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Corporate Governance: Shareholders, Employees, and Stakeholders

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Ecological Money and Finance

Abstract

Why take an interest in corporate governance? This topic does not necessarily make the news every day and tends to be brought to the forefront only in events of failures of scandals: for instance, when top executives are fired, or when their extraordinary remunerations (taking the form of complex mechanisms of bonuses, golden parachutes, or other stock options) are revealed. Corporate governance seems to be a second-rate economic subject compared to macro-economic topics such as growth, unemployment, monetary policy, fiscal policy, or public debt management.

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Notes

  1. 1.

    https://www.tradingsat.com/cac-40-FR0003500008/actualites/cac-40-les-benefices-du-cac-40-solides-en-2019-mais-menaces-par-le-coronavirus-en-2020-903471.html#:~:text=Selon%20un%20d%C3%A9compte%20r%C3%A9alis%C3%A9%20vendredi,milliards%20d’euros%20en%202019.

  2. 2.

    https://www.insee.fr/en/statistiques/4470956.

  3. 3.

    At the same time, paternalism was the dominant management model. The company’s employees were considered to be part of a (very) extended family circle. Several generations of managers succeeded one another at the head of these companies, just as several generations of workers or employees worked within the same company, from father/mother to son/daughter. Until recently, it is therefore the figure of the family that dominated, as did the model of the family business.

  4. 4.

    It should be noted that Charreaux (2007) had proposed a measure of partnership value allowing for the consideration of interests broader than those of shareholders.

  5. 5.

    The annual benchmark study conducted by Janus Henderson showed that the global amount of dividends paid in 2019 reached 1430 billion dollars or the equivalent of the GDP of a country like Australia or Spain: https://cdn.janushenderson.com/webdocs/JHGDI+Ed+25+Report+_ENCH.pdf

  6. 6.

    In France, the 2019 Action Plan for Growth and Transformation of Businesses law furthermore added some very significant elements to this Article 1833: “The company is managed in its social interest, taking into consideration the social and environmental issues of its activity” (emphasis added).

  7. 7.

    These two approaches presented here are examples taken from a large literature. An important current that could be cited is that initiated by Elinor Oström (Oström, 1990 in particular).

  8. 8.

    Hart, O., & Zingales, L. (2017). Companies should maximize shareholder welfare not market value. ECGI-Finance Working Paper, (521).

  9. 9.

    Magill, M., Quinzii, M., & Rochet, J. C. (2015). A theory of the stakeholder corporation. Econometrica, 83(5), 1685–1725.

  10. 10.

    Jacques Derrida, Jean-Luc Marion and Simone Weil in philosophy, George Akerlof, Stefano Zamagni, and François Perroux in economics. In economics, this work has resulted in a two-volume work: Kolm and Ythier (2006). Kolm, S. C. and J. M Ythier (2006). Introduction to the economics of giving, altruism and reciprocity. Handbook of the economics of giving, altruism and reciprocity, 1, 1–122.

  11. 11.

    See Gomez et al. (2015): Gomez, P. Y., Grevin, A., & Masclef, O. (2015). L’entreprise, une affaire de don. Ce que révèle les sciences de gestion, Nouvelle Cité, Bruyères-le-Châtel.

  12. 12.

    Akerlof, G. (1970). The Market for “Lemons”: Quality Uncertainty and the Market Mechanism. The Quarterly Journal of Economics, 84(3), 488–500.

  13. 13.

    Akerlof, G. (1982). Labor contracts as partial gift exchange. The Quarterly Journal of Economics, 97(4), 543–569.

  14. 14.

    If we are familiar with the article by Jensen and Meckling (1976) setting out the principles of agency theory applied to the firm, we are less familiar with the 1979 article which they devoted to the criticism of employee-managed firms and co-determination. The end of the summary of the article is clear: “We criticize the claim that labor-managed firms are efficient”. Reference: Jensen, M. C., & Meckling, W. H. (1979). Rights and production functions: An application to labor-managed firms and codetermination. Journal of Business, 469–506.

  15. 15.

    See Hatchuel’s (2012) op-ed https://www.lemonde.fr/idees/article/2012/02/20/la-cogestion-pierre-angulaire-du-modele-allemand_1645691_3232.html or the following works: Conchon (2011); Crifo and Reberioux (2019).

  16. 16.

    Fauver, L. and M.E. Fuerst, 2006, “Does Good Corporate Governance Include Employee Representation? Evidence from German Corporate Boards”, Journal of Financial Economics 82, 673–710.

