Sustainable Goals within Corporate Governance: An Italian Model of Reputational Investment

18 Pages Posted: 26 Jan 2021 Last revised: 8 Jan 2022

Date Written: February 28, 2020

Abstract

The relation between corporate reputation and ethical behavior is easily understandable. Nevertheless, this simple statement hides a complex underlying problem: the critical connection between ethical rules and the assumption of responsibility.

It almost seems a contradictio in terminis, to the extent that acting ethically does not always mean acting according to legally binding norms.

This study analyses the important attempt observed in the Italian legal system to connect ethical behaviors to the assumption of responsibility with the introduction of the “legality rating for enterprises”: an instrument that gives an answer to the described problem and other relevant issues obstructing the changing process towards sustainable development.

The followed method moves from a corporate governance perspective and consists of externally offering a mechanism of objectification of benefits, correspondent costs and responsibilities in order to overcome frequent obstacles encountered by sustainable businesses.

Preemptively, it is argued that business executives are allowed to (and in certain cases must) pursue sustainable goals, at least in order to preserve corporate reputation. In fact, on the one hand, it is possible to connect responsible business choices to a reputational investment; on the other hand, a real duty of the directors to prevent a reputational risk arises when the shareholder value might be negatively affected.

Afterwards, it is explained how the mechanism of the legality rating works, in which terms it connects reputational returns and sustainable objectives and, finally, how it overcomes the challenges of sustainability.

This instrument acts like a ‘special license’ issued and monitored by the Italian Antitrust Authority on the basis of the ethical behavior of companies; it is capable of integrating sustainability into business choices, creating shared value while improving economic performances.
For all these reasons and, in particular, for the innovative approach used to connect ethical behavior and responsibility, as well as the costs of sustainability with secure economic benefits, it is overall believed that this model of reputational investment is an effective instrument of sustainable development and presents relevant profiles of interests for an international audience.

Keywords: corporate governance; reputational investment; reputational risk; shareholder value; sustainable development

Suggested Citation

Flavia Nitti, Giovanna Maria, Sustainable Goals within Corporate Governance: An Italian Model of Reputational Investment (February 28, 2020). OIDA International Journal of Sustainable Development, Vol. 13, No. 02, pp. 37-54, 2020, Available at SSRN: https://ssrn.com/abstract=3773379

Giovanna Maria Flavia Nitti (Contact Author)

Radboud University Nijmegen ( email )

Postbus 9108
Nijmegen, 6500 HK
Netherlands

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