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Governance for Sustainability

Portugal 12/6/2020

In the late 1990s, the new wine-producing countries and regions (California, Chile, Argentina, Australia and New Zealand) began to replace traditional cork stoppers with plastic or metal closures, as a means to reduce the risk of “corked” wine (i.e. wine with “cork taint” or TCA), unsuitable for consumption.

Corticeira Amorim and the main Portuguese companies and associations in the cork sector therefore developed a strategy based on three key aspects: (i) research and development, (ii) modernisation of manufacturing procedures and (iii) communication to consumers of the essential economic value of cork stoppers to ensure the sustainability of the cork oak forest and its associated wildlife and human communities.

Due to the enthusiasm of consumers, clients, state organizations and NGOs for the natural qualities of cork and the ecological and social importance of the cork oak forest, cork stoppers began to record rising demand, thereby reversing the trend recorded in the new wine-producing countries. It was these stakeholders who effectively countered the predicted death of the cork industry, through their commitment to sustainability, including minimising the use of toxic materials and emissions of residues and pollutants, and safeguarding the needs of future generations.

It was thereby demonstrated that a company is a systemic concept, whose viability depends on the surrounding situation. In fact, in pursuit of its corporate interest, a company must take into account the interests not only of all its shareholders, but also its various other participants or stakeholders. All of them have a special interest in the company because, in one way or another, their economic situation depends on the company's performance. Shareholders want to receive dividends and ensure the valorisation of their shares; managers and workers want to receive their salaries and wages; suppliers want to sell their goods, services and goods; creditors want to receive interest and the repayment of credits; consumers want to buy the goods and services that they need; and the State wants to collect taxes, create jobs and strengthen the national economy and the community as a whole.

This is where the concept of sustainability comes in - understood as the long-term objective of a business structure to generate returns for shareholders and other participants, i.e. the concern, shared by everyone, to guarantee the company's future viability. Sustainability means the company’s long-term durability and survival, which will make it possible to share value through its continued existence, which is an interest shared in common between all the company’s participants (shareholders and stakeholders).

The concern with sustainability, in this context, marks a radical change in corporate thinking, since it determines that, in addition to being attentive to economic issues, the company begins to valorise the social and environmental aspects of its business activity, displacing the traditional primacy of its shareholders and instead focusing on the question of business sustainability. It becomes necessary to reconcile the profitable pursuit of its corporate object with the company’s sustainability and future viability, harmonising economic concerns with social and environmental dimensions. This is known as the triple “bottom line”. Instead of the traditional Economic Bottom Line (i.e. profit), we move to the Sustainability Triple Bottom Line (which includes profit, social equity and environmental protection).

Sustainability means generating returns and guaranteeing the continuity of companies, work and communities. This is a difficult balance to achieve, since the only way to guarantee the company's long-term sustainability is by achieving harmony and confluence between the various interests of shareholders and stakeholders, and ensuring the company’s credibility and transparency with the markets and the community. A sustainable company creates innovative, profitable and long-lasting partnerships, that endow it with greater capacity to adapt to new situations, and remain one step ahead of its competitors.

This perspective implies a long-term orientation and understanding of external trends, and permanent adaptation of the company to the surrounding reality, since the shareholders are not the only decisive subjects for the company, nor the only entities that support the inherent risks. Sustainability basically incorporates a new vision of risk management: which not only concerns financial risk, but also social and environmental risks, which are now valued monetarily, by the market economy, and ethically by the community and the law. This means that stakeholders, to a certain extent, can act as a powerful way to help companies to control risks.

Therefore, it will be up to the corporate governance system to develop an appropriate governance model, or system, for each company, considering the social interest and the role of all the company’s stakeholders in order to maximise its performance and sustainability. This governance model will consist of a set of legal norms and rules and good practices that structure the company's management and its relationship with its respective stakeholders.

