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État : le grand retour dans l’économie ?

Un peu ancienne, cette tribune de Jean Peyrelevade mérite à coup sûr dêtre lu : « L’inéluctable retour de l’Etat dans nos économies » (Les Échos.fr, 29 octobre 2019).

Extrait :

Une thèse se répand avec de plus en plus de force : les grandes entreprises capitalistes joueraient un rôle sans cesse accru dans le fonctionnement global de nos sociétés, au point de dépouiller les Etats d’une partie significative de leurs prérogatives.

Les Gafa américaines (Google, Amazon, Facebook, Apple) fournissent la contribution la plus sérieuse au caractère convaincant de cette théorie. Elles élaborent leurs propres lois de fonctionnement et donc, pour partie, leur propre droit, accumulent les données personnelles concernant chacun d’entre nous et en tirent profit en les vendant, échappent à la fiscalité en optimisant à l’échelle mondiale leurs implantations et leurs flux de facturations internes. Grâce au rendement croissant de leurs activités, elles exercent un effet de domination sur leurs marchés, rachètent systématiquement leurs concurrents potentiels ou, à défaut, s’efforcent de les faire disparaître. Enfin l’arrivée éventuelle du libra, la monnaie privée inventée par Mark Zuckerberg, constituerait, si elle voyait le jour, une atteinte directe à la souveraineté des Etats.

Cette menace est à coup sûr bien présente. Je ne crois pas, cependant, qu’elle puisse vraiment se concrétiser. Les Gafa chinois (Baidu, Alibaba, Tencent, Xiaomi), sans avoir encore la puissance de leurs rivales américaines, s’en rapprochent de plus en plus. Or, loin de faire de l’ombre à l’Etat chinois, elles sont devenues un élément clef de sa stratégie. Rappelons au passage que la Chine représente environ 20 % de la population de la planète et 15 % des richesses produites chaque année dans le monde. L’Etat-parti y exerce un pouvoir total pour ne pas dire totalitaire et toutes les entreprises, quel que soit leur statut public ou privé, y sont au service d’une politique clairement nationaliste.

(…)

Evolution du capitalisme

Un mouvement plus doux est à l’oeuvre au sein du capitalisme traditionnel des pays occidentaux. Les entreprises, jusqu’ici soumises aux marchés financiers et aux désirs de rendement de leurs actionnaires, se détachent soudain, au moins en paroles, du modèle qui les gouvernait. Milton Friedman n’est plus à la mode, et l’entreprise doit désormais se préoccuper de l’intérêt général, sinon l’incarner. La loi Pacte, en France, les oblige depuis mai dernier à intégrer les enjeux sociaux et environnementaux dans leur objet social et les encourage à définir leur raison d’être, voire même leur mission, ce qui donne un parfum de transcendance à leur activité.

Ces belles prises de position seraient-elles le signe d’un recul des Etats, voire de leur impuissance ? Je n’y crois pas une seconde. Elles marquent plutôt la prise de conscience par les chefs des grandes entreprises que le capitalisme traditionnel, dont ils ont tiré grand profit, est critiqué de maintes parts. Toutes ces bonnes intentions sont en fait la marque d’une faiblesse reconnue, et non d’une prise de pouvoir sur la société. Leur lobby, pour demeurer efficace, doit devenir plus vertueux.

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Bien distinguer le purpose, la mission, la valeur et la vision

L’University of Oxford, l’University of California, Berkeley, BrightHouse, la British Academy, Federated Hermes EOS et Wachtell, Lipton, Rosen & Katz ont publié un excellent rapport dont je recommande fortement la lecture : « Enacting Purpose within the Modern Corporation: A Framework for Boards of Directors ». En plus de revenir sur le purpose, ce rapport offre une distinction entre des notions souvent confondues…

