What will happen to the World Economic Forum (WEF) and its world-famous annual
meeting in Davos after its founder, Klaus Schwab, steps down after over 50
years at the helm? That was the question journalist Courtney Goldsmith explored in her
article published in World Finance. Schwab established the WEF in 1971 with the idea
of fostering stakeholder capitalism, promoting businesses that serve not just
shareholders but all stakeholders, including employees, suppliers and local
communities. While questions exist on the succession plan at the WEF, Schwab’s vision
for a more inclusive capitalism is likely to stay, albeit its effects are unclear, said
Masconale, Freedom Center Associate Director and Assistant Professor in the
Department of Political Economy and Moral Science in the College of Social and
Behavioral Sciences. Masconale was tapped for her expertise on Enviromental, Social,
and Governance (“ESG”), the new brand name for a corporate model with broader
social purposes.

Schwab argued in 2021 that while companies and their shareholders have become
stronger over time, the power of other stakeholders has, in fact, weakened. Masconale
agrees. “Today, stakeholder capitalism is largely driven by only one class of
stakeholders – the shareholders, who have never been as empowered, largely because
of the reconcentration of equity ownership in the hands of a few large fund families,” she
said. Thus, while the brand name might have changed, the challenges for stakeholder
capitalism remain the same as ever. “Without a clear performance metric, evaluating
managerial and firm performance becomes difficult,” Masconale said. “When does a
manager do good? Is it when she increases profits (requiring cost cuts) or when she
saves jobs (increasing costs)? While the trade-offs might not always be so stark, it is
uncertain whether asking individuals to act in the interests of others is compatible with
markets, which notoriously assume self-interested behaviour and ‘a benign indifference
to passions’.”

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