WEF 2020 - stakeholder capitalists don't just need to do the right thing, they need to be seen to do it

Profile picture for user slauchlan By Stuart Lauchlan January 22, 2020
Summary:
In an age of social media 'pile ons', accusations of hypocrisy can thrive easily and make fresh demands of advocates of stakeholder capitalism.

wef
Rometty, Hagemann-Snabe and Benioff debate at Davos.

Every year the World Economic Forum gathering in Davos attracts a great deal of snark, the easiest accusations centering on it being an event where billionaires fly in on their private jets to talk about the dangers of climate change. While this year’s event is offering sustainable fuel options to refill the planes, the charge of hypocrisy is an easy - if lazy -  one to level, particularly in an age of social media where an online ‘pile on’ is never more than a click of keyboard away.

It’s only one example, but it’s indicative of the challenge that advocates of so-called stakeholder capitalism face - how to avoid accusations of ‘do as I say, not do as I do’. Clearly the best way is to put money where the corporate mouth is - nothing speaks louder than actions - but there’s still the potential to have actions misinterpreted or misrepresented and for allegations to be levelled that you’re not practicing what you preach when it comes to ethical, sustainable, societally-responsible behavior.

Speaking on a Davos panel, Jim Hagemann-Snabe, Chairman of German giant Siemens, made clear he knows all about this:

With social media and the spread of information that we have today, you suddenly find yourself in a very defensive moment when, when actually in your core, you feel it, you know, pretty proud of where the company is and where it's going.

Hagemann-Snabe’s particular pain point recently relates to a contract Siemens has worth $20 million to supply railway signalling equipment for a controversial open-cast mine in Queensland, Australia, owned by India's Adani group, which is to go operational next year. Extinction Rebellion activists have protested outside Siemens HQ in Munich, while teen climate activist Greta Thunberg has called on Siemens to review the contract - and in this day and age, you really don’t need Thunberg on your case.

Now in this particular instance, Siemens CEO Joe Kaeser has said that the firm “should have been wiser about this project”, but that it’s important that the company sticks to its commitments, a point Hagemann-Snabe echoes. But there have been some wider learnings taken on board it seems:

The factual situation, which makes me proud of Siemens, is that Siemens was one of the first industrial players who actually committed to CO2 neutrality. We did that in 2015, so that's five years ago and said by 2030 it will be notional and by 2020,  this year, we will  have a 50% reduction of CO2 compared to 2014.  We changed our philosophy as well to say, 'Well, you know, being stakeholder-oriented and planet-oriented is not about how you spend your money'. We actually turn it around and say it's about how we make our money. The fact is that today 44% of the total revenue of Siemens, which is a €182 billion company, is associated with solutions that help our customers run their business in a more sustainable way. With that in mind, you feel proud about where the company is.

And then suddenly you find yourself in a communication crisis because we had committed to deliver a signalling system to a train and the train moves coal from a coal mine. You look at that and you feel you're pretty far away from the bad doing, but we had committed to this project and certainly, you know, if you follow the media and the headlines, the headline says, 'Siemens is building coal mines', which is not factually true, but it's really hard to deal with that situation.

While that might sail dangerously close to blaming the media, Hagermann-Snabe actually has a wider point and some advice for other firms that find themselves in a similar situation of trying to do the right thing, but ending up open to hostile protest and accusations - don’t get knocked off your main objective:

For me, this case shows that first of all, there is an urgency on this, where your permission to play as a company, even though you feel you're doing the right things, can be taken away from you instantly in a place where you didn't expect it.

Secondly, I believe that we are right now at the tipping point where the scrutiny around projects that are not relevant for that future, a Fossil Free future, will be dramatically increasing. Climate change is not some topic we can talk about, it's about real action. You've got to realise that as a company and you've got to take real action. The issue is not the commitment to the future that you want to bring your company to, but the transition to get there. You don't get there in one day. We have 15 years from when we started this, now we have 10 left. We're doing fine.

But we need to basically reinvent the company, go from solutions that were fossil-based to renewable-based. You've got to rescale the company, you've got to restructure the company. Get out of certain businesses so that you can invest in others. And you do need to reposition the company. Because otherwise you suddenly find yourself in the wrong headline, even though you're doing the right thing.

So as a Chairman, for me, it's about not getting distracted by this, because you've got to do the right things. But if anything, you need to talk more about it and you need to accelerate your efforts. Otherwise any little project, even though you feel you're far away from wrongdoing, can distract you and reduce your ability to become what you have intended to be.

Transparent

For IBM CEO Ginni Rometty, there’s a basic question that needs to be considered:

It's had to do with whether or not we take on certain projects as an example. There's much discussion about different technologies and how they're used and I think that those have to be values-based decisions. But what's changed is how much you have to talk about it so that people understand why you take these decisions. I think it's even what's surrounded this whole dialogue around the purpose of a corporation. There have been things that are written that are very binary about the topic, and this isn't a binary topic. If you manage for the long term, you do have an ‘and’ between all of these words, yet people want to polarise this.

So when any one of us does things for our community, our employees, our clients, the countries everywhere within which we live, our partners - I always feel they give us licence to operate. That is where a licence to operate comes from. So that communication is both important to have, but it's also because it is good for your business. This is not an altruistic thing that you are doing in and of itself. You can't, in this day and age, explain that enough or give the rationale enough. When people will say, 'Well, this is charity or foundation work’. I say, 'No, it's not'. I mean, skills is not charity and foundation work. Living in a democracy [where] people think they have a better future is not charity work, because they are your employees and your customers. I think it's just so important to both position everything right and connect those dots, because it's a virtuous circle.

