Corporate Law professors advocate strengthening the societal embedding of companies

Never before have 25 Corporate Law professors made a joint proposal to amend Company Law. They state that companies and their directors should not only focus on the interests of the company but that they should also operate as a ‘responsible citizen’ in society and propose that this should be established in Company Law. This proposal was initiated by Prof. Jaap Winter (UvA, VU and chairman of the Supervisory Board of Erasmus School of Law) and Prof. Matthijs de Jongh (Erasmus School of Law). This initiative is supported by 23 other Corporate Law professors, including Prof. Kid Schwartz, Prof. Vino Timmerman, Prof. Maarten Verbrugh and Prof. Hélène Vletter-van Dort from Erasmus School of Law.

It is the legal standard for directors and supervisory directors to focus on the interest of the company and its business. This norm suggests a broad balance of interests. However, in practice, it seems possible to focus mainly on financial targets for the benefits of the shareholders. Whether it concerns deliberate environmental damage, bonus discussions or excessive prices for medication, incidents show time and time again that there is a difficult relationship between companies and society. At the same time, taxpayers contribute to supporting these businesses in the current crisis. That is why, once again, the social responsibility of companies is placed in the spotlight.

A new social contract
The professors aim to embed the pursuit of profit in the context of responsible actions by proposing the following:

  • Responsible corporate citizenship: Directors must ensure that the company behaves like a responsible company in society. With this new task, the professors intend to stimulate directors to enter a dialogue about responsible participation in society. Within the company, and beyond. In this way the professors hope to contribute to strengthening trust between companies and society;
  • Raison d’être: Companies are invited to formulate a reason for existence and to include this in their articles of incorporation: the ultimate goal that the company pursues in societal context;
  • Accountability: The annual report should account for the impact the company has on its employees, the communities in which it operates, the environment and the climate.

Directors, supervisory directors and shareholders enjoy the privilege that, in principle, only the company is liable for its debts. This includes damage to third parties, society or the environment. In return, society may require directors and supervisory directors to ensure and shareholders to accept that the company behaves responsibly in a societal context.