Ethics Violations

The Failure of the Davos Elite

  • Why it matters

    Why it matters

    Corporate scandals, such as VW’s Dieselgate, are eroding society’s trust in large corporations and leading to growing support of populist parties and protectionist measures.

  • Facts

    Facts

    • Volkswagen shocked the world when it admitted in September 2015 to manipulating the emissions of 11 million diesel cars worldwide.
    • Deutsche Bank’s reputation was also tarnished after it was forced to pay billion dollars to settle interest manipulation and improper mortgage dealing charges.
    • Some German citizens feel globalization has made them worse off, costing them their jobs or forcing them to work for less pay.
  • Audio

    Audio

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General Views Of Davos Ahead Of The World Economic Forum (WEF) 2017
Leading executives, policymakers and politicians will gather in Davos, Switzerland this week for the World Economic Forum. Source: Bloomberg [M]

Starting Tuesday, the global corporate elite will converge at the World Economic Forum in the idyllic Swiss town of Davos to discuss the big issues of the day. This year, the big issues seem to have gotten even bigger. They include the consequences of Brexit, changes in the economy and society brought on by globalization, the political crises in Syria, Ukraine and Turkey, and the ominous rise of global populism.

After a week of talks, these leading politicians and managers of global corporations will leave Davos with the positive feeling of having had productive discussions and making new connections.

But for the rest of us, that isn’t enough.

In the midst of global disorder and turmoil, the world needs corporate leaders with poise; leaders who aren’t afraid to get their hands dirty or to take a stand; leaders who take their employees’ fears of the effects of globalization and digitization seriously; leaders who search for solutions and do not shy away from political debates in the vain hope that governments will somehow fix everything.

What we need are managers who are perceived as role models – both by their own companies and by the public.

A person who runs a company, regardless of its size, also has a social responsibility. Most business owners recognize that. This responsibility consists of more than engaging in the occasional community-based project or pursuing sustainable production. What we need are managers who are perceived as role models – both by their own companies and by the public. It’s a respect that is earned not only by being focused on company profits or bonus packages, but also by taking clear positions in the public discourse.

What sounds like it should be a matter of course is, in fact, the exception to the rule of corporate leadership today. Most managers have failed to weigh in on discussions surrounding the refugee crisis, globalization or Europe’s future without Britain. Leaving these issues to be solved by politicians alone only increases the risk that the outcomes end up not in the interest of companies.

In Germany, both Volkswagen and Deutsche Bank have played a key role in tarnishing the status of managers as role models. The systematic efforts to manipulate emissions values at VW or interest rates and currencies at Deutsche Bank rank among the darkest chapters in German economic history. Both companies were rightfully forced to pay billions for their infractions. Although legally their respective cases are now largely closed, it will take years before the damage to public confidence in these companies has been repaired.

Indeed, the collective failure of the executive and supervisory boards of VW and Deutsche Bank threatens the foundation of the social market economy. They are like fuel to the flames of an already heated anti-corporate atmosphere, with more and more people sensing a growing injustice in our economy.

Those who give in so easily to critics of free trade like Mr. Trump bear some of the blame when the advantages of globalization are questioned.

This unease is only amplified when companies react to crises of their own making by laying off thousands of employees while rewarding top executives with substantial bonuses. The majority of citizens simply do not understand how former VW Chief Executive Martin Winterkorn could be allowed to retire with a pension worth €1.1 million or $1.2 million – that is, before questions surrounding his responsibility in the emissions scandal have been clarified.

Behavior like that exhibited by Mr. Winterkorn strongly contributes to the erosion of people’s image of corporate executives. It also gives rise to populist sentiment. As a result, companies should not be surprised when lawmakers respond to public grievances of corporate greed or manipulation with regulatory intervention. Without the Winterkorn case, the Social Democrats would probably not have proposed stricter rules on managerial compensation.

But for managers, poise doesn’t just mean not making legal or moral mistakes. It also means not abandoning convictions. The decision by Ford due to pressure from Donald Trump to abandon existing investment plans in Mexico and shift them instead to the United States is a potentially fatal mistake.

Those who give in so easily to critics of free trade like Mr. Trump bear some of the blame when the advantages of globalization are questioned. The same applies to the silent majority of managers who apparently lack the courage to publicly oppose this foreseeable backslide into a protectionist economy.

This behavior is both incomprehensible and unjustifiable. After all, corporate success is on the line as populist parties like Germany’s Alternative for Democracy (AfD) or France’s Front National gain power and influence in Europe.

We urgently need courageous, upright and credible corporate leaders who embrace their social responsibilities. It isn’t too late yet.

 

Sven Afhüppe is Handelsblatt’s editor in chief. You can reach him at: afhueppe@handelsblatt.com

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