The company in the Anthropocene era

The essentials

What is a company?

The notion of the company, the central object of criticism of capitalism, is more complex than the image conveyed by the media debate on controversial multinationals.

In reality, the nature and longevity of companies are different. ⁴ and of very different sizes: from the sole proprietorship, to the multinational operating in many different countries and sectors, to the multi-century-old company. They operate in a wide range of regulatory and competitive environments, and have extremely varied modes of governance (e.g. from the highly regulated profession of notary to the highly competitive world of IT services). Their governance, which we discuss in Essentiel 4, can also cover very different situations.

To form an opinion on the current role and responsibility of the company in the ecological crisis and its eventual resolution, it is necessary to clearly define what we are talking about. It is also important to understand that, depending on the players involved, representations and expectations will not be the same.

Depending on the people or stakeholders involved, the company’s perception varies greatly.

For its founders, the company is a means of earning money, practicing a trade and being one’s own boss. It can also be a risky human adventure, a way of turning a dream or an idea into reality. For them, it can be a question of personal fulfillment and social success.

For non-founding managers (or for founders after a few years), the motivations may be a little different: the desire to win a market, to eliminate a competitor, to impose a new product/service, to make the share price soar, to serve a specific shareholder to increase his or her power, and so on.

For the company’s employees, the motivations can be as varied as the way in which the company is viewed. Historically, work has been seen as an inevitability: you have to work to “earn a living”.

Today, motivations can be more complex: being part of a team of friendly colleagues, the pleasure of selling for a salesperson, the need for recognition, the feeling of participating in the company’s project, its “mission” (even if this term is sometimes connoted) and the feeling of participating fully, to the extent of one’s abilities. In return, a salary (and more generally remuneration) is of course expected. The desired level of salary may be based more on considerations of fairness (obtaining a salary equivalent to that of another “comparable” person doing an equivalent job) than on the desire for an ever-higher salary. It all depends on the culture and motivations of the employee in question.

For many stakeholders and observers, a company is first and foremost a social body, a group of people who interact within a collective subject to rules of various kinds: law (company law, labor law, etc.), social customs linked to the country concerned, the company’s organization and specific management methods, the atmosphere resulting from employee interactions and initiatives…

In the region(s) where the company is based, it is seen as a provider of direct and indirect employment, by generating or stimulating activity, whether through local suppliers and service providers, or through the activities that develop to bring goods and services to its employees. It can also be perceived as a source of nuisance (particularly noise and pollution).

For financiers and some managers, the company is simply a set of assets that generate income, with varying degrees of risk, and can be valued over the long term by partial or total disposal. This vision is close to that of the economists who developed the agency theory, according to which the company is a set of contracts (see Idea 2).

For some observers and activists, particularly those who claim to be followers of Marxism and its successors, the company is a place of confrontation between capital and labor, one subordinating the other by definition.

Depending on the vision of the company one adopts, questions of governance and revenue sharing arise and are resolved quite differently, even within the same legal framework.

The company as seen by various scientific disciplines

The various scientific disciplines view the company in terms of their specialization. Mobilizing these different types of representations can help us to understand the factors that block the taking into account of “planetary limits” in corporate strategy and decision-making; these blocks are not necessarily of the order of economic rationality.

Without going into an exhaustive list, let’s take a look at a few examples.

In the field of economics, numerous theories of the firm have been developed. ⁵

One of the most influential today is that developed by Milton Friedman and the promoters of agency theory, for whom the firm is seen both as a set of contracts and as the property of its shareholders. Institutional economists, on the other hand, see the firm as a social construct and a collective governed by explicit or implicit rules, a point of view we adopt here.

From a sociological and anthropological perspective, the company is seen as a place of alliances, relationships and cooperation, as well as – and above all – of conflict, internal and external warfare. The company is a weapon in the “global economic war” (replacing the battalions of yesteryear): company directors are the “generals” of capitalism.

In a biological approach, the company must have a raison d’être. The terms often used in this register are of the order of life and death: the soul of the company, its DNA, its ecosystem… If it loses this sense, the company is in danger. In this vision, the founder(s) and the seed they planted transcend the company’s history. They are both driving forces and constraints: it will be difficult for successors to implement mutations that go beyond this initial “matrix”.

From a psychological point of view, a company is a theater (and sometimes a place of psychological purging) that stages egos (sometimes inordinate), desires (for enrichment, power, recognition, fulfillment), drives, values, passions, flaws (ranging from lack of certain key skills to sometimes psycho-pathological profiles) from those of the founder(s) to those of all its contributors.

In this conception, the apparent rationality of the company (decisions based on performance and efficiency criteria for its growth) is relatively weak compared to the psychic rationalities of those who create, compose and manage it.

The company as seen by official statistics

Public statistics bodies, such as Insee in France, collect and analyze company data to build up a picture of the country’s productive structure and its evolution over time, and to compare it with that of other countries.

The image of the company and the production system conveyed by these bodies is therefore profoundly structuring, as it serves as the basis for public debate on the subject. That’s why we’ve set out here to understand what we’re talking about.

The company as a socio-economic reality

But how do you define the outline of a company? This is not as trivial a question as it might seem. The answer will vary according to the size and complexity of the organization concerned.

At first glance, one might think that a company is defined by its legal existence. Indeed, for a long time it was confused with the “legal unit” (see box below).

Such a definition, however, is restrictive and poorly reflects economic reality.

As Insee explains, “many legal units are not autonomous: they belong to a larger whole, which groups together several units and which holds decision-making power, notably over the allocation of production factors or research and development”. It is this whole that we call a company, and which makes economic sense. ⁶

Finally, a company is also a work collective, a social body. This is why the notion of “enterprise” is often found in the French Labor Code, where the term is interpreted as a group of workers carrying out a common activity under the authority of a single employer.

How many companies in France?

To analyze the production system, we need to focus on the commercial sector, and have access to consistent, harmonized accounting data.

Insee has thus defined the scope of structural business statistics (also known as the “non-agricultural, non-financial market sectors”), from which the following are excluded:

• the agricultural (except forestry) and financial (except holding companies and financial and insurance auxiliaries) sectors, as their accounting is not homogeneous with the other sectors.
• non-market activities (carried out by public administrations or associations).
• non-productive activities

Companies are not necessarily corporations

When we talk about a company, we often equate it with a corporation. Yet the two concepts are quite different.

As we saw in the previous section, a company is a socio-economic reality whose legal basis is one or more legal units.

The company is one of the forms that a legal entity can take, but it is not the only one (see definition below). Sole proprietorships are also very numerous. It’s important to understand this, as debates about business often focus on corporations, with their specific governance structures (power and value sharing) and objectives.

While INSEE unfortunately does not make public information on the legal categories of the 4.8 million legal units (and a fortiori companies) included in the scope of structural business statistics, we can nevertheless draw some orders of magnitude from the data on all 7.6 million legal units.

Breakdown of legal units in France by legal category at the end of 2021

At the end of 2021, of the 7.6 million legal units in France, over 55% are sole proprietorships (approx. 4.2 million), 37.6% are companies (approx. 2.8 million) and 3% are associations (approx. 236,000). The “Other” category includes in particular public administrations (state administration, local authorities, social security administrations, etc.).

The scope of structural business statistics essentially covers sole traders and companies. However, some sole traders and companies belong to the agricultural and financial sectors and are therefore excluded. Others may have no productive activity at all. ⁹ Some non-trading companies have no commercial activity. ¹⁰ Some structures listed under “Other”, such as such as public enterprises, may be included.

It is therefore not possible to fully deduce from the above statistics the legal form of the companies included in Insee’s structural statistics. However, we can assume that at least one out of every two businesses is a sole trader.

The differences between legal forms

• Sole proprietorships

These are companies created in their own name: they have no legal personality separate from their founder. Until very recently, sole traders were liable for company debts on their own assets (apart from their main residence). Since the law in favor of independent professional activity of 2022, only the elements necessary for their professional activity can be seized in the event of professional default.

Among individual entrepreneurs, there is a specific status: that of micro-entrepreneur (called auto-entrepreneur until 2014), which offers streamlined business start-up formalities and simplified calculation and payment of social security contributions and income tax.

• The companies

The notion of company is defined in article 1832 of the French Civil Code.

“A company is formed by two or more persons who agree by contract to allocate property or their industry to a joint venture, with a view to sharing the profits or benefiting from any savings that may result. In the cases provided for by law, it may be set up by an act of will by a single person. The associates undertake to contribute to any losses.

A company is therefore a legal entity resulting from a legal act whose primary objective is to make profits for those who created it. ¹¹

There are many different types of company, which can be grouped into two broad categories with different implications for their founders:

Partnerships are characterized by the importance of the collaboration of the partners who have created (or joined) the company. In return for the resources they contribute to form the company’s capital, they receive financial securities known as shares, the transfer of which is subject to strict controls. ¹² (unlike shares). This is one way of preventing capital dilution. Partners are jointly and severally liable for the company’s debts. This means that one partner can be sued for another’s debt, and that partners are liable on all their personal (and not just professional) assets. Trust between partners is therefore essential.

The legal forms of partnership in France are the société en nom collectif (SNC), the société en participation and above all the civil partnership These include the SCI (société civile immobilière) for property management, and the SCP (société civile professionnelle) for regulated professions (notaries, lawyers, auditors, doctors, etc.).

The joint-stock companies are more focused on the securities issued than on the partners themselves. The initial contributions to form the capital take the form of financial securities, shares, which the associates (or shareholders) are free to issue. ¹³ (including on a stock exchange, if the company is listed). Moreover, the liability of associates is limited to their contribution, and they are not jointly and severally liable.

The main forms of joint-stock company in France are the SA (société anonyme) and the SAS (société anonyme simplifiée). SARLs are considered mixed or hybrid companies. ¹⁴

This initial overview shows that a company is not necessarily a corporation, although the two terms are often confused. The former is a socio-economic concept used to analyze the production system, while the latter is a legal status with very specific characteristics.

Companies come in all sizes, ages and weights in productive activity

Statistics on companies are extremely rich. For example, they enable us to understand their enormous diversity, whether in terms of size, sector of activity or impact on the productive system. However, as we often point out in The Other Economy, we also need to take a step back from the figures to understand the values behind the different ways of counting.

The production structure is highly concentrated

A common way of observing the world of companies is to differentiate them by size, in order to assess their weight in the productive fabric in terms of various indicators (number, employment, sales, added value, exports, etc.). Thresholds have been defined for this purpose since 2003 at European Union level (member states are required to respect maximum thresholds, with some leeway).

Some indicators of France’s production structure by company size

In 2021, the 4.5 million companies in France’s non-agricultural and non-financial market sectors will generate 1,296 billion euros in added value and employ 14.7 million full-time equivalent (FTE) workers, bringing the total number of jobs in France to around 30 million.

As can be seen from the graph below, France’s productive fabric is highly concentrated. While small and medium-sized businesses will account for 96% of companies (4.3 million) in 2021, their weighting is much lower in terms of number of employees (18%) and added value (19%). Conversely, the 300 or so large companies account for 28% of employees and 33% of added value.

The French situation is not exceptional in Europe. Everywhere, MICs dominate in terms of number of companies. ETIs and large companies generate around half of added value. In terms of employment, the situation is more contrasted: TMCs account for just under a third of the workforce in the European Union, but only 19% in Germany and 43% in Italy.

Other types of information available: sectors, company demographics, etc.

Statistical institutes provide a wide range of other data for analyzing the productive fabric. For example, it is possible to analyze the weight of different economic sectors in terms of sales, added value, employment, investment, exports, etc.

There are also statistics on the “demography” of businesses, because they don’t last forever. For example, in France, 61% of companies created in 2014 were still active five years after their creation. ¹⁸ . This means that 40% of companies “die” within 5 years of their creation. ¹⁹ .

The need to step back from statistical data

As is often the case in The Other Economy, we’d like to emphasize the importance of taking a step back from statistics. Although they are based on concrete data collected from economic players, they are nevertheless subject to conventions, i.e. choices made by statisticians according to reasoning and justifications that cannot be totally objective in terms of describing reality.

The scope observed by statistical bodies is not neutral

Insee’s Les entreprises en France – Édition 2023report is intended to provide “a comprehensive structural view of our production system”.

As we saw inEssential 1.3, structural business statistics cover the “non-agricultural and non-financial market sectors”, which in 2021 comprised 4.5 million businesses, corresponding to 4.8 million legal units.

Insee, however, lists nearly 7.6 million active legal units in France. The transition from one figure to another has involved making choices, adopting conventions justified by technical considerations (exclusion of most agricultural and financial structures, as their accounting systems differ from those of other sectors) or without justification (exclusion of non-market activities).

However, given that our ambition is to analyze the productive system, the exclusion of agricultural production, financial services and all non-market activities raises questions. Are public services such as education, health, justice and policing not considered to be part of productive activity? And what about the contribution of hundreds of thousands of associations? These are legitimate questions, as these choices send out a biased message about what makes up a country’s productive fabric.

It is interesting to compare the figures for the production system defined by INSEE with those for the economy as a whole.

Non-market production, for example, will account for just over 11% of total French production in 2021. ²⁰ and that’s without counting all the services that are not subject to any monetary transaction (for example, the work of France’s 12 million volunteers).

Value added amounted to 2,217 billion euros. ²¹ that same year. With 1,296 billion euros of added value, the French production system as defined by INSEE represents less than 60%. The same type of analysis is enlightening when it comes to employment (see Misconception 1 : only companies create wealth and jobs).

Of course, the agricultural, financial, non-profit and public administration sectors are also subject to statistical analysis. But the angle is not the same. In the case of government agencies, for example, the question of public finances (expenditure, debt and deficit) is given much greater prominence than that of their contribution to the productive system. This issue is also well illustrated by the social and solidarity economy (SSE), which lies at the interface between the market and non-market sectors, due to the multiplicity of structures that make it up. Although statistics on this subject are still sketchy, it is clear that this part of the economy, which focuses more on social purpose than profit, accounts for a substantial proportion of activity, particularly in terms of employment (see Essentiel 4 on governance).

