Is it time to reset the system?

One of the highlights of this year’s meeting of the World Economic Forum in Davos has been the presentation of a manifesto on “the universal purpose of a company in the fourth industrial revolution.” This document establishes that today the purpose of a company must be to involve not only its shareholders but all its stakeholders (employees, customers, suppliers, local communities and society in general) in the creation of shared and sustained value.

The main thesis is that, beyond generating wealth, companies must fulfill human and social aspirations as part of a broader social system. Therefore, their performance must be measured not only in terms of the performance they provide to their shareholders but also in terms of how the company achieves its environmental, social and good governance objectives. Regarding multinational companies, the manifesto highlights their role as stakeholders, together with governments and civil society, of our global future, and establishes that ‘corporate global citizenship’ requires that these companies take advantage of their capabilities, their entrepreneurial spirit, skills, and relevant resources to collaborate with other companies and stakeholders to improve the state of the world.

This new manifesto is a revision of the one issued in 1973 by this same institution, then called the European Management Forum. On that occasion, the participants in the meeting (mostly managers, businessmen, and economists) spontaneously took the initiative to write a code of ethics based on the concept of ‘stakeholders’ that had been introduced by the founder of the forum, Klaus Schwab. The text described the main responsibilities of a company towards its stakeholders and was unanimously approved in the final session of the meeting.

That first Davos Manifesto was, without a doubt, a declaration of principles advanced to its time, but also a response to the turbulent world of the seventies. They were years of instability. We were in the middle of the cold war, the Bretton-Woods fixed exchange rate system had been blown up, and that same year 1973 the Yom Kippur war would take place, provoking the first oil crisis, in which prices of oil multiplied by four, threatening to paralyze western economies.

Almost half a century later the World Economic Forum has considered that it is time to update that manifesto. And it’s not about minor changes. The increase in inequality, populist movements, the phenomenon of fake news, the climate emergency, the demographic challenge, and the high degree of distrust of citizens in institutions are some of the factors that, in the opinion of the World Economic Forum, require that companies today go far beyond what was established in the 1973 manifesto.

While the target of the 1973 manifesto were managers, the target of the 2020 manifesto are companies. Companies that are now asked to have zero tolerance for corruption, to maintain the digital ecosystem in which they operate, and to ensure their customers are fully aware of the functionality of their products and services, including adverse implications or negative externalities. Companies that treat their people with dignity and respect, honor diversity and strive to continually improve working conditions and the well-being of their employees. Companies that, in a rapidly changing world, foster the employability of their workers through continuous training and reskilling. Companies that, in the era of global supply chains, ensure their suppliers respect human rights, no matter where they are based.

Furthermore, the manifesto establishes the need for companies to guarantee the safe, ethical and efficient use of data, and to act as stewards of the environmental and material environment for future generations, consciously protecting the biosphere and defending a circular, shared and regenerative economy.

Likewise, it establishes that these new-age companies must responsibly manage the creation of value in the short, medium and long term, seeking sustainable returns for shareholders who do not sacrifice the future for the present.

The new Davos manifesto also declares that the performance of companies (and that of its leaders) must be measured not only in terms of the value they provide to their shareholders, but also in terms of how they achieve their environmental, social and good governance objectives, and how they fulfill their responsibility to all their stakeholders.

However, this new Davos manifesto is not an isolated initiative. With this document, the World Economic Forum joins various institutions that in recent months have proclaimed the need for us to rethink, with some urgency, some of the traditional rules of the capitalist system.

For example, Business Roundtable, an influential association of large American companies, that has always upheld the principle of shareholder primacy (i.e. that corporations exist principally to serve shareholders) last August revised its Principles of Corporate Governance to incorporate the commitment of these companies to invest in their employees (which includes compensating them fairly, as well as supporting them through training and education that help them develop new skills for a rapidly changing world); to treat their suppliers fairly and ethically; and to support the communities they work with, respecting their people and protecting the environment.

Or the Financial Times, when last September launched a new content platform, under the name The New Agenda, to promote debate on the implications of the main economic and social changes we are experiencing, including the ethics of investments, the potential dangers of technological advances, and the future of corporations. In the letter he wrote to introduce this initiative, Lionel Barber, editor of FT, explained what has led them to start it up:

“The liberal capitalist model has delivered peace, prosperity and technological progress for the past 50 years, dramatically reducing poverty and raising living standards throughout the world. But, in the decade since the global financial crisis, the model has come under strain, particularly the focus on maximizing profits and shareholder value. These principles of good business are necessary but not sufficient. It’s time for a reset,”

And that’s not all. Every month we receive new signals that point in that same direction. In January Edelman published a new edition of its ‘Barometer of trust’ report. In addition to confirming the low trust of citizens in institutions such as companies, NGOs, the media and governments, and highlighting the gap that is opening between the best-informed elite and the rest of citizens, this report reveals that 48 % of citizens feel that the system ‘is failing them’ and 56% believe that capitalism, in its current form, does more harm than good to the world.