Développement durable et Gouvernance Bernard Sinclair-Desgagné, Ph.D. Professeur titulaire, HEC Montréal Chaire d’Économie internationale et de gouvernance

BSD.com Business forSustainable Development

Qu’est-ce que le développement durable? Rio (1992) «Satisfaire les besoins des générations présentes sans compromettre la capacité des générations futures à satisfaire aux leurs.»

Qu’est-ce que la gouvernance?  Le terme «gouvernance» serait né en France au 12ième siècle, avec un sens très technique: la direction des bailliages. Les historiens anglais du Moyen-Âge se réfèrent à la governance pour caractériser le mode d’organisation du pouvoir féodal.  Governance refers to the alignment of the actions of several diverse people or groups who must collectively deliver some output.

Trois institutions inéluctables et globales 1. Le marché - Les biens public globaux - 2. L’entreprise - Stakeholders vs Shareholders - 3. La science et l’innovation - Le Principe de Précaution -

1. Le marché Les biens publics globaux non-rivalité non-exclusion Biens publics purs x x stabilité politique et économique éradication des maladies infectieuses recherche fondamentale Biens communsx ressources halieutiques services écosystémiques lutte dontre le crime organisé efficacité des antibiotiques Biens clubs x défense infrastructures dissémination de l’information

1.Le marché Les biens publics globaux Organisations internationales gouvernements ONGs

Questions de recherche Comment coordonner les actions des divers intervenants, sans la «main invisible» du marché et sans la présence d’un gouvernement mondial? Comment financer la production et l’entretien des biens publics globaux? [Voir la proposition de M. Georges Soros…] Quel rôle donner aux ONGs dans ce domaine? Et qu’en est-il de leur gouvernance?

2. L’entreprise Stakeholders vs. Shareholders management Conseil d’administration shareholdersstakeholders

Stakeholders vs. Shareholders The present tendency not only to allow but to encourage such use of corporate resources [in the service of some “public interest”] appears to me as dangerous in its short-run as in its long-run consequences. The immediate effect is greatly to extend the powers of the management of the corporations over cultural, political, and moral issues for which proven ability to use resources efficiently in production does not necessarily confer special competence; and at the same time to substitute a vague and indefinable “social responsibility” for a specific and controllable task. - Freidrich A. Hayek -

Stakeholders vs. Shareholders “[The] directors have fiduciary responsibilities to share- holders which, while allowing directors to give consider- ations to the interests of others, compel them to find some reasonable relationship to the long-term interests of shareholders. [...] A Delaware Supreme Court's decision to enable directors to give consideration to the interests of others does not suggest that the court intended to authorize redress of an adverse impact on a non-shareholder constituency at the expense of share- holders.” - American Bar Association -

Stakeholders vs. Shareholders Social minimalism - Compliance with the law and prevalent moral standards - War or natural catastrophes - Key resources and infrastructure

Stakeholders vs. Shareholders Social pro-activism Cadbury Report (UK), Rapport Viénot (France), Dey Report (Canada) Principles of Corporate Governance (OECD) GM’s Board of Directors Guidelines Johnson & Johnson’s “credo”, etc. “The present status enjoyed by the business community also yields certain duties towards intangible, yet fundamental, features of the social fabric – such as trust – that legitimize their business activity.”

« Businesses – even very large corporations – are generally open systems. By contrast, a national economy [or an eco-system – especially that of the earth itself - ] is a closed system. (…) Paul Krugman, « A Country is Not a Company », HBR, 1996.

First implementation tool: Corporate Sustainability Reporting (i) Institutional background (ii) Voluntary disclosures (iii) An increasingly widespread underlying method: Life-cycle analysis

(i) Regulation by information… EPRKA – Emergency Planning and Community Right-to-Know Act (1985) RMP – Risk Management Program (1999) Seveso II Directive (1992) Loi 173 in Québec (2002) France’s mandatory Corporate Sustainability Reporting (2003)

Avant Enron Pression pour une meilleure gouvernance Propositions des rapports Viénot (1995, 1999) touchent surtout aux pratiques de gouvernement d’entreprise comparables à celles formulées dans la plupart des pays de l’OCDE Depuis Enron Pression pour plus de transparence Rapport Bouton (2002) traite notamment de pertinence des normes et pratiques comptables qualité de l’information et de la communication financière Loi sur nouvelles règlementations économiques … En Europe et en France

(ii) Démarches volontaires Continuing increase in the number of companies issuing some form of report on their environmental, social and economic performance – known as sustainability, triple bottom line or triple P (people, planet, profit) reporting Corporate Sustainability Reporting in Canada, Nov KPMG International Survey of Corporate Sustainability Reporting 2002, June 2002 Sustainable development reporting – Striking the Balance, The World Business Council for Sustainable Development, Nov. 2002

The International Charter for Sustainable Development, developed by the International Chamber of Commerce Enacted in more than 60 countries Signed by more than 2300 organizations Objective: commitment to improving environmental performance on a voluntary basis

