Towards a political corporation? NGOs as ESG shareholder activists and litigators influencing corporate strategies in continental Europe
Non-governmental non-profit organisations (NGOs) that try to influence ESG strategies of corporations, especially climate strategies, have recently, after buying a very limited number of shares in target companies, begun to pursue their campaigns through the use of shareholder activist techniques, such as submitting shareholder proposals and using the right of shareholders to ask questions of the CEO and give speeches at the annual general meeting. At the same time, some investment funds, especially pension funds, have in a limited number of cases engaged in “halo activism” i.e. shareholder activism campaigns that cannot be explained by a desire to increase investment returns. These organisations represent the interests of truly external stakeholders; their efforts go beyond trying to force companies to internalize their negative externalities. The article incorporates empirical research by Michael Bakker (University of Amsterdam) on the use of E&S shareholder proposals in European companies. Recent French, German and EU sustainability due diligence legislation creates leverage for such stakeholder organisations to influence corporate policies by forcing European companies to enter into a dialogue with these organisations. The French due diligence legislation in particular encourages general interest litigation by NGOs’s as the continuation of activism with other means, this has led to 10 pending court cases against French corporations. These new stakeholder tactics (shareholder proposals, climate/ESG litigation) are hard to reconcile with legal doctrines in certain European countries, especially the Netherlands and Germany, that hold that determining a corporation’s strategy should be the exclusive preserve of the (executive) board. Such a stance can be justified because the NGOs are not really shareholders: they buy a few shares for purely instrumental reasons and their interests diverge from those of shareholders. Nevertheless Hans De Wulf argues that the Netherlands and Germany should loosen their restrictions on shareholder proposals by only outlawing shareholder proposals that are too prescriptive on strategy, e.g. proposals that want to impose a specific quantitative emissions reduction schedule on companies. This would allow NGOs and halo activists to use the AGM as a transmission mechanism for the expression of the views of stakeholders and ESG-minded investors. Shareholder proposals are in any case a more appropriate channel through which to allow external, not financially invested stakeholders to influence corporate strategy than strategic ESG/climate litigation against companies, which is undesirable, and should in fact be inadmissible if it wants to impose strategic measures on companies that do not flow directly from binding, precise regulation but are based on the tort law concept of duty of care. Inconsistently, however, several European jurisdictions ban shareholder proposals on corporate climate strategies, while simultaneously enabling general interest climate strategy litigation against such companies. Everywhere, the new stakeholder tactics make life more difficult for boards, who have to balance incommensurable conflicting interests and values, thus taking the kind of decision that until recently was the preserve of politicians. At the end of the article, Hans De Wulf will venture to suggest that these development could have a negative impact on the board’s role in setting corporate strategy, that this problem may be made worse by the installation of another extra board committee (e.g. sustainability committee) and that probably, the new “political” and oversight roles of boards are more efficiently handled in a dual board system, with a “political” supervisory board that concentrates on oversight (risk management, compliance) and internalizing stakeholder interests, and a relatively small, coherent and insulated executive board that determines corporate strategy and executes it. But Hans De Wulf would be the first to admit that on this last topic- implications for the board’s strategy role and the board’s ideal structure- far more research by specialists in board dynamics is needed.