Published on 26 March 2018

CSR

Pacte law: expanding business goals beyond profit causes division between French employers

On 9 March, Michelin CEO, Jean Dominique Sénard, and head of Vigeo-Eiris, Nicole Notat, presented their report to the government. It is intended to contribute to the Pacte Law on the transformation of company corporate purpose. Among the areas studied: the modification of the French civil code so that profit is no longer a company’s unique goal. This measure is strongly dividing French leaders.

Loi pacte weerapatkiatdumrong
Should articles 1832 and 1833 of the French civil code, which define company purpose, be modified or not?
Weerapatkiatdumrong

Should we rest on the achievements of a civil code that has proven its worth for more than 200 years or should we evolve to reflect changes in society? This is the argument creating much debate by supporters and critics of the amendment to articles 1832 and 1833 of the French civil code (see below). These articles define what a company is, namely an entity that must create wealth for the people who run it.

On 11 December 2017, the French Minister of Ecological and Inclusive Transition, Nicolas Hulot, affirmed that he wants "to evolve corporate purpose, which can no longer be simply profit-centered, without any consideration for the women and men who work there, and without regard to environmental damage ". He then added, "This reform, which will probably lead us to modify the civil code, will ensure that the principles and values of this social and solidarity economy, this pioneering economy, the one that lends a hand, the one that shares, the one that prefers cooperation to competition, now becomes the norm and no longer the exception."

Opening Pandora’s Box

Despite the tensions that have followed, the subject is well under consideration within the Pacte framework, which serves as the action plan for business growth and transformation and is scheduled to be released this spring. This paradigm shift was addressed in the Sénard/Notat report on the 9 March.

Employer’s unions are very reluctant to this proposal. This revision is a "very dangerous game, which poses major, and even vital, risk for companies" (1), explains François Soulmagnon, general director of AFEP (French Association of Private Companies). He is supported by Pierre Gattaz, president of Medef, and for whom such a change would put "all French companies in difficulty" and make them "dependent on environmental activists". For both employer’s organizations, there is no reason to change established hard law. Instead, they propose a revision of good governance code intended for listed companies while also remaining non-binding (2).

The CPME (General Confederation of Small and Medium Companies), which brings together the heads of various SMEs is also in that mood. The union believes that the amendment is a "bad answer to a real question." "Acting in an authoritative manner on issues concerning the legal rights of employees, suppliers, customers or any other community potentially affected by the activities of any company, could indeed lead to a multiplication of disputes", the organisation says.

There are some arguments that do not hold ground for Geneviève Ferrone, founder and director of the consulting firm Prophil. According to her, to file a complaint, one must have interest in acting as a stakeholder in the company itself, thus limiting the judicial risk. There is sound evidence from other countries, such as the United Kingdom, that have integrated this logic without fault. "Do not miss a historic opportunity to restore confidence in companies, especially the largest ones, which have been damaged by the financialisation of the economy" insists Ferrone.

Integrating the responsible economy into hard law

According to proponents for the civil code amendment, such changes will make it possible to adapt this positive legislation to the new era of responsible economy. "Our contemporary societies expect the company to play a leading role in rational growth, and the generation of well-being and progress", wrote (3) several figures one year ago, including Antoine Frérot, CEO of Veolia, and Emmanuel Faber, CEO of Danone.

"If [the] provisions [of the civil code] were an important step forward when they were adopted more than two centuries ago, it is not shocking to have to adapt them to our present world." Rather than proposing new legal structures (...) we propose putting the social responsibility of the company at the center of its governing instruments", they added.

On another platform (4), published in February of this year, Pascal Demurger, director general for MAIF, strongly expressed himself. "It would be a very powerful and useful symbol in creating real awareness within the four million businesses that that reside in our country. This universal obligation would guide the governance bodies of our companies towards open debate and a change of mindset by bringing the pursuit of the general interest into its realm of concern".

"Not changing the civil code would reflect a certain level of disconnect between what is happening and what society is expecting" says social entrepreneur Charles Edouard Vincent, founder of Emmaüs and the startup, Lulu dans ma rue.

Still, it will be necessary to pass by the Conseil d’Etat (the highest public court of justice in France). In 2015, Emmanuel Macron, then Minister of the Economy, wanted to modify the civil code in this sense... before being reprimanded by the judiciary.

Béatrice Héraud @beatriceheraud

(1) "Civil code articles that ignite employers", La Croix

(2) Among the avenues open to consultation: explicit mention "that the heart of the missions of the board of directors includes taking into account long term impacts and the social, societal and environmental consequences of the company’s activities" or the integration of CSR criteria into executive compensation.

(3) "Advocacy for a responsible market economy", Le Monde

(4) "Better consideration for the general interest could be a major competitive advantage", Le Monde

  


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