The World Economic Forum

A Multi-Stakeholder Approach to Global Governance

Geoffrey Allen Pigman

• Publisher: Routledge
• Year: 2007
• eBook ISBN: 9781135990237
• Topic: Economics
• Subtopic: International Business
• Index: Economics

This book explores the paradoxes and unique characteristics of the World Economic Forum, highlighting contemporary issues and debates on global governance, economic development and corporate social responsibility.

The Forum is one of the most influential, but least understood, global institutions. Its annual meeting in Davos, Switzerland and its regional summits held around the world attract a significant and powerful audience from the worlds of business, economics, politics and civil society. The participants, who include business and political leaders, representatives of international institutions and civil society organizations, academia and the media, meet to debate issues of global concern and to develop possible solutions. Forum members see the organization as an innovative venue bringing together different types of stakeholders to solve global problems. To its critics, however, the Forum's public face conceals a private venue for making business deals.

With clear and concise sections, including boxes containing key ideas and arguments, The World Economic Forum is a much needed introduction to an important and controversial organization and will be of considerable interest to students and practitioners of international business, international political economy, economics, development, international relations, and globalization.

1 A multi-stakeholder approach

An historical overview

Founding of the Forum: a European resurgence

The World Economic Forum was conceived in Europe in 1971, a time when the international monetary system of gold parities and fixed exchange rates established at Bretton Woods in 1944 was collapsing and European governments were challenging the postwar economic dominance of the United States. Servan-Schreiber’s well known Gaullist tract Le défi americain (translated into English as The American Challenge) articulated growing European fears that US firms were buying up European industry.¹ It was also a time when European firms were challenging the paternalistic model of relations between governments and businesses that had prevailed since World War II, at least in Western Europe.² The evolution of technology to facilitate movements of goods, services and capital was accelerating, as evidenced by the growth in international trade and the rapid rise in the late 1960s of offshore currency balances (“Eurodollars”) and cross-border direct investment. With the explicit backing of French Gaullists and other nationalist politicians, European firms were ready to take on their American-based counterparts, which had expanded their global market activity dramatically in the two decades following World War II.

Yet 1971 was early in the development of the various phenomena and processes of economic, political and social convergence and interpenetration across territorial boundaries that have subsequently come to be tagged by the media and scholars as “globalization.” Cox characterizes the period in which the Forum was founded as a turning point in the development of capitalism from an international to a global economy.³ The post-World War II, Bretton Woods system, wherein nation-state governments generally exercised control over their domestic economies and regulated their interaction with the rest of the world economy, was being supplanted by a phase in which nation-state governments took on the often reduced role of adjusting their own economies to change in a global economy less subservient to national or multilateral regulation. Globalization, however, not only refers to phenomena and processes, but to a discourse that is social-cultural in character and is composed of information flows, debate, representations of interests and exercises of power by forces able to do so in behalf of their interests.⁴ The particular discourse of globalization that has emerged has had proponents and opponents since well before it was identified and debated as such by academia and, more recently, by the rest of global civil society (i.e. the aggregation of global and local social forces outside of formal organs of governance). One of the most significant functions of the World Economic Forum has been to serve as a principal venue for debating issues in this predominantly neoliberal, and until recently dominant, globalization discourse. Hence it is important to recognize that the Forum began its operations at the time when that discourse began to attract participants and interest, and its importance grew as its main stock in trade, information, came to be demanded ever increasingly by members and non-members alike. This timing enables holders of the Shar-pei view to see the Forum as essentially an organization that emerged just before its time, or right at the beginning of its time, and that was able to grow rapidly as demand for its information output grew.

