“A new European model for capitalism is needed as a possible alternative to the Anglo-Saxon approach,” says Jean-Dominique Senard, CEO of tyre giant Michelin. “A more human-faced sustainable capitalism for which Europe can be the frontrunner.”
Senard has been spending the past few months consulting with business leaders, lawyers, trade unions, investors, universities, trade associations, public bodies, NGOs and politicians about corporate models as part of work commissioned by the top levels of French government.
In total more than 200 people were involved including Baudouin Baudru of the European Commission and Christine Lagarde from the IMF, and well-known CEOs such as Emmanuel Faber of Danone and Jean-Christophe Flatin of Mars.
The work, done with Nicole Notat, President of French ratings firm Vigeo Eiris, found people expect a new approach to business that counters increasing economic financialisation and short-termism.
Their findings have fed into France’s new Loi Pacte or the Action Plan for Business Growth and Transformation.
It is a wide-ranging law, introduced by French finance minister Bruno Le Maire, that is currently going through the French Assembly (see here).
A key proposal recommended by Senard and Notat and taken up by the government is that of ‘raison d’être’ – a company’s ultimate purpose.
Other recommendations brought forward in Loi Pacte focus on employee representation and consideration of environmental and social impact by companies.
Senard, who is stepping down as Michelin CEO next year, sees the work contributing to a new European model for capitalism.
France, like Germany, is certainly a policy driver in Europe.
It also has a strong presence on the European Commission’s Technical Expert Group on Sustainable Finance.
France is also hosting next year’s G7 that comprises the world’s seven largest economies – which could be an opportunity to push the agenda.
Senard and Notat’s report, “Business – a matter of collective interest”, speaks of the dominance of the ‘Anglo-Saxon’ model of capitalism.
The report says: “The presence of Anglo-Saxon funds in the capital of French companies, the systematic benchmarking of their financial performance with that of companies, subjects to perceived requirements of profit maximization, and the use of bonuses based on financial criteria has fostered a ‘dictatorship’ of short term interest and financial profits.”
Senard is now campaigning for a new approach, in light of a decline in public trust in big business. He stresses that basic business rules still apply.
“It is absolutely necessary that companies must strive to make a profit,” he says. “There is no question of that. But they have to run on other aspects outside of that linked to the impact of your activity on the environment and society.”
He continues: “The Anglo-Saxon model is focused on shareholder interest mostly. And you also have state capitalism. A model being adopted rapidly in Asia where the tools of capitalism are clearly used in order to serve institutions that do not have the same perspective on democracy as other parts of the world.
“We feel that sustainable capitalism is absolutely the necessary way to go.” Which is where his involvement in the Loi Pacte comes in and he says the report has “helped tremendously to refine the different opinions”.
A key recommendation relates to the Napoleonic Code, the civil code founded in 1804.“The legal definition of a corporation is totally outdated and does not reflect the current reality of a company in France, so there is a real issue here,” says Senard.
The report recommends that article 1833 of the Civil Code is amended to specify that “every company must be managed in its own interest, considering the social and environmental stakes of its activities”.
The report also recommends the introduction of a “raison d’être” in France’s commercial code linked to article 1833.
“It is the integration of purpose,” says Senard. “It is something of an innovation that is extremely positive and useful.”
Michelin itself sees its ‘raison d’être’ as “offering everyone a better way forward”. Senard, who joined Michelin in 2005 and its first non-family CEO in 2012, says it has been following this philosophy for years.
The company has made a commitment that all its tyres will be recycled by 2050 and maps to the SDGs.
The company says the ‘circular economy’ is built into its DNA. And it is rated at the ‘Leadership’ level by environmental data non-profit body CDP.
The report recommended increasing the number of employee representatives on company boards which has been included in the Loi Pacte. Senard says France lags behind its European neighbours like Germany on representation on company boards. He says: “We still see there is a need for harmonising the situation at European level.”
Another recommendation, in Loi Pacte, is for mission-led companies to be recognised in law, like benefit corporations in the US. The legal status would be available to companies who incorporate ‘raison d’être’, set up a stakeholder committee and ensure regular independently audited reporting on how they fare on delivering their mission.
Michelin created a stakeholder committee a few years ago. It includes employee representative organisations at an international level, NGOs, customers and suppliers. Senard says he finds it extremely useful. “It is a conversation with people who are generally not always in agreement with each other but at least you have them all in the same room.”
The report also recommended the development of CSR criteria in the variable remuneration of top management and a study into accounting regulations to better reflect social and environmental factors – though these were not fed into the draft Loi Pacte.
Loic Dessaint, chief executive of Paris based proxy-advisor Proxinvest, last week told RI that some big companies did not welcome the proposals on considering environmental and social factors, fearing pressure or fines.
But Senard says his peers welcome the change. “This is a matter of nuance. The only issue of concern was the risk that external bodies could bombard companies with matters of CSR. But this has been discussed and the way the amendments are proposed protect companies against that risk.”
The report also called for the establishment of a European labelling body for a “European benefit corporation’ – the issue of taxonomy and labelling is certainly on the agenda at the European Commission which is looking to creating a taxonomy of sustainable funds as part of its Action Plan on Sustainable Finance.
RI asks if a concerted European effort to move away from the Anglo-Saxon approach to capitalism will make it less attractive.
Senard says: “When you look at Michelin today we have applied this approach very clearly for years and we still have the same level of Anglo-Saxon investors. Over time it will probably increase.
Senard refers to Henry Ford’s maxim that a business solely run for profit will not survive. “This quote is superb as he said exactly what the Anglo-Saxon world used to be.”