Extrait

  • « Purpose. Purpose States « Why » an Organization Exists: As Professor Colin Mayer, one of our co-chairs puts it, “the purpose of business is to solve the problems of people and planet profitably, and not profit from causing problems”. This statement deliberately leaves open the question of the specific purpose of each organisation, but does deliberately and carefully demand a reason for existence alongside the pursuit of profit. Purpose sets out the reasons why the organisation conducts its various activities, articulating what societal challenge, need or benefit the organisation seeks to address. This sets it apart from the three other important concepts for organisations below. Once this purpose has been debated and formally agreed, the board should not only publish it but also ensure that its internal governance and external reporting evaluate its activities and the outcomes generated against its stated purpose.
  • « Values. Values Describe « How » the Organization Behaves : These are often short and punchy bullet points, detailing specific expectations and principles of interaction within the organisation’s internal or external operating environment. More importantly they should be a call to action. These values should inform and guide the specific day to day behaviours and decisions taken by every member of the organisation. They should be articulated in a way that the intent is clearly understood, and the board of directors should ensure that the organisational culture embraces these values and enables them to be put into practice by every member of the organisation. Boards of directors also need to ensure that employees are empowered to ensure that key suppliers act in compliance with the organization’s stated values.
  • « Mission. Mission Sets Out « What » the Organisation Does: It captures the day to day activities of the organisation, defining quite literally what business it is in. It is directly linked to the strategy of the organisation and is underpinned by the values deployed to deliver the mission. It is very practical and descriptive in nature. Mission therefore sets out specifically and practically what the organisation aims to do in pursuit of its stated purpose. Mission statements provide an opportunity for boards of directors to set out what they specifically intend to deliver to each of the organisation’s different key stakeholder groups.
  • « Vision. Vision Describes « Where » the Organisation Intends to Have Impact: It describes the outcome that the organisation wants to see from the successful delivery of its stated purpose. Put simply, vision captures what success looks like. By its nature, vision statements are aspirational, large scale and usually long-term.

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Retour sur Danone et l’entreprise à mission

Bel éditorial du journal Le Monde du 3 mars 2021 sous le titre « Danone : la pression de rendements insoutenables ».

Quand, en juin 2020, Emmanuel Faber est parvenu à faire de Danone le premier groupe coté de taille mondiale à se doter du statut juridique d’entreprise à mission, le volontarisme du PDG avait ouvert de nouvelles perspectives sur l’évolution du capitalisme. L’entreprise n’avait plus pour unique horizon le retour sur investissement des actionnaires, elle devait parallèlement se fixer des objectifs sociaux et environnementaux ambitieux. Huit mois plus tard, la crise de gouvernance que traverse le géant des produits laitiers et de l’eau en bouteille résonne comme un dur rappel aux réalités de la primauté des actionnaires sur les autres parties prenantes : salariés, consommateurs, fournisseurs et citoyens.

Lundi 1er mars, sous la pression de deux fonds d’investissement, le conseil d’administration de Danone a réduit les responsabilités d’Emmanuel Faber. Le patron se voit retirer la direction opérationnelle pour se concentrer uniquement sur la présidence du groupe. Cette dissociation des fonctions vise à répondre aux inquiétudes des actionnaires sur les performances de Danone. Le cours de Bourse a chuté d’un quart en 2020, tandis que sa rentabilité reste inférieure de quatre points à celle de ses principaux concurrents comme Nestlé ou Unilever qui affichent des marges autour de 18 % du chiffre d’affaires.

Même si les deux fonds n’ont pas obtenu entière satisfaction dans la mesure où ils réclamaient le départ pur et simple du PDG, la décision de limiter le pouvoir d’Emmanuel Faber révèle ainsi la difficulté de concilier les intérêts des actionnaires, qui réclament un niveau de rendement maximum, avec une croissance plus responsable. Déjà, en novembre 2020, l’exercice avait montré ses limites lorsque Danone avait annoncé la suppression de 2 000 emplois malgré un bénéfice net stable sur l’année à près de 2 milliards d’euros.

Emmanuel Faber n’est, certes, pas exempt de tout reproche. En interne, son exercice du pouvoir, autoritaire et solitaire, fait grincer des dents. Quant à sa stratégie, qui consiste à réorganiser le groupe par pays et non plus par marque pour mieux répondre aux attentes locales des consommateurs, elle suscite le scepticisme des cadres d’un groupe qui s’est construit sur le marketing. Les actionnaires peuvent être fondés à exprimer des critiques sur ces choix et sur cette concentration des pouvoirs.

Interrogation sur la soutenabilité des exigences

En revanche, au-delà du cas particulier de Danone, cette crise amène à s’interroger sur la soutenabilité des exigences de rentabilité des fonds d’investissement. Est-il raisonnable que les rendements des entreprises restent aussi élevés que dans les années 1990, alors qu’entre-temps les taux d’intérêt à long terme sont tombés à zéro et que le rythme de la croissance économique a singulièrement diminué ?

Hormis dans certains secteurs innovants ou dans celui du luxe, de tels retours sur investissement ne peuvent être obtenus impunément. Sur le plan environnemental, ils conduisent à générer des dommages qui sont incompatibles avec ce que la planète est capable de supporter. Sur le plan social, ils ont abouti, ces dernières années, à une déformation spectaculaire du partage de la valeur au détriment des salaires.