The Charter’s 16 principles 1. SD’s a corporate priority 9. R&D 2. Integrated management 10. Prevention 3. Continuous improvement 11. Outsourcing management 4. Personnel training 12. Preparation 5. Credible assessments 13. Systematic learning 6. Products and services imp. 14. Exchanges on best practices 7. Consumer awareness 15. Openness to dialogue 8. Plants and activities imp. 16. Stakeholders information

Global compact Launched in July large firms Union leaders Environmentalists Human rights organizations => 9 principles ========= 

Human rights Support human rights wherever their activities take place Make sure that the firm does not implicitly become an acomplice in human rights abuses Labor rights Respect freedom of association and the right to collective negotiation Ban any sort of forced labor Ban child labor Eliminate discrimination and harassment Environment Promote a precautionary approach Take initiatives in favor of greater environmental accountability Encourage the development and adoption of environmentally friendly technologies

Research questions Why would some corporations engage in better quality sustainability reporting than others? Is the quality of environmental or social disclosure practices related to the value of the firm? A cost/benefit’ approach. Is this choice of quality level the result of a deliberate “social disclosure" strategy explainable by certain internal and external determinants? What are the determinants of sustainability or « triple bottom line » reporting? [Voir Sinclair-Desgagné et Gozlan (2003) ; Labelle, Schatt et Sinclair-Desgagné (2004)…] Relevance of regulating this type of corporate disclosure?

Création (destruction) de valeur 5. Partenaires (stakeholders) Juricomptabilité Environnement légal national / international implique un plan expérimental transnational 1. Secteur d’activités Information financière 3. Contrôle de gestion 4. Mécanismes externes Gouvernance Normes périjuridiques fondées sur le principe d’autoréglementation 3

(iii) Life-Cycle Analysis An approach that considers the whole set of steps in a product, process or service’s « life », from « craddle to grave ». For all those steps - from the extraction and first treatment of inputs to manufacturing, transportation and distribution, consumption and use, recycling, and waste management - bear economic and environmental consequences.

Inputs Environ. Outcomes Raw materials Energy Water,... Air emissions Water emissions Solid waste Reusable products Other emissions Extraction Transformation Manufacturing Transportation Distribution Utilization Disposal Inventory What is an LCA?

Environ. Outcomes Air emissions Water emissions Solid waste Produits utilisables Other emissions 1- Global warming (GWP) 2- Ozone-layer depletion (ODP) 3- Acidification (AP) 4- Eutrophization (EP) 5- Smog (POCP) 6- Ecosystem damages 7- Reduction of biodiversity 9- Land erosion 9- Ecotoxicological impacts 10- Toxicological impacts Impacts What is an LCA?

Second remedy: Accountability and Incentives White-collar paradox?!! Organizational behavior expert Steven Kerr (1975): « On the Folly of Rewarding A while Hoping for B…»

Les crimes de cols blancs (white-collar crimes) coûteraient aux compagnies américaines entre $200 milliards et $600 milliards par année. Par comparaison, les crimes de rues et autres larcins (vols, cambriolages) coûteraient respecti- vement $4 milliards et $15.6 milliards par an. La fraude chez une compagnie typique repré- sente une perte allant de 1% à 6% de son chiffre d’affaires. Plus de 30% des faillites de nouvelles entre- prises seraient dues à des crimes de cols blancs.

The Sarbanes-Oxley Act (30 juillet 2002) - Accuracy of financial reports - Off-balance sheet transactions - Pro-format financial information - Loans to executives - Officer/Director bars and penalties - Changes in stock ownership - Internal controls - Code of ethics - Audit committee expertise - SEC enhanced review of periodic disclosures - Real-time disclosure

Sarbanes-Oxley pour les cies non-US: - Officer certifications - Loans to directors and executive officers - Bonus and other forfeitures in event of restatements - “Whistleblower” protection - Reports of personal securities transactions of directors and executive officers - Audit committee organization and responsibilities - Independence of accounting firm - Registration of U.S. and non-U.S. accounting firms with board - Disclosure of material correcting adjustments - Codes of ethics for senior financial officers - Internal control assessments - Off-balance sheet transactions

Sarbanes-Oxley… et au delà: Canadian Council of Chief Executives Codes of ethics. In order to serve the interest of our shareholders, it is not enough to make business decisions guided only by what is permitted by the letter of law. Sustainable growth in sharehoder value requires that we set high ethical standards for operating our businesses and champion a corporate culture based on doing what is right. We recognize that it is the actions rather than just the words of the chief executive that sets the tone for the behavior of employees within our companies and that determines the company’s reputation with customers, suppliers and other stakeholders.

3. Un paradoxe de la conformité? ► On a observé une corrélation positive entre le nombre de programmes de mise en conformité et le nombre de crimes de cols blancs. Arlen and Kraakman (1997): «pursuing the basic enforce- ment goals of (1) inducing efficient activity levels and (2) minimizing the joint costs of misconduct and enforcement (…) places different, and potentially inconsistent demands on a corporate liability regime.» Hasnas (2005): «(…) in the context of federal criminal law, there are many ways in which compliance is not ethical and ethical behavior is not compliance.»

