In February 2025, the German Federal Office for Economic Affairs and Export Cont…
In our latest Newsletter ESG and Law we report on the "Study on directors' duties and sustainable corporate governance" ("Study") recently published by the EU Commission.
The Study, compiled by EY on behalf of the EU Commission, addresses centrally the phenomenon of "short termism" in corporate governance. The focus of corporate decision-makers on short-term shareholder value maximisation instead of long-term corporate interests reduces the long-term economic, environmental and social sustainability of European companies, according to the underlying thesis of the Study. The Study identifies several causes ("Drivers") of short termism and finds that legal frameworks and market practices in Europe had the effect that a long-term orientation of corporate management played a relevant role neither in the duties, remuneration or liability of the management.
In order to counteract short termism, the Study argues that the time horizon and perspective of corporate decisions need to be broadened, for instance through measures such as:
To move away from short termism, the Study finds that "EU intervention" is needed, and offers two "soft" and one "hard legislative" option. The Study favours the "hard legislative" option, as does the EU Commissioner for Justice Didier Reynders.
The Study is a follow-up to the Commission's "Action Plan for Financing Sustainable Growth" of March 2018 and works through the Action 10 set out therein. The Study also fits into the global discussion on "stakeholder capitalism" as an alternative model to the "shareholder primacy model" (shareholder value).
For more details on the presentation and assessment of the "Drivers" of short termism, the three options for "EU intervention" proposed by the Study, and the question of whether a turnaround in corporate governance in Europe from "short termism" to "long termism" is imminent, please read our current Newsletter mentioned above.
