Session Four

Question 1

What is corporate governance?

Answer 1

deals with the definition of corporate mission and the organization of the power/political system within the firm

Question 2

Modern corporations are marked by:

Answer 2

> Dispersed ownership of publicly traded companies (distant, numerous, uninterested, uninformed, apathetic shareholders)

> Unprecedented size and economic power of corporations

> Concentration of control and power in the hands of managers

Question 3

Shareholder Governance vs Stakeholder Governance

Answer 3

Shareholder: The firm is an economic institution which belongs to the shareholder and exists to maximize shareholder profits within the limits of law.

Stakeholder: The firm is an economic and social institution. Managers are not only fiduciary towards shareholder but also towards the firm and its primary stakeholders (employees, clients, suppliers, etc). They need to consider and balance the legitimate demands of all stakeholders to maintain the firm’s legitimacy.

Question 4

Shareholder Governance: Current Criticsims and Limits

Answer 4

1. Negative impacts on the firm
   > Focus on short-term value creation goes against the interest of the firm
   > Stiffling firm innovation capabilities
   > Behavioral distortion of top managers
2. Negative impacts for shareholders
   > There are fewer corporate giants but they are not better controlled
   > All shareholders are not gaining equally
   > Average shareholder returns / ROI have not increased but decreased after the adoption of shareholder governance
3. Negative impacts for society
   > Evacuate the interest of all other stakeholders as soon as they do not coincide with the interest of shareholders
   > reinforce inequalities
   > Blind to the political power (and need for political regulation) of corporations

Question 5

Governance and Sustainability Organizations

Answer 5

Shareholder Governance
1. Classic for-profit organizations

2. Corporations with purpose

Stakeholder Governance
3. Hybrid Organizations

Non-Profit Governace
4. Non-market organizations

Question 6

Classic for-profit responses to green market demands

Answer 6

• there is a business case for sustainability
• sustainability as enlightened self-interest
• practices: philanthropy, strategic CSR

Risks
- greenwashing, decoupling
- single focus on win-win
- niche markets

Question 7

Corporations with Purpose

Answer 7

Pacte Law: New definition of the corporation in the civil code: the corporation is constituted for the common interest of its associates AND is managed to take into consideration the different environmental and social impacts of its activities

Possibility to become a mission-driven corporation (« entreprise à mission »), by explicating a purpose, specifying impact objectives, and setting a dedicated governance board

Purpose: Any kind of corporation can define a purpose and put it in its bylaws (becomes binding)

Question 8

Hybrid Organizations

Answer 8

Social and Green Entreprenuership, social innovation

Combining and blending logics between market and non-market, balancing profit and purpose

Question 9

Creating and Growing the Ecosystem of Impact Companies

Answer 9

• Standards and Legal Status, B Corp
• Impact Investors
• Social Impact Assessment Methods

Field of Hybrid Orgs and Social Impact Entrepreneurship
> social and/or enviro impact at heart of model
> share power within the company within all stakeholder
> limited lucrativity

Question 10

Key Messages

Answer 10

> Governance deeply influences the type of sustainability organizations and practices possible

> Fundamental tension between shareholder and stakeholder governance

> While shareholder governance remains the norm, there are many ongoing innovations (new law, legal statuses, hybrid logics) which need to go mainstream

> Beyond the governance structure, metrics for measuring impact and accounting tools also play a critical role