Slowly evolving statistical conventions were not designed to capture the material dimension of production.

Statistical conventions are usually drawn up within a regional (European Union) or even international framework. They correspond to the needs of the time, and take a long time to evolve.

The example of the sectoral division of the economy is illuminating in this respect. Created in 1993, the NAF (nomenclature d’activités françaises) is “a nomenclature of productive economic activities, primarily designed to facilitate the organization of economic and social information”. It has the same structure as the European activity nomenclature (NAVE Rev2), itself derived from the international nomenclature. It has been revised twice, in 2003 and 2008.

Developed at a time when ecological issues were barely present in public debate, this nomenclature did not take into account the consumption of natural resources and pollution linked to economic activities. Other nomenclatures were therefore developed to deal with these issues, such as the one that structures the major sectors of the economy to account for the main sources of greenhouse gas emissions. The correspondence between the two, and therefore the analysis of the production system in terms of these emissions, is not obvious.

The company: a place of cooperation and tension between multiple internal and external players

Companies are part of an institutional, human and natural environment

A company cannot function, let alone grow, without multiple tasks of different kinds being carried out, internally by employees or externally by service providers or suppliers.

It also depends on free or paying public services and the availability of infrastructures (transport, energy, waste, telecoms) and quality institutions (education and training, health, justice, legal system, etc.). It is embedded in human (stakeholders) and/or natural (environment) “ecosystems”.

It is subject to numerous legal obligations: labor law, corporate and tax law, environmental law, business (or contract) law, intellectual property law and competition law. There are also certain sectors that are subject to specific regulations (e.g. in France: banking, insurance, bookshops, the press, etc.) and regulated professions that are subject to specific obligations. ²² ).

Lastly, we remind you that certain activities are prohibited or even criminalized. ²³ . They are not necessarily economically anecdotal, and some of them are included in the GDP (see our module GDP, Growth and Planetary Resources – Sub-section How are the limits of production defined?)

Different functions are implemented in the company

The “company manager” (one person or several partners) embodies and defends the company’s project in the eyes of its customers, employees and other stakeholders. He or she is also the conductor of an orchestra, ensuring that the functions to be carried out are carried out “adequately” (i.e. at the required level of quality for an appropriate cost), and that the company fits into the ecosystem(s) with which it interacts. It is an arbiter of the many conflicts that the company experiences. So he’s not just a manager, an accountant or a director.

Let’s take a quick look at what it takes to make a business work.

A company, whatever its size, carries out a wide range of functions in-house, or has them carried out by suppliers or service providers. The number of staff assigned to each function depends not only on the size of the company, but also on its “mission” and business model.

Here is a brief list of the functions performed within the company, and embodied in different ways depending on the case:

• defining the “mission” and the strategy for the more or less long term;
• sales (marketing, advertising, sales department, customer relations, business development) ;
• external and internal communication (with or without the press and news media) ;
• Human resources and social management: payroll, social declarations, occupational medicine, relations with staff representatives, recruitment, training, early skills management, sickness management, leave and departures (resignations, individual and collective redundancies);
• production (and supporting services), subcontracting and purchasing;
• IT management (software and hardware) ;
• accounting and financial management: company financing (credit, shareholders, markets), cash management, accounting, management control, communication and financial reporting
• legal: labor law, corporate and tax law, environmental law,
• business (or contract) law, intellectual property and competition law, etc.
• fundamental or applied research and the development of new products and services;
• public relations: relations with political and administrative authorities at the relevant level, professional organizations, NGOs, and the possibility of influencing these players;
• monitoring and controlling the company’s social and environmental responsibility.

The company is not isolated

It is part of a network of stakeholders: customers, employees, suppliers, government and public authorities, shareholders, investors, bankers. It operates in one or more territories, has neighbors and benefits from public services and infrastructures.

Businesses cannot live and develop without the implicit approval of the public, the so-called “social license to operate”; they must have a certain legitimacy that is not reduced to respect for the law, nor to the fact that they can find solvent customers. This social pressure is exerted on managers and imposes de facto limits on them.

On a more prosaic level, companies need to inspire long-term customer confidence in the quality of their products and services, and in their ability to live up to the claims they make. Increasingly, they are being questioned on their social and environmental practices.

As the following extract from wave 11 of the Political Confidence Barometer (2020) shows, large private companies often inspire only lukewarm confidence.

In France, a Pinocchio prize was created to denounce “greenwashing”. Online applications such as MoralScore evaluate companies according to various criteria (environment, social contribution, privacy, working conditions, etc.). Students are increasingly reticent about, and even reject, certain large companies and groups, which is reflected in growing recruitment difficulties.

As can be seen in the barometer below, managers of large companies tend to have a poor image with the public, unlike managers of SMEs.

The company, a crossroads of cooperation and conflict

The company is first and foremost a place for cooperation – that’s its raison d’être.

If a company is created, it’s because its creator(s) believe that the pooling of skills and financial capital they imagine will be more effective than their individual actions, even if organized by contracts.

Within the company, cooperation is effective, necessary and encouraged by the very principle of organization. Relationships between employees are not generally the subject of precise contracts, and everyone has room to manoeuvre. Even if individual interests are by no means absent, the company stimulates cross-services: you can do me this favor, but you have to do me that favor…

The company is also a place of conflict and tension:

• between the “boss” and the employees, the former having to embody the interests of the company (and sometimes of the capital owners), sometimes to the detriment of certain employees;
• between the company and its suppliers/service providers, where each has opposing interests (suppliers want to sell as well as possible to their customer (the company), who wants to buy as well as possible…);
• between employees, where the limits of cooperation can be revealed when it comes to pay rises, bonuses, promotions and power.

The art of management (thousands of books, seminars and training courses are sold worldwide on this subject) is precisely that of encouraging cooperation without annihilating emulation, initiative and the recognition of those who contribute most and best to the company achieving its objectives. It is also the art of arbitrating the inevitable conflicts that arise within the company.

Trade unions and employee representatives

In most cases, the company is run by the representatives of its shareholders (seeEssentiel 4 on the different forms of corporate governance). ²⁵ ). Employees are represented in and around companies by structures charged with defending their interests, taking part in certain negotiations and, where necessary, engaging in a power struggle with management. This reality has been built up over time, and did not emerge spontaneously. Moreover, these structures have varying degrees of weight and power, depending on the era and the country.

The development of trade unionism has made it possible to win social rights

Capitalism in the ^19th and early ^20th centuries evolved in social terms, mainly as a result of conflicts over social rights.

The 1880s marked the birth of trade unionism in Europe, in a period marked by the notion of class struggle (between proletariat and employers). It developed on large industrial sites, where human labor was progressively fragmented to increase productivity, then increasingly mechanized, automated and finally robotized. By engaging in a power struggle with governments, notably through strikes, the unions helped achieve social progress and improved working conditions.

Union power was still very strong during the 30 Glorieuses (1945-1975), with notable differences between countries: some, particularly in Northern Europe, had much higher rates of unionization than others.

Over the last few decades, unionization rates have been falling almost everywhere (see OECD unionization database 2000-2020). This is particularly the case in France, where the rate plummeted from the end of the 1970s to stagnate at around 10%. ²⁶ . In addition, a 2017 study by the Ministry of Labor’s Statistics Directorate (DARES) shows the weakening of employee participation in trade union activities, with a clear drop-off around 2010.

The causes of union decline are varied and differ from country to country:

• the decline of industrial and manufacturing activities, increasing outsourcing to large groups and the development of temporary work are all factors preventing workers from joining forces;
• cultural and ideological changes (with increasing individualization and consumerism in society, and a more general decline in militant activities);
• programmatic changes within political parties, working conditions and remuneration, and “social” legislation;
• the low representativeness of trade unions in countries like France, where they represent fewer and fewer employees.

In parallel with the development of trade unionism, social legislation has increased the role of employee representatives within the company.

In most cases, however, this role remains limited. In the French example detailed here, employee representatives have the power of expression (and not necessarily of all employees, either…), not always of consultation and even less of co-determination or co-decision.

Although the French Labor Code, which dates back to 1910, has never ceased to evolve, the Auroux laws of 1982 modified more than a third of it. These texts, comprising 2 ordinances and 4 laws, strengthened employees’ right to express their views on working conditions, endowed the works council with an operating budget, enshrined the obligation of annual collective bargaining, and created the health, safety and working conditions committee (CHSCT), as well as the right of withdrawal.

The last major reform of labor law dates back to 2017 with the Macron ordinances which, on a general level, introduced less favorable labor law for employees. These ordinances also merged the various existing representative bodies(staff delegates, CHSCT and works council) into a single body the Social and Economic Committee (CSE), mandatory in all companies with more than 11 employees.

The main role of the CSE is to present employees’ individual or collective complaints to the employer (wages, collective bargaining agreement, application of the Labor Code), and to promote good working conditions. The CSE can also investigate workplace accidents or occupational illnesses, refer matters to the labor inspectorate, and has a right of warning (in the event of infringement of personal rights or health, in situations of serious and imminent danger, as well as in matters of public health and the environment).

In companies with at least 50 employees, it must be consulted on certain issues relating to the life of the company, its strategy and employment. ²⁷ but the employer is free to decide whether or not to take this opinion into account.

Environmental issues were a late entrant to employees’ right of expression

CHSCTs had to be convened in the event of a serious event linked to the establishment’s activity that had (or could have) harmed the environment and employees. In 2017, the creation of the CSE extended the right to alert to environmental damage.

The Climate and Resilience Act (art. 40) of 2021 expands the missions of the CSE by specifying that in companies with at least 50 employees, it ensures a collective expression of employees on the decisions of the company’s managers “particularly with regard to [their] environmental consequences” (art. L2312-8 of the French Labor Code). Lastly, the challenges of the ecological transition are included in negotiations on forward-looking management of jobs and skills (GPEC).

The challenges and variety of Governance

As we saw inEssential 1, a company is first and foremost a socio-economic reality. Its legal basis can be either a natural person (individual entrepreneur), or one (or more) legal entities (company, cooperative, mutual, etc.). We are mainly interested in legal entities here, since corporate governance implies the existence of a collective structure.

We have defined corporate governance as “a set of legal, regulatory or practical provisions that delimit the scope of the power and responsibilities of those charged with guiding the company in the long term”, on the understanding that guiding the company means “taking and controlling decisions that have a decisive effect on its sustainability and hence its lasting performance”.

Pierre-Yves Gomez (2018)

We’ll see that governance involves different types of power, and that depending on the legal form of private companies, shareholders play a more or less important role.

The four powers of governance

In his book, La gouvernance d’entreprise (PUF, 2018), Pierre-Yves Gomez breaks down governance-related responsibilities into four powers, which are represented in the diagram below.

This typology enables him to analyze each organizational governance according to two key questions: who holds each of these powers, formally or tacitly? How are these powers exercised by the people who hold them?

The constituent power sets all the laws and rules establishing the framework within which corporate governance can be exercised. This mainly concerns the national and international legal framework. This power is therefore mainly exercised by the public authorities, in particular the State.

Sovereign power is that which founds the others – respecting the constituent power – and ensures their continuity. It is held by shareholders in the case of companies, by members in the case of cooperatives or mutual societies, and by members in the case of associations. Its prerogatives include, in particular, validation of annual accounts, management by the executive and appointment of directors (who have supervisory powers).

The function of the supervisory board is to administer the organization, which implies, in particular, responsibility for appointing its managers (holders of executive power), selecting strategic orientations from among those proposed by them, and monitoring results. This power is exercised by the Board of Directors or the Supervisory Board.

Executive power is exercised by the organization’s manager(s). Its role is to define and implement strategy. It is accountable to the holder of sovereign power.

What is the “classic” governance of private companies?

A company is formed by two or more persons who agree by contract to allocate assets or their industry to a joint venture, with a view to sharing the profits or benefiting from any savings that may result. In the cases provided for by law, it may be instituted by the will of a single person. Partners undertake to contribute to losses.

Definition of a company – Art. 1832 of the Civil Code

The purpose of the company is to generate profits for its founders. For some economists, such as Milton Friedman, leader of the Chicago school of economics ²⁸ some economists, such as Milton Friedman, leader of the Chicago School, have even made maximizing shareholder profits the company’s sole objective.

A shareholder-friendly environment

We’ll see how this objective is reflected in the concentration of power (sovereign, supervisory and sometimes executive) in the hands of shareholders. This does not mean that all companies are guided solely by the pursuit of “value creation” for shareholders, but that the general provisions make such an objective possible. This has become the largely dominant situation for large listed companies.

Sovereign power is held by the general meeting of shareholders, each of whom has generally proportional voting rights. ²⁹ to the shares of the company’s share capital they hold (see our capital factsheet for more information). This meeting votes on the annual financial statements, validates past management and future projects, and elects the members of the Board of Directors (BOD), which holds supervisory power. ³⁰ .

Directors have extensive powers, specified in the Articles of Association. At the very least, the Board elects its Chairman from among its members, appoints the company’s Chief Executive Officer to exercise executive power, and oversees the company’s management. In some companies, these two functions are performed by a single person, the Chairman and CEO.

This general framework can give rise to very different situations depending on how each of these powers is allocated and exercised.

For example, in a family-run business, power is often concentrated in the hands of the founder and possibly those closest to him. This is very different from a public limited company, where shareholders often have no connection with the company’s creation. Moreover, depending on the concentration of shareholders (e.g., a few large shareholders with almost all the voting rights, or at the other extreme, a very diffuse shareholder base with a multitude of small shareholders), the exercise of governance will not be the same.

In some cases, the constituent power has given employees a much greater role.

In Germany (and many other European countries), under various provisions ³¹ ) the “co-determination has been in place since the 1970s: employees are represented on the Board of Directors, and can account for up to 50% of members (for companies with over 2,000 employees). However, they never have a majority (the Chairman’s vote counts double), and so cannot take decisions without the agreement of at least one director representing the shareholders.

In France, in companies employing over 1,000 people, employees appoint one or two directors to represent them, with the same duties and responsibilities as shareholder representatives.

