It is necessary to pay attention to the different meanings of the concept of ethics. First, much of the unethical stuff is already in the illegal. This applies, for example, to fraud, illegal interest trading.
For these categories, we can think that business ethics and business law are more or less equivalent.
More broadly, we can make an ethical judgment about a company's actions through its economic, social and ecological consequences, the three aspects of what has traditionally been called sustainable development.
When considering the concept of sustainable development, the primary mission of the company is questioned: maximizing shareholder profit.
Early research on business ethics sought to resolve this conflict by placing the interests of shareholders openly at odds with those of employees, consumers, or any other interested party.
Applying the practical advice of this research, nearly three-quarters of large American and British companies have established a corporate social responsibility program whose role is to remember stakeholders' interests at all stages of the decision-making process.
These firms have reaped a managerial benefit from this by speeding up, improving, and making it less costly a company's response to stakeholder requests, particularly public action.
In this approach, firms respond to pressure rather than automatically recognizing the rights of interested parties. For this reason, it has been less followed in Europe, where questions focus most on the morality of the markets or the necessary regulatory changes.
After several waves of financial scandals, various governments were able to encourage companies to publish a report on their ethical or social activities.
It should be noted, however, that where there is not very broad control, the effectiveness of such a law depends, as well as the speed with which companies respond to them.
On the market side, investors themselves may decide to channel their resources into ethical assets, either through cooperative savings or socially responsible investments.
We speak of an accumulation of solidarity when the saver gives up a portion of his profits for the benefit of charities. We are talking about socially responsible investing when the primary objective of investment is its profitability, but additional constraints are applied.
We distinguish:
– exclusive funds or ethical funds: Assets are selected based on traditional financial data. But it is also chosen according to moral or religious criteria. Certain securities are excluded, such as those related to tobacco, gambling, weapons or child labor.
– selective funds or socially responsible funds: In the selection of assets, ethical characteristics evaluated by rating agencies are taken into account.
– engagement funds: The managers of these funds try to influence the management of the companies in which they are shareholders by using their voting rights. It has a financial security law that obliges its executives to exercise their voting rights in the companies in which they participate.
Although they still represent less than 1% of assets in France (compared to 12% in the United States), their size is growing very quickly.
This increase can be explained by the purchases of institutional investors whose investment horizon is far away. They are the first recipients of ethical funds.
Pension funds have this feature, which explains the faster development of the American market. Additionally, private funds that are less demanding are proportionally more available.
Mutual Funds
The rise of mutual funds and pension funds has undoubtedly been the most significant change in the face of Western stock markets, where voting financial assets in corporate strategies are traded.
These funds hold a minority stake in the capital of the companies they invest individually due to the diversification of their portfolios.
But they are now the leading holders of shares quoted in the United States, England or France.
This rise in power has been accompanied by reforms in corporate and stock market law, as well as the publication of a set of good governance rules that promote the interests of minority shareholders, as well as greater protection of minorities.
In academia, economics, and law, this movement has rekindled debates about the responsibility and governance of listed firms.
In the case of a non-listed company, the legal and economic bond between the shareholders and the firm is very close, but for a listed company the situation is quite different.
The law separates the company from the shareholders and entrusts management to a team of experts. In addition, many minority shareholders invest for capital gains rather than a desire to influence entrepreneurial strategies or to hold their shares for the very long term.
The question of liability is therefore less obvious, as evidenced by the vast literature.
Two conflicting responses can be identified. The shareholder model supports the principle that directors and directors should only serve the interests of shareholders.
This principle translates through an agent relationship, in which directors (shareholders) hire representatives (management team) to run the company's management.
Information asymmetries combined with the opportunism of representatives require the implementation of mechanisms that are likely to bring the interests of representatives closer to those of principals.
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