The raison d’être of companies is being realized through changes in the legal framework. For just over two years, the Covenant Act, the Civil Code and the Trade Code have incorporated extra-financial concepts into business objectives. We are even witnessing the birth of the new status of a mission-based company. The Report of the Jean Jaurès Foundation of March 2021 (1) examines the impact of these developments on environmental, social and corporate governance (ESG) policies. The rationale for this makes it possible to formalize a company’s CSR actions. In theory, it forms the red thread that ensures consistency in different aspects of the strategy. However, the Covid-19 crisis also provides an opportunity to confront the announcements with reality. As well as to know the perception of stakeholders on this new way of thinking about the company, after two years of backtracking on the Covenant Act.
The raison d’être of a company, a vague definition after two years of Covenant Act
First and foremost, it is important to understand that the Covenant Act does not define the rationale for being as systematically based on CSR principles. In reality, the Civil Code remains vague, stating only that the raison d’être must be “constituted the principles which society acquires and for which it intends to allocate resources in the carrying out of its activity”.
For its part, the 2018 Notat-Senard Report gives a different approach. According to him, the raison d’être is above all a quest for coherence. In this sense, it strengthens the commitment of employees, giving meaning to their work. It must therefore reconcile strategic issues for the company’s own interest, as well as social and environmental issues.
In reality, there are as many definitions of the raison d’être as there are actors, depending on their sensibilities and interests. This is also reflected in the different ways of registering and formalizing it in the statutes of companies. Veolia, Danone, Orange, EDF, Icade for example have lent themselves to the game. It should be noted, however, that others did not wait for the Covenant Act to put CSR in the soul of their business. This is particularly the case for Michelin, which has been displaying it clearly since 2013.
In its September 2020 France Strategy report, the Impact Committee examines the typology of the principles inscribed. Thus, it notes “the predominance of social issues, followed by environmental issues, and to a lesser extent the issues related to governance and the economy.”
It should also be noted that, after many years of discussion around corporate values, the proposals made to shareholders enjoy very broad support. More than 99% of them have been %.
Making sense of the company to bring stakeholders together
The approach of the company’s raison d’être now goes far beyond the niche subject. It affects all companies, regardless of size or maturity. On the other hand, it is more expressed in large companies. For good reason, the level of trust remains very high in small and medium-sized enterprises (SMEs), where the human size of the structures allows individuals to contribute to a common project. In any case, the raison d’être, like CSR, is turning the tables and creating new models around the notion of responsible capitalism.
Thus, it gives meaning to the company, testifies to the will of the leaders and restores the most soul often lost over the decades. It is also an opportunity to remind us that entrepreneurs create primarily companies to solve a problem, to invent solutions. The financial side is then only a function of the successful meeting or not with the public.
By putting the company’s intrinsic values at the heart of the strategy, executives ensure consistency with different stakeholders. They also make sense of investment, a way to create preference. It should also be noted that some funds choose to rely on extra-financial subjects and therefore new types of indicators. Which pushes companies to review their practices and the level of transparency.
On the whole, therefore, the raison d’être is a reflection of a “search for a reconciliation between sustainable growth and value creation”. It therefore seeks to connect the traditionally divergent interests of stakeholders around a collective project.
Employees and the general public, the value of meaning in everyday life
The concept of rationale and the concrete actions taken following are perceived in a positive way by employees. Which are increasingly looking for meaning in their missions and seeks to work for companies in tune with their convictions. In fact, according to the Jean Jaurès Foundation report, 75% of employees consider expressing their employer’s raison d’être to be important. Especially since 77% also believe that their company plays a role in society, which is not limited to finance. As such, this approach is a key motivator and commitment factor.
At the same time, the concrete expression of the raison d’être also helps to strengthen the public’s confidence in the company. It gives it a role to play, long-term issues.
However, beyond the declarative, it is essential for companies to take concrete action. Otherwise, the communication effect falls back and negatively impacts the brand’s reputation, both internally and externally. Thus, despite a positive reception of the raison d’être, 69% of employees would still consider the approach to be “primarily a communication operation”.
A reason to be based on dialogue and concrete evaluation mechanisms
To be properly thought out and respond to cross-interests,the raison d’être of a company is the result of a dialogue between the various stakeholders. On the other hand, it is not necessarily obvious to define the scope of the players to be considered. While employees are often involved, shareholders are often less integrated. It is then problematic, taking into account, on the one hand, that the statutes are voted in the AG of the shareholders; on the other hand, that they are the capital providers. The raison d’être must therefore be consistent with the strategy and operation of the company. In the search for the best alignment of interests.
Thus, companies must also be accountable for actions to put into practice the raison d’être. Unanimously, the various players expect implementation mechanisms; Key Performance Indicators (KPIs); an adaptation of governance.
As far as KPIs are concerned, they now cover extra-financial elements. In addition to indicators of social and environmental objectives, it is also necessary to include criteria for the performance of leaders in relation to the raison d’être. On the governance side, 85% of CAC40 companies have added detailed CSR targets to their CEO’s compensation policy for 2020.
Covid, what are the prospects for CSR and the raison d’être of companies?
Where CSR and financial objectives often came into confrontation, there is now an alignment of shareholder expectations with notions of rationale and CSR. For good reason, investors, funds, clients and markets as a whole attach great importance to it.
Companies with a satisfactory social policy are favoured by investors. For good reason, with the risks associated with the period, new issues are adding to an already very important social factor in the creation of value since 2018 in Europe.
In addition, new projects at the government level plan to continue to revise the business rationale approach. For example, Olivia Grégoire, Secretary of State for Social and Solidarity Economy, plans to reform corporate accounting to add an ESG (environment, social, governance) balance sheet to the financial balance sheet.
However, there are some concerns about this completely new vision of the company. We must remain vigilant especially in times of crisis. For good reason, it would be a pity if progress on CSR were singled out and accused of being responsible for less pleasant financial results.
Sources
- “Theraison d’être of companies: two years later, first assessment”,Jean Jaurès Foundation, May 2021 study
- Law 2019-486 of May 22, 2019 relating to business growth and transformation, Legifrance
