Achieving Corporate Sustainability: What is the Role of the Shareholder?
The convergence of crises that we face as a global society, with its grand challenge of how to achieve social progress for all without destroying the very basis of our existence, emphasises the importance of discussing the role of business and finance. We cannot achieve environmental, social and economic sustainability of our societies without the contribution of business and finance. A fundamental transition away from 'business as usual' and onto a sustainable path is necessary. The dominant business form is the company, and the role of shareholders, the investors in this business form, is therefore highly topical. Concentrating in this chapter on the influence of the shareholders through the general meeting of European listed companies, we see that while the focus of the mainstream corporate governance debate for a long time has been on strengthening shareholder rights, an emerging and important debate is that on whether shareholders also have duties. This chapter contributes to that debate with a discussion of the potential role of shareholders in achieving corporate sustainability, including whether shareholders have or should have any duties to contribute towards such a goal. Corporate sustainability is here defined as when businesses (or more broadly, economic actors) in aggregate create value in a manner that is (a) environmentally sustainable in the sense that it ensures the long term stability and resilience of the ecosystems that support human life, (b) socially sustainable in the sense that it facilitates the respect and promotion of human rights, and (c) economically sustainable in the sense that it satisfies the economic needs necessary for stable and resilient societies. In the European Union (EU) we see a tentative recognition of the broader role of shareholders, especially as regards economic sustainability. We also see a rising recognition of the significance of shareholders' role in promoting environmental and social aspects of sustainability, in part inspired by the debate on 'stewardship' originating in Europe with the UK Stewardship Code. We see a reflection of this in the European Parliament's revisions to the Commission's proposal to changes in the Shareholders' Rights Directive, which suggest to broaden the scope to include societal issues. Similarly, the so called non financial reporting requirements introduced in 2014 aim to ensure that the largest listed companies disclose 'the impact of [their] activity, relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti corruption and bribery matters' also with the view to facilitating responsible investment. These are examples that illustrate a growing EU interest in encouraging shareholders to contribute to long term successful business, environmentally, socially and economically. After the introduction of the topic in section 1, this chapter outlines in section 2 the research findings that indicate a strong negative impact of shareholders, in aggregate, on corporate sustainability. Section 3 discusses the role of shareholders in the general meeting as a matter of law. After a short overview of the competence the controlling shareholder has in a general meeting, this focuses on the possibilities for and likelihood of shareholder influence in the general meeting being used to promote corporate sustainability. Section 3 concludes with a brief discussion of shareholder influence outside the general meeting. This is a trend that is encouraged by corporate governance codes and stewardship codes alike, without as I will argue in this chapter proper appreciation of the potential negative impacts of this approach. Section 4 discusses shareholders' emerging and potential duties towards corporate sustainability, including a brief discussion of the stewardship codes, while section 5 outlines tentative ideas on how to reform the role of shareholders in company law as an intrinsic part of a tentative reform proposal. Section 6 concludes.