The research project “A Social Licence for Business” has submitted a response to the EU Inception Impact Assessment for the Sustainable Corporate Governance Initiative of the European Commission. The Initiative aims to improve the EU regulatory framework on company law and corporate governance and would enable companies to focus on long-term sustainable value creation rather than short-term benefits.
The project team welcomes the investigation of these issues. Short-termism is unlikely to decrease through voluntary business regulation alone. We agree with the initiative that reforms are necessary.
However, the initiative faces a significant challenge. Our research shows that standard regulation is not adequate to bring about the desired change.
We suggest that this challenge can be mitigated. To do so, the initiative should restate the social contract between business and society. Businesses should articulate how they intend to generate social value alongside legitimate profit-making activities. The social licence to operate requires businesses to create such social value.
We therefore recommend that the initiative clearly articulates the justification of increased corporate governance regulation, requires businesses to create social value, and strengthens the rights of stakeholders to have their say.