It all started with the conviction that companies have to be there for all stakeholders. In a conversation with Peter A. Fischer, founder Klaus Schwab explains how this led to the establishment of the global elite in the Graubünden mountains and why he believes that the World Economic Forum WEF has actually improved the world.
Mr. Schwab, let’s switch to High German for the interview.
I prefer to speak Swiss German. I am a German citizen who grew up in Ravensburg, but at home we always spoke Swiss German. My Swiss mother was even summoned by the Gestapo in autumn 1944 when I started school. She was asked to explain why the son could not speak and understand High German properly.
Well, then I will broadcast our conversation in High German afterwards. You are now responsible for the 50th annual meeting of the World Economic Forum. Reason enough to look back. Let’s start with you, the founder. In the 1960s, you studied engineering at the ETH and business administration at the University of Freiburg and did your doctorate in both subjects, then immediately acquired a Master of Public Administration in Harvard and also worked as an assistant to the general director of the Association of German Mechanical Engineers. How does this all come together?
My German father was the head of the Swiss Escher Wyss in Ravensburg. I actually wanted to study economics, but my father, as head of a mechanical engineering company, found: “Son, if you want to become something, you have to study mechanical engineering.” That’s how I ended up at ETH. Then, without being enrolled, I attended the economics lectures at the University of Zurich. When I had the ETH diploma, I was looking for a university where I could also quickly finish economics. Finally, after a relatively short time at the University of Freiburg, I was able to take all the exams at once and then do my doctorate.
My father thought that if I really wanted to be something, I should go to Harvard. So I went to the later Kennedy School of Public Administration, but I mainly attended business lectures at the Business School. There I met Dean George Baker, economists Kenneth Galbraith and Henry Kissinger. Baker later took over the presidency of the first annual meeting in Davos, Galbraith was a speaker, and I also kept in touch with Kissinger.
When you returned to Switzerland, you didn’t start the WEF right away.
I was supposed to start at Boston Consulting, but then Peter Schmidheiny, who had just sold Escher Wyss to the Sulzer Group, called me and said: «You come from Harvard now and know modern management methods, help to make the integration a success . “Then I tried that. Then the Association of German Mechanical Engineers came to me and said: “You were in Harvard and now have this business experience, please write a book for our members about modern corporate management.”
This obviously had far-reaching consequences.
Yes, the central question for me was: What is the purpose of a modern company? And I came to the conclusion that the real purpose of the company is the so-called stakeholder principle. Then there was an argument with the supporters of the principle “The purpose of business is business” propagated by Milton Friedman.
Then why did you organize a conference in Davos?
I wanted to create a platform where company bosses can meet their stakeholders. I called it the European Management Forum.
What was the highlight of the first event?
We had 444 participants, and the highlight was the top-class composition. Kenneth Galbraith was there, Herman Kahn and Otto von Habsburg.
Who was behind the organization?
I organized the first conference together with my future wife Hilde and an assistant with the support of my parents and a loan from an entrepreneur from the Black Forest. I had an agreement with him that if I could not repay the loan, I would have to join his management. After the first symposium, there was a small profit, I was able to set up a foundation and became a professor at the University of Geneva.
Why a foundation?
Firstly, I didn’t think about spending my life with the conference and the foundation at the time, and secondly, the EU Commission had given me support for my project, but I wanted it to be organized in a non-profit organization. Actually, she also wanted me to hold the conference in the European Community, but I then said that Switzerland would definitely become a member sometime.
At your third event, you published a Davos manifesto in 1973. How did that happen?
With my stakeholder principle, I deliberately wanted to counter Friedman’s shareholder value with a different concept and to anchor it institutionally. I then developed the manifesto with a small working group of participants and submitted it to the plenary for voting. It was adopted with one abstention.
Professional managers should therefore not only be committed to their shareholders, but also to their employees and to society, and to reconcile the interests of everyone involved. Isn’t that wishful thinking? Managers are employees of their owners.