It’s important to distinguish between co-determination (where employees hold part of the supervisory power via their representatives on the Board of Directors) and employee representation bodies within the company, which usually only have consultative powers. In France, the Comité social et économique (CSE) is only consulted in certain specific cases. Moreover, the employer is not obliged to take account of the opinion given.

Governance of social economy structures

While there is no formal definition of SSE, there is a fairly broad consensus on the concept’s contours. According to the OECD, the SSE encompasses a group of organizations whose activities are “motivated by the achievement of societal objectives, by the values of solidarity, the primacy of people over capital, and, in most cases, by democratic and participative governance”. ³²

In France, the legal framework laid down by the 2014 law on the social and solidarity economy captures this well. The SSE is “a mode of enterprise and economic development adapted to all areas of human activity” to which companies choose to adhere subject to compliance with several conditions:

• pursue an objective other than profit sharing ;
• democratic governance, provided for in the articles of association ;
• profits or “surpluses” are mainly used to maintain or develop the company’s business, and compulsory reserves cannot be distributed.

In simpler terms, the SSE is characterized by its focus on people and by the limitation of profit-making (for the proportion of SSE structures that are for-profit).

SSE companies are at the service of people, and emphasize this; they do not have to pay capital and are not run by representatives of funding providers.

This limited profit-making status protects SSE structures from disposals and other restructurings linked to “capital-intensive” operations (i.e. those whose main aim is to generate value for shareholders or owners of shares).

However, this also means that these structures are unable to attract massive amounts of household savings, as they do not remunerate either the risk, the deprivation of the immediate use of the money invested, or the opportunity cost (the gain linked to alternative investment options).³³

Without going into the details of all types of structures, we’ll concentrate here on two examples.

The mutual company (or mutual ³⁴ ) is, under French law, “a non-profit legal entity governed by private law”, registered with the Registre national des mutuelles and subject to the provisions of the Mutual Societies Code . It pays no dividends, and all profits are invested for the benefit of its members.

The purpose of mutuals is to cover risks (health, various types of insurance). Members are the mutual’s customers. Based on the principle of one member, one vote, they elect delegates who, meeting at a general meeting, decide on the terms and conditions of the contract. ³⁵ They in turn elect the members of the Board of Directors (who are also members of the mutual). The Board has specific supervisory prerogatives (see the Mutual Code for details), including the right to appoint the operational manager. As you can see, members play the same role here as shareholders in a company. It should be noted, however, that sovereign power is by construction very diluted, due to the principle of one member, one vote.

Cooperatives

The legal basis for all cooperatives is set by the 1947 law on the status of cooperation, which defines a cooperative as “a company formed by several people voluntarily united to meet their economic or social needs through their joint efforts and the establishment of the necessary means”. (Art. 1)

Each member has one vote at the Annual General Meeting, and profits must be reinvested in the cooperative as a priority. Surpluses may, however, be paid out to members, under conditions defined by the laws specific to each type of cooperative.

There are several main types of cooperatives

Not all cooperatives have the same legal form: for example, SCOPs and SCICs take the form of limited companies or SARLs, while agricultural cooperatives “form a special category of companies, distinct from civil companies and commercial companies” (see art. L521-1 of the French Rural and Maritime Fishing Code).

Finally, it’s worth noting that cooperatives bring together structures with a wide variety of purposes, some of which raise the question of their social utility (if not in their purpose, at least in their implementation). Crédit Agricole, for example, is a cooperative bank. ³⁶ . It is also one of France’s four systemic banks.

Alternative models for “classic” commercial companies

Beyond the SSE, there are other forms of governance that ensure that, while profit is not rejected, its maximization is not the priority compass of management.

These alternatives are more far-reaching than simply displaying good corporate social responsibility and environmental practices, which remain subordinate to the imperative of maximum profitability. They involve alternative statutes or specific legal provisions that ensure that the company is not enslaved to financial performance alone, without abandoning the possibility of making profits and remunerating capital.

Shareholder foundations

Born in Northern Europe in the 1920s ³⁷ the “shareholder foundation” model is a corporate ownership and governance model that responds to the desire of the shareholders (often the founders) of a commercial company to preserve the company’s project and protect it over the long term (against hostile takeovers, demands for returns, etc.).

In practical terms, shareholders give a foundation their shares (in part or in full) and the associated voting rights, in a proportion that can vary (it’s not necessarily one share = one vote) and whose number determines the foundation’s decision-making power, as a shareholder, over the company’s strategy.

Since it belongs to no one and cannot be bought out, the foundation protects the company’s capital and its project according to the mandate given to it. By definition, it is a shareholder of general interest, stable and long-term. Thanks to dividends or other donations, it can also carry out a philanthropic mission by supporting causes in the public interest.

The foundation shareholder is not in competition with other shareholders to demand higher returns; it can therefore demonstrate “temperance” in this area, especially as it has an objective interest in ensuring the long-term viability of the company, which is its sustainable source of financing.

Some foundations are able to do without dividends; others define dividend distribution rules designed to ensure the financing of the investee company’s development.

But “status does not make virtue”, and some shareholder foundations receive significant dividends. What’s more, having a foundation as a shareholder is obviously no guarantee of optimized environmental and social performance.

In France ³⁸ Adam, Naos, Léa Nature, Laboratoires Pierre Fabre and Institut Mérieux, for example, are partly owned by shareholder foundations. In Europe, many other companies are in the same situation: Baur, BMW, Bosch, Carlsberg, Electrolux, Lego, Maersk, Migros, Rolex, Saab, SEB, Velux, Victorino, Carl Zeiss (one of the first)…

Mission-driven companies

Following the Notat-Sénard report ³⁹ the Pacte Act of 2019 introduced the concept of a mission-driven company ⁴⁰ along the lines of what already existed in the United States.

When a company wishes to obtain this status, it must define its raison d’être and social and environmental impact objectives in its articles of association. It must also set up a “mission committee” made up of various stakeholders responsible for monitoring and evaluating the execution of the mission (which is also monitored by an accredited independent third-party organization).

The mission-driven company is a step forward, as it enables managers to constructively oppose any pressure from shareholders for greater profitability if it contradicts the mission, and vice versa. In June 2024, there were some 1,650 mission-driven companies, mainly SMEs but also a few ETIs and a few large corporations.

It should be noted that the Pacte law also created a new form of shareholding via the “fonds de pérennité”, a hybrid structure, enjoying legal personality, allowing the holding and transfer of company shares (this is its primary purpose) and which can support causes of general interest.

The steward ownership movement

The concept of ” steward ownership ” was coined by the Purpose Foundation ⁴¹ to propose a “third way” for companies, between shareholder primacy and non-lucrativeness.

This model has the following objectives:

• put the people really involved in the company back at the heart of governance;
• align governance structures with a long-term vision, serving the company’s mission;
• link voting rights to interests other than financial ones;
• propose a new form of succession, which ensures a company’s longevity beyond its founder, while limiting the spread of inequalities through inheritance by democratizing capital.

This model is organized around two principles:

• “Self-governance: control of the company remains within the company, in the hands of people directly involved in its mission.
• “Profits serve purpose”: profits serve the mission and are reinvested in the company, its stakeholders or philanthropic initiatives. Limited “fair compensation” is offered to investors.

It can take the form of two families of devices:

• shareholder structure: the shareholder foundation, the perpetual purpose trust
• statutory mechanisms: creation of non-voting shares for investors (with preferential dividend), shares with double voting rights and/or without dividend granted to long-term stakeholders, golden share (share with veto right) entrusted to a third-party organization (foundation, State, NGO, etc.) to guarantee the pursuit of the mission, etc.

To date, around a hundred companies have been supported by the Purpose Foundation, including Bosch, Novo-Nordisk, Mozilla and Stapelstein. ⁴² … The Purpose Foundation cites several studies ⁴³ which show a higher survival rate and better financial performance for foundation-owned companies in Denmark (a pioneer in the field of shareholder foundations).

However, it is still too early to draw any definitive conclusions as to whether these new models are leading to a better integration of planetary limits into decision-making; moreover, they are currently limited in number, by their “voluntary” nature and by certain legal difficulties (in France). They do, however, have the immense merit of showing that the quest for accounting profit (see our module on corporate accounting) and the general interest are not irreconcilable.

The focus on maximizing shareholder profit poses numerous ecological and social problems.

From the 1970s onwards, the idea that a company’s primary objective should be to maximize profits in order to remunerate its shareholders (see Misconception 2) was widely accepted. ⁴⁴ This doctrine, which has the force of evidence for many, is reflected in reality by numerous negative impacts, or at least by a strong tension between the need for financial profitability and respect for environmental and/or social constraints.

Expected returns on financial capital and planetary limits

A company subject to high financial profitability requirements ⁴⁵ is necessarily run with a high degree of pressure, whatever the human quality of the manager and his managerial talent.

In the face of such demands, environmental and social constraints whose observance is not made strictly compulsory by the legislator generally take second place, as they are likely to weaken short-term profitability and hence the return on capital.⁴⁷

Even where standards exist, managers may seek to circumvent them, whether by outsourcing or relocating part of their business to countries with lower social and environmental standards, or by fraud (as demonstrated, for example, by “dieselgate“).

This is not to say that all companies with high profitability requirements do nothing for the environment or society. First of all, certain activities with a positive impact on the environment can enjoy significant growth and high financial valuations. Secondly, consumer pressure can be a driving force. Health scandals, social disasters (such as the collapse of the Rana Plaza in 2013) or environmental disasters can thus prompt management to change, under pressure from consumers, but more often than not in a reactive rather than proactive approach. Finally, the anticipation of tensions over raw materials can lead managers to encourage sobriety of use or accelerate recycling, without preventing them from maintaining significant profits. ⁴⁸

But these are clearly exceptions. The best proof of this is that, despite numerous declarations of intent, our economy, “driven” by large multinationals (whose power is excessive, see Essentiel 10), is still very (and far too) extractive and carbon-based.

Finally, the expected rate of return on capital is decisive for financing the ecological transition. Current rates of return in financial capitalism are widely recognized as excessive. They are generally much higher than those that most ecological investment projects can deliver. However, this is not inevitable: on the one hand, these rates are the lowest in economic history; on the other, there are companies that are not subject to such pressure. The structures of the social and solidarity-based economy, the purpose-economy movement and steward ownership, which we presented in Essentiel 4 on the various forms of corporate governance, aim precisely to escape this “tyranny of return”.

A very narrow conception of the value created by the company

In reaction to the growing influence of the theory of maximizing shareholder value, numerous works have been developed to denounce the decline since the 1980s in the share of labor compensation in value added in the United States and Europe. ⁴⁹ and to assert the importance of sharing value between shareholders and employees. These debates are regularly fuelled by scandals concerning dividends paid out by major corporations and share buy-backs.

The subject of value sharing needs to be broadened beyond the mere question of capital and labor. Promoters of shareholder value identify the “value created by the company” with profit, which is very restrictive. It is much more sales that represent this value, the one for which customers pay.

Seen in this light, it’s clear that value is shared by all stakeholders: suppliers and service providers, employees, the public purse via taxes and social security contributions, shareholders via dividends, bankers where applicable, and finally the company itself (investments, development).

Each of these stakeholders receives “its share” according to either regulations (taxation, regulated professions, monetary policy), or the “market” (more or less regulated, more or less oligopolistic) and the resulting balance of power (between workers, managers and shareholders, between principals and suppliers, etc.). This is one of the reasons why the company is a source of both cooperation and conflict (see Essential 3): it is thanks to the coordinated action made possible by the company that each party “receives” its share, the share of each being limited by that of the others.

To reason in a binary way, by opposing labor and capital, is to forget all the other stakeholders who also suffer from the doctrine of shareholder maximization: suppliers and service providers, whose prices will be demanded as low as possible, and public authorities, through pressure to reduce taxes on companies, or to lower the standards imposed on companies to limit their nuisances.

Finally, while financial value is today’s dominant metric, it is only one dimension of a company’s overall capital and of value as such: companies have varying degrees of social utility (the latter sometimes being zero, or even negative); they often have negative impacts on the environment (see Essential 9); certain stakeholders may prefer a non-financial reward (e.g. reduced working hours, training, annualized contract for a supplier…) to an increase, etc.

Pay differentials and inequality

The level of executive compensation at major corporations is regularly in the news. Increases in this area are mainly the consequence of the predominance of the shareholder value doctrine, which has led to the interests of executives being aligned with those of shareholders, notably through remuneration (variable portion, bonuses, stock options, etc. seeMisconception 2).

This issue is not neutral in terms of social cohesion: when an executive is paid tens of millions of euros while his company is sold to the highest bidder ⁵⁰ or engages in massive cost-cutting (even laying off staff or relocating), this sends out signals that are difficult for many citizens to bear.

It’s even more difficult if, at the same time, the government develops a rhetoric on the efforts to be made in terms of social rights such as pensions, unemployment or more generally to reduce public spending.

How are salaries set?

As a general rule, companies set salaries by comparison with practices observed for similar positions in comparable companies (size, business sector, financial performance, etc.). They may, of course, do a little better or a little worse, depending on the urgency of the recruitment and the more or less strategic nature of their needs for the positions in question. As a first approximation, however, it can be said that “the law of the market” applies to everyone. It will be difficult for an employee or a company to be paid a salary that is permanently very different from the market average.

The labor “market” does not necessarily remunerate work according to its “social value”.

The Covid crisis clearly showed that essential jobs were poorly paid and poorly recognized. Conversely, anthropologist David Graeber has highlighted the existence of “bullshit jobs“. ⁵¹ jobs that have no meaning, even for the employees themselves, even though they are well-paid and well-recognized. The exorbitant salaries of soccer or movie stars are sometimes “justified” by the “law of the market”, which cares neither for morality nor for consistency between the social value of the service rendered and remuneration. This is a matter for public intervention, as social cohesion is clearly at stake in the growth of unfounded pay disparities.

Wages are not based on labor productivity ⁵² contrary to what most economists believe. Productivity is generally impossible to measure, except in very specific and limited cases. And it is never completely individualizable: an employee’s contribution depends on the organization, the equipment at his disposal and his colleagues.

