The distinction between a Company and an Enterprise gradually took hold in the 19th century, with the establishment of the concept of the legal person, which already existed in Roman law with the distinction between the collective agent (universitas) and individual agent (singuli) made by the jurist Ulpian in the 2nd century.
In this context, a Company is a legal person that owns a business plan. It is not owned, in the same way that a natural person (an individual) is not owned. The Enterprise is a nexus of contracts between stakeholders: shareholders, lenders, employees, suppliers, customers, the state, local and regional authorities, etc., all of which have their rights and responsibilities. This relationship structure reflects a balance between conflicting positions and interests. In such a structure, governance helps to maintain this balance with a minimum of friction.
The governance of an Enterprise may be built on the inclusion on the board of directors of stakeholders, such as employees, NGOs, etc. This is the network governance model used in cooperatives, mutuals, etc., of which one of the most developed and successful examples is the Basque cooperative Mondragón.
It is also possible to give an enterprise multiple objectives through its articles of association. These may encompass ESG objectives, such as the US Benefit Corporation model created in 2010, whose goals include making a positive impact on civil society, in addition to making a profit. Based on this model, France’s ACTE (Action Plan for Business Growth and Transformation) Law provides for the creation of enterprises with a strong emphasis on social and environmental issues in their strategies and activities.
The interests of stakeholders can also be incorporated by quantifying negative externalities, using a market mechanism for carbon pricing for example, in order to measure the environmental impact of company activities. William Nordhaus’s work in this field warranted him this year’s Nobel Prize for Economics.
Whatever the model chosen, the way in which profits and risks are shared define the conditions for achieving a balance. A lack of governance can cause a disequilibrium that weighs on long-term economic growth. The sharing of profits between shareholders and employees is just one example. Currently, the return on equity for shareholders of listed companies is around 10% in France, equivalent to a risk premium of 9% in respect of the 10-year OAT, twice what it was ten years ago, while pay has barely risen and flexible working conditions mean that employees are shouldering an ever greater share of the risks inherent to business. This may lead to distortions that can pose an obstacle to growth maximisation.
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