The story that the Forum tells of its own evolution is one of a private sector nonprofit foundation born of a meeting of European captains of industry under the patronage of the European Commission and European industrial associations. The story of the Forum’s creation and subsequent development up to the present day is also closely intertwined with that of its founder and leader for three and a half decades, Klaus Schwab. After chairing a meeting of European business leaders in January 1971 in Davos, Switzerland, to “discuss a coherent strategy for European business to face challenges in the international marketplace,” Schwab, then a professor of business policy at the University of Geneva, founded the European Management Forum to institutionalize an annual summit of European business leaders at Davos. Born in Ravensburg, Germany, in 1938 to a family of Swiss descent, as a child Schwab’s family lived close to the German-Swiss border and were able to cross the border freely throughout World War II. Struck by the artificiality of a territorial boundary between war and peace, Schwab recognized early the importance of dialogue and reconciliation to conflict resolution.⁵ As a young man in postwar Western Europe, Schwab put this into practice by chairing a French-German youth movement in Baden-Wurttemberg. Schwab obtained two Ph.D.s, in mechanical engineering from the Federal Institute of Technology (Zurich), and in economics from the University of Fribourg. In the course of his studies for the engineering degree he spent a year working in a factory, to which he attributes his understanding of and respect for labor unions.⁶ Schwab made a name for himself in management in the 1960s by applying Harvard management techniques to the implementation of mergers between European firms. Employed by Swiss industrial group Escher Wyss in 1967, he managed successfully the group’s merger with Sulzer Group, a significant challenge for a young executive, but one that still did not challenge Klaus Schwab sufficiently as he looked forward. Appointed to a part-time professorship at the Centre des Etudes Industrielles in Geneva in 1969, Schwab found that he also felt “not completely challenged” at the university and sought to build a greater role for himself and his talents in the wider world.

Having registered for a study year at the Harvard University Kennedy School of Government’s Littauer Center in 1966–7 had enabled Klaus Schwab to take second-year courses at the Harvard Business School, an opportunity not customarily permitted to non-MBA students and one which gave him a deeper appreciation of contemporary American management approaches and techniques. Schwab’s year at Harvard served as a catalyst for his idea to establish the European Management Forum as a vehicle to bring these approaches and techniques to European firms. He befriended the Dean of Harvard Business School, George P. Baker, who was impressed by Schwab’s ingenuity at figuring out how to take Business School courses without being in the MBA program. Schwab subsequently asked Baker to chair the first meeting of the EMF. Whilst at Harvard Schwab had the opportunity to meet Henry Kissinger, Robert Reischauer, John Kenneth Galbraith and other leading US academics, and through their conversations developed an interest in global issues, and in particular the relationship between security and the business climate. Schwab conceived of the European Management Forum as an opportunity for new kinds of conversations to take place between senior managers of European firms, in which a range of regional and global business, economic, political and social issues that affected the European business community could be addressed.

From the start he envisioned the Forum as involving close cooperation between European business and political leaders, so he wrote to Jean Rey, President of the European Commission, to seek the Commission’s advice, support and participation. Rey suggested two commissioners to serve as interlocutors for the Forum, Raymond Barre and Altiero Spinelli. Rey promised Commission support for the Forum under two conditions: one, that the Forum be established as a not-for-profit institution, and two, that it hold its meetings on European Community territory. Both conditions were agreed, as Schwab had planned the Forum to operate on a not-for-profit basis, and at that time Rey and Schwab expected Switzerland, the intended location of the Forum, to join the European Community shortly thereafter.