Salary may not be the only component of an employee’s remuneration, which may also include :

• the distribution of a portion of profits to employees: in France, this is the case with statutory profit-sharing for companies of a certain size, or with profit-sharing agreements.
• an annual bonus linked more or less objectively to performance.
• a stake in the company’s capital via a number of mechanisms (stock options, bonus share allocations, share subscription warrants, etc.). ⁵³
• benefits in kind: luncheon vouchers, company-paid health insurance, company car or housing, etc.

In addition, executives may be awarded exceptional supplements (a welcome bonus, a severance bonus, a “top-hat pension”, etc.).

The equity ratio: the transparent way to limit pay disparities

One of the main ways in which governments have so far sought to influence pay differentials is through transparency: encouraging self-regulation by players by making data public.

Equity ratio compares total compensation ⁵⁴ of the principal executive(s) to the average compensation of full-time employees in the company. For example, if this ratio is 100 in a company, this means that the CEO earns 100 times more than the average compensation of his employees.

Introduced since 2018 in the United States and the United Kingdom, it was introduced in European Union countries following the SRD II directive (2017). This was transposed in France by the Pacte law of 2019 ⁵⁵ which made it mandatory for listed companies to publish this ratio. ⁵⁶

The equity ratio in the United States

In the United States, the equity ratio rose from 20 in 1965 to over 300 (or even 400) in the 2000s, before “falling back” to around 200 after the financial crisis.

CEO Pay in 2012 Was Extraordinarily High Relative to Typical Workers and Other High Earners – Economic Policy Institute (2013)

The equity ratio in Europe and France

In France, within the CAC 40, the ratio between the average income of CEOs (5 million euros) and the average compensation of their employees was 53 (72 in relation to median compensation) in 2019. This figure conceals major differences from one company to the next: for example, at Dassault Systèmes and Sanofi, the equity ratio was 268 and 107 respectively.

Many critics have questioned the value of this ratio.⁵⁷

• Statistics are particularly sensitive to changes in CEO income alone. Much more volatile than average salaries, it is often the primary explanation for changes in equity ratios.
• As with any indicator, this ratio is open to interpretation. For example, in France, as the law does not specify a perimeter, it is possible to calculate the equity ratio on the basis of the parent company alone, which is often a holding company with a few dozen employees, which leads to an underestimation of the ratio compared with what it would be if the entire group were taken into account. Thus, based on declarations alone, the 2024 edition of the CSR Criteria and Remuneration study evaluates the equity ratio at 73 in 2023 for CAC 40 companies. “Calculations by the voting consultancy Proxinvest Glass Lewis give different results: an average ratio of 130 in favor of CAC 40 executives for the year 2022.”” ⁵⁸
• The equity ratio is limited to a comparison between the remuneration of key executives (or even the CEO alone) and average earnings. It would be far more interesting to understand the distribution of income in greater detail, in particular the gaps between the first decile or percentile (depending on the number of employees) and the other deciles within the company, as is the case with any measure of inequality.

Finally, and most importantly, transparency and goodwill are not enough to achieve the goal of limiting income disparities.

Several years after its introduction in France, the equity ratio has had no tangible effect on pay differentials. Very few investors have used it as a shareholder governance tool, and its impact on the general public has been weak. ⁵⁸

Only voluntary action by public authorities can have a real impact, as proposed by Gaël Giraud and Cécile Renouard(who suggest establishing a ratio of 12 between maximum and minimum wages).

This can be achieved by capping compensation. In France, since 2012 in public companies the remuneration of executives appointed by the Minister of the Economy (i.e. corporate officers and in particular the MD or CEO) may not exceed a ceiling set at 450,000 euros. ⁶⁰

Income tax can also be used. In the wake of the Second World War, the final income tax bracket in the United States reached record levels, to some extent limiting the appeal of very high salaries: on the eve of Ronald Reagan’s arrival in power (1981), the tax rate for a single person was 70% on the income bracket above $460,000. ⁶¹

How is a company financed?

A company is a living organism that is born, changes and can disappear. At every stage of its existence, the question of financing is vital.

Created by its founders, it lives and develops according to its environment, its stakeholders and the decisions taken by its managers. It can evolve significantly, either organically by developing its activity (through hiring, purchasing new equipment, etc.), or by acquiring (or merging with) other companies, or by partial or total divestment of some of its activities. It can also die, if it is no longer profitable or if the manager cannot find a buyer. Another possible cause is a lack of cash flow, i.e. money available for the company to meet its financial commitments (payment of supplier invoices, taxes, salaries, bank charges, etc.). The company then finds itself in a situation of “cessation of payments“), which is a cause of bankruptcy that can lead to the company’s dissolution.

In this section, we’ll look at what a company’s financing needs are, how they can be met, and what impact they have on corporate governance and strategy.

Why do companies need financing?

A general distinction is made between :

• long-term requirements to finance the investments needed to create and develop the company;
• short-term requirements to finance the operating cycle.

Financing creation and investment: long-term needs

All business start-ups involve investments, which can be substantial if the company is highly capital-intensive (e.g.: development of industrial activities, drug development, etc.) or very limited (e.g.: self-employed consultant who only needs a computer). Initial investments can also be used to finance initial inventories.

Then, over the course of the company’s life, new investments may be needed to purchase new machinery, expand into other regions or internationally, design new products, develop IT platforms and so on.

Investing means betting on the future: the entrepreneur anticipates that the profits from future sales generated by investments will pay back their cost over the years.

This is why, when recorded in the accounts, investments are amortized over several years (their cost is spread over several years, rather than being counted in full in the first year). On the other hand, the company must, of course, disburse all sums due at the time the investment is made (e.g.: pay suppliers of machinery or construction companies constructing buildings, etc.).

Appropriate financing is therefore required. This can take several forms, as detailed in sections 6.2 to 6.4.

Financing the operating cycle: short-term needs

Once investments have been made and any initial stock financed, the company enters the operating cycle.

On the expenditure side, it pays its employees’ salaries, purchases and other supplies, any financial expenses, taxes and social security contributions.

On the revenue side, the company receives income from sales, subsidies or financial income (if it has holdings in other companies, for example).

In the short term, the company’s main source of financing is sales.

However, even if the company has a positive accounting result, it may be short of cash and have difficulty meeting its financial commitments. In practice, payment and collection may be deferred from the time the invoice is issued. For example, many SMEs supplying large groups or government bodies are paid several months after delivery, whereas they cannot defer payment to their employees.

On the other hand, supermarket companies collect cash from their customers and pay their suppliers within two months (in theory). ⁶³ They are therefore partly financed by their operating cycle. ⁶⁴

Depending on the situation, companies may have a greater or lesser need for working capital (WCR), i.e. cash on hand to meet their obligations or renew their inventories until they have sold their production and/or received payment. In the retail sector, working capital is negative (since consumers buy goods that distributors have not yet paid for), whereas for some SMEs or farmers, it can be very high.

This WCR can be financed by retained earnings from previous years (self-financing). It can also be financed by a bank loan (backed, for example, by the discounting of bills of exchange, or by techniques such as factoring). Basically, the company brings an invoice to the bank or other financial institution, which grants a loan for the amount (with interest) until the invoice is paid by the customer.

The different types of long-term financing

Companies have a number of sources ⁶⁵ of long-term financing:

• self-financing occurs when management decides (with shareholder approval) to reinvest the company’s profits in its development;
• capital and advances from associates ;
• Borrowing: via bank loans or on the financial markets;
• donations”, which most often take the form of public aid (subsidies, repayable advances, tax credits, etc.). This point is developed inEssentiel 7.

The relative share of these sources of financing differs from country to country and from period to period. Recourse to bank loans is much greater in Europe than in the United States. The use of capital markets has grown worldwide over the past 20 years. It also depends on company size: capital markets, for example, are difficult to access for SMEs (at least in Europe).

These sources of financing can come from different types of players: financial institutions, of course (banking or non-banking), but also the State (and more generally public players), individuals, or other companies (particularly in the case of intra-group credit). There is not necessarily a correspondence between a type of funder and a type of financing. For example, public bodies can grant loans, make equity investments or provide subsidies. Another example is crowdfunding platforms, which collect a multitude of small contributions to finance a specific project run by a company (or an association or individual). Funding can take the form of a donation, a loan, or an equity stake. ⁶⁶

These various sources do not have the same counterparts in terms of governance.

• Self-financing is the least restrictive source of financing, except for the fact that you need to make enough profit to be able to make investments, which is difficult when needs are high.
• Capital financing gives shareholders rights: holding the majority of the capital (in the sense of the voting rights associated with the shares) gives management power.
• Loans do not give management powers but may be conditional on guarantees and/or covenants. ⁶⁷ which can give lenders a powerful influence.
• Public aid may be subject to conditions.

Finally, the risks taken by financiers are not the same. When liquidation (i.e. the “death” of a company) is decided, the assets (buildings, machinery, patents, etc.) are sold off, and the proceeds used to repay creditors in a clearly defined order:

• Certain claims by company employees are always paid first. The same applies to court fees, court clerk’s fees and legal expenses.
• Next come tax and social security creditors.
• Then there are the other preferred creditors, those who benefit from a “security” granted by the company (for example, a bank that has granted a loan and benefits from a mortgage on the business premises).
• Lastly, there are the so-called “unsecured” creditors, i.e. those who do not benefit from any lien, and who are often numerous.

In most cases, capital is not recovered by shareholders, as the proceeds from the sale of assets do not cover all liabilities.

Capital financing

The founder(s) of a company contribute resources to build up the company’s share capital. These are in the form of shares, i.e. financial securities which can then be sold on organized markets (stock exchanges) or through bilateral exchanges. Over the course of the company’s life, management may decide to ask existing shareholders to provide new financing, or to try to find new capital investors, in which case new shares are issued.

These shares give their holders the power to participate in strategic decisions affecting the company. This applies in particular to the allocation of profits (if any), which shareholders may decide to distribute to themselves (in the form of dividends).

We present below the three main forms of capital contribution (family capital, private equity and the stock market), bearing in mind that there are, of course, hybrid cases (one part of the capital being held on the stock market or by a financier and the other being family-owned, for example).

Family capital

In many companies, the first source of capital often comes from the founder’s own savings, and possibly from family and friends. This is generally the case for small start-ups, but is not limited to very large groups. ⁷⁰ have managed to maintain almost exclusive family control of capital.

In theory, family capital should be concerned above all with the success of the founder(s)’ project, as well as the long-term survival and successful transfer of the company. This does not, of course, mean pursuing profitability objectives, which are necessary to guarantee control of the company and protect against economic crises and, more generally, the vagaries of corporate life. ⁷¹ . However, in theory, these long-term “values” should take priority over maximizing short-term financial returns.

In reality, family capitalism can be frighteningly predatory, as shown by the case of the well-known billionaires ⁷² . And it is not always a model of transparency or managerial quality. According to a study published by Family Capital in 2021, listed family businesses are rated lower than non-family-owned listed companies by the ESG risk assessment department ⁷³ department of PwC Luxembourg. While this data, like all ESG rating data, must of course be treated with caution, as it depends on the methodology used, it is nonetheless interesting for comparative purposes, particularly in terms of transparency (the absence of public data translates into poor ratings).

There’s an apparent paradox here, as one might think that a family business should think more about its “sustainability” in the physical and financial sense. This is sometimes the case… but not always. As long as there is no immediate upstream risk, or obvious loss of market share, the profit motive remains the rule (family or not)…

Private equity funds

Investment funds provide financing by acquiring stakes in unlisted companies. ⁷⁴ for a fixed term (rarely more than 10 years).

Made up of a team of investment professionals, they generally specialize in a particular sector (e.g. real estate) or phase of a company’s life.

Private equity players invest resources entrusted to them by other financial institutions (particularly, but not exclusively, those that collect public savings, such as insurance companies, pension funds, banks, etc.). Their need for “visibility” on the financial situation of the companies in which they invest is important, as they report regularly to the institutions that have entrusted them with the funds. They expect company management to “deliver” what it has promised, particularly in terms of financial returns.

The stock market

To raise additional capital, a company’s management may decide to list all or part of its capital on a stock exchange, such as Euronext, the main stock market in the euro zone, or the New York Stock Exchange or Nasdaq in the United States.

The shares can then be traded freely between players on the stock market’s so-called “secondary market” (see box).

Asset managers (who invest the funds collected directly from savers or from other financial institutions such as insurance companies, banks, sovereign wealth funds, etc.) are the most powerful, but there are also banks and insurance companies (which invest the money collected via savings books or life insurance, for example), hedge funds, sovereign wealth funds, etc., all of which are involved in the stock market.) are the most powerful, but there are also banks and insurance companies (which invest the money collected via savings books or life insurance, for example), hedge funds, sovereign wealth funds, holders of large fortunes and small savers who invest their assets directly (via brokers or online banking).

Stock market players are demanding both in terms of liquidity (being able to sell their shares at any time) and financial return.

These requirements place severe constraints on managers, who can be dismissed and replaced by more “efficient” managers if they fail to perform to expectations.

This is particularly the case when a company is controlled by a majority block (one or a few financial players hold the majority of shares, the remainder being distributed in a diffuse manner) primarily focused on short-term performance. It should be noted that, individually, “diffuse” minority shareholders have very little power. ⁷⁷ on the life of the company. Only those with a relative majority have any power, as decisions at the Annual General Meeting (including the appointment of the Chairman of the Board of Directors or the Management Board) are generally taken on a “one share, one vote” basis. ⁷⁸

In the case of a company whose capital is not “controlled”, i.e. whose shareholding is very diffuse (shares are held by a multitude of unconnected players), the company’s management may have more room for manoeuvre. It does, however, expose itself to the risk of a “hostile takeover”. If the share price is too low in relation to its potential (which would be achieved by a “tougher” management team), predatory shareholders may take advantage of the situation to buy up the shares of diffuse shareholders on a massive scale, via a hostile takeover bid (known as a “raid”). If they manage to take control of the company in this way, they then have the power to try to improve the company’s short-term profitability, in order to make a significant capital gain from the eventual resale of their shares. This improvement in the company’s profitability is often achieved by cutting costs (labor, R&D, investment) or selling off assets, which means sacrificing the company’s long-term viability.

