- Insider spoke with Klaus Schwab, founder and executive director of the World Economic Forum and author of the book "Stakeholder Capitalism."
- Schwab said a Biden-Harris administration is the "final boost" for the world economy to stakeholder capitalism.
- Stakeholder capitalism is the economic idea that a company's purpose is to benefit all its stakeholders, not just its shareholders.
- Visit Business Insider's homepage for more stories.
Like just about every business leader, Klaus Schwab has had to act quickly as of late. Each year, the World Economic Forum founder and executive chairman hosts the glitzy meeting of world leaders and business executives in Davos, Switzerland. But the pandemic changed that.
The WEF pivoted accordingly. This year, the convention moved to Singapore and has been postponed to May. On Sunday, the Davos Agenda online event kicks off.
Insider spoke with Schwab on the swirling events of the past year and how they impact stakeholder capitalism, or a company's purpose is to benefit all its stakeholders, not just its shareholders. On January 27, he's publishing his latest book, "Stakeholder Capitalism: A Global Economy that Works for Progress, People and Planet."
In a video interview, Schwab spoke about what the newly elected Biden-Harris administration means for global capitalism, the importance of corporate leaders combatting climate change, and why more businesses will need to embrace upskilling in the future.
This interview has been lightly edited for length and clarity.
What President Biden's administration means for global capitalism
Here in the US, all of the buzz right now is about what the Biden-Harris administration means for the country. From your perspective, what does the Biden Harris administration mean for global capitalism?
I think it really gives a necessary final boost, a faucet switch from a shareholder-oriented capitalism into a stakeholder-oriented capitalism. When you listen to the speeches of President Biden, you hear very often the expression, "Building Back Better," and "better" means to keep society and the planet much more integrated into your decisions, compared to the past.
So we are really at the threshold of a major change in business philosophy where we define capital, not just as financial capital, but as human capital or social capital as national capital. We have to take care of all those four dimensions. Only when we do so can companies long-term can remain successful.
In your new book "Stakeholder Capitalism," you talk about how and why the world needs to embrace this new form of thinking about the global economy. First, briefly explain how you define stakeholder capitalism, and then can you weigh in on what happens if we, as a society fail to really embrace it?
Stakeholder capitalism means when you take your strategic decisions, you don't take only into account the short-term profit expectations of some of your shareholders today — not all shareholders will think alike — but you also pay attention to the expectations which society has, your company, but also your employees. You have to make sure that you do not waste natural sources, that you are trying to serve the planet, not only people and prosperity.
People may often say that it's a contradiction. You have on the one hand really economic objectives to reach a profit, on the other hand, you have objectives to behave responsibility in terms of what we call now, ESG criteria: environmental, social and good governance criteria. But actually it's not a contradiction because if you want to have long-term success in the sophisticated environment we are living in, you have to fulfill all the expectations of your young [customers] and all of your employees. You have to behave in a socially responsible way. It's trust. You build trust. And the difference is whether you decide whether to invest with short-term objectives in mind or whether you want to invest into the long-term vitality of your company.
Do you think we are at a point where leaders are embracing the long-term point of view you're speaking of or are we still in this short term point of view? And if we are still stuck in the short-term point of view, what needs to change?
The COVID-19 crisis has showed us that big multinational companies who have cultivated stakeholder responsibilities for a long time, they have performed better because they have invested into the resilience of the companies.
Now what is very important is that we measure progress. And during our Davos Agenda Week, we will hear a commitment of 50 companies, major global companies, to adopt a system of ESG metrics where they can be measured in a comparable way.
Like we have in the financial world standards, and criteria, and metrics which allow you to measure performance in financial terms, we need accepted measurement systems to see how companies really do well in the areas of ESG.
Talk to me a little bit more about how ESG metrics will push stakeholder capitalism forward. ESG standards haven't been widely adopted yet. Are they enough to usher in real change?
First, we do not want to own this area, it's too important. We are working together with standard-setting agencies, with governments and so on to develop a generally accepted framework to really measure this. And we have such a framework which was developed by our International Business Council and some companies have to accept and to report according to those metrics. Of course, not everything is perfect, but at the moment you have a situation where a company's report mainly about their intentions. Now we have to walk the talk, and companies have to show, for example, how they use CO2 in responsible ways, how they make progress in diversity within their own staffs, and so on, using really concrete measures.