The stakeholder theory: from management to global society

The first European Management Forum meeting was held in Davos in January 1971, with Harvard economist John Kenneth Galbraith and Rand Corporation military strategist and futurist Herman Kahn serving as keynote speakers.⁷ Modest in size to start compared to the annual meetings of recent years, the meeting was attended by 444 participants from a wide range of West European firms. From its inception the Davos Annual Meeting reflected Klaus Schwab’s interest in communications technology, featuring then-futuristic closed circuit television, enabling participants to watch conference speakers from outside of the halls.⁸ The initial three annual Davos meetings concentrated on how European firms could catch up with US management methods. One of Schwab’s primary objectives was to encourage European managers to adopt the “stakeholder” approach to management. Schwab had developed a stakeholder theory of management of industrial manufacturing firms in the 1960s and co-wrote a text, Moderne Unternehmenführung im Maschinenbau.⁹ In the book, Schwab argued that, in order to be effective in maximizing a firm’s potential, managers need to take account of the interests of all the stakeholders in the firm: not only shareholders but customers and clients, employees, managerial staff, and the broader interests of the communities within which the firm is situated, including neighbors in the immediate proximity of the firm, governments, and fellow users of the environment in which the firm operates. The stakeholder approach contrasts sharply with other, more classical approaches to management, such as more narrow profit-and-loss accounting or the East Asian approach focusing on dominating market share. Schwab envisioned that managers of European firms, by adopting the stakeholder approach, could raise their game competitively in response to the challenge posed by their more efficient American challengers.¹⁰ The stakeholder model of corporate management, Schwab found, lent itself naturally to governance in a broader sense. Solving problems – whether they lay within a firm, a civil society organization (CSO), a nation-state, a region, or were global – could be done most effectively by taking account of the interests of all the stakeholders in the relevant issue or problem, and by encouraging all the stakeholders to participate in the problem solving process. The challenge of the multi-stakeholder approach to governance and problem solving lay in that different stakeholders are different types of groups or entities, which do not represent themselves and communicate to other bodies in the same way. A mid-sized enterprise, a trade union, an environmental activist group, a county government, a university and a business association, are each very different sorts of entities, but they may all have a stake in a particular issue or situation specific to their location or focus. Hence there are times when they need to talk to and listen to one another if they are to be able to address serious issues that can affect them all. Klaus Schwab’s project (see Figure 1.1) was to devise a venue to make that type of communication not just possible, but productive and fruitful.

Figure 1.1 Klaus Schwab’s multi-stakeholder theory of governance, as later adapted and diagrammed in the Forum’s Jordan Education Initiative promotional literature.

Milestones of evolution

Klaus Schwab recounts the story of how his vision of what would become the World Economic Forum evolved as one of “milestones.” According to Schwab, his vision of how the European Management Forum would develop was not a master template that he had in mind from the start. As they went along, Schwab and the Forum’s managers adjusted the focus of their topics for discussion in response to the Forum’s members and, crucially, in response to global events. Schwab cites the first major milestone to affect the Forum’s evolution as the major global political and economic events of 1973: the final collapse of the Bretton Woods fixed exchange rate system and the Arab-Israeli War and resultant OPEC oil boycott of Western industrial countries.¹¹ The Forum identifies the fall 1973 oil crisis as the catalyst for expanding its focus from management issues to political, economic and social issues: major strategic factors in the global environment that firms needed to monitor.¹² At this point the Forum took the decision to invite political leaders to participate directly in the discussions of the January 1974 Davos meeting. The organization also decided to hold Country Forums as venues for international business leaders to meet with political, economic and trades union leaders of individual countries, with the first meetings taking place in Brussels and Paris in 1973. By 1975 fourteen country meetings were held; the process was extended to developing countries in 1977 and to the People’s Republic of China in 1979. Country Forums later evolved into the regional agenda and summits of the current period.

Quick to appreciate the significance of the Chinese Communist Party Congress’ liberalization of China’s economic policy, Schwab invited the Chinese government to send representatives to the 1979 Davos Annual Meeting. The Chinese delegates’ attendance made the Forum the first international CSO to engage with China. Schwab visited China in April 1979, speaking on the multi-stakeholder model of governance. The first China country meeting, a symposium for Chinese and foreign business leaders, took place in Beijing in June 1980.¹³ Today known as the China Business Summit, the long running annual meeting is co-sponsored by the Forum and the China Enterprise Confederation, a leading Chinese business association founded in 1979 in conjunction with China’s economic liberalization. On its website in 2000, the Forum claimed to have brought more businesses to China than any other organization, and to having “had a substantial impact on the economic reform policies of China.”¹⁴