Hedge funds specialize in this type of operation. The authors of a study published in 2020 ⁷⁹ analyzed the impact of 1,234 campaigns carried out by hedge funds between 2000 and 2016. According to this work, while the immediate performance in terms of market value and profitability is indeed there in the short term, the negative long-term impacts are negative. In the 5 years following a “raid”, 4% to 8% of jobs have been destroyed, R&D has been weakened, consideration of social and environmental responsibility issues has collapsed, and the company perishes, with a drop in share value of up to 10%.

Debt can take two main forms

Bank credit

Lending bankers have two objectives: to be repaid the amount of the loan and to collect the interest on that loan. They do not seek to (and are not competent to) involve themselves in the management of the company to which they lend. They are even very careful to avoid any legal risk in this respect: if they were suspected of interference, they could be considered as de facto liable and ordered to make good any liabilities in the event of cash flow difficulties.

Consequently, bank loans are not accompanied by decision-making powers. They are, however :

• designed to limit the risk of non-repayment (hence the famous expression “you only lend to the rich”);
• combined with measures to limit risk in the event of default by the debtor: guarantees or covenants ⁶⁷ obliging debtors to provide regular economic information on their situation, to enable the banker to anticipate the onset of insolvency.

Issuing debt securities (or bonds) on the financial markets

Bond issues are subject to numerous legal and tax constraints, and are often inaccessible to small businesses.

Naturally, the company wants to obtain loans at the lowest possible cost. But the level of the interest rate depends on several factors:

• The macro-economic environment: the general level of interest rates in the economy, which is influenced by the central bank’s monetary policy (more information in our module on money). Central banks’ highly accommodating monetary policy over the past decade has had a global impact in keeping interest rates low for all players.
• The specific situation of the company and the lenders’ perception of the risks involved (financial situation of the company, sector of activity, competitive positioning). As in the case of bank loans, this implies considerable financial reporting effort (often within a strict framework), so that bond investors can decide whether or not to buy the bond.
• The situation of debt securities already issued by the company: when their market value is higher than their face value (reflecting strong demand), this means that the company can issue new bonds at a lower rate than before. And vice versa.

Bankers and lenders in general have a strong influence on companies, starting with the fact that they impose de facto reporting and performance formats as a condition of accepting their loan or stock purchase.

Companies pay taxes and receive public funding

The debate on corporate taxation often boils down to a binary confrontation between those who believe that companies should be taxed more (particularly the largest), and those who believe that any form of taxation is detrimental to economic activity. Here, we attempt to clarify the terms of the debate, and provide some orders of magnitude.

There are several economic reasons why companies pay taxes and social security contributions: contribution to public financing and environmental taxation.

On the one hand, they use infrastructure to produce goods and services ⁸² and benefit, directly or indirectly, from public services and social protection ⁸³ provided by the state. It is therefore rational for them to participate in their financing and to include them in their accounts, in the same way as other goods and services used for production.

On the other hand, taxation (and public subsidies) can be economic policy tools for the State, providing signals to guide behavior and investment. This is particularly true of ecological taxation.

Companies use natural resources and have negative impacts on nature, for which they pay nothing. Raising the cost of natural resource extraction and environmental pollution (whether through taxation or quota markets) is a lever for reducing these impacts.

It can also help make it economically viable to clean up and “repair” the damage done to nature. Provided we use price as a complementary tool to others (regulation, prohibition, budget, monetary and prudential policy), and without making it the sole solution to environmental problems. We discuss this subject in detail in the fact sheet Should we put a price on nature?

This internalization ⁸⁴ of negative impacts in the company’s costs has several positive effects:

• Customers pay more for goods or services that have a negative impact on nature: this is the “truth” of pricing. However, this requires all companies to be subject to the same type of taxation. Otherwise, the effect is counter-productive: consumers could choose products from a company that pollutes more than others, simply because it is not subject to the same environmental mechanisms (and therefore supplies cheaper products). This is the problem posed by imports from countries not subject to taxes or quota markets such as those in force in the European Union.
• Companies offering solutions can promote the benefits (in terms of reduced ecotaxes) to their prospects and customers.

In Europe, environmental taxes are relatively low. The European Commission estimates them at 55 billion euros in France, or 2% of GDP and 4.5% of total compulsory taxes. ⁸⁵ The largest share comes from energy taxes. We will not deal here with the CO2 quota mechanism (see forthcoming fact sheet).

The company passes on its costs and taxes to its customers

The company passes on all its costs, including taxes, in its selling prices. By construction, sales (or, more strictly, total revenues) are equal to total expenses plus profit.

In the final analysis, therefore, it is the customers (and, at the end of the chain, the consumers) who, through their purchases, “pay” the company’s taxes, as well as all its other expenses and profits. If a company manages to make a profit, it’s because its selling prices (including compulsory levies) are deemed acceptable by its customers.

This simple observation does not mean, of course, that the level of compulsory taxation has no impact. It’s obvious that raising taxes too high can harm companies’ profitability, by increasing their costs too much, and thus the prices their customers are willing to accept. This is particularly the case when they are competing with other companies that do not have the same level of taxation.

What’s more, a change in taxation can be complex when it is introduced.

Let’s imagine that one of the production taxes increases:

• some companies decide to pass on this increase to customers by raising their selling prices, with the risk of reducing sales.
• others, unable to pass on the increase to customers (usually for competitive or regulatory reasons), see their profits fall.
• for still others, a mix of the two above will be implemented.

In the case of a tax cut, all three cases are equally applicable, so it’s not clear whether such a cut would benefit consumers or, on the contrary, only shareholders…

So it’s wrong to generalize that taxes on business are paid by businesses, not households; and equally wrong to deny any impact of a change in tax structure on business performance.

How much tax is levied on companies and how much public support do they receive?

Compulsory levies on companies include social security contributions, production taxes, taxes on profits and taxes on products (but not VAT, for which companies are collectors on behalf of the Treasury, and which are not included in their cost price or profit and loss account).

It’s not easy to estimate the total amount. Indeed, while some data is available, not all of it is. We’re going to clarify these points here.

Overview of compulsory taxes levied on businesses and public subsidies

In 2023, in France, the contribution of non-financial corporations (NFCs) to compulsory taxes amounted to 345 billion euros, or 27% of total OP (and 12% of GDP). Subsidies paid by public authorities to NFCs amounted to 69 billion euros in the same year.

Taxes on production

These taxes are linked to the production activity itself, and are each based on one of the following three tax bases: wages and salaries, property and productive capital (company assets) or various intermediate management balances (sales, added value). The main production taxes are those on land and value added.

For the company, these taxes represent production costs ⁸⁷ which are therefore factored into the selling price. A downward variation can therefore result in higher margins and/or lower selling prices. The balance between these two effects depends on many factors, starting with the intensity of competition.

More on production taxes in section 7.4.

Corporate income tax

Unlike production taxes, the various income taxes do not affect a company’s costs, but only its earnings. They therefore have no direct impact on competitiveness. They can, however, have an indirect effect, by reducing the company’s relative capacity to build up reserves, since they reduce profits, which can either be distributed to shareholders in the form of dividends, or reinjected into the company in the form of reserves. From this point of view, it would be appropriate to devise a tax system that favours the creation of reserves over the distribution of dividends.

The main tax in this category is corporate income tax (IS).

It is sometimes said that corporate income tax is a tax on company capital or shareholder income. This is incorrect. Corporate income tax is a tax on a company’s profits, not on its capital, and certainly not on its shareholders (who personally pay tax on the income they derive from the company when they pay themselves dividends, or when they realize a capital gain by selling their shares).

The corporate income tax rate was recently lowered significantly to bring it into line with the international average. As economist Olivier Passet explains, ⁸⁸ this reduction has not, however, been reflected in tax revenues. In fact, the reduction in production taxes and upstream social security contributions has led to an increase in margins, and thus a broadening of the corporate income tax base.

More details on SI in section 7.4.

Taxes on products

These are taxes paid per unit of goods and services produced or traded. For the most part, these are indirect taxes. ⁸⁹ The most important of these is value-added tax (VAT), which has no impact on company accounts (see box).
Other taxes on products, on the other hand, are paid by companies (and households) at the time of purchase. This is the case, for example, with energy taxes (fuel, gas, electricity) and taxes on real estate transactions (purchase of real estate). Other taxes on products specifically target certain businesses: the general tax on polluting activities, the tax on digital services and telecommunications. ⁹⁰

Social security contributions

Companies pay social security contributions that contribute to the various pillars of social security: sickness (which also covers maternity, disability and death), unemployment, industrial accidents and occupational diseases, family and old age. ⁹²

Employers’ contributions are paid by companies (not by the employer…), as are employees’ contributions. Both are therefore integrated into their production costs and contribute to the employee’s “social security cover”. The rate of contributions varies according to salary level (for example, it is very low at the minimum wage). ⁹³

The main difference between employee and employer contributions is that the former are deducted from the employee’s gross salary. As a result, if the government decides to reduce employee contributions, this normally results in an increase in the net salary paid to the employee, with no impact on the company’s accounts. On the other hand, a reduction in employer contributions results in lower costs for the company, with no immediate impact on the employee. ⁹⁴

From the 1990s onwards, part of the social security contributions were gradually replaced by taxes on income (wages and salaries, but also income from assets). These included the Contribution Sociale Généralisée(CSG)and the Contribution pour le Réimbursement de la Dette Sociale (CRDS), which replaced some of the employee contributions on pay slips.

Since 2019, the reduction in employers’ social security contributions following the transformation of the Employment Competitiveness Tax Credit (CICE) into a permanent reduction in charges has been clearly perceptible.

Public assistance

While companies pay taxes and social security contributions, they also benefit from various forms of budgetary aid (mainly subsidies and investment grants). These amounted to 69 billion euros in 2023. ⁹⁵

A report by the Institut de Recherches Économiques et Sociales ⁹⁶ published in 2022, estimated public aid to businesses at 157 billion euros in 2019, including not only budgetary aid but also “tax expenditure” (sometimes called tax niches, which are mechanisms that allow tax reductions, including tax credits) and socio-fiscal reductions (exemptions from employers’ social security contributions).

Focus on direct taxes

Direct taxes on businesses include two of the categories mentioned above: taxes on production (see section 7.3.2) and taxes on business results (see section 7.3.3).

By 2022, their total amounted to 188 billion euros, i.e. around 15% of total compulsory levies. ⁹⁷ and 7% of GDP. The main taxes are corporate income tax (IS), various property taxes and the corporate value-added tax (cotisation sur la valeur ajoutée des entreprises).

Production taxes

As we have seen, production taxes form part of a company’s operating costs. For this reason, they are the subject of regular demands by employers’ unions, and of controversial economic studies on their effects on competitiveness and employment. The argument often put forward is that they “increase companies’ production costs and prices, and reduce their competitiveness, to the detriment of employment and purchasing power”. ¹⁰⁰ What’s more, they are higher in France than in the rest of Europe.

However, it is problematic to have a global reasoning on these production taxes. On the one hand, as noted above, there is no guarantee that lower taxes will translate into lower sales prices. It may also lead to an increase in the profits paid out to shareholders.

On the other hand, some of these taxes apply to most companies, but not all: others are specific to particular sectors and/or geographical areas. ¹⁰¹ Still others apply only to companies of a certain size. ¹⁰² Some taxes may be temporary. ¹⁰³ Finally, beyond the budgetary aspect, certain taxes, such as eco-taxes, may have a business orientation objective (see 7.1): the primary aim of carbon quotas is to raise the price of CO2 emissions, while the tax on office space is intended to make this activity less profitable in an area with a high housing shortage.

Only a tax-by-tax analysis, in terms of the objectives pursued, any economic problems it poses, and what it brings in, therefore makes sense.

Corporate income tax (IS)

Since 2022, the statutory corporate income tax rate, as set out in the law ¹⁰⁴ In France, the statutory rate of corporate income tax is 25% for profits over 38,200 euros (and 15% for profits below this figure).

Corporate income tax is calculated on “taxable profit”, which in simplified terms corresponds to pre-tax profit adjusted for the various possibilities provided by the Tax Code (various exemptions, deduction of certain income such as asset disposals taxed at different levels, etc.). ¹⁰⁵

The relevant rate to look at is therefore the effective rate, calculated by dividing the amount of corporation tax actually paid by the amount of profit. This calculation is not easy, however, due to the lack of available data and numerous methodological issues. ¹⁰⁶

In France, as elsewhere in the world, the statutory rate has been falling steadily since the 1980s. ¹⁰⁷ This is one of the consequences of globalization and international competition, which is leading to a downward alignment of tax rates. Indeed, countries are engaged in tax competition in order to favor companies established on their territories, attract new ones and attract investors. The same type of mechanism leads to a race to the bottom in social and environmental terms.

This tax competition is active at the very heart of the European Union, as European treaties have always upheld the fiscal sovereignty of member states. In the 1990s, for example, Ireland adopted an ultra-competitive tax system, with a 12.5% tax rate on corporate profits, in order to attract investors. The Netherlands and Luxembourg can also be considered tax havens.

Lack of international tax harmonization and the existence of tax havens ¹⁰⁸ also leads to tax avoidance practices. Multinationals pay their corporate tax on a country-by-country basis. They can therefore organize themselves to “shift” (legally, this is known as tax optimization, or by evading taxes) profits in such a way as to reduce the profits they make in countries where corporate tax rates are high.

These practices result in substantial tax losses for governments. Of course, it’s impossible to know exactly what these losses are. But it is possible to estimate their magnitude.

In their research Missing Profits, published in 2022, economists Thomas Tørsløv, Ludvig Wier and Gabriel Zucman estimate that, worldwide, almost 40% of multinationals’ profits (nearly $1,000 billion in 2019) are hidden in tax havens every year. For France, this would represent a loss of tax revenue of over $13 billion.

