Davos Man Ready to Face the Challenges of the 21st Century?

If we thought that the 2008 Financial Crisis is the worst crisis the business world has seen this century, we had better think again. Close on the heels of that, we had the Covid-19 global pandemic, and we are still in the grip of a regional war with global repercussions, plenty of geopolitical tensions, as well as a worsening climate crisis. In short, we are faced with an existential crisis.

These are all challenges that businesses are increasingly having to face on a daily basis and it’s no longer alright to say it is all governments’ responsibility. It is our collective responsibility, and I do realise even as I write this, that usually collective responsibilities end up being no one’s responsibility. I, of course, mean that these challenges are too large, daunting and complex for them to be solved or tackled by any one person or institution or even a country.

At this year’s Davos Summit of the World Economic Forum, the theme was Increasing Cooperation in a Fragmented World. I don’t think it was a reference to fragmentation of any one kind, but rather of all sorts: geopolitical divides, rich world vs poor countries, inequality that leads to social and economic conflict, disagreements on trade and climate, etc. I would like to think – and do indulge me for a moment here – that it was also referring to making businesses and governments work in tandem. That is because I believe that it is the most fundamental level of cooperation required for a country and indeed for the world to resolve many of its problems.

I do not mean cronyism or lobbying, of which we have plenty already around the world and if anything, these have sapped genuine competition and the spirit of innovation. I mean a world in which both businesses and governments realise their individual responsibilities and work effectively together to achieve their goals. What might some of these be? At the start of this millennium, many companies began to adopt the millennium development goals and the sustainable development goals as part of their business mandate. This was a hopeful sign that there is a realization among businesses that in the normal course of conducting their business, they can also contribute to larger societal and economic goals. A far cry from Milton Friedman’s holy grail of “maximising shareholder value”.

Then we had companies, especially in the US, vying to become a B-Corp or benefit-Corporation, though I am not sure how that certification actually benefits them. Do they get tax benefits, or does it become an important criterion for investors? The most recent development in this area is ESG (short for environment, social and governance) and from what I read it appears to be part of company’s annual reporting of performance as well. Unfortunately, it has quickly morphed to also become an asset class for investors and is apparently attracting a lot of attention. Decades ago in Europe, companies had to participate in the EU’s emissions trading system, which was designed to make them adopt cleaner technologies and processes. Nowadays, many companies voluntarily adopt carbon-neutral or net-zero strategies and targets for the future.

There are several other challenges ranging from training and upskilling the workforce, especially to be able to deal with the AI and automation of the future, as well as reducing gender pay gaps, and income inequalities overall. The biggest challenge besides climate that I see is the one that concerns human capital and automation technology. While the former is at least being discussed and legislated upon, the latter is threatening to race ahead with the technologists leaving human beings behind. This is because regulators and lawmakers in many countries, especially the US and China, who lead in this area of technology and are busy competing with each other, have failed to contemplate some of the worst consequences of these innovations and how they might impact people at work.

How is Davos Man coping with these challenges? As an epitome of the global elite who manages the complex, interconnected and global nature of business, he is perhaps only now beginning to grasp the full portent of what is required from business to meet the challenges of today and tomorrow. The one sign that probably gives him and all of us hope is the real and tangible results that we can see in the world of renewables and the shift to clean energy. Is this adequate to fuel further innovations and to correct the imbalances of the past?

I was thinking about why it is that every action that a business takes has to be incentivized with a pecuniary gain or profit? And why governments on the other hand, put off important and critical investments until it is too late to even catch up? Why does ESG, for example, have to become an investment asset class for businesses to do something about it? And why governments invest in physical infrastructure, but increasingly leave areas like education, healthcare and skill upgradation to the private sector, as has happened in my country, India, and I am sure in many countries around the world?

On thinking more about it, I realized that both have short time horizons: quarterly or annual for companies and a four-to five-year term for governments. While businesses respond best to income tax incentives, the prospect of the company’s share price rising in value on account of ESG or any other investing criteria, is also a powerful motivator. Governments prefer to invest their limited resources in visible and tangible assets that they can then claim to have created for their people, hoping they will be elected to power again. In the process, important capacity-building dimensions of a country’s growth such as education, healthcare and re-skilling are neglected or accorded lower priority.

I was wondering if it isn’t time to introduce a change of paradigm. If instead of incentivizing or rewarding businesses to do the right thing (which, in my view is quite unnecessary and wrong) we taxed them for not doing it. I believe a carbon tax will be far more effective than cap and trade, for example, and have already shared my views on the new carbon import tax being considered by the EU in a previous blog post. It can be made to work really well across at least the G20 countries, if tweaked and modified to operate on a traded goods basis, so every company and country shares the burden.

On the other hand, let us imagine investment funds being created specific to education and healthcare, which will help governments meet their obligation to provide more and better access to these critical inputs. It could be a way for governments to invite private capital to help fund these projects, while at the same time keeping delivery of education and healthcare the government’s primary responsibility.

I am envisaging a new tax and investment regime as an engine and a bridge to help move both business and governments along their paths, faster, smoother and in the right direction, to help achieve common goals. It is merely an idea that I am sharing for further deliberation and discussion purposes.

As far as reducing gender pay gaps in companies is concerned, many more countries ought to make it mandatory reporting like it is in the UK. And companies ought to be encouraged to reduce the gender pay gap, year over year. Hiring more women in senior positions ought to be encouraged, since I am not in favour of quotas. Many Nordic economies have a statutory quota for women directors on company boards that must be met, which shows the extent of progress still to be made, given that these are countries with very high women labour force participation rate and laws that stress gender equality.

Preparing the workforce for the world of AI-led automation must be the responsibility of business and each company must formulate its own policies to deal with this new reality. Since regulators aren’t doing their job in regulating the advance of tech, tech companies have had a field day for decades. Correcting the growing imbalance between labour and capital is one of the most pressing problems of this century, and companies must prepare their people for it or else face Armageddon.

Is Davos Man up to the task?   

The animated owl gif that forms the featured image and title of the Owleye column is by animatedimages.org and I am thankful to them.

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