The government has launched a mission on “business and general interest”. Jean-Dominique Senard and Nicole Notat have two months to submit their report containing proposals to redefine the role and missions of companies
The French government’s appointment of Mr Jean-Dominique Senard, manager at Michelin, and Ms Nicole Notat of Vigo to submit a report in the first half of 2018 proposing legislative changes to allow companies to insert “a mission” into their articles of association is likely to bring about many fundamental debates in 2018 about the meaning and role of companies.
While most economic players currently agree that companies must take the issues of their stakeholders into account, discussions on the definition of a company and its purpose are intense.
By construction, a company is a community of partners who come together to develop a project, with the profits derived from these activities ultimately going back to the shareholders. Many legal experts fear that a legal evolution in the commercial law to incorporate the mission and the stakeholders do not question the governance of the same companies and raise more questions than answers, given that the very consistency of our case law (which has already existed for more than a century) would be called into question.
Some legal experts stress that mutuals and cooperatives were created in their time to allow players to join forces, particularly in agriculture, finance, insurance, and health, to provide a service to a community, while having a participatory governance (one person, one vote). While the success of these mutual groups is widely accepted, they bring a different corporate governance in all sectors of the economy.
The paradox is that today certain companies have, or wish to develop, a social or environmental mission that could be called into question by a shareholder, given the current state of the law, whereas mutuals and cooperatives, which are not accountable, if not to their members, often do not have such objectives.
Two paths are likely to be watched carefully (and discussed by stakeholders) to allows companies to decide whether to include “a mission” in their articles of association:
the creation of a new specific legal regime (as in Luxembourg or the United Kingdom) that permits a double or triple objective and does not favour shareholder returns only – but it is true that few companies today have taken on this status,
the possibility for any public limited company (société anonyme) (as is the case for simplified joint stock companies – SAS) to choose to include a mission in its articles of association, with an obligation to report to shareholders on the actions taken to fulfil their mission.
This last possibility is a fundamental change for the company (which will need to make every possible effort to achieve its mission), for the employees of course, but also for the shareholders, who will need to accept strategic choices to accomplish this mission. And that is what is feared by many company leaders, lawyers, and others who see multiple opportunities for each other to call into question a corporate strategy that does not fulfil its mission.
We are at the heart of the debate raised in the 1970s by the Chicago School: does a company exist solely to generate returns for its shareholders? Since the creation of Phitrust, we have been convinced that the answer is NO and that it also exists for other causes/objectives. We will be mindful of participating in these debates, as they engage us and will engage future generations. Have a wonderful 2018!