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"The economic crisis linked to Covid-19: a test of truth for the principles that guide the leaders of large companies"


FIGAROVOX / TRIBUNE - “Stakeholder capitalism” is a business management model focused on the development of its human resources and not on the immediate search for profit. The current situation shows the need, says Klaus Schwab, executive chairman of the Davos Forum.

Klaus Schwab is the founder and executive chairman of the World Economic Forum, known as the Davos Forum

As the Covid-19 global health emergency continues, the economic spinoff is increasing. Global economic growth has reversed, companies have started to cancel the services they provide to their customers, and millions of people are unemployed or laid off. One wonders what has become of “stakeholder capitalism” [inclusive capitalism, editor's note], the enlightened economic model to which many companies subscribed just a few months ago. How can we bring it closer to what we see today?

Before answering this question, let us recall what “stakeholder capitalism” is: it is a question of ensuring the long-term preservation and resilience of the company, and its anchoring in society. From this point of view, a short-term economic crisis, such as that triggered by the Covid-19, makes it possible to distinguish the companies which truly embody the "stakeholder model" from those which have granted it only pure interest. form, while basically maintaining a short-term profit orientation.

A stakeholder-oriented organization would strive to maintain its core competencies.

This applies to all organizations. The World Economic Forum is also faced with the question of what to do with teams who are temporarily "unemployed" due to the cancellation of physical events. A shareholder-oriented organization would immediately reduce its workforce, in order to maintain profitability in the short term. But a stakeholder-oriented organization would strive to maintain its core skills, retain its talents and accept short-term costs to maintain its long-term resilience.

We are fortunate to be able to choose the latter path. For many years as the founder and executive chairman of the World Economic Forum, neither I nor the other members of the board have asked for or received a salary increase or short-term performance-based bonus, despite constant increase in the size and revenues of the organization. Moreover, the World Economic Forum removed the bonuses two years ago. Employees must be motivated by the goal and not by the money.

This approach means that our organization is not obliged to resort to immediate redundancies or to reduce its offer to its members. On the contrary, in recent weeks, we have set up a virtual offer, and we have brought together our global partners for meetings and exchanges of good practices on the subject of Covid-19. We have also set up a working group to support the health response of the World Health Organization and to help ensure business continuity while protecting the lives and livelihoods of employees.

The same is true elsewhere. The Covid-19 crisis reveals those who do not practice "stakeholder capitalism" while pretending to approve of it. Of course, almost all of the world's businesses are deeply shaken by the Covid-19, and many have had to resort to very painful measures without it being their fault. But the differences between companies that have really oriented their activity towards the stakeholder model and those which had a short-term shareholding model are sometimes striking.

Some companies have used their growing profits from previous years to conduct large share buyback programs. This boosted their short-term profitability and artificially increased the bonuses distributed to executives. But, faced with the lack of reserves or strategic investments, many of these companies are today the first to suffer, unable to rectify the situation without government intervention. On the other hand, companies that have used their profits to invest in digital transformation, talent and research and development often show a reaction capacity that others lack.

Many companies that have adopted the stakeholder model have already responded by offering help during this crisis.

In recent weeks, some companies have continued to announce record bonuses for their CEOs, calculated on profitability and share prices for fiscal year 2019. Their customers and employees, many of whom suffer, will not forget decisions too distant from the reality they live. In contrast, Marriot CEO Arne Sorenson, whose company and employees have been severely affected, announced that he and the president would be paid no salary in 2020 and would cut the compensation of the management team in half. Thus he illustrated the capacity of his company to be one with its employees and the companies where it operates.

Finally, many companies that have adopted the stakeholder model have already responded by offering help during this crisis. Unilever, a champion of the stakeholder model since Paul Polman's tenure, announced on March 23 an immediate donation of $ 50 million in soap to the Covid action platform that was put in place in response to the global health emergency. Shipping giant Maersk offers ships and cargo space to get emergency supplies to wherever they are needed around the world.

These companies understand that a global health emergency like that of Covid-19 requires that all actors in society temporarily reorient themselves towards the emergency, and they have the agility and preparation necessary to do so. It is not a coincidence. These are the same companies that have optimized long-term prosperity and cultivated shareholder capitalism. During this period, and when all of this is over, we must support these businesses. They are implementing the economic model that will allow us to survive today and prosper again tomorrow.

Source: lefigaro

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