The Davos View: The Global Economic System is in Transition to Stakeholder Capitalism

First BlackRock, then Goldman Sachs. Money steps in to drive lasting change in places where regulation does not exist.

BlackRock CEO Larry Fink’s annual letter to corporate CEOs was a call to action on climate change.

And this week, Goldman CEO David Solomon, speaking at the World Economic Forum in Davos, said the bank would no longer take a company public unless it had a diverse board.

As world leaders wrapped up a week of high-level discussions in Davos, the theme was clear: our house is (still) on fire, and we need new, more diverse leadership for a new kind of capitalism – called capitalism. stakeholders – fix.

The mood in Davos: The global economic system is at a major turning point. This was highlighted by one exchange in particular: Time Magazine’s Personality of the Year Greta Thunberg, the Swedish teenage climate activist, responded to criticism that she should study economics by tweeting: “My gap year ends in August but it doesn’t take a degree academic in economics to realize that our remaining 1.5° carbon budget and ongoing fossil fuel subsidies and investments don’t add up.”

The point about stakeholder capitalism is that if companies continue to put narrow, short-term profitability above all else, rather than seeing their companies as players in a connected system of stakeholders, community and planet, they will be responsible for the fallout caused by excessive emissions, waste and income inequality – and their profits will likely be threatened in the process.

In the BlackRock letter, Larry Fink predicted an accelerated reallocation of capital, coming faster than we see evidence of climate change itself. And he talked about the responsibility of CEOs in an interconnected world. “We believe that all investors, as well as regulators, insurers and the public, need a clearer picture of how companies are handling sustainability issues,” Fink wrote in the letter. “This data should extend beyond climate to questions about how each company serves all of its stakeholders, such as the diversity of its workforce, the sustainability of its supply chain or how it protects its customers’ data The growth prospects of any business are inextricable from its ability to operate sustainably and serve all of its stakeholders The importance of serving stakeholders and embracing purpose is becoming more and more central to how businesses understand their role in society.As I have written in previous letters, a business cannot achieve long-term profits without embracing purpose. objective and taking into account the needs of a wide range of stakeholders.”

From Davos, Goldman’s Solomon echoed the message from stakeholders. “I’m confident that if you don’t look after your stakeholders more broadly, in the medium to long term, you won’t get exceptional returns,” Solomon told CNBC.

He went on to highlight the need for diversity with a strong statement, part of a broader movement for greater gender and racial diversity on the boards of publicly traded companies. “I think from a governance perspective, diversity on boards is a very, very important issue, and we’ve been very, very focused on that,” he said in the interview. . “I look at IPOs over the past four years, and the performance of IPOs where there has been a woman on the board in the United States is significantly better than the performance of IPOs where there is no there hasn’t been a woman on the board. And so starting July 1, in the US and Europe, we’re not going to take a company public unless there’s at least one diverse candidate on the board, with a focus on women, and we’ll move forward into 2021 by asking for two.”

A great deal of research shows that companies with diverse boards perform better than those with traditional, non-diverse boards.

California was the first US state to require that publicly traded company boards include women. India, Germany, Australia, Norway, Spain, France, Italy, Denmark, Finland, Iceland, the Netherlands, Belgium and Israel had already instituted rules or similar directives, following heated debates on the merits of this type of positive action.

Solomon’s ad emphasizes creating value from diversity. When more women and minorities serve on boards, companies are more likely to assess stakeholder perspectives and incorporate a more focused approach into corporate strategy.

The message from Davos is clear: listen to your stakeholders and act with an environmental and social purpose.

The opinions expressed here by columnists are their own, not those of

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