What’s at Stake

The European Commission has included in its work plan for 2021 the Sustainable Corporate Governance initiative. This “aims to improve the EU regulatory framework on company law and corporate governance. It would enable companies to focus on long-term sustainable value creation rather than short-term benefits. It aims to better align the interests of companies, their shareholders, managers, stakeholders and society. It would help companies to better manage sustainability-related matters in their own operations and value chains as regards social and human rights, climate change, environment, etc.”

The European Commission’s consultation on Sustainable Corporate Governance focused on two key areas: Duty of Care of managers of companies and the Due Diligence of a company on its suppliers.

We can define stakeholders as all those who either contribute to, and/or are affected by the business and therefore have a “stake” in it.

The Interdependence Coalition has been formed as a response to the European Commission’s public consultation on “Sustainable Corporate Governance” and the efforts to embed sustainability into corporate governance at the EU level.

“We need to make a swift shift in the EU to a stakeholder corporate governance model in which it is clear that board members must (are not merely allowed to) consider stakeholder interests in their decisions to meet their fiduciary obligations. This is a fundamental principle underpinning all other regulations envisioned by the EU as part of the Green Deal. The EU has a chance now to expedite this shift through a Pan-European regulation.

Let’s hope it will use the momentum to drive this regulatory and cultural change to a more responsible economy.”

Wojciech Baginski, LL.M. MBA – advocate and ambassador of stakeholder corporate governance models

Our core proposal is simple, yet powerful: 

Board directors of companies registered within the European Union must consider the interests of all the company’s stakeholders in their decision making. 

We see three key building blocks that are essential to move to a corporate governance regulatory framework in the EU and beyond to serve the emergent and urgent needs of our people and planet.

Three Basic Principles for Stakeholder Governance as a Pan-European Directive

1. From voluntary to mandatory stakeholder governance

While corporate law in many EU countries does not inhibit directors of companies from considering stakeholders’ interest when undertaking decisions, these “permissive statutes” are clearly not enough to change behaviour at scale, or urgently. They have so far failed to create widespread consideration of stakeholders’ interests by businesses. This change must apply to all businesses by default. It must no longer be optional to benefit wider stakeholders beyond shareholders.

2. Aligning investment and corporate governance

Incentives are misaligned across the economic system. Today, more than ever, it is essential that companies and institutional investors are required to adopt sustainable corporate governance models to ensure that the capital markets look beyond individual company financial returns and take responsibility for the impact of businesses and investments practices on society and the environment.

3. Create EU-wide aligned requirements

Regulatory divergence calls for the adoption of EU-level sustainable corporate governance legislation, beyond existing environmental sustainability requirements. Directors should be legally obligated to consider and weigh up the interests of stakeholders alongside those of shareholders to determine the right course of action, and to be safely able to prioritise the interests of one stakeholder group over another, where appropriate.