As we close out 2019, the world is getting ready to gather once again in Davos-Klosters, Switzerland for the World Economic Forum Annual Meeting. The 2020 event is held from January 21st through the 24th. Stakeholder Capitalism is a major theme for this years event. Klaus Schwab, Founder and Executive Chairman of the World Economic Forum describes the need for a better kind of capitalism. In this recent article describing why we need the Davos Manifesto, he describes the three models of capitalism. The current dominant model is shareholder capitalism – a model that enabled hundreds of millions of people around the world to prosper, as profit-seeking companies unlocked new markets and created new jobs. This model is embraced by most Western corporations and holds that a corporation’s primary goal should be to maximize its profits.
The second model is state or political capitalism, which entrusts the government with setting the direction of the economy, and has risen to prominence in many emerging markets like China. The third model is the aforementioned Stakeholder capitalism, which positions private corporations as trustees of society. Mr. Schwab sees this model as the best response to today’s social and environmental challenges. He believes the single-minded focus on profits caused shareholder capitalism to disconnect from the real economy, and as a result, many realize this form of capitalism is no longer sustainable.
The manifesto states that companies should pay their fair share of taxes, show zero tolerance for corruption, uphold human rights throughout their global supply chains, and advocate for a competitive level playing field – particularly in the Platform Economy. We’ve seen movement towards a stakeholder focus in a society where Millennials and Generation Z no longer want to work for, invest in, or buy from companies that lack values beyond maximizing shareholder value. Mr. Klaus sees executives and investors starting to recognize that their own long-term success is closely linked to that of their customers, employees, and suppliers. Impact investing is rising to prominence as more investors look for ways to link environmental and societal benefits to financial returns. To support this perspective, the US Business Round table announced this year that it would formally embrace stakeholder capitalism.
This Shift to Purpose emerges as our current innovation cycle shows the potential to advance our human development once again. Mr. Klaus states that 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. With the Rise of Ecosystems, this view of company purpose becomes all the more critical. A stakeholder mindset holds the keys to success in our emerging future.
The signs are there. A look at How the world economy has changed since 1973 shows us that the move to Stakeholder Capitalism is well under way.