The European Commission recently released a sustainable corporate governance report claiming to find a problem of investor-driven short-termism, and proposing as a solution that power be shifted in EU-listed firms to other stakeholders. But the report’s findings are deeply flawed. And its proposed policies would, perversely, reduce business sustainability in the EU.
The EU’s Unsustainable Approach to Stakeholder Capitalism
It’s time to make it easier, not harder, for firms to raise, deploy, and return capital.
January 29, 2021
HBR Staff/Annie Spratt/Unsplash
Summary.
A recent report by the EU claims that investor-driven short-termism is encouraging firms to return cash rather than invest it, which reduces capital available for investment in growth. The authors show that the data behind the report do not support its claims and argue that if the EU implements the recommendations of the report EU-listed firms will struggle to compete as decision-making slows up and capital gets allocated to questionable ventures.