Vanity Fair | by Peter Goodman | January 18, 2022
Klaus Schwab, the ringmaster of festivities at the World Economic Forum in Davos, has been known to tell underlings that he anticipates one day receiving a Nobel Peace Prize.
In a surprise to no one else, Oslo has yet to ring.
Schwab’s greatest accomplishment is decidedly entrepreneurial. He has developed the Forum from an earnest meeting of policy wonks into a glittering assembly of the world’s richest people. He has achieved this by ingratiating himself with those who wield power, and especially the billionaire class—a tribe known as Davos Man. Schwab has constructed a refuge for the outlandishly wealthy, an exclusive zone where they are free to pursue deals and sundry shenanigans while enjoying the cover of participating in a virtuous undertaking. Their mere presence in Davos at the Forum signals their empathy and sensitivity.
In the prevailing pantomime, Davos Man is intent on channeling his intellect and compassion toward solving the great crises of the age. He might have retreated to his mountaintop palace in Jackson Hole or his yacht moored off Mykonos, but he is too obsessed with rescuing the poor and sparing humanity from the ravages of climate change. So he is in Davos—paying fees reaching several hundred thousands of dollars a year for a Forum membership, plus tens of thousands more per head to attend the meeting—posing for photos with Bono, congratulating Bill Gates on his philanthropic exploits, tweeting out inspirational quotes from Deepak Chopra, and still finding time to buttonhole that sovereign wealth chieftain from Abu Dhabi in pursuit of investment for his luxury-goods mall in Singapore.
For the billionaires, participation in Schwab’s charade may be proffered as evidence that they adhere to the ubiquitous slogan of the Forum itself: Committed to Improving the State of the World.
In truth, Davos Man has pillaged the global economy, exploiting workers, plundering housing and health care, and dismantling government programs while transferring the bounty to his personal bank accounts tucked in jurisdictions beyond the reach of any pain-in-the-ass tax collector. The resulting inequality constitutes a potent threat to peace, a source of mass grievance that has helped propel anti-democratic populists to prominence around much of the globe.
Yet the fact that Schwab appears to believe in his credentials as a moral figure worthy of a Nobel speaks to his faith in the effectiveness of his creation. Like the people he gathers annually in the Alps—or at least virtually during the pandemic—Schwab is an exemplar of the force of pious words as prophylactic against the consequences of unsavory deeds.
Adour economist with ramrod-straight posture, Schwab speaks forcefully and slowly, in a thick German accent bordering on farcical, as if every word is among the most meaningful uttered in history.
Born in 1938, he came of age in Europe’s postwar reconstruction. He convened the first meeting in Davos—then known as the European Management Forum—in 1971, drawing 450 participants.
In recent years, 3,000 people have jammed the proceedings in Davos. The event has exhausted the meager supply of hotel rooms, forcing grown professionals to share glorified dorm spaces in barebones chalets for upward of $400 a night, or otherwise commute from neighboring villages while relying on Forum shuttle buses whose schedules appear as closely guarded as North Korean nuclear launch codes.
Despite the outward appearances of glamour, attending the Forum has become a supreme and unending torment of logistical hassles, astonishing costs, and physical deprivation—exhaustion, dehydration, hunger, and anxiety. But this is also central to the experience, a feeling of overwhelming befuddlement tinged with elation that you are somewhere that is supposed to signify your own importance in the momentous sweep of history—a ridiculous yet highly effective means of motivating people to keep showing up.
Like most Davos Men, Schwab has mastered the art of holding two irreconcilable positions at once, unencumbered by the typical constraints of rank hypocrisy. He blithely disregards the obvious contradictions between the pristine values he publicly champions—inclusion, equity, transparency—and the unsavory compromises that he makes in wooing people with money and influence.
When Donald Trump appeared in Davos in January 2020 to present a keynote address, Schwab credited the American president for fostering a spirit of community.
“Congratulations for what you have achieved for your economy, but also for your society,” Schwab told Trump as he introduced him. “All your politics certainly are aiming to create better inclusiveness for the American people.”
Schwab’s movements through the Congress Centre unfold like military exercises, a coterie of agitated minions accompanying him everywhere. On his travels, he demands the privileges of a visiting head of state, complete with welcoming delegations at the airport.
At the Forum’s headquarters in Switzerland—a glass-fronted campus looking out on Lake Geneva—a hallway connecting two wings is lined with photos of Schwab posing with world leaders. When a Forum employee who was late for a meeting once pulled into Schwab’s spot in the parking lot, aware that the boss was overseas, he caught wind of it, and insisted that she be fired, relenting only after senior staff intervened to save her.
In the mid-1990s, when the Forum convened a gathering in South Africa, Schwab delivered a speech in front of Nelson Mandela at the closing plenary in which he cribbed from Martin Luther King Jr. “I have a dream,” he said dramatically.
“Several of us almost threw up,” recalled Barbara Erskine, who then ran the Forum’s communications.
But if Schwab is something of a ludicrous character, he is also begrudgingly admired as a savant.
“He has a knack, an incredible knack to smell the next fad and to jump into it,” said one former colleague.
He recognized early on that the Forum had to distinguish itself from the run-of-the-mill business conferences, where people sat around talking about money. In defining a high-minded mission—“Improving the State of the World”—Schwab turned attendance into a demonstration of social concern.
He reinforced the value proposition through relentless networking, making Davos an indispensable venue for business. He enticed multinational corporations to pay hundreds of thousands of dollars a year for the privilege of serving as “strategic partners,” securing access to exclusive lounges and private conference rooms inside the Congress Centre. There, executives encounter one another along with heads of state, investors, and other people capable of improving the state of their balance sheets.