Taxes not paid by these companies are paid by other taxpayers, or lead to cuts in public services that are socially redistributive. This is an obvious source of injustice, and one that is perceived by citizens.

Furthermore, this leads to distortions of competition: not all companies can afford to pay the tax advisors required for tax optimization practices, nor can they afford to set up the complex legal arrangements needed to localize profits elsewhere than in their country of activity. As noted in a report by the Conseil d’analyse économique, this creates “a distortion of competition and the emergence of concentrated industries with a few companies having considerable market power.” ¹⁰⁹ Tax law in fact favors multinationals to the detriment of other companies.

This deleterious situation eventually led to a reaction by States coordinated by the OECD with the Base Erosion and Profit Shifting (BEPS) project. In October 2021, the G20 adopted the OECD’s proposal for a two-pillar reform concerning multinationals:

• reallocate a minimum share of the company’s consolidated profits to the countries that generate them.
• impose a minimum effective rate of 15% on consolidated profits.

To find out more, see Tax havens are an unacceptable source of tax losses for governments in our Finance module.

Companies communicate, advertise and report

Companies are subject to reporting obligations (on their activities, their financial situation and sometimes their extra-financial impacts) that depend on their size and sector of activity. These obligations are much more stringent and controlled for listed companies.

In addition to their legal obligations, companies are accountable to their stakeholders (bankers, shareholders, the State, customers or suppliers, employee representatives, etc.). Finally, they communicate with their customers and engage in advertising the products and services they sell.

All these opportunities to communicate allow us to highlight the company’s strengths and, as far as possible, avoid underlining its weaknesses.

Financial reporting

Historically, it was accounting and financial data that became the subject of reporting obligations, with two main types of recipient:

• the State, since they are used to set tax levels for each company,
• investors (creditors and shareholders), particularly for listed companies.

In the European Union, the Single Accounting Directive (2013) has standardized companies’ obligations in this area.

Financial statements must include at least the income statement, the balance sheet and its “notes”. “notes. ¹¹⁰

These documents are :

• communicated to the tax authorities via the “liasse fiscale” in order to determine the tax payable, if any;
• published in the relevant national company register (in France this is the Greffe du Tribunal de Commerce );
• presented to the company’s Annual General Meeting, which approves the accounts and decides on the appropriation of profits if they are positive.

Above a certain size ¹¹¹ and/or depending on the sector, companies have additional obligations.

They must publish a management report containing a “fair review of the company’s business, results and position, together with a description of the principal risks and uncertainties it faces”. ¹¹² They are also required to have their financial statements audited by independent auditors.

Company groups are required to publish consolidated financial statements and management reports, which are drawn up by the “parent company” on the basis of the individual financial statements of the various subsidiaries it controls.

Measures taken to combat corruption and tax evasion

Large companies involved in the extraction of minerals, oil, natural gas or other materials or in the exploitation of primary forests must publish details of payments in excess of €100,000 they have made to governments during a financial year(Chapter 10 of Directive 2013/34/EU).

From 2024, the parent companies of multinational groups with consolidated annual sales in excess of €750 million must declare in a specific report made public the revenues, profits made, corporate income tax paid and number of employees country by country.(Chapter 10bis of Directive 2013/34/EU).

Listed companies have special obligations

Since 2005, they have been required to publish their financial statements in accordance with IFRS. ¹¹³ They are also required to disclose additional information for investors. ¹¹⁴ In France, they are required to produce a universal registration document that summarizes information about the company’s business and risk factors. ¹¹⁵ In addition, they are required to communicate information on a much more regular basis than unlisted companies (often on a quarterly basis), and to issue warnings in the event of a “landing” forecast (projected year-end earnings) below the budget indicated in the registration document.

All this information is centralized and published on the AMF website.

Non-financial reporting

Since the end of the ^20th century, there has been a growing demand for companies to disclose information on the social and environmental dimensions of their activities, as well as on their governance practices. Initiated by “responsible” investors ¹¹⁶ and by major international institutions ¹¹⁷ this movement in favor of extra-financial reporting has gained in importance since 2015, the year of the COP21 climate conference. In a speech at Lloyds, Mark Carney, then Governor of the Bank of England, asserted that climate change was a factor in systemic financial risks. The issue of extra-financial reporting (climate in particular) then moved out of the departments dedicated to “responsible/sustainable/green/ethical” investment and gained strategic importance in the world of finance. Today, faced with the profusion of reference frameworks, standards and reporting norms, the time has come for standardization, with a confrontation between the Anglo-Saxon and European visions at the heart of the debate.

Emergence and development of an extra-financial reporting industry

The information needs of “responsible” investors have given rise to an ecosystem of players involved in reporting and making it possible. Associations and companies have been set up to propose reporting standards and/or to collect and analyze data. ¹¹⁸ The extra-financial rating business, evaluating companies on the basis of ESG (environmental, social and governance) criteria, on behalf of investors, has emerged within dedicated teams in asset management companies or banks, or via the creation of independent rating agencies.

New non-financial disclosure standards have also come from public initiatives such as the Task Force on Climate-related Financial Disclosures (TCFD). Launched by the Financial Stability Board in the wake of COP21, the TCFD proposed a corporate climate reporting framework in its 2017 report, which is now widely shared worldwide.

As the sector has developed, it has become highly concentrated. Today, the rating market is dominated by the world’s leading financial rating agencies (the “Big Three”: Moody’s, S&P and Fitch), who have positioned themselves by setting up their own rating systems and/or buying out the smaller historical agencies. ¹¹⁹

Europe pioneers ESG regulatory obligations

France is a forerunner in this field. In 2001, with the law on new economic regulations (art.116), it was the first country to include in its regulations the obligation for listed companies to report, in their management report, on how they take into account the social and environmental consequences of their activities. With each passing law (and in order to comply with European law), the reporting framework has been clarified, the number of companies concerned extended, and third-party control mechanisms introduced.

The European Union took up the subject in 2014 with the Non-Financial Reporting Directive (known as “NFRD”), which introduces the obligation for every company with more than 500 employees to produce a declaration of non-financial performance.

The initially very flexible framework was made more restrictive by the 2022 directive on the publication of sustainability information by companies (known as the “CSRD” for Corporate Sustainability Reporting Directive). Declarations must now be verified by an independent third-party organization. The scope of application has been extended to more companies, and an extraterritorial dimension has been introduced (non-European companies operating on EU territory may be concerned). Last but not least, the directive has improved the framework and harmonization of reporting with the definition of the “ESRS”(European Sustainability Reporting Standards), the first part of which (the “all-sector” standards) is to be implemented by the European Commission. ¹²⁰ ) was adopted at the end of 2023.

Dual materiality at the heart of the standards battle

Today, there are two opposing visions of non-financial reporting on either side of the Atlantic, with a key sustainability issue at the heart of the debate: the materiality of reporting.

The European Union has introduced the principle of double materiality at the heart of the recently-issued ESRS standards. As Laurence Scialom notes, this is an important development because “it means recognizing that the responsibility of companies and financial institutions does not stop at their financial performance, and that they must also manage and take responsibility for the actual and potential negative impacts of their decisions on people, society and the environment”“”.

This is also the position adopted by China (for its listed companies from April 2026).

On the other side of the Atlantic, theInternational Sustainability Standards Board (ISSB) ¹²¹ created at the end of 2021, is the EU’s main competitor in this field. Within the IFRS Foundation, the ISSB is the non-financial reporting equivalent of the IASB (International Accounting Standards Board), which created the IFRS international accounting standards.

In June 2023, the ISSB published IFRS S1 (on the information to be disclosed by companies about the risks and opportunities they face as a result of sustainability issues) and IFRS 2 (more specific to climate issues). A research agenda focusing on nature and human capital was also announced in 2024.

In each case, the logic is that of simple materiality, and is therefore in line with standard financial analysis: the important thing is to assess the risks for the company and its investors, not the impact of the company on its human and natural environment. This view of sustainability is deleterious: nature is seen as important (material) only in terms of its financial impact.

As Alexandre Rambaud rightly noted ¹²² the principle of simple materiality is in line with today’s dominant view that the main purpose of a company is to maximize profits in order to remunerate shareholders, who are only interested in financial gains. This is a very simplistic view of the company and of investors, who can consider dimensions other than profit. This is what the Asia Investing Group on Climate Change reminded the ISSB in 2022, in its response to the international consultation on the future IFRS S1 and S2 standards: “many investors have more holistic mandates [than those retained by the ISSB], which go beyond the sole creation of financial value.”

Beyond this battle of standards, we must not lose sight of the fact that transparency is only one of the tools of the ecological transition.

Reporting has positive aspects. Disclosure (and therefore research) of non-financial data enables companies to become aware of their impacts, a prerequisite for action. The information made public in this way also provides stakeholders (primarily investors, but also public bodies and NGOs) with the tools to challenge company practices.

However, transparency is far from sufficient to transform an organization’s business model, and at the macro-economic level to shift the economy towards a less carbon-intensive, extractive and predatory model. As noted in misconception 4, ESG ratings based on extra-financial reporting are no guarantee of responsible corporate practices, and even less of a massive redirection of financial flows. And for good reason, social and environmental indicators do not play on equal terms with financial data: companies’ strategic decisions are still largely dominated by financial performance objectives, whatever the human and ecological costs.

Consumer information

Companies communicate a great deal of information to their customers.

Historically, this first took the form of advertising: whether on the products themselves, displayed in our towns and cities, in the press, in dedicated brochures dropped in letterboxes, on television or on the Internet, advertising is omnipresent in modern life characterized by consumerism.

As we explain in a dedicated file, advertising today is problematic. It increases consumption and promotes unhealthy lifestyles, it can be dangerous in certain sectors such as health, it uses up considerable natural and financial resources, and it is not politically neutral (particularly in terms of the values it promotes).

Let’s emphasize here that advertising can be outrageous, misleading the consumer or even deceptive, boasting or suggesting qualities that the product does not have. In the ecological field, this type of practice is referred to as greenwashing. It was first used in 1986 in a short essay by Jay Westerfeld ¹²³ an American activist who denounced the practice of hotels encouraging residents to reuse their towels on the grounds of saving the planet, when in fact the priority was to reduce cleaning costs. The first definition appeared in 1991 in a study on environmental advertising ¹²⁴ and the word appeared in the Concise Oxford English Dictionary in 1999. Greenwashing can be used to make a product appear to have ecological qualities that it does not actually have, or more generally to make a company’s sustainable development strategy appear more ambitious than it is (while glossing over its negative impacts). These practices are all the more problematic in that it’s particularly difficult for consumers to decipher what’s real and what’s not when it comes to environmental issues.

Faced with this situation, legislators have (sooner or later and with varying degrees of force depending on the country) introduced provisions enabling companies to be prosecuted for misleading advertising. In particular, these take the form of legal action (led in France by consumer associations), which can lead to fines or compensation for damages. This type of provision has been extended – belatedly – to certain forms of greenwashing.

While advertising is one of the tools used by companies, regulations also require them to provide consumers with a wide range of other information. In France and Europe, legislators have extended the range of information to be included on products, whether in the wake of health scandals or in pursuit of sustainability objectives. There are also numerous public labels providing information on products.

It’s not always easy for consumers to distinguish between official information and advertising. First of all, the companies concerned are actively involved in drawing up standards and the resulting “labels”. Thus, for example, the nutri-score has been the subject of intense lobbying by the agri-food industry to weaken its scope. ¹²⁵ The HVE (high environmental value) label ¹²⁶ label, which certifies farms, has come under intense criticism for the weak ecological guarantees it provides. A number of private labels and logos have also emerged, some of which go further than regulations (such as the Demeter label for agricultural products), but most of which are purely communication-driven. ¹²⁷ This is very close to the greenwashing mentioned above.

Limiting our impact on nature is not enough: we need to reorient our business models.

For some, companies, being at the heart of employment and innovation, should be the focus of public policy attention, with priority given to ensuring their competitiveness and growth. Overall economic well-being would flow from such orientations ¹²⁸ . For others, companies, subject to the “law of profit”, would be places of exploitation and predation, as well as the main cause of the destruction of nature and the enslavement of human by human. They should therefore be regulated to limit their weight in the economy and their impact, and even socialized. ¹²⁹ or nationalize them ¹³⁰ . Finally, others, in the wake of the sustainable development movement initiated by the 1987 Brundtland Report and accelerated by the 2002 Johannesburg Summit, believe that companies can contribute to the ecological transition provided they develop their social and environmental responsibility (a point we develop inMisconception 4 on CSR). In this section, we’ll be looking at the ecological impact of companies, and at the theories and practices that have emerged around less predatory or even contributory companies and business models.

Assessing the direct and indirect impacts of companies

Companies have a direct or indirect negative impact on nature

They consume ores and metals, energy and water; they kill living beings and destroy ecosystems, notably through extraction activities and the footprint of infrastructures and buildings; they emit greenhouse gases and chemical pollution, and produce waste, etc.

The impact on companies can be :

• direct, when they relate to assets (machines, plants, vehicle fleets, etc.) controlled or operated by the company within its legal scope. ¹³¹ For example, the heating and floor space of a company-owned building, pollutants emitted by the production process, etc.
• indirect when they are linked to activities located upstream (those of suppliers, for example the impact of a mine from which the minerals used by the company are extracted) or downstream (those of customers, for example the pollution linked to the use of cars by the customers of a car manufacturer) of the activity of the company itself.

The term footprint is used to refer to all these impacts: we speak of carbon footprint (see our Counting greenhouse gas emissions fact sheet), biodiversity footprint, water footprint, materials footprint, etc. ¹³² (which, for the moment, is essentially developed at the territorial level.

Clearly, companies have neither the same responsibilities nor the same room for manoeuvre when it comes to their direct or indirect impacts.

However, its capacity to act, and therefore its responsibility, is never zero. For upstream and downstream impacts, they are shared.

For example, a car manufacturer shares responsibility for greenhouse gas emissions and air pollutants with the car user. It has the opportunity to build and market cars that are less polluting to run. The user also has a responsibility linked to the car he or she has chosen to buy and the type of driving he or she does. Upstream in the value chain, automakers can force their suppliers to comply with demanding environmental and social specifications, while accepting to pay the price.