How to not waste a crisis
During the coronavirus crisis, companies have shown that they could rally around a common theme. They aired commercials about unity and solidarity. They gave workers new benefits. They paid frontline workers hazard pay in addition to their regular pay, but then the commercials stopped airing and the benefits haven't been renewed.
How do we get these changes from COVID-19 to be long-term and not just temporary? What needs to happen for corporate leaders to make long lasting change?
I feel to a certain extent differently. Companies really continue to engage. We announced in the framework of our COVID-19 Action Platform, that 20 shipping airline companies will come together to guarantee fast and low-cost shipment of vaccines around the world. So companies are still very much engaged.
We at the World Economic Forum have more partners today compared to the beginning of the crisis. Those partners join us mainly for becoming engaged in addressing real issues and to make progress in creating jobs, reskilling and upskilling people, making progress on the environmental front. For example, consider our goal of planting one trillion trees in the next 10 years. So companies are really now embracing the fact that they are not just an economic production unit, but that they are an organism embedded into our society.
If you had one message to corporate leaders right now, and not just to multinational, corporate leaders, but leaders who were leading a company say of 20 people of 50 people, what would you say to them so they can really embrace stakeholder capitalism?
You are right, but I want to express a concern with an assumption which is embedded into your question. During the crisis, we have seen the big role governments play, but we also have seen the big role large multinationals play. I am afraid that the consequences of the crisis hit particularly hard small and medium-sized companies, and they belong to the tissue of our economic system. So we have to take special care those companies who are hit by the structural consequences of the covid pandemic. Now, what would I say? I would say, look, if you are a company of only 20 people, in principle, you are a family and in a family, you take care of each family member, continue to do so.
In your book, you talk about the importance of embracing people as well as the planet. But how can we usher in progress when we have some people, or millions of people rather, who don't believe in the threats of climate change? What needs to change?
What we have to tell those people is that taking care of climate change is not costly to the country. It actually can contribute to the advancement of the economy, to new investments.
Most people feel tackling climate change will lead to a diminution of the quality of life because of the big costs to repair the environment. No. We have seen, for example in the European Green Deal, there is the estimate that about 2 million new jobs will be created. Those jobs create income. That income creates taxes, it also creates purchasing power. And what we need after this crisis is to stimulate the economy through big infrastructure projects, where we make sure that everybody has access to the internet because we depend on it even more — I speak on a global basis because 3 billion people have not yet access to the internet — which is nearly half of the population. And we have to make sure that the economy becomes greener.
For example, what is the automotive company with the highest value? It is Tesla, which is exactly translating this responsibility of taking care of our environment. So there are big business chances if we have the right approach. And if we tell this message to those people who are skeptical, I think then we have a much more positive response.
Preparing the workforce for the future
Earlier you mentioned a really important phrase reskilling and upskilling. Why is upskilling and reskilling so important to stakeholder capitalism?
The fourth industrial revolution has been substantially advanced by the pandemic. Last weekend, I visited elderly people who explained to me how proud they are now because they finally have learned to use digital banking. So we see technology's advancing everywhere, but technology requires different skills.
The World Economic Forum has issued a study which shows that half of the jobs which we have now will be in some way outdated in terms of requirements, so we have to upskill and reskill. And we are not talking only about it, we have this big initiative where we work together particularly with companies in the ICT [Information and Communication Technology] to provide reskilling and upskilling to millions of people around the world.
What are you most excited about for the future when it comes to stakeholder capitalism?
I hope that not only on a corporate level, but also on the government level, on the society level, we see progress not only in financial and economic terms, but we focus — as I explained in my book, for example, New Zealand is doing it — we focus our efforts on the wellbeing of people. And so that means people have to have a very good income and we have to strengthen our economy. But people also want to see the necessary social services. They want to know that our economy is not only more inclusive and more sustainable, but also, more resilient.
People want to feel protected. And if you look at all the conspiracy theories. They come out of the fear in people. I can understand with all that's going on, the consequences of the pandemic, the consequences of technological disruption, the consequences conflicts, of climate change — this all leads to a certain fear of the future. So we have to show that we approach our future again with a constructive, optimistic spirit.
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