Sustainable Governance: Beyond the Corporate Purpose
Where: Zoom Platform
Time: 2 p.m.
Please contact school.socialsciences [at] unitn.it
for the link to the Zoom event.
- Anna Toniolo, University of Trento
In 2019, the Communication on the European Green Deal set out that “sustainability should be further embedded into the corporate governance framework”. In July 2020, the European Commission published the “Study on directors’ duties and sustainable corporate governance” by Ernst & Young (EY), which was accompanied by a Commission Inception Impact Assessment. The Study and the Impact Assessment claim that companies (particularly the listed ones) face pressure to focus on short-term financial performance and to redistribute a large part of the income generated to shareholders, often to the detriment of the long-term development of the company, as well as of sustainability. The main solution is identified in requiring companies to articulate in their charters the purpose for which they are formed, so that directors are forced to take into account all stakeholders’ interests as part of their duty of care to promote the interests of the company and pursue its objectives. I argue that a more “purposive” corporation would fail to solve the problem. As already underlined among the scholars, announcing the corporate purpose in the bylaws would lack both binding legal effect and operational significance. Additionally, different stakeholders have different and often conflicting interests, leaving directors without a standard for choosing among competing interests increases their discretion, and it could even provide a cover for management self-interest.For promoting sustainable governance, I suggest to shift the focus from the board of directors to the shareholders. More specifically, to a given category of shareholders, institutional investors, which are the largest owner of financial capital and the most important shareholders in many large companies. To win the assets of women and the millennial generation – that are accumulating wealth at record rates –, institutional investors are likely to demonstrate a strong commitment to their social values. These developments have the potential to reshape the corporate governance framework, further embedding sustainability in it. In this seminar, I will explore how legal rules may align the incentives of institutional investors with the interest of their beneficiaries as it relates to sustainability.