Fonds de pension et fonds souverains arbitrent de plus en plus leurs investissements en fonction de critères sociaux et environnementaux. Mais tant que cette évolution ne s’accompagnera pas d’une modération des rendements exigés, le développement durable s’en trouvera d’autant limité.

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Profit Keeps Corporate Leaders Honest

Article amenant à réfléchir dans le Wall Street Journal de Alexander William Salter : « Profit Keeps Corporate Leaders Honest » (8 décembre 2020).

Extrait :

(…) As National Review’s Andrew Stuttaford notes, this vision of wide-ranging corporate beneficence introduces a host of principal-agent problems in ordinary business decision-making. Profit is a concrete and clarifying metric that allows shareholders—owners—to hold executives accountable for their performance. Adding multiple goals not related to profit introduces needless confusion.

This is no accident. Stakeholder capitalism is used as a way to obfuscate what counts as success in business. By focusing less on profits and more on vague social values, “enlightened” executives will find it easier to avoid accountability even as they squander business resources. While trying to make business about “social justice” is always concerning, the contemporary conjunction of stakeholder theory and woke capitalism makes for an especially dangerous and accountability-thwarting combination.

Better to avoid it. Since profits result from increasing revenue and cutting costs, businesses that put profits first have to work hard to give customers more while using less. In short, profits are an elegant and parsimonious way of promoting efficiency within a business as well as society at large.

Stakeholder capitalism ruptures this process. When other goals compete with the mandate to maximize returns, the feedback loop created by profits gets weaker. Lower revenues and higher costs no longer give owners and corporate officers the information they need to make hard choices. The result is increased internal conflict: Owners will jockey among themselves for the power to determine the corporation’s priorities. Corporate officers will be harder to discipline, because poor performance can always be justified by pointing to broader social goals. And the more these broader goals take precedence, the more businesses will use up scarce resources to deliver diminishing benefits to customers.

Given these problems, why would prominent corporations sign on to the Great Reset? Some people within the organizations may simply prefer that firms take politically correct stances and don’t consider the cost. Others may think it looks good in a press release and will never go anywhere. A third group may aspire to jobs in government and see championing corporate social responsibility as a bridge.

Finally, there are those who think they can benefit personally from the reduced corporate efficiency. As businesses redirect cash flow from profit-directed uses to social priorities, lucrative positions of management, consulting, oversight and more will have to be created. They’ll fill them. This is rent-seeking, enabled by the growing confluence of business and government, and enhanced by contemporary social pieties.

The World Economic Forum loves to discuss the need for “global governance,” but the Davos crowd knows this type of social engineering can’t be achieved by governments alone. Multinational corporations are increasingly independent authorities. Their cooperation is essential.

Endorsements of stakeholder capitalism should be viewed against this backdrop. If it is widely adopted, the predictable result will be atrophied corporate responsibility as business leaders behave increasingly like global bureaucrats. Stakeholder capitalism is today a means of acquiring corporate buy-in to the Davos political agenda.

Friedman knew well the kind of corporate officer who protests too much against profit-seeking: “Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.” He was right then, and he is right now. We should reject stakeholder capitalism as a misconception of the vocation of business. If we don’t defend shareholder capitalism vigorously, we’ll see firsthand that there are many more insidious things businesses can pursue than profit.

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50 years later, Milton Friedman’s shareholder doctrine is dead

Belle tribune dans Fortune de MM. Colin Mayer, Leo Strine Jr et Jaap Winter au titre clair : « 50 years later, Milton Friedman’s shareholder doctrine is dead » (13 septembre 2020).

Extrait :

Fifty years ago, Milton Friedman in the New York Times magazine proclaimed that the social responsibility of business is to increase its profits. Directors have the duty to do what is in the interests of their masters, the shareholders, to make as much profit as possible. Friedman was hostile to the New Deal and European models of social democracy and urged business to use its muscle to reduce the effectiveness of unions, blunt environmental and consumer protection measures, and defang antitrust law. He sought to reduce consideration of human concerns within the corporate boardroom and legal requirements on business to treat workers, consumers, and society fairly. 

Over the last 50 years, Friedman’s views became increasingly influential in the U.S. As a result, the power of the stock market and wealthy elites soared and consideration of the interests of workers, the environment, and consumers declined. Profound economic insecurity and inequality, a slow response to climate change, and undermined public institutions resulted. Using their wealth and power in the pursuit of profits, corporations led the way in loosening the external constraints that protected workers and other stakeholders against overreaching.

