
Between 2016 and 2019, electronically-traded funds with a focus on those issues grew eight-fold, reaching $47 billion in assets under management. Moreover, 2,000 investors have signed the United Nations Principles for Responsible Investment, representing $86 trillion in assets under management.
In the 2020s, one challenge for corporations will be to apply that capital more effectively to the world’s challenges, or risk seeing it go elsewhere.