Schwab choreographs bilateral meetings at which heads of global banks and energy companies can personally beseech presidents of countries for preferential tax treatment and access to promising oil fields. Consulting giants and software companies make plays for government contracts by speaking directly with the decision-makers. Top executives can fly in and meet a dozen heads of state in the course of four or five days, sitting across tables in soundproof rooms, beyond the purview of securities regulators, journalists, and other hindrances.
The core activities of the Forum—the sober speeches and panel discussions—have long been eclipsed by the extracurricular events that dominate Davos outside its official auspices: cocktail parties and banquets hosted by global banks and technology companies. Regular participants at the Forum boast about having attended zero panels and never setting foot inside the main assembly hall—a cynical mark of sophistication—while celebrating their invites to notorious soirees full of privileged debauchery.
Schwab feigns unhappiness, bemoaning the supposed dilution of the experience as Davos fills with private parties.
“We do not welcome them,” he once said. “They detract from what we are doing.”
But he does not complain about the attendant perks.
Despite the Forum’s status as a not-for-profit organization, Schwab and his wife, Hilde Schwab—the organization’s cofounder—have adeptly positioned themselves to benefit from the gusher of money moving through it. Audi has long served as the Forum’s exclusive shuttle partner, using Davos as a showcase for its newest vehicles, while supplying the Schwabs with cars at steep discounts. The Forum budget covers his globe-trotting, and the catering and security services at his palatial home in the Cologny neighborhood of Geneva—the Beverly Hills of Switzerland—where Schwab frequently hosts extravagant dinners.
Over the years, the Forum has spent almost 70 million Swiss francs (nearly $80 million) to purchase land in the area, including two parcels bridging Schwab’s home and the Forum headquarters, making them contiguous. Even in the 1990s, when the Forum employed only a few dozen staff, Schwab’s salary was tied to the pay for the secretary general of the United Nations, supplying him roughly $400,000 a year.
But Schwab was not satisfied by ordinary wealth. He entrusted his nephew, Hans Schwab, with the construction of a series of for-profit businesses, tapping the Forum as a venture capital fund.
His nephew had been overseeing the logistics of the Forum’s events when, in the mid-1990s, he joined forces with a contractor to create a new company, Global Events Management, tapping the Forum for half the startup capital. From inception, the new business enjoyed a contract from the Forum to manage all of its events, a deal worth several million dollars a year. Klaus Schwab was so delighted by the success of the business that he told Hans that he was entitled to 5 percent. His nephew asked if he should prepare a legal document making this official. His uncle waved him away. “We’re family,” he said.
Klaus Schwab declined repeated requests for an interview. According to a Forum spokesman, he was angry that interviews given to other publications about his book, Stakeholder Capitalism, had yielded disappointing coverage. Through a spokesman, Schwab denied his nephew’s account. “Hans been estranged from his family from many years,” Klaus Schwab said in a statement emailed by the spokesman. “He has sought attention by making baseless claims.”
Schwab was cognizant that running a for-profit company on the side of a nonprofit could bring unwanted scrutiny from the authorities. Yet he was so proud of his entrepreneurial exploits that he pressed Erskine, the communications chief, to write about the events business in the Forum’s annual report. When she balked, suggesting that this would constitute an admission that the Forum was taking liberties with its nonprofit status, Schwab was not grateful for her counsel.
“He was furious,” Erskine told me. “He sat me down and said, ‘Look, I want to be regarded as a businessman.’”
Schwab soon dispatched his nephew to Boston to run his new obsession—Advanced Video Communications, a startup that was building a videoconferencing system. At Schwab’s direction, the Forum invested roughly $5 million into the venture.
For two years, Hans Schwab oversaw the refining of the product while raising more funds. He brokered a deal under which a publicly traded technology company, USWeb Corp., purchased the video startup, handing over stock that valued it at about $16 million.
The company elevated Klaus Schwab to its board while awarding him stock options worth as much as $500,000. As USWeb’s shares soared in value, the Forum’s initial $5 million investment became worth at least $20 million.
Just before the merger closed, Klaus Schwab called his nephew and demanded a last-minute change. The Forum’s shares in Advanced Video Communications had been transferred to a new entity—the Schwab Foundation for Social Entrepreneurship. The foundation was to receive the proceeds.
Hans Schwab was taken aback. A last-minute change of ownership threatened to derail the transaction. But his uncle was adamant.
“He said, ‘This needs to get done right now,’” Hans Schwab told me. “I had never heard of the Schwab Foundation, and I suddenly had to change all of the contracts. I knew it was his little thing that he was cooking up. Suddenly, in the last hour, he could see that there was going to be huge sums of money involved, the sort of money that he had never seen before, and he wanted to put it in a structure over which he had 100 percent control.”
According to its website, the foundation promotes small-scale enterprises that address issues of social importance—extending the reach of clean water and electricity in the developing world, and creating opportunities for women. Where the money has gone is effectively unknowable. Swiss authorities require minimal disclosure.
Through a spokesman, Schwab confirmed that the sale of its shares in Advanced Communications “formed part of the endowment for the Schwab Foundation for Social Entrepreneurship, which has helped improve over 622 million lives in its twenty year existence.”
The same year of the USWeb deal, Publicis Group, a French advertising and public relations giant, purchased the events business in a deal that fetched 6 million Swiss francs. Hans Schwab approached his uncle to ask about his promised 5 percent.
“He said, ‘We can’t do that,’” the younger Schwab recalled. “It doesn’t look good.”
From DAVOS MAN: How the Billionaires Devoured the World by Peter S. Goodman. Copyright © 2022 by Peter S. Goodman. Published by Custom House, an imprint of HarperCollins.
Source: How Klaus Schwab Built a Billionaire Circus at Davos | Vanity Fair