Food manufacturers and catering chains can use less-polluting or recyclable packaging; they can offer dishes that limit the use of meat products, etc. As with the automotive industry, they have room to maneuver when it comes to specifications. As with the automotive industry, they have room to maneuver when it comes to specifications. And here too, consumers have their share of responsibility.

It’s in the company’s interest to assess all its impacts

This enables the company to understand the extent to which its business model “depends” on the pollution it influences, both directly and indirectly. In this way, it can assess the risk of seeing its profitability undermined by regulations or tax measures aimed at limiting pollution, upstream or downstream of its legal perimeter. It also has a vested interest in knowing the strategic resources on which its production depends. The same applies, of course, to social issues.

The strategy of influencing public authorities to avoid regulatory or tax tightening may save time, but is clearly not ethically satisfactory (and sometimes makes recruiting young people more difficult) and not necessarily the best economically.

To assess its impacts, and then reduce them, the company can carry out or commission more or less detailed footprint calculations (see above) (by subsidiary, by site, by type of pollutant, etc.). It can also use life-cycle analysis methods to produce a multi-criteria environmental assessment of a product, service or process (or even the company itself) over its entire life-cycle, i.e. from extraction of the raw material to transformation into waste (or reuse).

Taking action: reducing impacts and transforming the company’s business model

Of course, evaluation is not a goal in itself. It is of interest only in a forward-looking perspective: the aim is to determine a roadmap, also known as a “transition plan”. ¹³³ The aim is to determine a roadmap, also known as a “transition plan”, with a view to reducing the impacts considered, or even radically transforming the company’s business model.

With the orders of magnitude and the roadmap in hand, the company can quantify and then launch actions.

More often than not, when companies do take action, they are content to optimize what already exists to reduce their impact, without radically transforming their business.

These include :

• optimize processes to save energy, water, raw materials and land, etc. ;
• review the energy sources used (develop renewable energy supplies);
• pay attention to the origin of raw materials (avoid metals from conflict zones, give preference to recycled materials, limit the use of chemicals or even replace them with green chemistry, etc.);
• limit waste generation and chemical pollution (either treatment or redirection).

Genuine consideration of ecological issues means asking questions about a company’s purpose, its business model and its core activities.

To what extent does the company carry out an activity that contributes to the transition or, more generally, to the common good?

In certain sectors, such as education, healthcare or personal care, the contribution to the common good is obvious at first glance. In such cases, the aim is to focus on the implementation of the activity and its impact, both ecological and human (which is not insignificant, as a company can be predatory in its practices, whatever the field of activity). ¹³⁴ ).

In others, answering this question requires major renunciations and reorientations. At macro-economic level, making a success of the transition means abandoning a number of activities, such as the exploitation of fossil fuels, the production and massive use of pesticides, single-use disposable products and so on. Within the company, this means giving up the most polluting and wasteful activities. This is what Sophie Robert-Velut, CEO of Laboratoires Expanscience, said in early 2023 when she announced that Mustela, one of the Group’s brands, would stop selling wipes in France in 2027 (representing 20% of the brand’s sales). This is also what some energy companies are doing, when they decide to sell their fossil fuel assets (or, better still, close them down) and redirect their activities towards renewable energies or energy efficiency.

Looking at the company’s business model means not just correcting economic activity to make it cleaner, but orienting or reorienting the core business to have a positive impact. Here are just a few examples:

• replacing polluting products with less polluting ones: making bicycles (and building bicycle paths) instead of cars; producing or using recycled materials (e.g. aluminum, steel, textiles, paper, etc.) instead of virgin materials; producing renewable energy instead of fossil fuels;
• business models based on extending product lifespans: repairing (if possible using recycled components) household appliances or electronic equipment, reuse, reconditioning (e.g. cell phones);
• activities aimed at saving water or energy: production of insulating materials, energy-efficient home renovation, IT services aimed at reducing energy or water consumption (of buildings, equipment for businesses or households, etc.);
• business models aimed at selling use (energy, mobility, laundry) rather than possession (the economy of functionality);
• transforming activities directly linked to life so that they are regenerative rather than destructive: agroecology, agroforestry, bio-cosmetics, green chemistry etc. ;
• Activities aimed at repairing the damage done: soil and ocean decontamination, soil renaturation, maintenance of natural areas, reforestation, etc.

In many cases, these products, infrastructures and processes can have both positive main effects and negative “collateral” effects.

That’s why :

1. Having an ecological or “sustainable” corporate purpose doesn’t mean you don’t have to take care to minimize the impact of your activity (which inevitably exists);
2. It is important to have an overall, rigorous and shared vision of all ecological impacts, as certain activities that are positive in one dimension can have negative impacts on another (e.g. the rail network is positive for the climate compared with the car, but destroys habitats and fragments territories, which has a negative impact on biodiversity).

This is why the European Commission has drawn up a taxonomy of economic activities based on their positive and negative impacts on 6 major environmental objectives (climate change mitigation and adaptation, biodiversity, water, pollution, circular economy).

Conceptualizing new business models: circular economy, contributive enterprise, regenerative enterprise

Basing a company’s economic value on its contribution to the common good

As we saw in the previous section, the recognition of ecological issues has led to the emergence (or highlighting) of new fields of activity and business practices. This movement has been accompanied by attempts to conceptualize what could be new business models for companies.

In 2010, for example, the Ellen MacArthur Foundation was launched to popularize the notion of the circular economy (first mentioned in the 1970s). Although the concept has not yet been defined in a standardized way, it broadly contrasts the current linear economic model (extracting materials, transforming them, consuming them, then throwing them away) with a model in which the flow of living and non-renewable materials (minerals in particular) is “circularized”, i.e., one person’s waste becomes the new raw material for production.

This all-encompassing concept has enabled many of the economic models and practices that have emerged at the turn of the ^21st century to be placed under the same banner: eco-design, the economy of functionality, recycling, repair, reuse, industrial ecology and so on.

Other concepts have also been proposed.

In a book published in 2021, Fabrice Bonnifet, Director of Sustainable Development for the Bouygues Group and Chairman of C3D, developed the notion of a contributive company, defined as a company “that contributes materially to common goods (in the sense of the Sustainable Development Goals – SDGs) and to the well-being of the individual”.

The concept of regenerative enterprise, which emerged in the 2010s ¹³⁷ refers to organizations that have embarked on two parallel movements: “the first is to reduce its negative impacts to incompressible thresholds; the second is to generate net positive impacts on ecosystems and human communities through a reconnection with the living”“.

Not all companies can be regenerative on their own perimeter, as this requires a direct link with the living world. Others can contribute to “socio-ecological regeneration” by forming (or becoming part of) “cooperative ecosystems of players, some of whom have a direct link with non-human living things, so that the regenerative ambition relates to this collective of players, much more than to each individual company.”

The importance of scaling up

Whatever the concept used, it is important not to limit the analysis to the microeconomic dimension (one company, one sector), but to consider the impact at the macro level. As long as these new models only concern a few pioneering companies, often cited as examples, the overall impact will remain limited, if not non-existent.

There are many well-documented reasons for this:

• The risk of rebound effects: when a company’s activity enables it to reduce consumption of energy, water or other raw materials, the financial savings made (whether by the company or the consumer) can be transferred to additional purchases or production, thereby canceling out the positive impact at global level.
• The risk of new products adding to rather than replacing “traditional” production is well illustrated in the energy sector, where renewable energies have not replaced fossil fuels. This is also the case in the textile sector, where the development of second-hand products has not prevented the growth of fast fashion.
• The circularity of materials is not infinite: after repeated recycling, the quality of most materials deteriorates, and after repeated reuse/reconditioning, product performance declines: end-of-life is inevitable, even if it can be postponed.
• The savings in natural resources made possible by models based on circularity (recycling, reuse, reconditioning, functionality) are rendered obsolete as long as the consumption of these same resources continues to grow on a global scale. François Grosse’s work clearly illustrates this point: “if material consumption grows by more than 3% a year – as has been the case for iron and copper over the past century – recycling even 90% of our waste has a derisory effect on resource conservation.” ¹³⁸

Scaling up requires public intervention

To promote new business models, the role of public authorities is essential. This means using all the tools of economic policy (taxation, regulation, public procurement and investment, subsidies, monetary policy) to improve or even build the profitability of transition projects and sectors. Indeed, whether we’re talking about launching a business based on one of the new economic models, or transforming a company to reduce its impact and reposition it in sectors and practices that contribute to the transition, profitability is by no means self-evident.

The competitive environment is unfavorable to transition projects

Competition with existing modes of production and consumption, whether within the same company or in the global economic environment, puts the players behind the new models at a disadvantage. On the one hand, the promoters of “business as usual” are powerful, structured and well-established, as demonstrated, for example, by the difficulty many countries have in putting an end to coal mining, even though this is one of the priorities in the fight against global warming. On the other hand, sustainable activities have to compete with activities that have mature technologies, widespread skills, amortized investments and infrastructures in place. The existing system sets the “selling price” against which the profitability of ecological solutions is confronted. Public investment, coupled with regulations favoring new products or markets, is therefore essential to help innovation, investment and the structuring of sectors. In many cases, public impetus or even supervision is necessary to ensure the existence of certain sectors. This is the case, for example, with recycling or product lifespan extension (reuse, repair, reconditioning). The manufacturers of the initial products must design them in such a way as to enable repair, reconditioning and, ultimately, the recovery of materials – activities which they will not necessarily carry out themselves.

Demand for sustainable products and investments is not self-evident

As far as households are concerned, individual gains in well-being are often not perceptible, since the aim is not to provide access to new goods and services, but to change the way they are produced and consumed. Sometimes, these gains are distant in time (limiting global warming by reducing GHG emissions) or in space (reducing the destruction of mines by using recycled materials or reconditioned products). More often than not, these are gains in collective well-being. Switching from coal-fired electricity to renewable production brings more benefits to the community (reduced risks, waste,_CO2 emissions, air pollution) than to the individual. Finally, in many cases, the improvement in quality of life will only be felt if the majority of the population makes the switch. If an individual decides to take public transport instead of his car, he will only see an impact on the polluted air of his city if the majority of city-dwellers do as he does.

On the business side, the question of demand also arises. This is particularly obvious in the case of recycled materials: without a regulatory framework (such as a mandatory percentage of recycled materials in new products), price would be the only factor driving demand. Yet raw material prices are subject to fluctuations that are hardly conducive to the structuring of supply chains.

Lack of incentive for business leaders to act in the current economic environment

Without even mentioning the scale of the changes required to transform a company’s business model, there are many obstacles at work right from the first levels of action to take ecological impacts into account.

• Lack of information and/or conviction about the scale of the ecological crisis can lead to a failure to prioritize actions in this area in relation to day-to-day business; a manager may order impact calculations (out of legal obligation or for image reasons) without taking action for lack of conviction (which can result from a lack of information).
• The contradiction between financial profitability requirements and climate, environmental and social commitments.
• Additional costs incurred by actions (even measurement and diagnostic actions cost money, if only in terms of staff time).

These additional costs are generally considered to be detrimental to the company’s margins or even competitiveness, without necessarily providing any tangible compensation. If managers are convinced that the price of energy and raw materials will rise in the future, they may be able to justify winning actions on two fronts: lower future costs and reduced ecological impact. But this is not always the case, given the uncertainty that weighs on any cost projection.

Even if they are aware of the issue or have received training, managers can’t see why they should degrade their company’s performance for the common good, and with the added risk of marginal action if other players do nothing. It’s always the same paradox at work: the immediate interest of an economic agent can be in contradiction with the general interest, even if in the long term the degradations involved turn out to be dramatic for everyone.

Transition projects bring social and environmental benefits that are not taken into account in pricing.

This is particularly true of projects aimed at restoring ecosystems in order to preserve biodiversity and regain the benefits of the ecological services we derive from them. It’s hard to find the intrinsic profitability of a project to clean up soil, create or restore wetlands (which can generate a local economy: fishing, ecotourism, etc.) or artificial reefs (which can be used for fishing or underwater ecotourism).

Models that require long-term investment

In a book on the circular economy, published in 2023, Franck Aggeri Rémi Beulque and Helen Micheaux highlight seven key points for managing projects of this type (p49). In particular, the authors emphasize the need for collective exploration and experimentation in these projects, for which there is no market, and for which all existing tools and routines (calls for tender, ex ante cost evaluation) are ill-suited because they are part of the linear economy. They also underline the need to be part of a local dynamic, an ecosystem of diverse players, both for the implementation of projects throughout the supply chain, and for the design of new standards, tools and methods. All this requires time and consequent investment, with no guarantee of profitability.

Even when investments are intrinsically profitable, there are problems if they are made over too long a timescale. This is the case, for example, with energy-efficient building renovation, which is essential if we are to achieve our climate objectives. The initial investment is repaid through energy savings over 10-20 years. Households therefore have to choose between this renovation, another investment or immediate consumption. What’s more, many households simply don’t have the means to invest. It’s hardly surprising, then, that the renovation market is struggling to take off.

The size of the initial investment has an impact on the economics of projects over their lifetime: the cost of financing is a determining factor in project profitability. For example, the costs of a coal-fired power plant are divided between initial investment and operation; whereas for a photovoltaic plant, costs are highly concentrated on the initial investment. The cost of financing will therefore be much more decisive for a photovoltaic plant, since it depends on the monetary (interest rates) and regulatory (favorable or unfavorable to the sector) environment, and its predictability over time.

All of which goes to show that it’s pointless to expect all entrepreneurs to go “green” at the same time, especially as in many sectors, it’s not a question of creating new activities, but rather of getting existing companies to do business differently. This is why the role of the public authorities remains essential: they must try to align the interests of private players with the general interest. This is what is done, for example, when pollutants are banned, when environmental taxation is introduced or ecological regulations are put in place, and so on. However, given the scale of current local and global ecological degradation, this is clearly not enough.

