Corporate finance: "Put the focus back on society"

Companies have power but take too little responsibility. This is what Willem Schramade, Professor of Sustainable Finance, states in his inaugural lecture on October 11. “In order to be successful in the long term, directors must also steer on the social and ecological value of their business."

According to Schramade, financial concepts such as shareholder value and efficient markets have led to great financial value creation, but at the expense of the environment and society. “We have created a system in which short-term thinking and exploitation are rewarded, rather than discouraged”, Schramade believes. “For many companies, their loyalty lies with the shareholder. However, they do not operate in a vacuum. Companies are social vehicles that can sometimes exert more power and influence than governments. The only problem is that they do not take the associated responsibility. Companies assume that the problems they cause, such as environmental pollution, will be solved by the government.”  

Injustice

“My personal motivation is that I cannot tolerate injustice”, Schramade explains. "And in this case I am convinced that there is something wrong with our system. I am thinking, for example, of companies that lobby the government. The result is that citizens are fined for speeding, but polluting companies can continue their business unhindered or even receive subsidies. This is too crazy for words!" Schramade believes that a more broadly oriented and fairer model is possible when it comes to corporate finance. It involves steering on broad value, where social and ecological matters are expressed financially and their size and importance become more visible. “This helps companies focus on long-term sustainable growth rather than on short-term profit. In the long run, this leads to more stable and sustainable performance, and an improvement in reputation.”

Being accountable

“One of the things we can do to turn the tide is to change our corporate governance”, says Schramade. “It is important that organizations are accountable to their stakeholders for their behavior and that they make the impact of the company on the environment visible. Legislation can play a role in this. For example, consider the Corporate Sustainability Reporting Directive. This European directive obliges large and listed companies to publish a sustainability report on ESG [Environmental, Social, Governance, eds.]. It would also help if directors would act more often in line with their personal beliefs. In my opinion, there is too much cognitive dissonance in the boardroom: in their role as directors, people make different decisions than they would in their private lives.”

Leverage

"The most important message I want to convey in my lecture is that we, ourselves, have control over what kind of society we want to be and which companies have a place in it. For example, as a consumer you could ask yourself to what extent it is responsible to import super cheap items from China. And as a director you should ask yourself what relevance your company has in society, and how you can become even more relevant in the future.” 

Together with Dirk Schoenmaker, Schramade published the book Corporate Finance for Long-Term Value in 2023. This book offers a guide to corporate finance for modern companies that want to create long-term value. In his Chair, Schramade continues to build on this. “For me, the most important task is to make alternative decision models as concrete as possible, both for companies and for investors. I want to help people in companies and in the financial sector to find the levers with which they can steer towards outcome that isn’t only good for their own financial results, but that is also beneficial to society.”