First, in my opinion managers are appointed by shareholders, but are primarily committed to the company. Secondly, I don’t see the stipulated contradiction between financial objectives on the one hand and the stakeholder principle together with sustainable corporate management on the other. The compromise that a manager has to seek is between short and long term. In the long term, shareholders as well as the other stakeholders are interested in strengthening the survivability of a company.
At this year’s WEF in Davos you want to launch an initiative in which the almost unimaginable number of 1,000 billion trees will be planted to help the world COtwo-to make it more neutral. Is it really the job of leading corporations to plant trees?
You shouldn’t plant the trees yourself. But they should participate in the framework we provide so that they can be planted. It takes a whole system, satellite imagery, to know where to plant which trees, governments to take part. The World Economic Forum creates the platform that enables and leads this process. You will hear many announcements in Davos. This nicely illustrates why the forum is needed: to initiate effective cooperation between business, politics and civil society for a better future.
Should we say “Worsening the State of the World“? You have to have an ideal goal, a vision!
When and how did the WEF really make the world a better place?
I think there are three levels to distinguish. First, where did we have an impact on public opinion? That was the case with the stakeholder concept. I am of course particularly pleased that, after almost fifty years, even the US Business Roundtable has now practically adopted my concept from 1973. But we were certainly also formative in raising awareness of the concept of social entrepreneurship and the concept of the fourth industrial revolution.
And the second level?
Where did we influence as a platform on the political level? This is not always public knowledge, but I give you three examples: We once brought the Turkish and Greek prime ministers together in Davos and were able to prevent an armed conflict over oil drilling, even though they had already been partially mobile. In 1990 the only meeting of the heads of all South African parties took place in my office very secretly. Then Mandela was released and in 1992 he appeared in Davos with de Klerk. And third, Genscher wrote in his memoirs that he gave the most important speech of his life in Davos in 1987 when he said: “Let’s give Gorbachev a chance.” According to Genscher, that was the end of the Cold War.
Impressions from the history of the WEF
Nelson Mandela first appeared in Davos in 1992.
The third level remains.
This affects public-private partnerships. I am proud that a breakfast from Bill Gates, the World Health Organization and myself in Davos, twenty years ago, gave rise to the idea for the Global Alliance for Vaccines and Immunization, just as UN Secretary General Kofi Annan once shared with me the Global Compact in the small closet unhooked and then presented in Davos. The Global Fund to Fight AIDS and Malaria was also created in Davos.
In the past few years you have published two books on the fourth industrial revolution and founded numerous so-called centers for the fourth industrial revolution around the world, for which over 100 of your approximately 800 employees work. What do you find so fascinating about it?
The new, the technologies. They will change our lives. Now we’re all talking about artificial intelligence, but no organization in the world is concerned with the ethical aspects of it and the principles that must be established to comply with them. I think you can no longer mandate parliamentary commissions to discuss a bill after five to six years. Today’s progress is so fast that the system has to regulate itself, so to speak. This is only possible if you bring companies and governments together permanently. And we help that the best people from science are there too.
Together with the government of Rwanda, we have developed rules for the use of drones that are now being adopted by many other African countries in Africa. In San Francisco, with the participation of 27 governments, we developed a set of rules for the use of artificial intelligence in public procurement. In Davos we will now present principles for the use of digital currencies, which we have developed together with around a dozen central banks as well as experts from science, the financial sector and multilateral organizations. We will then issue a white paper.
National banks have their committees, the economy has its associations and institutions, what is the need for the WEF?
So that they work together effectively. And that works. By the end of the year, we will have 20 centers for the fourth industrial revolution that will work together worldwide.
First you organized a conference, then you tied corporations to yourself through memberships and then you formed networks. And now?
Now we want to be the platforms for the issues where the private and public sectors have to work together globally.
What do you hope for from this year’s WEF?