Multinational companies have excessive powers

In this issue of Essentiel, we’ll take a look at very large multinational companies. Multinationals ¹³⁹ are groups of companies with subsidiaries in countries other than that of the parent company. There are some 80,000 of them worldwide ¹⁴⁰ .

With regard to size, what criteria are used to define a company as “very large”? Insee considers that a large company meets at least one of the following two conditions: it must have at least 5,000 employees; and it must have sales of over 1.5 billion euros and total assets of over 2 billion euros. Forbes ranking of the world’s largest companies ¹⁴¹ is based on sales, market capitalization, profits and assets. In the 2023 ranking ¹⁴² the largest company is an American bank, JP Morgan, followed by the oil company Saudi Aramco, and three Chinese banks. The leading French company is TotalEnergies, ranked ^21st with sales of over $250 billion. Forbes doesn’t provide information on the number of employees, but it’s possible to situate the orders of magnitude. Ten companies employ more than 500,000 people, the top three being Walmart, Amazon (each in excess of one million), and Foxconn (Apple’s subcontractor in China). In France, in the private sector, Téléperformance, the world leader in call centers, will have the highest number of employees in 2023 (over 400,000).

This gigantism is due to the concentration of companies, which can be seen in many sectors (digital, energy, agri-food, finance, pharmaceuticals, mining, commodities trading, etc.), as will be seen in a few examples below. In other words, the race for size is not a law of history. In fact, in the USA, for example, the Sherman Antitrust Act of 1890 provided a serious framework for it.

Economic concentration: the paradox of free competition

According to the most widespread teaching in economics, free and perfect competition is the source of economic efficiency and optimum performance. On the other hand, dominant positions and market concentration are reprehensible, notably because they lead to less favorable prices for consumers. And yet, they occur almost everywhere in the world, and in all sectors. The paradox is clear: the economic theory that justifies the free market is based on an assumption that is empirically contradicted by the way the free market itself operates. Regulations are obviously needed to prevent companies from growing – which means opposing free competition…

We’ll now return to the source of this paradox.

The economic argument that free and perfect competition leads to an optimum is based on a representation of the economy in which each company has only a small market share and no influence on prices. They are said to be “price takers”: having no significant influence on market prices, which are set by the confrontation of diffuse players, they are obliged to “take” them as they are.

On the contrary, large companies can be “price makers” when they have a sufficiently dominant position to influence the price.¹⁴³

The aim of competition law is to prevent dominant positions on a market, which would prevent the entry of new players. In this line of reasoning, the main problem with a monopoly or oligopoly is the formation of rents to the benefit of producers and to the detriment of consumers.

The central hypothesis that demonstrates that a competitive situation with a multiplicity of agents leads to an optimum is the “law” of diminishing returns.

In this case, the cost of the last unit sold is higher than that of the previous one (or conversely, with the same quantity of a factor of production used, production increases less and less). Historically, this law (formulated by Turgot, then taken up and improved by David Ricardo) was demonstrated in the agricultural sector, where land was supposed to be farmed in decreasing order of fertility. In an economic sector where yields are indeed decreasing, it’s easy to understand that size – and therefore concentration – is not an asset.

In many economic sectors, however, returns are increasing ¹⁴⁴ . The best-known example is the digital sector, where the software industry is a zero-marginal-cost industry: the last copy of a software product costs nothing to produce, and is as profitable as possible. Increasing returns drive size and concentration: the bigger a player is, the more it can lower its prices and drive out the competition. In fact, the vast majority of mergers are justified by the economies of scale they bring.

In practice, the decision to sanction a dominant position or to refuse a merger is a difficult one. It obviously depends on the details of the applicable law, and rests on a delicate analysis: which market is being considered, on which criteria should the decision be based, and so on. Such a decision is also politically delicate, in a context of globalization, where the race for size may on the contrary be encouraged (to have “world leaders”) in other countries.

On a more severe level, competition law prohibits and penalizes cartels. ¹⁴⁵ . Here, the idea is less debatable: agreeing on prices is clearly an obstacle to competitors who do not belong to the oligopoly.

Price control and the formation of rents are obviously not just anecdotal social issues. In the food sector, for example, the presence of powerful oligopolies in production, trading and distribution (see box) can lead, via price rises – which may be exacerbated by the financialization of these markets and the resulting speculative movements – to severe food tensions and even famines. ¹⁴⁶ . Such situations can arise without any improvement in the situation of farmers, who do not benefit from the price rises suffered by consumers.

Questionable or even reprehensible practices by very large companies

Without going any further into the economic analysis, we will review some of the social and environmental damage caused by our activities. ¹⁴⁸ that these very large companies can generate as a result of their power and financial resources (either individually, or acting in concert via visible professional organizations or lobbying structures).

Shaping not only our physical world but also our lifestyles and desires

Before even mentioning specific, visible damage, let’s note that multinational corporations profoundly shape not only our physical world, but also our lifestyles, our desires, our entertainment… It’s multinationals that design and build infrastructures (ports, airports, roads, factories, etc.) and large buildings (hospitals, hotels, etc.), homogenizing the whole world: what’s the difference between a luxury hotel in Kuala Lumpur, New York, Paris or Bangalore? Multinationals set fashion and taste. Consider the fact that L’Oréal spends a third of its sales on luxury products. ¹⁴⁹ on marketing and advertising to impose its products and its vision of the ideal woman or man. Multinationals created the disposable world. Who remembers the arrival of the first disposable lighters, in the era when Shein encourages us to change clothes every day and throw away the ones we wore yesterday? Multinationals impact our entertainment, imposing their heroes (Mickey Mouse and Spiderman are known the world over). All in all, they reduce cultural diversity and, in the agricultural sector, biological diversity and the diversity of our landscapes. Finally, they influence our social behavior and opinions. ¹⁵⁰

Grabbing natural resources in underdeveloped countries, devastating the environment

Extractive industries (fossil fuels, ores and metals) are predators of nature. This reality was well documented in the study Controverses minières – Volet 1 – Caractère prédateur et dangereux (June 2021), produced by the SystExt association, which specializes in mining. In poor countries, this predation is also at the expense of the local population. Directly, by devastating the environment in which they live, or even by resorting to armed violence. ¹⁵¹

Indirectly, by not sufficiently rewarding the proceeds of these extractions. Production-Sharing Agreements (PSAs), which are gradually replacing concessions, are not always equitable, on two levels: the state owning the resource may recover only a small share of the rent, and the part of the rent recovered may not benefit the populations of the country concerned.

These questions are permanent for the entire global extractive industry, which, as we shall see in the box, is highly concentrated, giving the world leaders considerable power and greatly unbalancing the balance of power in their favor.

Influence or even put pressure on political decision-makers to weaken regulations that would be unfavorable to them

Lobbying has become a commonplace practice. However, for a company or group of companies, lobbying means influencing political decision-makers in their own interests. ¹⁵² responsible for the general interest. At the European Parliament, for example, a study by the NGO Agir pour l’environnement, published in 2024, highlighted the budgets charged by lobbying teams ¹⁵³ . As Novethic reports ¹⁵⁴ reports, “the 5,800 lobbies registered under the banners ‘Trade and Professional Associations’ and ‘Companies & Groups’ spent between 965 million and 1.3 billion euros on their lobbying activities over the last eleven months surveyed”.

This pressure can lead to “regulator capture” or regulatory capture, a term suggested by the “Nobel Prize in Economics” ¹⁵⁵ George Stigler in 1982, to refer to the fact that regulatory authorities are controlled by private interests. ¹⁵⁶

In the case of climate change, the lobbying practices of oil companies and the financial resources deployed are now well documented. ¹⁵⁷ . Another example is the Energy Charter Treaty, which enables companies to attack states that adopt regulatory measures (possibly to preserve the climate) contrary to their interests.

This pressure on countries can go as far as making them compete on social and environmental tax grounds. The media regularly report on projects to locate factories or head offices, where competition between countries enables companies to obtain subsidies or reductions in social charges and taxes. On this vast issue, the main concern is the global race to the bottom in terms of corporate taxes. A case in point is Stellantis, the company created by the merger of PSA, Fiat and Chrysler, which is headquartered in the Netherlands for obvious tax reasons. ¹⁵⁸ . It could be said that the Netherlands submits to pressure from multinationals to attract them and their jobs. This is even clearer for Ireland.

Develop tax avoidance strategies that reduce state resources

Multinationals have the means to hire top-level tax specialists, sometimes from tax administrations, to adapt their organizations and financial flows between companies to suit national tax systems, in order to minimize tax liabilities. These practices have long been known, and considerable work has been done under the aegis of the OECD to limit their scope. One of its key players, Pascal Saint-Amans, describes this work in his book Paradis fiscaux Comment on a changé le cours de l’histoire (Seuil, 2023). This work has made it possible to considerably reduce banking secrecy in OECD countries (with the introduction of reporting obligations), and also to tackle corporate tax avoidance, with the introduction of a worldwide minimum tax of 15%. But the book gives numerous examples of how multinationals are working to counter any progress in this area. And for these reasons, we still have a long way to go before our tax systems become more socially just.

To find out more about the mechanisms and amounts “lost” through corporate tax evasion, see our Tax evasion and tax havens factsheet.

Control the media, possibly by buying them

In France, most of the major media are owned or controlled by powerful groups controlled by billionaires and/or their families: Vincent Bolloré and Bernard Arnaud and their families, Xavier Néel, Rodolphe Saadé, the Dassault family, the Bouygues family…

Rupert Murdoch, the billionaire owner of Fox News and the Times, is a case in point.

Influencing election results

This is evident in the United States, where there are no limits on campaign financing. ¹⁵⁹ The emblematic case of the Koch family, whose fortune comes from oil, has a proven influence on the climatoskepticism of the Republican camp.

More recently ¹⁶⁰ Elon Musk and other billionaires pledged tens of millions of dollars to support Donald Trump’s campaign ¹⁶¹ . In other countries, multinationals can play a direct role in elections. Let’s recall ITT’s involvement ¹⁶² in the destabilization of Chilean President Allende. In Africa, the Bolloré group’s role in elections (in Togo and Guinea) has been established in court. ¹⁶³

We’re only giving a few examples here, but to find out more, we recommend Julia Cagé’s book, Le prix de la démocratie (Fayard, 2018).

Bribing civil servants or political staff in countries where this is possible or even systematically practiced

The Observatoire des multinationales website gives several examples of these practices.

The Elf affair in 1994 revealed just such French practices in Africa. In autocratic countries, or in countries where the administration is weak and poorly paid, it is difficult to do business without resorting to bribes and other occult practices.

It’s obviously easier for large multinationals with the financial and human resources to do so. According to World Bank estimates, quoted by Martin Sajdik ¹⁶⁴ every year, “between $1,000 and $2,000 billion is lost to corruption, or 10 times the annual budget of the 34 member countries of the Organisation for Economic Co-operation and Development combined. […]”. The costs of corruption are not just financial. Corruption erodes confidence in public institutions, compromises environmental protection and exacerbates poverty and inequality. ¹⁶⁵

Spreading toxic products

Multinationals may be viewed positively in some countries, where they create jobs, invest and, more generally, contribute to economic development. But if they are in a dominant position, they can abuse this position to sell products that may prove harmful. These products may be distributed with the “consent” of the populations affected by a project (or by the dissemination of a product or process) or “used” to test a drug. ¹⁶⁶ . They are not obliged to bribe politicians or buy the consent of populations to obtain it. We remember the milk powder scandal ¹⁶⁷ in the 1970s; more recently, Nestlé has been accused of adding sugar to its baby products, thereby encouraging obesity ¹⁶⁸ . Let’s take examples from developed countries: American opioid addiction is an unprecedented scandal and tragedy ¹⁶⁹ pollution by PFAS, “eternal pollutants”. ¹⁷⁰ in the United States, Europe and the rest of the world. Finally, let’s mention, among many other projects of this type, the EACOP project developed by TotalEnergies, which boasts of its benefits for local populations, even though it is climatically destructive and has considerable environmental and social impacts. ¹⁷¹

Exercise domination over their subcontractors in order to impose degraded working conditions or excessive environmental pressures on them

In 2013, the collapse of Rana Plaza ¹⁷² in Bangladesh, which caused the deaths of over 1,000 people, prompted reflection on the duties and responsibilities of parent companies towards their subsidiaries, suppliers and subcontractors ¹⁷³ . In 2024, a U.S. jury found that Chiquita (formerly United Fruit Company ¹⁷⁴ which gave rise to the expression “banana republic”) responsible for the deaths of eight people ¹⁷⁵ at the hands of the paramilitary AUC militia, paid by the multinational to “protect its interests” and “resolve” conflicts with workers and unions.

France was a pioneer, passing a duty of care law in 2017. At the end of April 2024, the European Parliament passed a European directive, the CS3D, on this duty of vigilance. ¹⁷⁶ which aims to oblige companies of a certain size to monitor the risks of non-compliance with labor and environmental law throughout their value chain. More specifically, the directive requires these companies (and their upstream and downstream partners) to prevent, stop or mitigate their negative impact on human rights and the environment, including at the sourcing, production and distribution levels. This includes slavery, child labor, labor exploitation, erosion of biodiversity, pollution or destruction of natural heritage.

Corrupting or instrumentalizing scientists to produce studies that instill doubts in the minds of citizens

Two American academics, Naomi Oreskes and Erik M. Conway, are responsible for ¹⁷⁷ to have identified and documented a method deliberately used by major corporations to create doubt and confusion in the minds of citizens and political decision-makers, when scientific evidence of the negative effects of some of their products becomes convincing and well known. The strategy is not to deny this evidence, but to create doubts in consumers’ minds by putting forward other data or scientific findings: the tobacco industry ¹⁷⁸ Faced with the risks of smoking-related cancer, the tobacco industry has financed research to cast doubt on these links, by highlighting, for example, other causes of lung cancer; the industry has then financed pharmacies to disseminate the information generating doubt. This strategy has been used in a number of fields, including climate change. It is within the reach of only the largest corporations, which are the only ones capable of mobilizing top-flight scientists and financing research and communication or lobbying firms. The energy sector, which is highly concentrated, has participated in these manipulation campaigns.