When the Covid-19 pandemic ends, the world will need a new governance model that differs from its predecessors in several fundamental ways. In particular, while finance, economics and business remain vitally important, they must be at the service of society and nature, not the other way around.
GENEVA – Perhaps the Covid-19 pandemic and the myriad crises it unleashed will finally begin to fade in 2022, but even in the best of possible scenarios a tsunami of new challenges is in sight: from the failure of action to the erosion of social cohesion. To fix them, leaders will have to adopt a different governance model.
When our institutions are well governed we pay little attention to them. They are simply an invisible infrastructure on which the economy and almost every aspect of the social order rests. And “good enough” governance in the second half of the 20th century enabled income growth and social peace.
Today, however, many people have lost faith in their leaders. Faced with the growing risks and the collective failure to solve them, we began to look for culprits. Some point the finger at inept political leaders, others blame corporate CEOs (the “Davos man”), and a desperate and growing minority perceive an elite conspiracy behind the current pessimism.
The truth is more complicated. At the heart of our failure to anticipate and manage global risks – not only climate change and deepening social divisions, but also the resurgence of infectious diseases, debt crises and inadequate regulation of technologies – lies a problem unresolved issue of world governance. Our institutions and their leaders are no longer fit for purpose.
We tend to see history as a series of big, earthquake-like events, but the degradation of world governance was largely a matter of gradual erosion.
In the period of governance 1.0, immediately after the Second World War, both public and corporate governance were marked by single-person rule: the “strong leader”, elected or not, and the “boss”. This type of leadership worked well in a society where the cost of information was high, hierarchical power and management functioned relatively smoothly, and technological and economic advances benefited almost everyone.
The governance 2.0 model, which emerged in the late 1960s, asserted the supremacy of material wealth and coincided with the rise of economist Milton Friedman’s “shareholder capitalism” and progressive global financialization. This new managerial class, answerable only to shareholders, was owner and mistress, and had a global reach. And while the 2008 global financial crisis severely hurt governance 2.0, its narrow view continued to prevail until the outbreak of the Covid-19 pandemic.
This brutal social and economic shock, inflicted by Covid-19, gave birth to governance 3.0: crisis management now dominates decision-making, leaders focus on operational thinking and pay scant attention to possible unintended consequences. wanted. This short-term, trial-and-error approach led to inconsistent management of the pandemic and its socioeconomic aftermath.
But when the pandemic is over we will need a new governance model. Governance 4.0 will have several fundamental differences from its predecessors. First, it will replace short-term crisis management with long-term strategic thinking. The focus on current problems -such as the pandemic, socioeconomic crises and people’s mental health- must be complemented with actions to try to solve climate change, reverse the loss of biodiversity and environmental damage caused by human activity, and address related social challenges, such as involuntary migration.
Second, governance 4.0 must replace the tunnel vision and top-down approach that prevailed in the past. We live in an extremely complex and interconnected world, not a linear one with few discontinuities. This also means that the roles and responsibilities of each of the stakeholders in society must change. Companies can no longer ignore their social and environmental impact, and governments can no longer function as if they alone have all the answers.
Third, the current emphasis on narrow economics and short-term financial interests must cease. Instead, the primacy of society and nature must be at the heart of any new governance system, for companies and governments alike. Finance and business are crucial, but they must be at the service of society and nature, not the other way around.
The world has changed and public and corporate governance must change with it. Currently, major structural changes, such as the fourth industrial revolution and climate change, are disrupting all industrial sectors and centers of power. Blockchain technology is replacing centralized and hierarchical organizations with decentralized and autonomous entities. And social, economic and digital inequalities increase.
For now, many leaders remain trapped in the shareholder capitalism mindset of Governance 2.0, while some societies still prefer the strongman-based leadership and structure of Governance 1.0. As long as the threat of Covid-19 continues, the governance 3.0 crisis mindset will continue to dominate discussions in cabinets and boardrooms.
But many leaders are already thinking and acting as pioneers of a new era of governance. They include company executives promoting environmental, social and governance (ESG) indicators, and political leaders like French President Emmanuel Macron and Italian Prime Minister Mario Draghi, who are breaking down borders. Above all, young people demand a better future.
Those who still rely on the governance manuals of bygone eras criticize those leaders for straying from the marked path. But we must welcome with open arms leaders who, navigating uncharted territory, act as pioneers, setting aside their narrow interests, and championing specific action to combat climate change and address social injustice.
Currently, the best indicators of responsible and responsive governance measure the degree to which leaders embrace and accept stakeholder responsibility (rather than shareholder responsibility). Although the measurement of stakeholder accountability is still in its infancy, developing consistent indicators will allow us to judge whether leaders are taking a broader view of their roles and responsibilities.
The 21st century brings many unprecedented challenges. If we want our children and grandchildren to look back on the same satisfaction that we feel from the progress made at the end of the 20th century, our governance model must evolve.
Founder and CEO of the World Economic Forum, he is co-author of The Great Narrative: For a Better Future.