The political cannot be predetermined. But our many platforms all have their own working sessions and are supposed to make progress in Davos.
The motto this year is “Stakeholders for a cohesive and sustainable world”. Are we expecting a Greta WEF?
Greta is an impressive young woman, but I don’t want Greta to instrumentalize me. We have now invited ten Gretas under the age of twenty, all of whom have a special concern. For example, Ms. Melati, who got the whole Indonesian plastic policy rolling. By the way, we are also one of the most sustainable conferences. We have no influence on whether participants travel by private plane, but we compensate for all COtwoEmissions.
Now President Donald Trump wants to participate in the WEF for the second time. Why does he like it?
I think it’s very good that he is taking part in such a multilateral event.
When the US President comes, it’s all about him. Doesn’t that harm the WEF idea?
No, many always think that the annual meeting is structured around certain particularly well-known people. This is nonsense. The participants come to Davos because the most important decision-makers from business and politics meet here. From the political side, there is a ministerial delegation from practically every important country, and from the economic side alone, over 300 of the 300 most important companies worldwide are represented by their boss.
That is why many consider the WEF to be the meeting of a withdrawn global elite.
It is a complete misunderstanding. We also have the heads of the large non-governmental organizations in Davos, top scientists, global shapers and young global leaders, social entrepreneurs and artists. This broad exchange is what makes the annual meeting in Davos so special.
Because there are so many important people, the agenda of many participants has already been checked. Isn’t the dialogue lost there?
Bilateral meetings are not so much the problem, but completely foreign organizations that use the presence of decision-makers to hold their own mini-conferences. This drives up prices and puts a strain on traffic.
Isn’t Davos too small for such an occasion?
Davos is the global village. It is a brand in itself, with its mountain scenery, its charm. You can walk practically anywhere, you meet on the promenade. And Davos has the advantage that it is two hours away from the airport. You don’t just get there for a day, you stay. With a maximum of 3000 participants, the forum has a size that Davos can still handle and we don’t want to exceed. We don’t want to be a mass event.
The Swiss Confederation and the cantons have to make extraordinary efforts every year to ensure the security of illustrious guests. Some wonder: What do they get out of it, besides costs?
An investigation by the University of St. Gallen has shown that the tax revenue generated by the World Economic Forum is higher than the expenditure of the public sector. Then there is the not insignificant marketing value of the meeting for Davos and Switzerland. And the signal of openness and connectivity that Switzerland sends with it.
According to your annual report, the WEF generated a turnover of CHF 344.7 million in 2019 and had an endowment capital of CHF 345.6 million. Couldn’t it cover the security costs yourself?
It is a country’s duty to ensure the security of foreign politicians. Official Switzerland must know whether it wants to receive foreign state guests. Our annual accounts were almost balanced. The endowment capital of the World Economic Forum has grown because we are growing and soliciting new contributions for new tasks. Around half of this is tied up in fixed assets. Cash and cash equivalents are just half of sales. We also need it because of the risk. Imagine that the annual meeting had to be canceled at short notice.
Let’s end our conversation as we started – with you. You still spend a large part of your time on airplanes.
I made 16 overseas trips last year.
You are now 81 years old. How do you do it?
Through curiosity, joy in what I do and discipline. Nature is very important to me and I go swimming every day.
Her son Oliver also works on the management board of the WEF. Will this become a family business?
No, definitely not. My son could work anywhere else at any time. The forum is now a foundation recognized as an international organization for public-private partnership with clear corporate governance rules. This is intentional because the forum must make the transition from a donor-dominated to an institutionalized organization.
You have worked as a business professor for good corporate governance. Wouldn’t it be time you settled your succession?
If my position becomes vacant, the best successor will be chosen. The organization is now set up so that it works in any case. The World Economic Forum is not Klaus Schwab, and it is not there either because Klaus Schwab had a good idea. The forum is the answer to the need for different stakeholders to work together on global future issues.