Under the dominant Friedman paradigm, corporations were constantly harried by all the mechanisms that shareholders had available—shareholder resolutions, takeovers, and hedge fund activism—to keep them narrowly focused on stockholder returns. And pushed by institutional investors, executive remuneration systems were increasingly focused on total stock returns. By making corporations the playthings of the stock market, it became steadily harder for corporations to operate in an enlightened way that reflected the real interests of their human investors in sustainable growth, fair treatment of workers, and protection of the environment.

Half a century later, it is clear that this narrow, stockholder-centered view of corporations has cost society severely. Well before the COVID-19 pandemic, the single-minded focus of business on profits was criticized for causing the degradation of nature and biodiversity, contributing to global warming, stagnating wages, and exacerbating economic inequality. The result is best exemplified by the drastic shift in gain sharing away from workers toward corporate elites, with stockholders and top management eating more of the economic pie.

Corporate America understood the threat that this way of thinking was having on the social compact and reacted through the 2019 corporate purpose statement of the Business Roundtable, emphasizing responsibility to stakeholders as well as shareholders. But the failure of many of the signatories to protect their stakeholders during the coronavirus pandemic has prompted cynicism about the original intentions of those signing the document, as well as their subsequent actions.

Stockholder advocates are right when then they claim that purpose statements on their own achieve little: Calling for corporate executives who answer to only one powerful constituency—stockholders in the form of highly assertive institutional investors—and have no legal duty to other stakeholders to run their corporations in a way that is fair to all stakeholders is not only ineffectual, it is naive and intellectually incoherent.

What is required is to match commitment to broader responsibility of corporations to society with a power structure that backs it up. That is what has been missing. Corporate law in the U.S. leaves it to directors and managers subject to potent stockholder power to give weight to other stakeholders. In principle, corporations can commit to purposes beyond profit and their stakeholders, but only if their powerful investors allow them to do so. Ultimately, because the law is permissive, it is in fact highly restrictive of corporations acting fairly for all their stakeholders because it hands authority to investors and financial markets for corporate control.

Absent any effective mechanism for encouraging adherence to the Roundtable statement, the system is stacked against those who attempt to do so. There is no requirement on corporations to look after their stakeholders and for the most part they do not, because if they did, they would incur the wrath of their shareholders. That was illustrated all too clearly by the immediate knee-jerk response of the Council of Institutional Investors to the Roundtable declaration last year, which expressed its disapproval by stating that the Roundtable had failed to recognize shareholders as owners as well as providers of capital, and that “accountability to everyone means accountability to no one.” 

If the Roundtable is serious about shifting from shareholder primacy to purposeful business, two things need to happen. One is that the promise of the New Deal needs to be renewed, and protections for workers, the environment, and consumers in the U.S. need to be brought closer to the standards set in places like Germany and Scandinavia. 

But to do that first thing, a second thing is necessary. Changes within company law itself must occur, so that corporations are better positioned to support the restoration of that framework and govern themselves internally in a manner that respects their workers and society. Changing the power structure within corporate law itself—to require companies to give fair consideration to stakeholders and temper their need to put profit above all other values—will also limit the ability and incentives for companies to weaken regulations that protect workers, consumers, and society more generally.

To make this change, corporate purpose has to be enshrined in the heart of corporate law as an expression of the broader responsibility of corporations to society and the duty of directors to ensure this. Laws already on the books of many states in the U.S. do exactly that by authorizing the public benefit corporation (PBC). A PBC has an obligation to state a public purpose beyond profit, to fulfill that purpose as part of the responsibilities of its directors, and to be accountable for so doing. This model is meaningfully distinct from the constituency statutes in some states that seek to strengthen stakeholder interests, but that stakeholder advocates condemn as ineffectual. PBCs have an affirmative duty to be good corporate citizens and to treat all stakeholders with respect. Such requirements are mandatory and meaningful, while constituency statutes are mushy.

The PBC model is growing in importance and is embraced by many younger entrepreneurs committed to the idea that making money in a way that is fair to everyone is the responsible path forward. But the model’s ultimate success depends on longstanding corporations moving to adopt it. 

Even in the wake of the Roundtable’s high-minded statement, that has not yet happened, and for good reason. Although corporations can opt in to become a PBC, there is no obligation on them to do so and they need the support of their shareholders. It is relatively easy for founder-owned companies or companies with a relatively low number of stockholders to adopt PBC forms if their owners are so inclined. It is much tougher to obtain the approval of a dispersed group of institutional investors who are accountable to an even more dispersed group of individual investors. There is a serious coordination problem of achieving reform in existing corporations.

