Business in a changing world

The business of doing business, by which I mean transforming resources into products and services in the most efficient and sustainable way, has never been more challenging, yet at the same time, the opportunities have never been greater.

The transformative forces underway—driven by the world’s increasing complexity, interconnectivity, and velocity, as well as a rapidly changing geopolitical environment—create a need for new models of engagement among business, government, and civil society to address the shortcomings of our existing multilateral governance system and the critical challenges of our times. By serving as a responsible and responsive stakeholder in the global community, global business has a unique role to play in safeguarding our collective future. The urgent task now is to define how it best fulfills this role and the qualities its leaders must possess to do so effectively.

The concept of corporate social responsibility (CSR) has long been used as an effective lens through which to examine the actions business can take toward ensuring mutual long-term well-being and sustainability. CSR provides context on the role of business in the global community, benchmarking business performance against its responsibilities to society and the environment as well as to shareholders. Yet the definition of CSR has become increasingly broad, referring to anything from the health and safety of workers to sustainable sourcing or philanthropy.CSR alone, therefore, is not sufficient to help optimize corporate behavior and decision-making, and should be supplemented with five other pillars of a company’s engagement with its stakeholders: corporate governance, corporate philanthropy, corporate social entrepreneurship, global corporate citizenship, and professional accountability.

Corporate governance refers to how a company is run—in accordance with local and international law, transparency and accountability requirements, ethical norms, and environmental codes of conduct. Essentially, it is a corporation’s basic “license to operate.” Absent good corporate governance, no collaboration with the wider stakeholder universe is possible. A good example of an initiative that successfully binds corporations to a common set of core principles relating to human rights, labor, the environment, and anti-corruption in this way is the United Nations Global Compact. Launched at the World Economic Forum’s Annual Meeting in 1999, the Global Compact is now observed on a voluntary basis by 12,000 corporations across 145 countries.

Corporate philanthropy includes contributions by a company to entities or initiatives outside of its core business activities. Such philanthropy can be extended in a number of ways, from direct donations to the provision of practical support on various projects—whether the construction of a public building, relief in the aftermath of a disaster, or any other activity that delivers a social return. A related form of corporate philanthropy is social investing, which involves funding projects or groups that pursue social goals, such as development agencies or affordable housing schemes. Employees can also engage by directing a portion of their salaries to good causes. The important distinction of corporate philanthropy is that the donor’s involvement starts and ends with the contribution or investment.

Corporate social entrepreneurship represents a way of creating innovative products or services that deliver social and environmental benefits. Here, revenue generated through the sale of such offerings can be used to achieve greater scale, delivering an even greater benefit and ensuring the delivery over a longer period of time. As in corporate philanthropy, business’ involvement in social entrepreneurship can come in the form of direct investment, in-kind support, or a combination of the two.

If corporate philanthropy and corporate social entrepreneurship focus on the micro, then global corporate citizenship represents business’ engagement in macro global issues, such as food security, climate change, and cybersecurity. In today’s globalized world, where the pace and direction of development is increasingly being shaped by forces beyond the control of nation-states, businesses have not only the right to act to solve shared challenges but a civic obligation to do so—as a stakeholder themselves, in partnership with governments and international organizations. Failure for a global corporation to act in this space means jeopardizing the sustainability of the markets on which it relies, and thus should not be considered an option for any responsible, forward-looking enterprise.

Professional accountability, finally, focuses on the individual character and professional virtues of the people within a global corporation. The long-term productivity, prosperity, and intellectual integrity of our economic and social systems are only possible if the individuals within it act with honesty, moral and intellectual integrity, and humility to embrace an honest, responsive, and responsible work ethic. Creating and maintaining this culture, ensuring diversity, gender equality, and fostering inclusiveness, is essential as we look to mediate the direct effects of our fast-changing world.

It is encouraging to see how far and how fast global business has stepped up to play a leading role in striving to improve the state of our world. It was only in 1971 that I published a book entitled Modern Management for the Machine Building Industry, which defined the stakeholder concept for the first time. The Davos Declaration followed two years later, in 1973, articulating the principles behind corporations’ social and environmental responsibilities. This declaration has shaped the work of the Forum ever since, not to mention the actions of many of its members. Business’ track record on all six pillars of global corporate engagement is not without its flaws, however. The culture of corporate excess in certain institutions before, during, and after the global economic crisis has helped to entrench the dim view of the business community held by some sections of society. Meanwhile, active engagement in global issues has fallen off the agenda in some organizations in the aftermath of the economic crisis.

Global business can and must go further in strengthening its role as a global citizen. It can do this by refining and optimizing the role it plays in existing multi-stakeholder collaborations, and by designing creative and innovative new solutions. Stepping up is by no means an easy task, however. The darkest days of the global economic crisis may be behind us, but we have entered uncertain times. Lower average annual global gdp growth will have a significant impact on the private sector’s ability to create jobs and the governments’ ability to deliver quality services. Advances in technology also create further uncertainty, both individually and societally. Whether new technology will create more jobs than it displaces is hard to say, yet few believe that the irreversible trends brought on by technology and innovation will leave any one country, industry, or business untouched by disruption.

Perhaps the greatest challenge, accentuated by globalization and technology, is rising inequality. This growing trend is not sustainable, and left unaddressed, it threatens the very future of capitalism. Government must lead by promoting a fair and equitable system, one that benefits all groups in society. Business has a critical role to play, too, by investing in the innovation and talent necessary to create high-quality jobs and raise living standards.

All the issues mentioned above are interrelated, yet at the same time they require dramatically different solutions. Playing a positive role as an engaged global corporate citizen in addressing just one of them is a daunting task for any business leader, especially one whose day job is to meet the short-term interests of his or her shareholders. I believe the leaders who succeed in achieving such a truly participatory role in shaping the global agenda must possess three key attributes: contextual intelligence, emotional intelligence, and inspired intelligence.

Contextual intelligence enables leaders to develop a greater awareness and see through the short term imperatives and make better informed, more timely decisions on how best to mobilize resources in ways that deliver the greatest long-term, sustainable value. Emotional intelligence is crucial, not only in decision-making but also in understanding and adapting to the specific needs of partners and fellow stakeholders in developing new models and systems for collaboration. Lastly, inspired intelligence relates to a leader’s ability to rise above abstractions that can be overwhelming and lead to paralysis. Maintaining clarity of thought when confronted with both global and local issues is absolutely essential for any leader.

I doubt if any global business leader today would argue that it is not in the long-term interest of his or her organization to act responsibly in the global public interest. The global business community serves as a powerful agent of change—as an engine for innovation and job creation, as a trusted steward of resources, as a protector of rights, and as an agent of resilience. Global business must not only preserve but also strengthen this role, as its future success, like all stakeholders’ success, depends on it. In an increasingly sophisticated and globalized world, one facing renewed strains given the new geopolitical context that the past year has borne witness to, the cost of not doing so is simply too great to bear.

This article first appeared in Foreign Affairs.

Author: Professor Klaus Schwab is Founder and Executive Chairman of the World Economic Forum.

Image: People walk along a corridor of an exhibition hall in Tokyo January 25, 2008. REUTERS/Toru Hanai