Sustainable Corporate Governance – From Profit Maximization to Sustainability Considerations


Publish date: 2021-03-08 13:37

Discussion – Posted by Matilda Lindblad, attorney at Fondia

Brussels fades away completely Sustainability. Since the European Commission launched the Action Plan for Financing Sustainable Growth in 2018, initiatives have been aggressive. Sustainable corporate governance is one of the priority areas. On behalf of the Commission, last year’s study on corporate responsibility and sustainable corporate governance was published. In light of the comments on the study, the authority plans to present a formal proposal on sustainable corporate governance during the second quarter of the year.

Time for a broader perspective?

Will the commission Through the study we go down with the causes of myopia which is characteristic of corporate law and corporate governance. One of the reasons that arise is that management responsibility and company interests are interpreted very narrowly, which tends to characterize corporate governance with short-term profit maximization for shareholders. One of the many ways to overcome short-term is the legal obligation of management, when working for the company, to balance the interests of shareholders, the long-term interests of the company, the interests of employees and customers, environmental interests and societal interests in general. .

Britain since then The regulation has long been similar to the one listed. Article 172 of the Companies Act 2006 states that management must take into account not only the interests of shareholders but also, among other things, the long-term consequences of decisions, interests of employees, relationship with suppliers and customers, and impacts on society and the environment.

Before 2006 Shareholder interests were also a focus in the United Kingdom and the regulation in Section 172 was controversial when it was introduced. Among other things, the regulation has been criticized for confusing rather than clarifying the limits of management’s responsibility and giving management a wide margin of maneuver that might be abused. Moreover, regulations have been criticized for being ineffective in practice, as stakeholders lack the opportunity to enforce their right to have their interests taken into account by management. The study on sustainable corporate governance prepared by the Commission contains this argument and a proposal to examine whether opportunities for stakeholders to assert their rights should be expanded through legislation.

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According to Swedish Chapter 3 of the Swedish Company Law Section 3, limited liability companies must be conducted for the purpose of making a profit for the shareholders. The list does not constitute an obstacle to the introduction of other interests into the statute. Taking into account stakeholders other than shareholders does not necessarily conflict with the profit motive. On the other hand, the regulation does not give the board an incentive to consider, for example, the company’s long-term interests, environmental interests and societal interests in general.

Legal requirements for taking sustainability into account – The future of corporate governance?

Issue in Whose interest of the company to be managed is interesting even from a broader perspective. The debate raises questions about how we view the role of companies in society and what is called corporate licensing. An operating license can be interpreted as the legitimacy of the company, which the company acquires in line with the expectations of its stakeholders. In other words, it is about the acceptance of the company by the outside world aGerandi. An operating license is not related to legal requirements, but requiring the company’s management to consider all stakeholders in the law may be a step toward establishing the need for a license to operate.

Organization in companies Although Law 172 of 2006 was controversial in the United Kingdom when it was introduced, the controversy has changed since then. Sustainability issues were not at the top of the agenda as they are today. It remains to be seen whether the authority’s formal proposal to be presented in the second quarter of the year includes a proposal for a legal obligation to manage the company to accommodate a wider range of stakeholders. It’s hard to believe that such a commitment alone will lead to a more sustainable work life. On the other hand, if the obligation is combined with the opportunities for stakeholders to enforce the right to have their interests taken into account, then it is very likely that this statutory requirement contributes to a certain extent. Regardless of what one thinks about the impact and desirability of a potential legal requirement for all stakeholders to be taken into account, the proposal will demonstrate how willing the European Union is to use legislation as a tool to press for sustainable change. The proposal design can give a hint about whether the time that sustainability work relies on volunteer work will be over very soon.

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