Corporate governance - the biggest game changer for a sustainable future?
Corporate governance - the biggest game changer for a sustainable future?
...the problem of relentless corporate growth lies in the design of the system – it is a systemic problem.

Having worked intimately (as employees, investors and/or advisers) with more than a dozen (and having studied hundreds) successful companies over the past 15 years, one aspect that stares us right in the face without being given a level of attention it deserves to get is the way companies are governed and owned. Whether it’s a startup, solid growth company, a family company that’s been around for centuries or a Fortune 500 publicly listed company, it is so central to have a proper think about how the company actually wants to be governed.

As you may be aware of, we are convinced that having a purpose that goes beyond making money for its owners is absolutely crucial for a company to be successful in the 21st century. In fact we bet that by 2025 there will be no single (western world) company that is being considered a world leading company that doesn’t serve a higher purpose and significantly serve their communities and all stakeholders as a positive force for good. People are simply getting too conscious of who they buy from, work for or invest in, that companies simply won’t get away with ‘bad stuff’ any longer. Principles and practices of transparency and authenticity has taken a stronghold of the business world, and rightfully so. Who wouldn’t want to by from, work for or invest in a company that you genuinely trust and that you know care about its people, products and our planet?

We want this development to continue to turn over the world of business so we all can be more healthy, inspired and proud of being part of it.

One key factor that unfortunately slows down this transformation is the way companies are governed today. Although there are positive examples and exceptions, the short-term focus that boards and owners place on companies and their leadership teams is simply not sane. But who can blame them as companies in essence are legally bound to maximize the returns to its shareholders. In her terrific book, Owning our Future, Marjorie Kelly provides valuable perspectives:

…At the very heart of the corporate structure is the legal mandate to maximize returns for the corporation’s shareholders, even if it means sacrificing the well-being (and indeed continuing employment) of its employees, the livelihood of local communities, or the preservation of the natural environment. This stringent mandate, often referred to as ‘fiduciary duty’, is seen as the sole aim of the corporation. Rising share prices are exalted as the very definition of corporate success and directors who fail to maximize shareholder returns can be sued.
Within a corporation, individual managers may be very caring people, embracing the ideals of social justice and environmental responsibility. But the organizational structure of the corporation and the severe constraints of its financial statements force them to behave in certain ways regardless of their personal values. The shareholders, in turn, are generally not excessively greedy and do not demand ever-increasing wealth. Very often they are not even aware of what happens to their money, leaving the details to their investment advisers. Like the corporation’s managers, they may have great personal integrity but are trapped in a corporate structure that is devoid of all ethics. In other words, the problem of relentless corporate growth lies in the design of the system – it is a systemic problem.

So what can we do?

Well there are a number of concrete measure that can be taken. One inspiring example is the companization model that was developed the past decade or two by Hans Hassle and his colleagues at Plantagon. They decided from the get go that their overarching purpose was not to grow short-term wealth for their shareholders (although they believe in the power of entrepreneurship and ownership). Instead they have created a structure for third generation corporate responsibility work where the social and ecological aspects are properly balanced with the economic forces. A lot can be said about this governance model that, for instance, can be described by these building blocks:

1) the organization consists of two separate legal entities; one company and one non-profit association

2) an ethical framework is implemented in the company’s article of association so moral implications are turned into obligations for the management rather than only economic interests.

3) the management and board members have personal responsibility for living up to the standards set forth in the articles of association

4) the company allocates at least 10% of its shares to the non profit association, which anyone can be part of

5) the board of the association appoints (despite its minority stake) 50% of the board of the company

And so on. As you can see there are a number of distinguishing features of the companization model (More info here) and, although one should not underestimate the complexity in governing a company, they can be readily tested and applied by sound business leaders.

Yes, let’s wake up and start having a proper think about how we govern our companies and create long term value so our kids and their kids can thrive. Let’s take charge and positively own our futures.