Marketplace: Davos 2020 Theme: Better Capitalism
This year at the annual meeting of the World Economic Forum in Davos, a high-end annual event in the Swiss Alps that celebrates capitalism, the key theme will be moving to a different type of capitalism. “Stakeholder capitalism” is what the organizers are calling it.
That means having corporations focus their profits and priorities not just on shareholders – and stock prices – but on others: employees, customers, suppliers and communities. To some observers, that change is already afoot: Last fall, the American CEO group known as the Business Roundtable redefined the purpose of the corporation “to promote an economy that serves all Americans.”
And in recent days, Delta Airlines announced a record $1.6 billion profit-sharing plan, giving every employee two extra months’ worth of compensation.
“I think we’re seeing I think we’re seeing some great examples of companies that have strong profit-sharing plans,” said Judith Samuelson, executive director of the Aspen Institute’s Business and Society program. “So whether it’s in Davos or anywhere else, we really hope we’re getting to a different kind of conversation about who’s contributing, and are the rewards really being shared.”
But she estimates 90% of corporate profits still go to stockholders. Maximizing return for stockholders has been a dominant corporate model since the 1980s. But to critics, that has rewarded Wall Street over Main Street.
“This shareholder-only approach has contributed significantly to the income inequality we have in this country,” said Bill George, former CEO of Medtronic and now a senior fellow at Harvard Business School. “We shifted from the manufacturing sector to the finance sector. And this has hollowed out communities, as you know.”
To George, a big key is executive compensation: paying for long-term results, not today’s stock price. George and others argue it’s in companies’ self-interest to think differently: paying workers more retains them. Pouring profits in research spurs innovation.
That argument faces a tough crowd in the United States, though perhaps not elsewhere.
“Once you leave the U.S., the belief that shareholder value is the prime goal fades a lot,” said Peter Cappelli, management professor at the Wharton School of Business. “So when U.S. executives go to Davos and mingle with everyone else, it sort of changes the social norms.”
This content was originally published on Marketplace.org on 1/20/20.