Gigantic corporations lead in business today: fewer than 10% of public companies worldwide account for 80% of all corporate profits. But the giants of world business are challenged to manage their enormous scale, create new products and contribute to society, agreed leaders of global manufacturers, technology companies and banks in a session on the opening day of the World Economic Forum Annual Meeting.
Consumers are increasingly uneasy with the immense size and power of big business. “That we are discussing this topic today is a clear message that something has gone wrong in the last 10 years. Suddenly, we have started question: Is big good or not?,” said Sunil Bharti Mittal, Chairman, Bharti Enterprises, India. Recent populist votes in the US election and Brexit reflect a criticism of big business: “The biggest risk we run is to lose our mandate. We had a licence for a time, society wanted companies to grow; that mandate is getting weaker and weaker,” said Tidjane Thiam, Chief Executive Officer, Credit Suisse, Switzerland.
Big business needs a new narrative that articulates its contribution to society, the panel concurred. “What percentage of the world’s companies have 80% of the jobs? That’s the narrative. SMEs are thriving around us, every job I create makes another five,” said Andrew N. Liveris, Chairman and Chief Executive Officer, The Dow Chemical Company, USA.
Creating environments where innovation will prosper in gigantic companies tends to spawn new structures.
“Our number-one priority is leveraging the benefits of scale and size – that goes against trying to maintain entrepreneurialism and innovation in large companies,” said Sir Martin Sorrell, Chief Executive Officer of WPP, United Kingdom. The solution, he said, is that the business has to be big and small – the company can be split into units and then “the challenge is to figure out how to get them to work together.”
Innovation requires a focus on the long term, especially in terms of investment. “We are continuing to invest for the long run. Unless you stay focused on innovation, you can be disintermediated,” said Ruth Porat, Senior Vice-President; Chief Financial Officer, Alphabet, USA. Powerful market forces can swerve the focus away from that type of investment, however. Since the financial crisis of 2008, “there has been more emphasis on short-term performance because the system is focused on the short term,” said Sorrell. As a result, investments made are incremental and not the fundamental ones in innovation and branding, he added. “Incrementalism leads to irrelevance; the short-term view is the problem,” underlined Porat.
The phenomenon of gigantic corporations is here to stay, agreed industry leaders on the panel, although some expressed the view that shifts are in sight. We are heading to a world where companies will be like nation states, noted Liveris. Several panellists predicted that, 10 years from now, fewer companies will generate a higher proportion of profits than today. New forces, however, could alter this landscape. Subsidies for small business will become a force for change, said Mittal, and the concentration of profit-making in a few companies will be lower because technology will allow for improvements in small business, said Porat.
The 47th World Economic Forum Annual Meeting is taking place on 17-20 January in Davos-Klosters, Switzerland, under the theme Responsive and Responsible Leadership. More than 3,000 participants from nearly 100 countries will participate in over 400 sessions.