The humbling of Davos Man

By John Gapper

It’s lonely at the top.

Having journeyed this week up a Swiss mountain valley to the World Economic Forum’s annual meeting in Davos, I find myself in select company. Several members of the global business elite discovered at the last minute that they had pressing business elsewhere.

Where is John Thain, the former chief executive of Merrill Lynch? Back in New York trying to rescue his good name after being pushed out by Bank of America and having details of his $1.2m (€907,000, £839,000) office refurbishment leaked. And where is Sam DiPiazza, chief executive of PwC? In India, where two PwC auditors have been held by police over their role in the alleged $1bn fraud at Satyam Computers.

This is usually the time of year when Davos Man – the global banker and business leader whose fortunes have risen spectacularly during the past three decades – gets to strut his or her stuff. This January, Davos Man is being humbled instead.

It is tricky to be seen at a talking shop in Switzerland when your house is burning down. Even Bob Diamond, president of Barclays, which managed to persuade investors this week that it is not going bust, decided it would be wiser to stay in London.

But there is more going on than a bunch of chief executives temporarily bowing to public relations realities. The ascendancy of Davos Man is under threat for the first time since Klaus Schwab organised the inaugural meeting in 1971. The history of Davos parallels the rise in prestige and power of the private sector and free enterprise. After a blip in the crisis-ridden early 1970s, Mr Schwab’s annual circus of chief executives, politicians and non-governmental organisations has been on a roll.

Companies and banks footed the bill for the frenetic round of debates and dinners, and politicians and others dutifully turned up. It was in their interests because this was where the money, and the power, was.

Davos Man was not always popular. He was condemned from the right by Samuel Huntington, the US political scientist, for his “dead soul”, being a rootless cosmopolitan who disdained the patriotic pride of the ordinary Joe. From the left, anti-globalisation activists accused chief executives of exploiting the poor.

But his power was unquestioned. The election of Margaret Thatcher in the UK in 1979 and Ronald Reagan in the US in 1980 ushered in scepticism about government. Private enterprise filled the gap, with billionaires such as Bill Gates not only building businesses but also usurping the role of the public sector and governments in addressing inequality and social problems.

Now, all that is under threat. The credit crisis has ruined the reputations of Wall Street bankers and handed power to politicians and regulators. “The president of the US and the Treasury secretary have been given a degree of power that no president has had since Franklin Delano Roosevelt,” says Nick Burns, a Harvard professor and former US undersecretary of state.

Suddenly, business leaders lack legitimacy. A US survey conducted by Edelman, the public relations company, last autumn found that the trust of the public in US business had fallen from 58 per cent the previous year to 38 per cent. Only 49 per cent of Americans (Americans, for heaven’s sake!) think the free market should be allowed to function independently.

I find these data worrying because the failures of the credit crisis do not obviate the good things businesses can do. Mr Gates’ philanthropy and other private-sector initiatives to improve the state of the world were more than mirages.

Davos Man now faces a struggle not only to operate freely in business but also to regain his former authority. It seems to me that business people have to do two things to regain trust.

The first is simple enough, although painful: stop behaving like the 18th century French aristocracy. After an extended period of extreme prosperity, and an increasing proportion of financial rewards accruing to people at the very top, it is easy for these people to lose their heads (in this case, figuratively).

Perhaps Mr Thain is being singled out unfairly, since Bank of America wants to make him into a whipping boy, but his lavish office expenses and decision to accelerate the payment of Merrill bonuses speak to being, like many other financiers, weirdly detached from reality. Most people are happy, in normal times, for there to be big disparities of income and wealth, and for business people and entrepreneurs to do well. Many of us, after all, harbour hopes of getting rich ourselves one day. But there must be, as Richard Edelman, head of the eponymous firm, phrases it, some “shared sacrifice”.

The second thing is less painful but harder: to demonstrate competence. Davos Man’s pitch, accepted by most people for many years, was that the private sector was better at doing things than governments. That did not seem a stretch: disasters such as hurricane Katrina exposed the US government’s inability to fulfil its basic duties to citizens.

The credit crisis turned out to be Wall Street’s own hurricane Katrina. It transpired that financiers had no idea of the risks they were taking and could not save their banks from sinking in a storm. The question then naturally arises: if Davos Man cannot do his own job, why should we let him do anything else?

At the moment, even in the rarefied air of Davos, there is no obvious answer to this question. Personally, I hope that business leaders can restore public confidence in their ethics and competence as quickly as possible because the alternative is unpleasant to contemplate. But few people are going to listen to, let alone follow them until they do.