That is why the law needs to change. Instead of being an opt-in alternative to shareholder primacy, the PBC should be the universal standard for societally important corporations, which should be defined as ones with over $1 billion of revenues, as suggested by Sen. Elizabeth Warren. In the U.S., this would be done most effectively by corporations becoming PBCs under state law. The magic of the U.S. system has rested in large part on cooperation between the federal government and states, which provides society with the best blend of national standards and nimble implementation. This approach would build on that.

Corporate shareholders and directors enjoy substantial advantages and protections through U.S. law that are not extended to those who run their own businesses. In return for offering these privileges, society can reasonably expect to benefit, not suffer, from what corporations do. Making responsibility in society a duty in corporate law will reestablish the legitimacy of incorporation.

There are three pillars to this. The first is that corporations must be responsible corporate citizens, treating their workers and other stakeholders fairly, and avoiding externalities, such as carbon emissions, that cause unreasonable or disproportionate harm to others. The second is that corporations should seek to make profit by benefiting others. The third is that they should be able to demonstrate that they fulfill both criteria by measuring and reporting their performances against them.

The PBC model embraces all three elements and puts legal, and thus market, force behind them. Corporate managers, like most of us, take obligatory duties seriously. If they don’t, the PBC model allows for courts to issue orders, such as injunctions, holding corporations to their stakeholder and societal obligations. In addition, the PBC model requires fairness to all stakeholders at all stages of a corporation’s life, even when it is sold. The PBC model shifts power to socially responsible investment and index funds that focus on the long term and cannot gain from unsustainable approaches to growth that harm society. 

Our proposal to amend corporate law to ensure responsible corporate citizenship will prompt a predictable outcry from vested interests and traditional academic quarters, claiming that it will be unworkable, devastating for entrepreneurship and innovation, undermine a capitalist system that has been an engine for growth and prosperity, and threaten jobs, pensions, and investment around the world. If putting the purpose of a business at the heart of corporate law does all of that, one might well wonder why we invented the corporation in the first place. 

Of course, it will do exactly the opposite. Putting purpose into law will simplify, not complicate, the running of businesses by aligning what the law wants them to do with the reason why they are created. It will be a source of entrepreneurship, innovation, and inspiration to find solutions to problems that individuals, societies, and the natural world face. It will make markets and the capitalist system function better by rewarding positive contributions to well-being and prosperity, not wealth transfers at the expense of others. It will create meaningful, fulfilling jobs, support employees in employment and retirement, and encourage investment in activities that generate wealth for all. 

We are calling for the universal adoption of the PBC for large corporations. We do so to save our capitalist system and corporations from the devastating consequences of their current approaches, and for the sake of our children, our societies, and the natural world. 

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Entreprises et parties prenantes : focus sur les Pays-Bas

Le 2 août 2020, Christiaan de Brauw a publié un intéressant billet sur l’Harvard Law School Forum on Corporate Governance sous le titre « The Dutch Stakeholder Experience ».

Extrait :

Lessons learned

The Dutch experience shows that the following lessons are key to make the stakeholder-oriented governance model work in practice.

Embed a clear stakeholder mission in the fiduciary duties of the board

To have a real stakeholder model, the board must have a duty to act in the interests of the business and all the stakeholders, not only the shareholders. In shareholder models there may be some room to consider stakeholder interests. For example, in Delaware and various other US states, the interests of stakeholders other than shareholders may be considered in the context of achieving overall long-term shareholder value creation. In US states with constituency statutes, the board’s discretion is preserved: the interests of stakeholders other than shareholders can be, but do not have to be, taken into account. A meaningful stakeholder model requires the board to act in the interests of the business and all stakeholders. This is a “shall” duty, in the words of Leo Strine and Robert Eccles (see Purpose With Meaning: A Practical Way Forward, Robert G. Eccles, Leo E. Strine and Timothy Youmans, May 16, 2020). Rather than allowing for the possibility that all stakeholders’ interests will be taken into account; it should create a real duty to do so. Since 1971, boards of Dutch companies have had such a “shall” duty to follow a stakeholder mission, similar to that of a benefit corporation in, for example, Delaware.