The next milestone that Schwab cites is 1976, the year in which the Forum began its shift from a primarily European toward a global focus. The EMF undertook a major project to improve business relations between Europe and the Middle East. They invited twenty Middle Eastern and twenty Western banks to underwrite a symposium for Arab business leaders, which was held at Montreux, Switzerland. One thousand Arab business leaders and 1,000 European business leaders attended the symposium, which had the objective of improving relationships that had been strained severely by the 1973 oil embargo. The symposium had the effect of structuring the future relationship between the European Community and the Gulf Cooperation Council, the then recently founded regional economic cooperation organization for states bounding the Persian Gulf. Following up on a successful symposium, the Forum replicated the process the following year with a Europe-Latin America symposium, a second Europe-Arab symposium in 1978 and a second Europe-Latin America symposium in 1979.¹⁵ Over time this interregional approach to improving business relations evolved into a more focused approach of holding national meetings in countries such as Brazil, Argentina, Malaysia and others, with the number of annual national symposia held gradually climbing to 15–20 per year, as they too became part of the Forum’s regional agenda.

The year 1976 also marked a major structural evolution for the Forum: the EMF Foundation transformed itself into a membership organization, with membership limited in principle to “the 1,000 foremost global enterprises,” ranked by a combination of rank within industry/country, extent of their global activity, leadership in their industry/region, corporate health and reputation (see Chapter 2 for further details on membership).¹⁶ At that time Schwab and other board members began recruiting top business executives from the United States to attend Davos, with IBM chairman Thomas Watson and Pepsi Cola CEO Don Kendall among the first to attend.¹⁷ A further major milestone occurred in 1979, when the Forum began publishing research, a key step toward the realization of Schwab’s objective of transforming the Forum from being primarily about organizing conferences into a organization that leverages fully its knowledge-generating capacities. Beginning by producing an annual World Competitiveness Report that assesses the relative competitiveness of the business climate in a small group of countries for the benefit of its members, the Forum has steadily expanded the scope of its annual research output to include other industry- and region-specific competitiveness reports, an annual magazine and, more recently, concise strategic insight reviews of key topics for global leaders. The Forum has also diversified into major specific research projects under the auspices of Forum Initiatives (see Chapter 5).

Growing and going global: the 1980s

The 1980s saw the Forum expand its activities in several significant directions. In order to secure the position of the Davos annual meeting as a “must attend” event for top business leaders, assuring the regular participation of top-level representatives of other stakeholders in the global economy, would be essential. In order to achieve this the Forum staff realized that they had to do more to convince senior political and economic leaders of the value of participating in Davos. Beginning in 1982 the Forum invited cabinet-level government officials and leaders of multilateral organizations such as the World Bank, International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT), to meet together with one another in an informal gathering concurrent with the annual Davos meeting, in addition to participating in the Davos meeting itself. The Forum was organizing a new setting for informal communication between political and economic leaders, in which they could get to know one another, exchange ideas and work on ongoing issues and problems without having to produce a communiqué, treaty or other finished product. The Informal Gathering of World Economic Leaders, as it became known, was sufficiently well received that it sparked a steady increase in the number, and relative importance, of political and economic leaders attending. Amongst the early fruits of these informal meetings of this group of stakeholders, the Forum counts a meeting of trade ministers in Lausanne in 1982 that led to the launching of the GATT Uruguay Round in 1986.¹⁸

Beginning in 1983, the Forum repeated this successful format by hosting informal gatherings at Davos for international media leaders, nongovernmental economic research organizations, and regional and municipal government officials. In the same year at Davos the Forum began hosting meetings of CEOs of major firms by industrial sector using the informal gathering format. These Indus...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Illustrations
• Foreword
• Acknowledgements
• Abbreviations
• Introduction
• 1 A multi-stakeholder approach: An historical overview
• 2 Purposes public and private: How the Forum works
• 3 The Forum in contemporary global society: Theoretical questions
• 4 Generating knowledge today: World Economic Forum meetings in 2005
• 5 Discourse, research and action: Technology and the Initiatives
• 6 Engaging the critics
• 7 The Forum looking ahead
• Notes
• Select bibliography