Reply to Klaus Schwab’s Article in Foreign Affairs magazine: Too focused on big companies! : Social Business Blog
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Reply to Klaus Schwab’s Article in Foreign Affairs magazine: Too focused on big companies!

January 13, 2008 |

In the January/February issue of Foreign Affairs magazine, Klaus Schwab, founder of the World Economic Forum (WEF) writes passionately about Corporate Social Responsibility (CSR), its background and the important positive changes large companies can make in the global business and economic climate. His contribution and that of the WEF is an indisputably valuable one. Nevertheless, with the famous star-studded annual WEF about to take place in Davos, Switzerland, I found it necessary to critique the article. The full contents of my proposed letter to the editor of Foreign Affairs magazine are attached below. In short, Schwab’s article, like the WEF, is simply too full of the politicians and the large companies who have got us into this mess in the first place. Its great that they are meeting to ponder how to improve things (and work on their ski technique!), but if we are looking for inspiration we need to look to genuine social entrepreneurs, with less of a stake in the status quo.

For the full text of the letter, click below

To the Editor:

In “Global Corporate Citizenship” (January/February 2008), Klaus Schwab, of the World Economic Forum (WEF), does a creditable job of explaining the nature of corporate social responsibility (CSR) and why it is in the interest of corporations to undertake this activity.

Schwab lays out a history of CSR and conveniently begins in the 1970s, when the WEF began its involvement in this area. This misses out, as many observers do, the substantial and well-documented CSR activities of companies from the Victorian era, or perhaps even earlier. The WEF has played a useful role in this field, but it is important to be thorough about the historical context for CSR.

The arguments made by Schwab that corporations see this as in their own interest, rather than from a “defensive or apologetic perspective” are constructive in intent, yet he fails to adequately explain why this is so, apart from some sense of “duty”?. We believe corporations now act in this way because of vigorously competitive markets for three vital stakeholders: investors, customers and employees. Each of these groups, to an increasing extent, care about positive corporate action on CSR.

My main critique however lies in Schwab”s excessive focus on large corporations. The examples he uses, Nestle, Microsoft, AIG, Deutsche Bank and Nike all represent some of the world”s largest corporations. It is marvellous that they act positively and I commend Schwab in forcefully arguing that they can make a substantial impact. However, it is my contention that such institutions rarely lead the way on social innovation, and that by focussing on large corporates only, Schwab, like most commentators, is missing much of the story.

For inspiration here we must look to more entrepreneurial firms such as The Body Shop or Ben & Jerry”s. They played a fundamental role in introducing ethical considerations into the UK and Us consumer products markets, respectively. The pioneers behind them, Anita and Gordon Roddick and Ben Cohen and Jerry Greenfield are genuine social entrepreneurs.

Business maybe can “help save the world”?, as the title of the article suggests, but the models for doing so are unlikely to come from those with the biggest stake in the status quo. My years as an equity research analyst on Wall Street have convinced me that large companies are rather bad at being entrepreneurial. They will react to entrepreneurs, as has the UK coffee market, to the growing market penetration of the fair trade company, Cafe © Direct. Similarly, The Body Shop and Ben & Jerry”s were in later years, acquired by larger firms (L”Oreal and Unilever respectively). But if we are looking to be inspired, I believe it”s the smaller social businesses which will offer leadership. It”s no surprise that Muhammad Yunus and Grameen Bank won the Nobel Peace Prize, as Schwab himself mentions, and not Bill Gates and Microsoft.

Rodney Schwartz

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6 Comments so far

  1. Thor on January 14, 2008 1:15 pm

    Rodney,

    Good points, once again. I completely agree that the smaller ethical businesses will lead the way and we should look to them for inspiration. My question is: In a world where media mostly wants to cover the big and sensational stories, how do we promote the small business success stories to young people? I guess, more generally, how can we reverse this trend?

  2. admin on January 14, 2008 1:20 pm

    Dear Thor,

    The answer is simple, my friend. Make the stories we can tell about successful social enterprises big and sensational. It need not all be about size. Blogs like this and others are helpful, we need to engage the media much more than we do!

    all the best,
    rod

  3. Soul Economy on January 19, 2008 2:15 pm

    These innovative SMEs need to be recognised and rewarded (the reason behind establishing Soul Economy) but unfortunately, they do have access to the PR machinery of the large multi-nationals. If PR professionals assisted them to raise their profiles that would help. Also, they need to establish a Web 2.0 presence to tap the younger community -œ the power of MySpace, for example, is evident in the recent incident in Australia with Corey Delaney (see http://www.news.com.au/story/0,23599,23067070-5015729,00.html). Utilising these online communities for “good” needs to be achieved.

  4. Rod on January 20, 2008 12:45 pm

    Thank you Soul Economy, whoever you are. I think Web 2.0 is made for social businesses, as is witnessed by the success of netmums, Justgiving and Responsible Travel in the UK.

    Rodney Schwartz

  5. Jeff Mowatt on January 22, 2008 3:44 pm

    (Re-submitted with corrected URL)

    Rod, I agree with you, as a small social business. I hope you and others will read the synopsis of our model.

    From the beginning, there was a world changing paradigm in mind, a new form of capitalism replacing greed with compassion with the objective of promoting peace. As was said then, “This is the most effective sustainable strategy available for alleviating widespread human suffering stemming from poverty and all that comes with it — up to and including terrorism”.

    Jeff Mowatt

  6. When anti-globalization hits home in Geneva on January 28, 2009 10:52 pm

    [...] who caused them.  In other words, we don’t see a lot of fresh ideas at these summits.  Catalyst points out that Schwab and the WEF are simply too focused on big sclerotic companies, while real [...]

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