The stakeholder duty must be clear and realistic for boards in the economic environment in which they operate. To define the contours of such a mission in a clear and practical way is not easy, as the journey of the Dutch stakeholder model shows. Today, the Netherlands has a meaningful and realistically defined fiduciary duty for boards. The primary duty is to promote the sustainable success of the business, focused on long-term value creation, while taking into account the interests of all stakeholders and ESG and similar sustainability perspectives. These principles are broadly similar to the corporate purpose and mission proposed by Martin Lipton and others (see On the Purpose of the Corporation, Martin Lipton, William Savitt and Karessa L. Cain, posted May 27, 2020).

Critics of the stakeholder model sometimes point to the ambiguity and lack of clarity of such a pluralistic model. The developments of the Dutch stakeholder model since its inception show that a pluralistic model can work in practice. By now, Dutch boards’ overriding task is adequately clear and aligned with what is typically expected of a company’s executives: pursuing the strategic direction that will most likely result in long-term and sustainable business success. The Dutch stakeholder model also has a workable roadmap to deal with stakeholders’ interests, particularly if they diverge or cannot all be protected fully at the same time, which necessarily results in trade-offs between stakeholders. A realistic approach to governance acknowledges that a stakeholder model does not mean that boards can or should seek to maximize value for all the stakeholders equally and at the same time. It is simply unrealistic to simultaneously pay (and progressively increase) dividends, increase wages and improve contract terms, while also promoting the success of the business. The Dutch interpretation of the stakeholder model, as developed through practice over decades, boils down to the focus on the sustainable success of the business and long-term value creation. As said above, stakeholders are protected by the board’s duty to prevent disproportionate or unnecessary harm to any class of stakeholders. Boards should avoid or mitigate such harm, for example, by agreeing “non-financial covenants” in a takeover. This makes sense as a way to protect stakeholder interests in a realistic manner, much more so than merely requiring boards—without any further guidance—to create value for all the stakeholders.

A stakeholder-oriented model should also be modern and flexible enough to address and incorporate important developments. The Dutch model is especially well positioned to embrace ESG and similar sustainability perspectives. For example, the Dutch company DSM has successfully illustrated this, while being profitable and attractive for investors. There is growing appreciation that being a frontrunner in ESG is required for sustainable business success. In addition to the fact that ESG is required for continuity of the business model and can often give a company a competitive edge, stakeholders increasingly require it. Simply “doing the right thing”, as an independent corporate goal, is more and more seen as important by (new millennial) employees, customers, institutional investors and other stakeholders.

There is no standard test to determine whether a business has achieved sustainable success. There will be different ways to achieve and measure success for different companies, depending on the respective circumstances. Therefore, the test will always have to be bespoke, implemented by the board and explained to stakeholders.

The Dutch stakeholder model has proven to work quite well in times of crisis, such as today’s Covid-19 crisis, as it bolsters the board’s focus on the survival and continuity of the business. The board must first assess whether there is a realistic chance of survival and continuity of the business. If not, and if insolvency becomes imminent, the board’s duties transform to focus on creditors’ interests, such as preventing wrongful trading and the winding down or restarting of the business in line with applicable insolvency/restructuring proceedings. Driven by the economic reality and the need to survive, in times of crisis, boards typically have more freedom to do what it takes to survive: from pursuing liquidity enhancing measures, implementing reorganizations, suspending dividends to shareholders and payments to creditors and so on. The success of the business remains the overriding aim, and in some cases harm to one or more classes of stakeholders may need to be accepted. In addition, in a true stakeholder model, in times of crisis there may not be sympathy for corporate raiders or activists (so-called “corona profiteers” in the current case) who want to buy listed companies on the cheap. A just say not now defense in addition to the just say no defense will readily be available for boards who are occupied with dealing with the crisis and revaluating the best strategic direction. This idea that during the Covid-crisis protection against activists and hostile bidders may be needed seems to be understood as well by, for example, ISS and Glass Lewis, evidenced by their willingness to accept new poison pills for a one year duration (see, for example, ISS and Glass Lewis Guidances on Poison Pills during COVID-19 Pandemic, Paul J. Shim, James E. Langston, and Charles W. Allen, posted on April 26, 2020).

Teeth to protect the stakeholder mission and appropriate checks and balances

The Netherlands has adopted a model in which matters of strategy are the prerogative of the executive directors under supervision of the non-executive directors or, in the still widely used two-tier system, of the management board under supervision of the supervisory board. Similar to the discretion afforded to directors under Delaware’s business judgment rule, a Dutch board has a lot of freedom to choose the strategic direction of the company. In a dispute, the amount of care taken by the board in the decision-making process will be scrutinized by courts, but normally objectively reasonable decisions will be respected. In the Dutch model the board is the captain of the ship; it is best equipped to determine the course for the business and take difficult decisions on how to serve the interests of stakeholders. Generally, the board has no obligation to consult with, or get the approval of, the shareholders in advance of a decision.

