ESG/shareholder dilemma: corporate social responsibility in conjunction with company law in Europe

Abstract

Companies have been acquiring more and more power in influencing welfare of the society. The concept of Corporate Social Responsibility requires companies to operate in accordance with ethical standards whereby they respect and protect human rights, environment, and interests of the society anywhere where they conduct their business activity. The concept has been promoted by United Nations, OECD, European Union, and other organizations. Yet, while company laws of Germany, Switzerland and Latvia obliges executive power of company to increase the value of the company and comply with applicable law, company laws do not require companies to follow ethical principles and guidelines. Company laws oblige boards to increase the value of company, however, society expects that companies follow ethical standards, therefore companies are voluntary following ethical standards laid down by international organization and subsequently the costs of following the standards becomes as a necessary part of business activity that should not be considered as a loss to shareholders. Yet, implementation of ethical standards in business operations in principle is contrary to the company laws