Conformité plus «diligente» / gouvernance plus «serrée» 1. Clarté des politiques et procédures 2. Engagement de la direction 3. Délégation «diligente» 4. Communication et transparence 5. Suivi et protecton des sonneurs d’alarme 6. Mise en vigueur et corrections uniformes 7. Amélioration continue ► Les «U.S. Sentencing guidelines» prévoient des réductions substantielles de peines fondées sur « l’effort de mise en conformité».

Dispositifs de mise en conformité de nouvelle génération: ☻ Promotion de la diversité ☻ Nouveaux partenariats ONG-Entreprises - Lafarge et WWF - Starbuck et Oxfam - Body Shop et Friends of the Earth - McDonald’s et Environmental Defense Fund - Bristol-Myers Squibb et Conservation International Lindseth (2004): «(…) each additional dollar of compliance spending saves organizations, on average, $5.21 in heightened avoidance of legal liabilities, harm to the organization’s reputation and lost productivity.»

Bengt Holmstrom et Paul Milgrom (1991) « The desirability of providing incentives for any one activity decreases with the difficulty of measuring performance in any other activities that make competing demands on the executive’s time and attention. » Job design Procedures and constraints

Bernard Sinclair-Desgagné (1999, 2002) Two tasks A and B. Task A is routinely monitored, but not task B. The principal commits to investigating about task B when task A’s outcome is high. The executive is penalized after the investigation reaches a negative conclusion. On average, however, the executive is better off when an investigation takes place.

3. La science et l’innovation Le Principe de Précaution Some background Removal of the handle of the Broad Street water pump in London in 1854, an action that then stopped an epidemic of cholera. This measure followed documented (but unconfirmed) suspicions by John Snow, a physician and much revered early epidemiologist, that the cause of the disease originated in the pump. (Afterwards, a detailed investigation determined that, more than 20 feet underground, a sewer pipe passed within a few feet of the well.)

The U.S-Canada Great Lakes Water Quality Agreement: “Such a strategy [a phase out of all toxic persistent substance] should recognize that all persistent toxic substances are dangerous to the environment, deleterious to the human condition, and can no longer be tolerated in the ecosystem, whether or not unassailable scientific proof of acute or chronic damage is universally accepted.” Science-based regulation (the National Environmental Policy Act, the Clean Water Act, the Occupational Safety and Health Act, the Federal Food, Drug, and Cosmetic Act, …) The U.S. Food Safety System stipulates that “conservative” risk management decisions be implemented when safety information on a hazard in a food is “substantial but incomplete.”

Despite this widespread use, however, the Precautionary Principle remains controversial and is often the object of acrimonious debates. Advocates argue that it provides potential victims a safeguard against sloppiness or manipulation in science-based regulation. But critics say that it gives undue veto powers to “environmental extremists” to block technological progress and opens the door to lobby groups to foster trade protectionism. Admittedly, in its present form the Precautionary Principle is subject to a wealth of interpretations.

Economic Interpretations of the PP Le Principe de Précaution comme une «option réelle». [Gollier, Jullien et Treich (1999)] Le Principe de Précaution comme expression de l’aversion à l’ambiguité. Aversion to ambiguity - the Ellsberg (1961) paradox: Urn A contains 50 red balls and 50 black balls Urn B contains 100 red or black balls. "You win $100 if a ball drawn from the urn you pick is red.“ Which urn do you pick? Most people pick urn A.

Le paradoxe de la précaution [Barrieu et Sinclair-Desgagné (2003)] All statements of the PP involve three key items: a) scientific uncertainty giving way to a range of undismissable scenarios; b) collective preferences that identify at least one of these scenarios as a plausible “bad”; c) a feasible (i.e. morally acceptable, technologically doable, and affordable) precautionary strategy that, if implemented, would reinforce the status quo. The statement that the occurrence of (a) and (b) entails (c) is logically inconsistent!!

 To invoke the Precautionary Principle, the regulator must either specify those utility indices which are considered admissible, forego an expected utility ranking of policy alternatives, or establish a “proportionality” relationship between precautionary strategies and potential harms.  This paper leaves unanswered many other important issues, such as the management of expertise and the consequent evolution of scientific knowledge, the political economy of environmental and safety regulation, and the division of labor in selecting and implementing precautionary strategies.

autorités publiques ou privées experts public

Questions de recherche Quelle relation y a-t-il entre l’innovation et la gestion des risques technologiques? Comment assurer le progrès de la science et l’indépendance des experts? [Roqueplo (1998): «L’expert est ce scientifique qui s’inscrit délibérément dans un processus de décision.»] Comment développer et préserver des «institutions crédibilisantes»?

Conclusion Question de méthode: L’étude d’un mécanisme de gouvernance doit nécessairement considérer les trois volets de celui-ci, soit: - sa structure, - les «process» sous-jacents, et - le comportement des acteurs. L’approche économique de la gouvernance vise donc à entrevoir les conséquences logiques du comportement des acteurs au sein de la structure et des processus considérés, comportement qui résulte lui-même de trois ingrédients: Les aspirations des acteurs Leur mode respectif de représentation de la situation Et surtout: l’exercice omniprésent d’un calcul