At the same time, in recognition of the significant power that boards have in the Dutch stakeholder model, there should be checks and balances to ensure the board’s powers are exercised in a careful manner, without conflicts of interest and without entrenchment. Non-executive/supervisory directors will need to exercise critical and hands-on oversight, particularly when there are potential conflicts of interest. Further, shareholders and other stakeholders are entitled to hold boards to account: boards need to be able to explain their strategic decisions. Shareholders can use their shareholder rights to express their opinions and preferences. Shareholders can also pursue the dismissal of failing and entrenched boards. Boards need regular renewed shareholder mandates through reappointments. The courts are the ultimate guardian of the stakeholder model. The Dutch Enterprise Chamber at the Amsterdam Court of Appeals, which operates in a comparable manner to the Delaware Chancery Court, is an efficient and expert referee of last resort.

The stakeholder model should not convert to a shareholder model in takeover scenarios. The board should focus on whether a takeover is the best strategic option and take into account the consequences for all the stakeholders. In most cases, the best strategic direction for the business will create the highest valuation of the business. But, and this is a real difference with shareholder models, it should be acknowledged that the stand-alone (or other best strategic) option can be different from the strategic option favored by a majority of the shareholders and the option that creates the most shareholder value. This principle was confirmed by the Dutch Enterprise Chamber in 2017 in the AkzoNobel case.

A meaningful stakeholder model requires teeth. The right governance structures need to be put in place to create and protect the long-term stakeholder mission in the face of short-term market pressure. The reality—in the Netherlands as well as in the US—is that shareholders are the most powerful constituency in the stakeholder universe, with the authority to replace the board. In Dutch practice, various countervailing measures can be used to protect the stakeholder mission. A commonly used instrument is the independent protection foundation, the Dutch poison pill. The independent foundation can exercise a call option and acquire and vote on preference shares. It can neutralize the newly acquired voting power of hostile bidders or activists and is effective against actions geared at replacing the board, including a proxy fight. Once the threat no longer exists, the preference shares are cancelled. These measures have been effective, for example, against hostile approaches of America Movil for KPN (2013) and Teva for Mylan (2015).

Foster a stakeholder mindset, governance and environment

Perhaps the most important prerequisite for a well-functioning stakeholder model is the actual mindset of executives and directors. This mindset drives how they will use their stakeholder powers. Fiduciary duties—also in a stakeholder model—are “open norms” and leave a lot of freedom to boards to pursue the strategic direction and to use their authority as they deem fit. The prevailing spirit and opinions about governance are important, as they influence how powers are interpreted and exercised. As an example, the Dutch requirement that boards need to act in the interest of the company and its business dates from 1971, but that did not prevent boards in the 2000s from seeing shareholders as the first among equals. Today, the body of ideas about governance in the developed world is tending to converge towards stakeholder-oriented governance. This seems to indicate a fundamental change in mindset, not merely a fashionable trend or lip service. Board members with a stakeholder conviction should not be afraid to follow their mission, even if it runs counter to past experience or faces shareholder opposition. Of course, the future will hold the ultimate test for the stakeholder model. Can it, in practice, deliver on its promise to create sustainable success and long-term value and provide better protection for stakeholders? If so, this will create a positive feedback loop in which more boards embrace it.

Stakeholder-based governance models remain works in progress. In order to succeed in the long term, models that grant boards the authority to determine the strategy need to stay viable and attractive for shareholders. Going forward, boards following a stakeholder-based model will likely need to focus more on accountability, for example by concretely substantiating their strategic plans and goals and, where possible, providing the relevant metrics to measure their achievements. In reality, stakeholder models are already attractive for foreign investors: about 90% of investors in Dutch listed companies are US or UK investors. In addition, developments in the definition of the corporate purpose will further refine the stakeholder model. In the Netherlands, there has been a call to action by 25 corporate law professors who argue that companies should act as responsible corporate citizens and should articulate a clear corporate purpose.

