Reply to Klaus Schwab’s: too much focus on big companies.

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 read on.
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, Café Direct.  Similarly, The Body Shop and Ben & Jerry’s were in later years, acquired by larger firms (L’Oréal 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.