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Schwab talks about social entrepreneurship and its relevance for India. Photo: Priyanka Parashar/Mint
Schwab talks about social entrepreneurship and its relevance for India. Photo: Priyanka Parashar/Mint

If a leader serves himself, there will be no trust: Klaus Schwab

The founder and executive chairman of the World Economic Forum on why leaders need to build trust and how social entrepreneurship will be the key to solving global problems

New Delhi: The founder and executive chairman of the World Economic Forum (WEF), Klaus Schwab, 77, is in New Delhi to participate in the National Strategy Day on India, hosted by WEF in association with Confederation of Indian Industry. In an interview, Schwab talks about social entrepreneurship and its relevance for India, why transparency is key to the growth of the social entrepreneurship sector, why businesses must focus on imparting skills to help bring about social inclusion and why trust is a two-way process between leaders and society. Edited excerpts:

Why should social entrepreneurship be the answer to any country’s problems? Is that not a government’s job?

If we look at all the challenges, particularly economic and social challenges, they can only be solved by collaborative efforts of all stakeholders of society, which means governments have their role to play, businesses, especially large businesses certainly have a clear responsibility and so does civil society. But I feel that the young generation is important too and must get involved. Social entrepreneurs are very much a phenomenon of our times.

The young...are they not too busy with career goals and setting up a life to seriously engage with social development issues of a country?

We are heading for a situation where young people will find it more and more difficult to find employment. So they have to create their own employment. If we look at the new technology, I call it the “forced industrial revolution", it will lead to a situation where the fast fish will eat the small fish. It will not be anymore just the big fish eating the small fish. What this essentially means is that we are heading for a much more entrepreneurial environment. Entrepreneurship usually has two motivations—to make as much money as possible which happened in Silicon Valley but this is the old model. I think entrepreneurship can also be exercised in terms of serving society, creating innovations. In India particularly, where more than half the population is below poverty line, social entrepreneurship is the need of the hour. India is such a large country with so many different issues—in sanitation, education, environment, in waste disposal. All this cannot be solved by the government alone. It needs a bottom-up approach. I am convinced that we are going into an age where social entrepreneurship will be a main feature of our societies.

Start-ups get so much funding. Social entrepreneurs struggle to find takers. Why?

For many people (the investors) the for-profit model is more attractive. I think we will move slowly into an economy which will be less materialistic. Also, we must distinguish between the three models of social enterprises. You clearly have social entrepreneurship models, which can never be self-financed or financed by investors alone. These ideas have to work with governments. What we need is for governments to pay more attention to these. These ideas can be reinforced and multiply the efforts of governments. And I would say it is the role (responsibility) of local and state governments and much less of central governments to spot and mobilize such opportunities to engage social entrepreneurs. So we have those which clearly have to be based on subsidies, but then we have those some ideas that can be self-financed or financed by investors. We see this model more and more. These ideas can also be financed by something called impact investing/impact bonds, or loans where the investor is aware that they are investing in something which has social benefits and is ready to take a higher portion of risk and settle for lower profit. Then we have the hybrid models, which are in between “subsidized" and “profitable" social enterprises.

How does an investor judge a social entrepreneurship project and then invest in it?

I think it is not too different from a normal venture capitalist decision. You have to look at how sustainable the model is. Is it just an idea, is it a proven idea? What has it achieved until now and what are the plans? How much is it capable to upscale? The scaling up capacity of a model is a very important aspect for investors because many social entrepreneurs have great ideas, which work locally but in order to really mainstream, you must have models that can be scaled up or replicated in a horizontal way. In fact, the state and central governments should look out and work to find such models and afterwards create a platform to share this experience with other potential social entrepreneurs who may want to take over the idea and implement it in their own environment.

The Indian corporate social responsibility (CSR) rules, 2014, say that businesses can invest in social entrepreneurship projects. Yet, at the end of year one, few companies diverted CSR funds to such ventures. Why do you think that happened?

One reason can be that social entrepreneurship is not yet mainstream. It is not so well known. We need to create better awareness. And the other reason is that it is not so easy to measure the success of social entrepreneurship projects. In an out and out commercial enterprise you see the profit, the growth rate, and the revenues. In a social entrepreneurship project, the only real way to measure success is to see how many lives have improved. This is a more qualitative issue. If a social entrepreneur comes and tells you “I am impacting 10,000 people", to verify if those 10,000 people are really impacted is tough. As a business, you will have to have much more trust in such entrepreneurs as compared to those who run pure commercial enterprises.

How do you build this trust between social entrepreneurs and their investors, the government and even civil society and the people they can potentially impact?

I think the key word here is transparency. And we must also recognize that like in the commercial world social entrepreneurship can fail. Social entrepreneurs have to be really honest about how they use the financial means which are put at their disposal and how they are achieving the results. Also, clearly there is responsibility on social entrepreneurs to deliver cost-result effectiveness.

How can companies/enterprises be socially responsible?

First is to have good corporate governance and operate within the framework of a country’s laws and have strong ethical norms. Second is philanthropy, which means if there is a need for money and support—for example, in the case of major natural catastrophe or calamity—then companies should make their resources available. Philanthropy is about serving a problem in a very specific situation. Then you have the third dimension which I call corporate social responsibility (CSR), which in my opinion is to make sure that the expectations of the stakeholders in the enterprise are fulfilled. It means, for example, you do not pollute the environment, have fair wages practices. In a narrow sense, that is CSR for me. The fourth dimension is social entrepreneurship, which means that you use your own resources to foster social development. You can do it inside the company. You can allow/encourage your employees to act as social entrepreneurs. And the last dimension is to act together with governments to solve the big issues such as social inclusion.

Can affirmative action by companies have a big impact on social inclusion goals for a country like India?

The responsibility of a company is to provide those who are underprivileged with necessary skills. So skilling, up-skilling, re-skilling are essential points. If we speak about affirmative action, it is imperative that you first create the skills and, as a business, you have an obligation to develop those people who have not had the natural environment to have their talents fully deployed. I feel, we should define companies not only as elements of society to produce economic welfare but I think they have another responsibility which is to produce skilled people.

Is the onus of building trust between various fractions—society, governments, enterprises— solely in the hands of a few leaders right at the top of the pyramid? Does it always travel from top to bottom?

No. Trust means to be trusted. So it’s not just top down, it’s bottom up too. It is a mutual relationship. I think a leader will be trusted whether he is a politician, business leader or the head of an NGO, if they fulfil one basic requirement. They must show that they serve those from whom they want to be trusted; if they serve those people they will be trusted. If they serve themselves, there will be no trust. This is the key element. For example, if people know a politician is not serving society and engaging in corruption, they will lose the trust. We have had so many cases of leaders in different categories—government, civil society, business —who misuse the mandate given to them; therefore, we face today a challenge of mistrust against a certain category of people which, in my opinion, is not justified. Trust should not be based on category of people but the issue of trust should be linked to an individual.

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