On the organization's fiftieth anniversary, the theme for 2020 was improving the state of the world.
To support this objective, the WEF announced its 'Davos Manifesto 2020: The Universal Purpose of a Company in the Fourth Industrial Revolution'.
The Davos Manifesto boldly redefines the company's role in society:
"The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large. The best way to understand and harmonize the divergent interests of all stakeholders is through a shared commitment to policies and decisions that strengthen the long-term prosperity of a company."
THE 3 MODELS OF CAPITALISM
Schwab initially identifies two models of dominant capitalism and then adds a third as the preferred path and 'better kind':
Capitalism 1.0 - Shareholder capitalism: Where a company's primary goal is to maximize profits - today's dominant model in much of the West.
Capitalism 2.0 - State capitalism: Where government centrally directs the economy - the model in China and some emerging economies.
Capitalism 3.0 - Stakeholder capitalism: Schwab's "better kind of capitalism", where companies act as trustees, focusing on customers, employees, partners and society as a whole.
In effect, Schwab believes we are now at an inflection point, where corporations must evolve from creating value for shareholders to benefiting wider society.
"But while state capitalism may be a good fit for one stage of development, it, too, should gradually evolve into something closer to a stakeholder model, lest it succumb to corruption from within.
"Business leaders now have an incredible opportunity. By giving stakeholder capitalism concrete meaning, they can move beyond their legal obligations and uphold their duty to society. They can bring the world closer to achieving shared goals, such as those outlined in the Paris climate agreement and the United Nations Sustainable Development Agenda. If they really want to leave their mark on the world, there is no alternative."
Concepts like ESG, the triple bottom line and materiality aren't new. The concept of shareholder capitalism and value merely rolls them into one and frames them into a wider narrative of Capitalism 3.0.
Indeed, first forays into stakeholder capitalism have already been made.
In August 2019, the Business Roundtable Statement on Corporate Purpose was signed by 181 North American CEOs. This effectively embraced stakeholder capitalism via the pledge that their boards and management will promote the long-term value of the corporation for the benefit of all its stakeholders and not solely to maximize shareholder wealth.
“The American dream is alive, but fraying. Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernised principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”
“This new statement better reflects the way corporations can and should operate today. It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”
Increase the accountability of the UK corporate governance system to stakeholders and wider society.
Improve the competence and professionalism of UK board members.
Enhance the ability of board members to pursue long-term, sustainable business behavior.
A month later, the British Academy published their Principles for Purposeful Business, claiming that corporate law should place purpose at the heart of the corporation, require directors to state their purpose and demonstrate commitment to it.
....And, in December 2019, the World Economic Forum launched the Davos Manifesto 2020, its set of ethical principles to guide corporations in the Fourth Industrial Revolution.
In January 2020, BlackRock changed the script.
With over $7 trillion in investments, BlackRock is the world's largest asset manager and 400 pound gorilla in the room. In an open letter to CEOs, BlackRock boss Larry Fink announced 'Sustainability as BlackRock’s New Standard for Investing'.
Given BlackRock's size and market sway, its sustainability focus might prove a tipping point, with Fink committing BlackRock to the following:
Sustainable, resilient and transparent investment portfolios.
Sustainability as the standard solution offering.
Strengthening sustainability integration into the active investment process.
Reducing ESG risk.
Putting ESG analysis at the heart of the company to deepen understanding of material ESG risks.
Allowing clients to clearly see the sustainability risks of their investments.
Increasing access to sustainable investing.
Intensifying focus and engagement with companies on sustainability-related risks, via being a founding member of the Task Force on Climate-related Financial Disclosures (TCFD), a signatory to the UN’s Principles for Responsible Investment and joining Climate Action 100+.
THE BUSINESS OF BUSINESS
Will stakeholder capitalism create real change beyond 'we are the world' placeholder PR?
We hope so.
We hope not.
Regardless, to misquote Milton Friedman, 'the business of business will still be business'. The change, however, will likely be how we measure business impact and success. Will corporate 'success' remain shareholder-focused or embrace a wider group of stakeholders?
A sceptic might conclude the ultimate answer lies in whether stakeholder capitalism delivers alpha.
If it can, the game's afoot.
At 22i, with our focus on AI as a driver of health, safety and efficiency, a stakeholder strategy is our contribution to the "better kind of capitalism".
We don’t just desire a more sustainable economy, we'll help create it. That's why we focus on the triple bottom line - people, planet, profit.
The triple bottom line isn’t just what we preach, it’s what we practice.