Fixing the World Economic Forum

Editor L — Wed, 09 Aug 2023 00:18:21 +0000

Although the World Economic Forum is a well known target of criticism, being seen by many as a secretive annual confabulation of “big cheeses” to decide the destiny of “the rest of us”, Shawn Pope argues that the main impediment to its playing a genuine, positive role on the world stage is its revenue model.

The annual meeting of the World Economic Forum¹, which drew 2,700 executives, heads of state, and other big shots and famous faces² to Davos last January for a five-day mega-conference, never fails to be one of the most panned events of the year.

This year, like clockwork, the meeting was blasted as out of touch ($60 for a Coke and Caesar salad!)³, exclusive (a private Sting concert⁴ for Microsoft executives just before they announced 10,000 layoffs), hypocritical (as many as 1,040 carbon-spewing flights⁵ on private jets), and ineffective (a talking shop⁶ that fails to deliver real change). These criticisms, no doubt, are a reason why the meeting is ring-fenced each year by Swiss guards with assault rifles.⁷

Yet the annual meeting is not necessarily a bad thing. As conceded in a tweet⁸ by Elon Musk, a vocal critic⁹ in recent years, there is probably “value in having a mixed government and commercial forum of some kind”. We may all benefit, to be sure, from what the meeting purports to provide¹⁰ – a yearly, themed, live, highly international meeting for a select group of elite stakeholders to brainstorm the issues of the day. Such a meeting could help governments stay informed and responsive in a world where serious issues that are global in nature seem to be cropping up with alarming frequency, from COVID-19 to the supply-chain crisis and the invasion of Ukraine.

Tolu Oni, Director, Global Diet and Activity Research Group and Network, MRC Epidemiology, University of Cambridge, United Kingdom speaking in the “Doubling Down on Science” session at the World Economic Forum Annual Meeting 2023 in Davos-Klosters. Copyright: World Economic Forum/Jakob Polacsek

In its current structure, however, the meeting has a fundamental flaw, one that can and should change. This is the meeting’s revenue model. Put simply, the meeting is bankrolled by CEOs.¹¹ The heads of multinational firms pay small fortunes for Forum membership (as much as $640,000 for the highest plan)¹² and for the ability to bring representatives to the annual meeting (an estimated $40,000 per delegate)¹³. As such, the meeting is “multi-stakeholder” only in attendees, not paying customers.

Among the many reforms, the Forum has invited more women to its meeting, increased transparency by livestreaming many of its panels, and has taken up social issues such as diversity and climate change, beyond its conventional focus on trade and economics.

Clearly, this revenue model impugns the World Economic Forum’s independence. The model is a glaring contradiction for an organisation that markets itself as “impartial and not tied to any special interests”. While the Forum wants to be seen as the smiling face that stands behind the private and public sectors as they shake hands, in reality its bread is buttered on one side. The sum is handsome; it is ultimately from CEO money that the Forum pays an average of about $180,000¹⁵ in remuneration to its 800 employees¹⁶. The executive chairman alone gets a reported $1,100,000¹⁷.

Reflecting this model, the Forum’s meeting is attended each year not primarily by the CEOs who should be there, because they are the most implicated in the issues of the day, but by the few who can be there, the ones with the cash – as many as 119 billionaires¹⁸ in 2020. It is their voices that get heard. For their money, in addition to political access, CEOs receive a heady cocktail of validation (finding yourself in the big leagues), elite networking, and a junket on the company dime in the Swiss Alps during peak ski season.

Arjun Dhawan, Executive Vice-Chairman, HCC, India speaking in the Cities Rebuild session at the World Economic Forum Annual Meeting 2023 in Davos-Klosters, Switzerland, 19 January. Congress Centre – Salon Room. Copyright: World Economic Forum/Sikarin Fon Thanachaiary

But what does society get? According to critics, a meeting that features executives as the paying customers and the plurality of participants¹⁹ tends to result in “solutions” that cater to the interests and mindset of big businesses. Rather than taxation and regulation²⁰, we get discretionary, piecemeal programmes that arrive late and fall short of the exigencies of the world’s problems. We get promises and pledges in place of real change.

Inappropriate and ineffective, the Forum’s model is also unnecessary. Take, for example, the United Nations Global Compact²¹. Much like the Forum, it describes itself as a platform²² through which stakeholders forge solutions to business challenges. Similarly to the Forum, at the core of the Global Compact are “local networks”²³, annual meetings where civil society and companies work together to tackle the Sustainable Development Goals²⁴.

In much the same way as the Forum is sharply criticised, the Global Compact was viciously attacked at its launch in 2000. Greenpeace threw its full weight into stopping the initiative²⁵. Letters of opposition from other non-profits were published in the New York Times²⁶ and addressed directly to the UN Secretary General²⁷. Pretty much everyone – except the United Nations and multinational firms – thought that if the two proceeded with the Global Compact, the former would be corrupted by the
latter.

The revenue model is a glaring contradiction for an organisation that markets itself as “impartial and not tied to any special interests”. While the Forum wants to be seen as the smiling face that stands behind the private and public sectors as they shake hands, in reality its bread is buttered on one side.

What is remarkable is that, today, criticism of the Global Compact has died down. It has already been a decade now since the fiercest opponent, the blog of the Global Compact Critics²⁸, ceased all operations. There are many explanations for the dwindling criticism, but a major one is that the United Nations removed its own financial conflicts of interest. In 2006, it safeguarded its own integrity by establishing an independent foundation to support the Global Compact with broad-based funding²⁹. And so, although the United Nations has continued to work directly with businesses, it has become much more difficult to argue that it is beholden to them.

The Forum should undergo a similar reform. It should scrap the model where attendance of the meeting is sold to CEOs. It would be more beneficial for society if, instead, the Forum freely offered its most coveted asset, attendance at its meeting, to court commitment from the right CEOs, not necessarily the paying ones.

Jane Fraser, Chief Executive Officer, Citi, USA speaking in the “Banking in the Eye of the Storm” session at the World Economic Forum Annual Meeting 2023 in Davos-Klosters, Switzerland, 18 January. Congress Centre – Sanada Room. Copyright: World Economic Forum/Jakob Polacsek

Practically, this change may require the Forum to use its much-vaunted ties to government³⁰ to arrange public funding. It may require the Forum to secure a few large donations from the hundreds of billionaires that it has partnered with³¹ over the years. It may require the Forum, in the near term, to crimp services and salaries to prioritise the growth of an endowment to the size where the Forum is no longer financially dependent on the CEOs that it tries to galvanise to address social problems.

To its credit, the Forum has shown itself to be responsive to criticism in recent years. Among the many reforms, the Forum has invited more women³² to its meeting, increased transparency by livestreaming many of its panels, and has taken up social issues such as diversity³³ and climate change³⁴, beyond its conventional focus on trade and economics³⁵. The additional reform of changing its revenue model, given that it so directly shapes the Forum’s incentives, should do even more to quiet the critics – who can so loudly distract from the good that the Forum is capable of doing.

This article was originally published on 3 March 2023.

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About the Author

Shawn Pope holds a PhD from Stanford University and is an associate professor of business strategy at EMLV Business School in Paris, France. He has published over a dozen academic articles on topics related to business ethics, corporate social responsibility, and international culture and regulation.

References

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Fixing the World Economic Forum