Success, Law and ESG

27 Pages Posted: 29 Aug 2024

See all articles by Colin Mayer

Colin Mayer

University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: August 01, 2024

Abstract

The notion of corporate success lies at the heart of directors’ duties in many corporate laws. Freedom of incorporation conferred considerable discretion on companies to determine the nature of their success and create financial value for their investors, subject to conforming with laws and regulation. However, this increasingly came into conflict with the interests of other stakeholders, in particular employees, supply chains, the environment and societies, and addressing the problem through specific regulatory rules proved inadequate to the task. This raises questions about the nature of the financial incentives that drive and resource corporate activities, namely profits, and the need to align these with the role of business in solving not creating problems for others. In the absence of such an alignment then markets fail, and competition can intensify rather diminish the failures. There are three aspects to addressing the problem. The first is the use of corporate law to require companies to consider the interests of stakeholders other than their shareholders. This is already a feature of many corporate laws. The second is corporate governance codes that promote corporate purposes of profiting from solving not causing problems for others. This too is already a feature of some countries’ corporate governance arrangements. The third is the adoption of international standards and firm specific measures of performance that promote accounting and reporting on corporate social and environmental benefits and detriments. These are in the process of being established but need to be more closely related to accounting for specific firm measures of performance that ensure profits derive from solving not creating problems for others. 

Keywords: Success, Profit, Corporate Law, Purpose, Governance, Regulation, Standards, Reporting

JEL Classification: K2, L21, M14, M21

Suggested Citation

Mayer, Colin, Success, Law and ESG (August 01, 2024). European Corporate Governance Institute - Law Working Paper No. 795/2024, Available at SSRN: https://ssrn.com/abstract=4939931 or http://dx.doi.org/10.2139/ssrn.4939931

Colin Mayer (Contact Author)

University of Oxford - Said Business School ( email )

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Oxford, OX1 1HP
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

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Belgium

HOME PAGE: http://www.ecgi.org

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