Nudging for Corporate Long-Termism and Sustainability? Regulatory Instruments from a Comparative and Functional Perspective
Posted: 22 Jun 2017
Date Written: May 1, 2017
Assuming that there is a wish to promote long-termism and sustainability, this paper examines how different jurisdictions have introduced various forms of regulation to this end. The focus is on developments in the EU, although experiences from other jurisdictions are also included. In the process, we look at corporate forms to ensure that company law solutions adopted by some companies, including social enterprises, are also considered a possible template for regulation. The examination of existing regulation is divided into three parts, each focusing on different actors who may be incentivized to enhance the focus on long-termism and sustainability: management, shareholders and other stakeholders. The examination includes a wide variety of different regulatory interventions, ranging from soft law and nudging, at one end, to hard law regulation, at the other end. On that basis, we analyze how a coherent and effective regulatory strategy can be developed, taking into account the experiences gained so far in the different jurisdictions. It is concluded that, given the natural reluctance of regulators to offer a precise definition of what constitutes long-termism and sustainability, regulation in the form of nudging seems most appropriate for a wider group of companies. A regulatory strategy, where companies are encouraged to define how best to achieve a long-term and sustainable focus, would allow them to implement the solution that best suits the specific case. In addition, the fact that aims cannot be precisely defined also favors procedural regulation over material regulation. For social enterprises, which have defined a more precise target in terms of how to achieve long-termism and sustainability, it may be possible to use hard law regulation to ensure that management and shareholders stay on the course. Thus, the regulatory solutions for social enterprises and other companies must necessarily differ. Moreover, this variety of regulations may also have several benefits in itself, since it allows for regulatory diversity and provides companies with more freedom of choice. It seems important, however, to effectively and precisely tailor the scope of the different, coexisting regulatory solutions. Finally, the article discusses how best to introduce incentives to the three different groups mentioned above. It is concluded that incentives for both management and shareholders are essential, whereas incentivizing only one of these target groups is unlikely to work. There are many experiences of incentivizing management, while incentives for shareholders are developing within some jurisdictions. In the EU, the recently Revised Shareholder Rights Directive is implementing such an approach. Incentivizing other stakeholders may, at a first glance, seem less important; however, as the aim is to ensure that all relevant interests are taken into account, this can only be enhanced if other stakeholders are involved in a company’s decision-making. As most attempts to include other stakeholders concentrate on employees, there seems to be a case for experimenting with methods to ensure the involvement of a broader group of stakeholders.
Keywords: Long-term, sustainability, nudging, shareholder duties
JEL Classification: K22
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