Bad signs from Davos, but hope is around the corner

Stakeholder capitalism won’t do the job

On a positive note, most big business leaders do seem to realise that CO2 emissions must be cut drastically in the coming years to curb global warming and ecological breakdown. And they talked a lot about it in the Davis sessions. The founder of the WEF, Klaus Schwab, is a firm believer in stakeholder capitalism: in his view, firms should not just care about their shareholders but also about people who are somehow affected by what the company does. And if they do so, magically, they will also thrive economically. The recent mainstreaming of ESG reporting & investing comes from this line of thinking: capitalism as we know it can be fixed for the good. It has become an accepted idea, further emboldened by new legislation in the US and Europe.

It just does not deliver

All the talk about stakeholder capitalism and ESG is fine and maybe better than nothing, but the facts on the ground are that CO2 emissions keep rising (read the latest IPCC report here), rainforests are still being cut as we speak, and the mass extinction of species continues. A small group of larger companies is making substantial efforts to become “net positive” but it is a drop in the ocean. True, in recent years more investment money is flowing to companies with good scores on environment, social and governance (ESG), under influence of regulation and investor pressure. But critics argue that this hardly translates into better corporate behaviour. Tariq Fance, the former Blackrock chief investment officer, calls ESG a “dangerous placebo” and a greenwashing exercise. ESG is not properly measured and regulated, it is too easy to play, and it has become a box ticking exercise rather than a true lever for sustainable and social corporate behaviour.

'Woke economics' under attack

Then, more recently, the whole idea of stakeholder capitalism has come under attack from right-wing free market pundits. They dismiss it as “woke capitalism” in which business submits itself to leftish agendas of diversity, equality, energy transition etc. at the expense of the shareholder’s interest. Florida senator Marco Rubio introduced legislation that allows investors to sue companies that do not maximize shareholder returns. Vivel Ramaswany, a conservative author, is setting up an “anti ESG group” and said that he is happy to invest in oil and gas companies. This backlash is all too predictable in the polarized climate of the US in which everything is political, but we may expect similar movements in continental Europe too.

I hope this is a rear fight. For me and many others, it is clear that our current economy is flawed, producing excess material wealth for a minority of the world’s population while causing climate breakdown and destroying the living world, and leaving too many people deprived of the basics. And it does not look like stakeholder capitalisms is going to fix this. Then what is?

Enterprise (re)design as a promising avenue

One answer we are currently exploring in our Centre for Economic Transformation (CET) is company redesign. What if companies were designed to be more sustainable and fair, rather than adding ESG as a sort of thin layer over their current unsustainable activities? In Amsterdam and many other places, we see an emerging new generation of companies led by people who genuinely want to do business in a fair and sustainable way; They do not go primarily for growth or financial success, but see enterprise as a way of contributing to a better world. The founders explore alternative company designs, avoiding the active involvement of absentee shareholders (who want maximum returns). They want to make sure that the mission of the company cannot be overturned (steward ownership is one such model), or that the company is co-steered by key stakeholders (such as employees or suppliers in the global south). With 9 frontrunning companies, in close collaboration with the Dougnut Economics Action Lab, we ran a series of workshops in which we explored how alternative company designs can work in practice, and contribute to the bold ambitions of these companies; and how (local) governments can embolden them. With them, we explored how company redesign along five key company design traits as identified by Marjorie Kelly (governance, finance, networks, purpose and ownership), could bring about a better future.

The results will be presently shortly, in the form of a toolbox for companies and a paper in which we will argue why and how enterprise (re)design can be an answer to the challenges we face. We will keep you posted!