European Trade Union Institute, ETUI.

The Sustainable Company

For the past two decades thinking on corporate governance has been dominated by the ‘shareholder value’ concept of the firm. This framework claims that the stock market is the best yardstick for company value and that share-based remuneration is the most efficient way to reward top management. However, many researchers and policymakers now believe that the shareholder value paradigm was one of the major causes of the financial crisis and are looking for an alternative.

Members of the GoodCorp research network have developed the concept of the Sustainable Company as an alternative to the shareholder value model of the firm. The Sustainable Company has six key elements:

  • A multi-dimensional concept of sustainability and stakeholder value is the central guiding principle of the Sustainable Company.
  • In accordance with this guiding principle the Sustainable Company has a set of sustainability goals and a detailed strategy for achieving these goals.
  • Stakeholders, in particular employees, are involved in decision-making in the Sustainable Company. This can occur through a number of mechanisms, including board-level employee representation (BLER), European Works Councils (EWCs), collective bargaining and stakeholder advisory boards at companies.
  • The Sustainable Company has an externally verifiable reporting system on both financial and nonfinancial (environmental, social, etc.) performance which allows for measuring progress on the achievement of sustainability goals.
  • Incentives within the Sustainable Company are designed to support sustainability. A central role is played here by tying a portion of executive remuneration to the achievement of sustainability goals.
  • The ownership base of the company is dominated by long-term responsible investors concerned not only with financial return but also with the social and environmental impacts of their investments.

Contact

Sigurt Vitols Associate Researcher svitols@etui.org

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