Published on 22 March 2018

CSR

Company transformation: a guide to new social purpose business models

The French Pacte Law is currently being drafted to address the issue of company transformation. This legislation could lead to the creation of new legal statutes, such as Social Purpose Corporations. The subject has provoked intense debate, and it can be difficult to navigate the new terminology and acronyms employed to characterise these developing corporate models. Novethic explores the subject in-depth.

Entreprise a mission iStock
Social purpose corporations, social solidarity, shareholder foundations, B Corp, Social Business and CSR ... what does all this mean?
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Social purpose corporations (L’entreprise à mission)

This legal status does not currently exist in France. It has been proposed under the Pacte Law, which details the government’s growth and transformation plan for businesses and is to be presented to the Council of Ministers on 3 May. The objective of this new statute is to put economic performance at the service of society.

The specifics behind social purpose corporations have yet to be defined. The idea is that such companies will formalise a social mission that contributes to the general interest and integrate it into their own legal framework. This mission should guide investment and development choices and its impact should be measured. Actions must also be opposable by stakeholders if one considers that the mission is not being respected. The company must finally commit to sharing the value created equally amongst stakeholders. Additionally, social purpose corporations aim to reinvent the rules of governance.

Such a legal statute has the support of French Minister of the Economy, Bruno Le Maire, as well several unions such as the Cfdt and employers' organizations like Medef and Afep. They see this new statute as a way of avoiding the proposed amendment to French Civil Code on the general status of corporations, which they strongly oppose.

 

Flexible Purpose Corporations (L’entreprise à objet social étendu)

This is one of the legal forms for which social purpose corporations could choose to subscribe. Contrary to European-focused companies, Social Purpose Corporations are free to choose whether or not their mission addresses social needs not covered by the State or capital markets. The mission’s development must include a stakeholder committee.

In France, this model has been studied by MINES ParisTech and tested by Nutriset. Nutriset integrated a mission into its legal framework in 2017 thanks to several years of collaborative work. In 2014, the French manufacturer set up a committee called "Cell'OSE", which is comprised of several stakeholders. After having co-constructed the mission (see video), it must now define the indicators needed to evaluate proper company functioning, in accordance with its mission.

 

Shareholder foundations

Under this model, these non-profit foundations own industrial or commercial corporations, all or part of the shares and majority voting rights. This is an "innovative business model" because the roles are reversed, says the Prophil, a Paris-based consulting firm. "It is no longer the company that allocates a tiny share of its profits to a peripheral foundation, but the foundation that directly or indirectly governs the company’s strategy and finances, thanks to the dividends received, towards causes of general interest."

Inspired by the Pacte Law framework, this model already exists in France, but it is rarely implemented because of its complex nature. Among the few French examples of shareholder foundations is Pierre Fabre Laboratories and La Montagne, a French regional newspaper. However, there are more than 3,000 such foundations in Germany, Sweden and Denmark. Included in this figure are large corporations such as: Ikea, Carlsberg, Rolex, Bosh or the Indian car manufacturer Tata.

 

Social and solidarity-based enterprises (L’agrément ESUS)

Since the passage of the French Hamon Law in 2014, Social and Solidarity-based enterprises have been able to receive accreditation under a new status, ESUS, which highlights the high value of their work specifically to the service of vulnerable populations or sustainable development. Some companies automatically benefit, such as insertion companies or institutions that offer work-related support.

For others, they must meet several criteria. First, the main objective of the company must be the creation of social value, such as fostering support for vulnerable groups. Second, expenses towards the objective of social value must have a significant impact on profit and loss. Remunerations paid to employees and managers must also not exceed a certain amount. Lastly, the company's securities must not be traded on financial markets.

The purpose of this accreditation is to identify institutions with high social utility that are able to meet specific social needs and enable them to benefit from certain support and funding mechanisms. Today there are 967 such companies in France. One of the most pressing issues is whether this accreditation would continue in the case that a company changed its status to that of a social purpose corporation.

 

The B Corp label

This American label echoes more and more in France. It is derived from a statute belonging to the Benefit Corporation which appeared in US law in 2010. B Corp-certified companies serve as mission-oriented companies in the sense that they are committed to working for the common good. The certification is granted by the American NGO B Lab, which evaluates the maturity of the company using a questionnaire adapted to the company’s size, activity and geographical location.

Nature et Découvert, Les 2 Vaches and several consulting firms are amongst the forty companies with the B Corp label in France. Worldwide, there are more than 2,100 B Corp-certified companies in over 50 countries and 130 different sectors. The largest of these is companies is Danone's US subsidiary, DanoneWaves.

 

Social business

Developed in France in the early 2000s by large companies like Danone and Veolia, social businesses seek to provide a solution to societal problems and its work is directed at the most vulnerable. It differs from social purpose corporations in the sense that the social mission of the company takes precedence over profit and concerns only a small part of the company’s activities. Social businesses, however, are losing momentum due emerging inclusive business models, which have the same objective but in parallel with profitability.

 

What is the link between social purpose corporations and CSR (corporate social responsibility)?

A company with a CSR policy does not have a particular social mission or status. The most advanced companies in this field, however, are committed to reducing the negative impacts of their business and beyond, by maximising the positive impacts they can have on society, in collaboration with their stakeholders.

CSR reflects current discourse concerning changes to civil code and the definition of company purpose. This includes considering the interests of all stakeholders in the company and the economic, social and environmental consequences of its activities. However, employers, in line with the voluntary nature of a CSR approach, do not wish to integrate this dimension, which, with the proposed changes, would become binding for all French companies.

 

Béatrice Héraud @beatriceheraud


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