The debate around ethical use of AI is a case in point, she attests:

This is a topic that we took up many years ago. First principles always start with yourself before you try to put them on other people. We'd written ethical principles for AI. So within my own company, it starts with [that] because I build this stuff [in] the belief that it's there to augment what you and I do and make us better. It does matter where you start from and how you start building these things. And then you must be transparent, and you must be sure it's rid of bias, and it has to be explainable…It’s a values question, not a technology question. Don't hide it, test it all the time.

But while ‘taking a stand’ sounds absolute, there are questions of relativity to be factored in of course. Bias in AI is a useful example, suggests Rometty:

What is bias? The actual act of concluding bias is bias. You've had some set of values [where] you've determined, this is good, and this is bad. That's culturally different. It varies in many places.

Political 

This does then raise the question of whether in taking a position on something like bias you’re in fact making a political choice, essentially becoming an activist. Hagemann-Snabe doesn’t believe that this is necessarily appropriate:

Should we be political? No, I don't think so. We should influence policies to create frameworks that align better the stakeholders, but it is not our duty to be political.

Other companies are less reticent on this front. Salesforce is a good case in point. While its philanthropic practices have been hardwired into the corporate DNA since inception over 20 years ago, recent years have been seen the company take increasingly activist positions on issues that are politically divisive, such as the face-off with the then-Governor of Indiana Mike Pence over planned anti-LGBTQ legislation or the support to introduce a tax in San Francisco to fund solutions to the city’s homelessness crisis. Benioff argues:

Stakeholder capitalism is finally hitting a tipping point. In the US, the Business Roundtable has stated the purpose of a corporation includes a fundamental commitment to all stakeholders, not just shareholders, that choosing between the two is a false choice. And the Davos manifesto 2020 says that the purpose of a company in the Fourth Industrial Revolution is to create a value for all its stakeholders.

So taking that all into my heart, does it mean then that I have to fight for my employees? Yes. If they're being discriminated against and if they're LGBTQ employees, yes, we will fight for them. Does it mean that I have to fight for our customers? Of course. Or even our local stakeholders in our community like our homeless? Yes. Every CEO has a responsibility to think about all stakeholders and yes, the planet is a key stakeholder. We are in a planetary emergency.

He adds:

We realised that a corporate culture alone will not be enough to meet the urgency and scale of the global challenges. We need new resources. The wealthiest among us, people like me and so many of us here, we need to pay higher taxes…I’m pleased that the Davos Manifesto recognises that companies need to pay higher taxes and pay their fair share. One example of that is how we're addressing this at Salesforce in San Francisco, where we radically supported a new tax on our largest companies to address our homelessness crisis because those homeless are stakeholders.

But despite such convictions and 21 years of putting stakeholder capitalism into practice, Salesforce has had its own ‘Australian coal mine’ moment in the form of the company’s contract with the US Customs and Border agency, which led to ethical concerns internally, with employees urging reconsideration, and externally  in the form of protestors picketing Salesforce offices and events.

It’s entirely possible that other incidents will occur in the future - and it’s a problem that faces other tech companies. This is a long term transition for business and there are a lot of circles to be squared en route. That’s no reason not to commit to the idea of shareholder capitalism of course. Benioff is defiant:

Capitalism, as we have known it, is dead. This obsession that we have had with maximising profits for shareholders alone has led to incredible inequality and a planetary emergency… This is a time of action, not words. We are at that point of urgency with our planet.

My take

Klaus Schwab, who first came up with stakeholder theory 50 years ago, said of this year’s WEF gathering:

It's a funeral of shareholder capitalism and the birth of stakeholder capitalism.

Maybe, maybe not. The keynote address from US President Donald Trump certainly doesn’t chime with the stakeholder theories pitched elsewhere and there are plenty of companies, tech or otherwise, that have yet to demonstrate more than a token gesture towards a new approach to business or acting in the interests of stakeholders other than their shareholders.

One of the better commentaries coming out of Davos this week so far was this from Dan Schulman, CEO of PayPal:

Platform owners need to take responsibility for what rides on our platforms…Violence is easy to identify. Hatred is much more difficult. The line between hatred and free speech is a difficult one to monitor. They don’t teach that to you in school. We have taken down sites, KKK sites, Nazi sites. You would think those are pretty straightforward, but you would be surprised at the amount of death threats that we get when we do that kind of thing. There are other sites that we look at very carefully. I think that although it’s difficult, we can’t abdicate the responsibility of monitoring what goes through and what goes on top of our platforms. We can be criticised for that one way or another - and we usually are - but you can’t abdicate responsibility, That’s part of the trust. You need to have a set of values that you live by and you apply consistently on your platform.

Compare and contrast with the empty words of Mark Zuckerberg’s morally-bankrupt Facebook empire and it’s clear that this is industry evolution rather than revolution, however catchy the Fourth Industrial Revolution moniker might be.

One of the things mostly badly needed for consumers and end users is a set of simple metrics against which a firm’s stakeholder credentials can be measured. The good news is that work has been underway on that this week in Davos and by the time the 2021 WEF meeting comes around, there should be something on the table that everyone can sign up to.

In the meantime, the ‘billionaires on their jets’ comments will continue to be aired and the keyboard warriors of Twitter will spin themselves into a frenzy about hypocrisy. Welcome to stakeholder capitalism!