Societal Corporate Governance and Extra Financial Information: Spearhead or Achille’s Heel of Corporate Governance?

Abstract

Extra-financial information is becoming increasingly commonplace and standardized in France, in particular under the influence of financial authorities such as the AMF (Financial Markets Authority). This development has fueled the stakeholder dialogue. Stakeholders’ expectations constitute but one of many elements which shape the image of a company. Internet is also seen as playing an increasingly important role in communicating the «responsible» image of companies. The potential of reputational risk, in particular on the financial markets, is forcing companies to reconsider and correct their ‘good’ corporate governance practices. Thanks to emerging soft law, consideration for environmental concerns has become instrumental in helping companies focus upon corporate governance concerns that might otherwise have remained at the periphery of their interests and priorities In France, the Grenelle II Act has, to a certain extent, shifted responsibility for ecological damage caused by subsidiaries, to parent companies. This is a good example of connecting hard to soft law. Under pressure of shareholder activism, companies now understand that they have a vested interest in adapting their management methods and production systems to societal and environmental standards if they wish to continue to attract investments. This illustrates that Socially Responsible Investment (SRI) does indeed impact corporate issues and can be used as a tool for correcting the behaviour of officers, notably via the emergence of reputational risk considerations (good or bad, spearhead or Achille’s heel of corporate governance).