Envisioning Governance 4.0

In 2022, the Covid-19 pandemic and the myriad crises it spawned may finally start to recede. But even in that best-case scenario, a tsunami of new challenges—from the failure of climate action to the erosion of social cohesion—is within sight. When our institutions are well-governed, we pay little attention to them. They are simply invisible infrastructure supporting the economy and virtually all aspects of the social order.

Today, however, many people have lost faith in their leaders. Faced with mounting risks and our collective failure to address them, we have started looking for culprits. Some point the finger at inept political leaders, others blame "Davos Man" CEOs, and a desperate, growing minority sees an elite conspiracy behind the current gloom and doom. But at the heart of our failure to foresee and manage global risks lies an unresolved problem of global governance. We tend to view history as a series of big, earthquake-like events. But the degradation of global governance was mostly a case of gradual erosion.

In the Governance 1.0 period immediately after World War II, both public and corporate governance were marked by the rule of the "one man": the elected or unelected "strong leader." 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, emerging at the end of the 1960s, affirmed the primacy of material wealth, and coincided with the rise of the economist Milton Friedman's "shareholder capitalism" and progressive global financialisation. The new managerial class, accountable only to shareholders, reigned supreme and had global reach. And while the 2008 global financial crisis dealt Governance 2.0 a serious blow, its narrow vision continued to prevail until the outbreak of the Covid-19 pandemic.

The brutal social and economic shock inflicted by Covid-19 ushered in Governance 3.0. Crisis management currently dominates decision-making, with leaders focusing on operational thinking and showing relative disregard for possible unintended consequences. This short-term, trial-and-error approach has led to haphazard management of the pandemic and its socioeconomic fallout. But when the pandemic ends, we will need a new governance model. Governance 4.0 would differ from its predecessors in several fundamental respects.

First, it would replace today's short-term crisis management with long-term strategic thinking. A focus on current problems must be complemented with action to tackle climate change, reverse biodiversity loss 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 a complex and interconnected world. The roles and responsibilities of each stakeholder in society must change. Businesses can no longer ignore their social and environmental impacts, while governments can no longer act as if they alone have all the answers.

Third, the current emphasis on a narrow conception of economics and short-term financial interests must cease. Instead, the primacy of society and nature must be at the core of any new governance system. Finance and business are important. But they must serve society and nature, not the other way around.

Many leaders remain stuck in the shareholder capitalism mentality of Governance 2.0, while some societies still favour the strongman structure of Governance 1.0. And as long as Covid-19 remains a threat, the crisis mentality of Governance 3.0 will continue to dominate boardroom and cabinet discussions. But many leaders are already thinking and acting like pioneers for a new age of governance. They include business executives advocating for environmental, social, and governance (ESG) metrics. Above all, young people are demanding a better future.

Instead of criticising such leaders for not "staying in their lane," we should welcome them for acting outside of their narrow interests. The best gauges of responsible and responsive governance today measure the extent to which leaders embrace and consent to stakeholder responsibility over shareholder responsibility.

The 21st century will bring many unprecedented challenges. If we want our successors to look back at the progress we made with the same satisfaction that we felt at the end of the 20th century, our governance model must evolve.

Klaus Schwab is founder and executive chairman of the World Economic Forum (WEF), and co-author of "The Great Narrative: For a Better Future" (Forum Publishing, 2022).