My Top Ten Themes From 2010 Davos, Part 1

The World Economic Forum has wrapped up and the small town of Davos is being returned to the skiers. I’ve developed my top ten themes from the five-day event. I’ll post five today and five tomorrow.

1. The state of the world is not good.

The theme of Davos was Rethink, Redesign, Rebuild, which may sound a bit grandiose to some people. I doubt many attendees think this now. The world clearly needs fixing.

Figures cited at the Forum show we’re a long way from being out of the woods on the global recession. Jobs are and will continue to be a huge issue. It is estimated the unemployment in the word jumped by 50 million during the recession, and the working poor increased by 200 million.

But the financial meltdown and recession are arguably symptoms of a bigger systemic crises and deep institutional failures. There is growing recognition that many of the organizations and institutions that have served us well for decades, even centuries, are no longer able. Many of the pillars of economic and social life have come to the end of their life cycle. In 2009, the American auto industry — the epitome of the industrial economy — collapsed. The upheaval is now spreading to other sectors — from the universities and science, to entertainment and media, to government and democracy. The continuing collapse of many newspapers in the United States is a storm warning.

Many other serious problems loom. Lack of access to fresh water is a catastrophe for humanity, as 2.8 billion (or 44%) of the world’s population already live in high water stress areas, increasing to 3.9 billion by 2030. In a world of growing capacity, global poverty is getting worse. Ten children die of hunger every minute and a third of the world’s population fester in slums. Almost everyone, especially the scientists at Davos is deeply troubled by climate change. We need to reinvent out energy grids, transportation systems and reindustrialize the planet. And we’re running out of time.

As Bill Clinton said to a few of us at a cocktail party, “The world is too unequal, unstable, and unsustainable.”

2. Everywhere there are new collaborative models emerging to solve global problems

Our systems of global cooperation are not rising to the many challenges we face. The global warming conference in Copenhagen has become a metaphor for failure.

I believe the Forum itself is an example of the global multi-stakeholder cooperation that is picking up where nation states and formal institutions left off.

The global humanitarian response to the Haitian earthquake is showing us what is possible. The 7.0 magnitude earthquake not being just a Caribbean island crisis, but a world crisis. Millions of people and thousands of institutions have responded in non-traditional ways. They are donating their time, money, goods and services. Charitable organizations such as the Red Cross received donation of tens of millions of dollars within days by using new technologies such as texting, Twitter, Facebook and YouTube. Social media has become the pre-eminent tool to connect people around the world, and help empower people become active participants in relief efforts.

There are 100 million people on Facebook Causes – the biggest application on Facebook. These are not just people talking to each other. They are now organizing activities in the physical world. I heard of dozens of examples at Davos.

3. There is a profound rethinking of the financial services industry and its role in society.

French President Nicolas Sarkozy put it well: “The banker’s job is not to speculate, it is to analyse credit risk, assess the capacity of borrowers to repay their loans and finance growth of the economy. If financial capitalism went so wrong, it was, first and foremost, because many banks were no longer doing their job. Why take the risk of lending to entrepreneurs when it is so easy to earn money by speculating on the markets? Why lend only to those who can repay the loan when it is so easy to shift the risks off the balance sheet?”

The mood at Davos was widespread: Banks need to be reined in, the sooner the better. US banking executives used to be the stars of Davos. Now they are a low-key, humble and dour looking group. Last year at Davos everyone was in a degree of shock. This year, a better term would be “fed up.” Fed up with banks that are “too big to fail,” with government bailouts, with the human costs of this crisis and with an industry that basically got out of control. For some CEOs the crisis warrants a critical re-evaluation of market capitalism.

4. Executive pay, especially for bankers, needs fixing.

There was a very strong sentiment that the issue of exorbitant executive compensation needs to be corrected. The biggest targets of discussions were bankers and other architects of the financial crisis. Many heavily damaged their own firms, some to the point of bankruptcy, paralyzed the commercial credit market for tens of thousands of companies, and today are not able or willing to loan money to entrepreneurs. To set aside $billions for bonuses just after they had been bailed out by the government was viewed by almost everyone as unconscionable. Even those banks that didn’t need a bailout cannot justify 8 digit compensation packages.

5. Sustainability is an idea whose time has come. Business is moving from talk to action.

As one executive put it: “It’s no longer about the Green Economy; it’s about the Economy.” Sustainability is the central issue many businesses face.

A few short years ago, sustainability was buried in a company’s PR department and it was primarily a matter of spin. But then governments began forcing certain reporting and behaviors, and the corporate issue became compliance. Then sustainability became a matter of competitiveness and cost reduction, by capturing efficiencies such as reducing waste and energy use. CEOs everywhere at Davos said we’ve now arrived at the point where sustainability must be integrated into the business strategy — what is a business, and how it does it operate and relate to the rest of the world.

We’ll see if they walk the talk.

I’ll post themes 6 – 10 tomorrow.

Don Tapscott

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Don Tapscott, one of the world's leading authorities on business strategy, is Chairman of Moxie Insight. He was founder and chairman of the international think tank New Paradigm before its acquisition 2007. Read more about Don.