  17. 17.

    Petry, S. (2018). Mandatory Worker Representation on the Board and Its Effect on Shareholder Wealth, Financial Management. 47, 1, p. 25–54.

  18. 18.

    Palladino L. (2021). Economic Democracy at Work: Why (and How) Workers Should be Represented on US Corporate Boards. Journal of Law and Political Economy, 1(3).

  19. 19.

    The National Center for Employee Ownership in the US lists works on employee ownership: https://www.nceo.org/article/key-studies-employee-ownership-and-corporate-performance. The Institute for the study of employee ownership and profit sharing organizes a biannual conference where works on the subject are regularly presented (https://smlr.rutgers.edu/faculty-research-engagement/institute-study-employee-ownership-and-profit-sharing). We ourselves have done several works analyzing the effects of employee ownership in France on companies’ performance and governance.

  20. 20.

    For a review of the main works on employee ownership in the US: https://www.nceo.org/article/key-studies-employee-ownership-and-corporate-performance. In France, Aubert and Hollandts, Hollandts and Aubert, Aubert et al., Guedri and Hollandts demonstrate favorable effects at employee and company level for several measures.

  21. 21.

    Self-managed organizations are more closely linked to the anarchist movement and defend the idea of almost total autonomy of the worker within the collective. For more information, see Isabelle Chambost, Olivier Cléach, Simon Le Roulley, Frédéric Moatty, Guillaume Tiffon, L’autogestion à l’épreuve du travail Quelle émancipation? Septentrion Presses Universitaires, France, 2020.

  22. 22.

    The specific theme of governance is described in the following case: Hollandts et al. 2014, Fagor-Brandt or the impossible export of the Mondragon cooperative model, CCMP. Reference can also be made to Bretos, I., & Errasti, A. (2018). The challenges of managing across borders in worker cooperatives: Insights from the Mondragon cooperative group. Journal of Co-operative Organization and Management, 6(1), 34–42 and Bretos, I., Errasti, A., & Marcuello, C. (2019). Multinational expansion of worker cooperatives and their employment practices: Markets, institutions, and politics in Mondragon. Industrial and Labor Relations Review, 72(3), 580–605.

  23. 23.

    https://www.danone.com/fr/about-danone/sustainable-value-creation/our-company-goals.html.

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Author information

Authors and Affiliations

  1. IAE, Aix-Marseille Université, Aix-en-Provence, France

    Nicolas Aubert

  2. KEDGE Business School, Talence, France

    Xavier Hollandts

Authors
  1. Nicolas Aubert
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  2. Xavier Hollandts
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Corresponding author

Correspondence to Xavier Hollandts .

Editor information

Editors and Affiliations

  1. KEDGE Business School and SDSN France, Talence, France

    Thomas Lagoarde-Segot

Activities

Activities

1.1 Questions for Discussion

  1. 1.

    Why are the shareholders often presented as the owners of the company?

  2. 2.

    Why does the shareholder governance model focus only on profits?

  3. 3.

    What are share buybacks and dividend distributions for?

  4. 4.

    What are the advantages and disadvantages of multi-stakeholder governance?

  5. 5.

    What is the main role of a board of directors?

  6. 6.

    What is the specific contribution of employee directors?

  7. 7.

    What distinguishes cooperatives from other businesses?

  8. 8.

    Which of the SDGs do you think have the most impact on corporate governance?

  9. 9.

    Is it possible to reconcile economic efficiency with the integration of stakeholder interests?

  10. 10.

    In the case of company takeovers, should employees (as potential buyers) be given priority?

1.2 True or False?

  1. 1.

    Shareholders are the owners of the company.

  2. 2.

    Shareholder interests contribute to the general interest.

  3. 3.

    Seeking maximum profit is contradictory with sustainability objectives.

  4. 4.

    Shareholders share the same interest.

  5. 5.

    Employees are in a conflict of interest when they are elected or appointed as directors.

  6. 6.

    The majority of profits should go to shareholders.

  7. 7.

    Cooperatives are inherently unsustainable.

  8. 8.

    Co-determination raises wages and lowers profits.

  9. 9.

    Companies that do not make a profit are not viable.

  10. 10.

    Financial performance objectives can all be linked to the value of the company.