To make stakeholder governance work, ideally, all stakeholders are committed to the same mission. It is encouraging that key institutional investors are embracing long-term value creation and the consideration of other stakeholders’ interests, for instance by supporting the New Paradigm model of corporate governance and stewardship codes to that effect. However, the “proof of the pudding” is whether boards can continue to walk the stakeholder talk and pursue the long-term view in the face of short-term pressure, either through generally accepted goals and behavior or, if necessary, countervailing governance arrangements. Today, it is still far from certain whether institutional investors will reject pursuing a short-term takeover premium, even where they consider the offer to be undervalued or not supportive of long-term value creation. Annual bonuses of the deciding fund manager may depend on accepting that offer. Until the behavior of investors in such scenarios respects the principle of long-term value creation, appropriate governance protection is important to prevent a legal pathway for shareholders to impose their short-term goals. Therefore, even in jurisdictions where stakeholder-based approaches have been embraced, and are actually pursued by boards, governance arrangements might need to be changed to make the stakeholder mission work in practice. Clear guidance for boards is needed on what the stakeholder mission is and how to deal with stakeholders’ interests, as well as catering for adequate powers and protection for boards.

The Dutch model, which requires a company to be business success-driven, have a “shall duty” to stakeholders that applies even in a sale of the company, and that recognizes that corporations are dependent on stakeholders for success and have a corresponding responsibility to stakeholders, has been demonstrated to be consistent with a high-functioning economy. By highlighting the Dutch system, however, I do not mean to claim that it is unique. For policymakers who are considering the merits of a stakeholder-based governance model, the Dutch system should be seen as one example among many corporate governance systems in successful market economies (such as Germany) that embrace this form of stakeholder-based governance. There is likely no one-size-fits-all approach; each jurisdiction should find the tailor-made model that works best for it, like perhaps the introduction of the corporate purpose in the UK and France. In any event, there is a great benefit in exchanging ideas and learning from experiences in different jurisdictions to find common ground and best practices in order to increase the acceptance and appreciation of stakeholder-oriented governance models.

US governance practices have been, and are, influential around the world. In the 2000s the pendulum in developed countries, including to some extent in the Netherlands, clearly swung in the direction of shareholder-centric governance as championed in the US. In the current environment, if the US system’s focus on shareholders is not adjusted to protect stakeholder interests, it may over time perhaps become an outlier among many of the world’s leading market economies that in one way or the other have adopted a stakeholder approach. Adjustment towards stakeholder governance seems certainly possible in the US, for example through the emerging model of corporate governance, the Delaware Public Benefit Corporation. The benefit corporation seems to have many if not all of the key attributes of the Dutch system and could provide a promising path forward if American corporate governance is to change in a way that makes the US model truly focused on the long-term value for all stakeholders. The question for US advocates of stakeholder governance is whether they will embrace it, or adopt another effective governance change, and make their commitment to respect stakeholders rea

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En rappel : Stakeholder Principles in the COVID Era

Alors que les entreprises se relancent péniblement, un rappel de ces mots du Forum économique mondial d’avril 2020 paraît adéquat (histoire de ne pas oublier et de ne pas faire primer l’économique et le financier sur toute autre considération).

Déclaration « Stakeholder Principles in the COVID Era »

As business leaders, we are experiencing how profoundly the COVID-19 emergency is affecting the world. Our employees face health risks in their daily lives, and challenges in performing their jobs. Our ecosystem of suppliers and customers is under extreme pressure. By doing all we can to coordinate our work, we can ensure that our society and economy get through this crisis and we can mitigate its negative impact on all of our stakeholders.

We accept our responsibility to address these crises. The first priority is to win the war against coronavirus. We need to do that while doing all we can to help our stakeholders now and, at the same time, to avoid a prolonged economic impact in the future. We will continue to embody “stakeholder capitalism” and do all we can to help those who are affected, and help secure our common prosperity.

To this end, we endorse the following Stakeholder Principles in the COVID Era:

− To employees, our principle is to keep you safe: We will continue do everything we can to protect your workplace, and to help you to adapt to the new working conditions

− To our ecosystem of suppliers and customers, our principle is to secure our shared business continuity: We will continue to work to keep supply chains open and integrate you into our business response

− To our end consumers, our principle is to maintain fair prices and commercial terms for essential supplies

− To governments and society, our principle is to offer our full support: We stand ready and will continue to complement public action with our resources, capabilities and know-how

− To our shareholders, our principle remains the long-term viability of the company and its potential to create sustained value

Finally, we also maintain the principle that we must continue our sustainability efforts unabated, to bring our world closer to achieving shared goals, including the Paris climate agreement and the United Nations Sustainable Development Agenda. We will continue to focus on those long-term goals.

The world has gone through other crises. As a global community, we will prevail this time as well. But, to do so, we must all bond together and coordinate our response. As business leaders, we pledge to stand at society’s service, to help preserve and rebuild a viable society and economy, and to do all we can for our stakeholders.

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