It is increasingly being questioned whether the current model of shareholder value primacy, and the profit- maximizing corporate form is fit for purpose? Increasingly a wide range of commentators that business in its current form cannot help us to avert the climate crisis, and indeed is part of the problem, mainly as profits typically come from consumption and the current business models promote profit maximization as the key purpose.
There are three solutions:
- Adopt more sustainable business models staying within the profit-seeking mindset. The sharing economy, for example is an example of ways for people to access resources while limiting consumption of resources.
2. Governments to provide incentives for sustainable business such as environmental regulation, green subsidies and carbon taxes. The EU carbon border adjustment mechanism is a great current example. The trouble is that governments change regularly and often fail to think beyond the electoral cycle.
3. Business law and governance to change substantially. This is beginning to happen. In May 2019, France passed a new law revising the definition of a corporation, and its corporate purpose. This law introduces three elements: an obligation to consider the social and environmental implications of the business activity; an option for any company to define its raison d’être; and a new type of corporate form, the ‘société à mission,’ for companies that adopt social or environmental goals by writing them into the company’s by-laws and by setting up an ad hoc committee to monitor them.
In 2019 US Business Roundtable abandoned its decades long principle of shareholder primacy and replaced with an enlightened interpretation of stakeholder capitalism. “Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all”
The Roundtable Statement was signed by 181 CEOs of Business Roundtable companies, but there were 241 CEOs in membership of the Roundtable in 2019, meaning 60 CEOs chose not to sign a document that would normally receive universal consent
British Academy: The Future of the Corporation project (2018–2020) engages in a fundamental re-conceptualizing of business purpose: a redefining of corporate purpose that is distinct from shareholder returns, an establishment of trustworthiness founded on norms of integrity, the embedding of a culture in organizations that enables both.
Benefit corporations are springing up in the US and beyond. Benefit corporations’ enable corporations to legitimately integrate social and environmental goals into their business practices. The non-profit organization B Lab certifies benefit corporations and aims to mobilize the B Corp community towards collective action to address society’s most critical challenges. There are issues remaining though if we want this to be the new normal – mainly the conflict of interest of the same organization relying on funds from the businesses it is certifying.
Interested in progressing this solution further?
|Actions for policymakers (e.g. central/local government||Amend governance for corporations following France’s example to specify an obligation to address social and environmental impacts of business. Strengthen environmental regulations to provide a level playing field to encourage more sustainable business. Use taxes and subsidies to incentivize greener business practices, e.g. see Green Finance Institute and the Network for Greening the Financial System,|
|Actions for funding bodies||see Green Finance Institute and the Network for Greening the Financial System,|
|Actions for businesses||Adopt more sustainable business models e.g. see article product returns: An Opportunity to shift towards sharing economy and https://www.greenstories.org.uk/anthology-for-cop27/solutions/sharing-economy/ . Consider governance and including stakeholders in decision making. Switch to become a benefit corporation, public interest company, cooperative or similar.|
|Actions for public||Subscribe to publications such as Ethical Consumer to use consumer power to favour ethical business. Seek sustainable retailers e.g. .mygreenpod.com/ Campaign for green taxes and environmental regulations.|