1.3 Mini-Case: Danone and Sodiaal: Governance Models in the Production and Sale of Dairy Products

Danone is a world-renowned company. It operates in four main businesses: Dairy & Plant-based Products, Waters, Baby Nutrition, and Medical Nutrition. Among these different businesses, dairy products are the company’s historical business. Danone is a world leader in its field, employing more than 100,000 people and achieving a turnover of 29 billion euros in 2020. That same year, under the impetus of charismatic Chairman and CEO Emmanuel Faber, Danone became the first listed company to become a mission-driven company by including in its bylaws the pursuit of “social, societal and environmental” objectives. With its Danone 2030 plan, the company has formulated its strategy in line with the SDGs.Footnote 23 In particular, its brand model is broken down into improving health everywhere, every day; developing committed brands; and preserving the planet and renewing its resources. The “one person, one share” plan aims to have each employee hold one share in the company. This development has caused a lot of ink to flow in the press, with commentators questioning whether these new objectives can be reconciled with those of profitability to which listed companies are subject. In 2018, a call for a boycott in Morocco caused a 50% drop in the company’s sales in the country. The company was accused of taking advantage of its dominant position to raise its prices and buy milk from farmers at a very low price. At the beginning of 2021, the investment fund shareholder of the company Bluebell Capital sent a letter to shareholders questioning the presence of Emmanuel Faber at the head of Danone. Bluebell Capital believes that under Emmanuel Faber’s presidency, Danone has not found “the right balance between shareholder value creation and sustainability issues”. During Emmanuel Faber’s presidency, Danone’s share price had indeed lost nearly a quarter of its value between December 2017 and December 2020. In March 2021, after the Artisan Partners fund also called for the CEO’s departure, Danone’s board of directors dismissed the executive.

Sodiaal is a cooperative owned by 17,000 cooperative farmers. Sodiaal’s board of directors is composed of 25 farmers elected by their peers. Each of the 17,000 cooperative members has one vote, regardless of the size of their farm. The Chairman of the board of directors, Damien Lacombe, is a farmer in the Aveyron region in France. The executive committee is headed by a General Manager. The company employs more than 9000 people and generates 60,000 indirect jobs. Sodiaal has a turnover of nearly 6 billion euros in 2019 through subsidiaries that hire between 16 and 1700 employees. Two-thirds of the profits are redistributed to members. The cooperative’s main objective is to buy milk from its cooperators by ensuring a milk price that is the same for all (excluding specific production) by collecting milk regardless of the size of the farm. At the end of 2020, Sodiaal initiated an “employee shareholding” plan so that employees can become non-cooperative partners and also own the company. The company is the French leader in milk collection with 10% of French production. Sodiaal produces and markets cheese, milk, cream, and butter. It is also involved in specialized nutrition, associated ingredients, ultra fresh and frozen products, and food services. It owns well-known brands such as Candia, Yoplait, Richemonts, Rustique, Régilait, Entremonts, and Cœur de Lion. Since 2017, Sodiaal has launched a value creation-oriented plan called #Value which aims to position the company in the top five most profitable dairy companies in 2025. Sodiaal has formulated three pillars of its sustainable development: to be a major player in the dynamism of French dairy regions, to commit to responsible nutrition, to actively contribute to the protection of the planet. These 4 pillars are broken down into 12 committed actions. Partnership governance and commitments do not make us immune to global competition and the price fluctuations that have resulted from it, particularly with the end of production quotas in Europe in 2015. The system of milk pricing by Sodiaal and its main competitor Lactalis was questioned in the media in 2018. Sodiaal had encouraged producers to increase milk production at the expense of the selling price. In March 2021, the participation Yoplait in the capital of Sodiaal was announced. Fifty percent of Sodiaal’s capital was previously held by the American company General Mills. The purpose of this takeover of Yoplait is to ensure outlets for farmers.

1.4 Questions

  1. 1.

    What are the main differences between the two companies’ governance systems?

  2. 2.

    By consulting their websites and in particular their latest integrated reports, discuss differences and similarities between the sustainability objectives displayed by these two companies.

  3. 3.

    How did the governance and ownership structure of the two companies cope with the deregulation that ended milk production quotas in Europe?

  4. 4.

    Emmanuel Faber was removed from his position (as CEO of Danone) by a board of directors meeting on March 14, 2021: what lessons can be drawn from this event?

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Aubert, N., Hollandts, X. (2023). Corporate Governance: Shareholders, Employees, and Stakeholders. In: Lagoarde-Segot, T. (eds) Ecological Money and Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-14232-1_14

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  • DOI: https://doi.org/10.1007/978-3-031-14232-1_14

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