The number of years that have passed since the PACTE law was approved.
On May 22nd, the French PACTE law on corporate social responsibility celebrated its two-year anniversary. This offers the opportunity to explore the lessons that can be drawn from this text, especially when the Covid crisis or the recent ousting of Emmanuel Faber from the Danone group seem to have challenged it.
What is the PACTE law ?
The PACTE law, or Action Plan for the Growth and Transformation of Businesses, was launched in 2019 and aimed at establishing a new legal framework for businesses, by introducing the notion of “entreprise à mission” in French law. By allowing the integration of social and environmental issues into the company’s status, this law introduces the idea that companies’ sole objective is not only to meet the interests of shareholders, but also to pursue the common good.
The legislative text is based on three pillars. First, the concept of company has been newly defined in order to include “the long-term interests of companies”, which requires company managers to consider societal and environmental issues. Then, the PACTE law offers the possibility to incorporate a “raison d’être” in its status. The raison d’être can be defined as a guide explaining the activities, means or principles of the company. Companies such as EDF, Orange or Carrefour have already adopted it. Finally, the most determined companies have the possibility to adopt the quality of entreprise à mission. This implies that they must change their status to include their raison d’être, social and environmental objectives as well as their methods to monitor the performance of the mission.
The review 2 years later
The PACTE law was mostly received positively. First, executives consider this approach to fit with the growing need for meaning. Shareholders and investors also particularly support the formulation of a raison d’être. This gives meaning to “investment in the company” and enables investment to adapt to the legal framework, increasingly based on extra-financial criteria.
The report from the Jean Jaurès Foundation highlights that the development and validation process is perceived as virtuous. This is due to its ability to establish a dialogue including stakeholders, such as employees, for whom the raison d’être offers meaning and commitment to the company’s collective project, customers and administrators, that can all get involved in the consultation and development processes.
However, despite this generally positive reception, practical reality demonstrates that the outcomes of the PACTE law remain fragile. While the raison d´être seems to have convinced many companies, around 200 today including Danone, Michelin or Nature & Découvertes, the quality of entreprise à mission appears less successful. This can be explained by the process required to establish an entreprise à mission, which is more restrictive than that of the raison d’être. Nonetheless, a significant number of pioneers are rising, with an exponential growth of entreprises à mission, from 29 in August 2020, to 88 in December 2020 to reach more than a hundred today.
What are the prospects for the PACTE law in the face of various challenges ?
The covid crisis and the ousting of Emmanuel Faber have given rise to many reflections and debates, in favor of the detractors of the PACTE law, according to whom the short-termism of capitalism remains a priority over social and environmental ambitions. Emmanuel Faber’s failure would illustrate the incompatibility of environmental and economic objectives.
Against all expectations, the annual ‘Global CEO Outlook 2020’ survey by KPMG, shows, in fact, that managers are all the more attentive to the purpose and mission of their company after the Covid crisis. In fact, 80% of French executives claimed they have felt more aligned with their company’s raison d’être since the crisis began.
This Coronavirus crisis is therefore a turning point for companies’ societal commitment, given the internal battles that will take place to assert the legitimacy of CSR and the establishment of responsible modes of production and governance.
Therefore, the philosophy of Milton Friedman, establishing that “a company’s only reason is to generate profits for its shareholders”, seems to be outdated, despite the Covid crisis. It certainly threw off some individual’s certainties in terms of prioritization, but it also participated in strengthening the convictions of others. This crisis turned into an opportunity for companies to show that investing in the long term enables them to be more resilient and anticipate better.