Aware of the importance of sustainability, corporate governance has evolved to support solid, viable and lasting corporate organisations, and is a key component in improving efficiency, economic growth and investor confidence. What was once seen as an exogenous requirement (sustainability for environmental reasons), now incorporates the most endogenous dimension of corporate governance, where different «interests are aligned in order to preserve and optimise the long-term economic value of the organisation, facilitating its access to resources and contributing to the quality of the organisation's management, its longevity and the common good” . This reflects a paradigm shift in corporate governance, which in the past was based on the primacy of shareholders or, in the absence of shareholders (due to dissemination of capital or inactivity), on the primacy of management, is now refocused on the primacy of the sustainability of the company or its business, i.e. on business sustainability. The central theme of corporate governance is already SUSTAINABILITY, since companies exist with the purpose of continuing to exist! And, for this reason, sustainability is a path, more than a destination.

In the late 1990s, the new wine-producing countries and regions (California, Chile, Argentina, Australia and New Zealand) began to replace traditional cork stoppers with plastic or metal closures, as a means to reduce the risk of “corked” wine (i.e. wine with “cork taint” or TCA), unsuitable for consumption.

Corticeira Amorim and the main Portuguese companies and associations in the cork sector therefore developed a strategy based on three key aspects: (i) research and development, (ii) modernisation of manufacturing procedures and (iii) communication to consumers of the essential economic value of cork stoppers to ensure the sustainability of the cork oak forest and its associated wildlife and human communities.

Due to the enthusiasm of consumers, clients, state organizations and NGOs for the natural qualities of cork and the ecological and social importance of the cork oak forest, cork stoppers began to record rising demand, thereby reversing the trend recorded in the new wine-producing countries. It was these stakeholders who effectively countered the predicted death of the cork industry, through their commitment to sustainability, including minimising the use of toxic materials and emissions of residues and pollutants, and safeguarding the needs of future generations.

It was thereby demonstrated that a company is a systemic concept, whose viability depends on the surrounding situation. In fact, in pursuit of its corporate interest, a company must take into account the interests not only of all its shareholders, but also its various other participants or stakeholders. All of them have a special interest in the company because, in one way or another, their economic situation depends on the company's performance. Shareholders want to receive dividends and ensure the valorisation of their shares; managers and workers want to receive their salaries and wages; suppliers want to sell their goods, services and goods; creditors want to receive interest and the repayment of credits; consumers want to buy the goods and services that they need; and the State wants to collect taxes, create jobs and strengthen the national economy and the community as a whole.

This is where the concept of sustainability comes in - understood as the long-term objective of a business structure to generate returns for shareholders and other participants, i.e. the concern, shared by everyone, to guarantee the company's future viability. Sustainability means the company’s long-term durability and survival, which will make it possible to share value through its continued existence, which is an interest shared in common between all the company’s participants (shareholders and stakeholders).

The concern with sustainability, in this context, marks a radical change in corporate thinking, since it determines that, in addition to being attentive to economic issues, the company begins to valorise the social and environmental aspects of its business activity, displacing the traditional primacy of its shareholders and instead focusing on the question of business sustainability. It becomes necessary to reconcile the profitable pursuit of its corporate object with the company’s sustainability and future viability, harmonising economic concerns with social and environmental dimensions. This is known as the triple “bottom line”. Instead of the traditional Economic Bottom Line (i.e. profit), we move to the Sustainability Triple Bottom Line (which includes profit, social equity and environmental protection).

Sustainability means generating returns and guaranteeing the continuity of companies, work and communities. This is a difficult balance to achieve, since the only way to guarantee the company's long-term sustainability is by achieving harmony and confluence between the various interests of shareholders and stakeholders, and ensuring the company’s credibility and transparency with the markets and the community. A sustainable company creates innovative, profitable and long-lasting partnerships, that endow it with greater capacity to adapt to new situations, and remain one step ahead of its competitors.

 This perspective implies a long-term orientation and understanding of external trends, and permanent adaptation of the company to the surrounding reality, since the shareholders are not the only decisive subjects for the company, nor the only entities that support the inherent risks. Sustainability basically incorporates a new vision of risk management: which not only concerns financial risk, but also social and environmental risks, which are now valued monetarily, by the market economy, and ethically by the community and the law. This means that stakeholders, to a certain extent, can act as a powerful way to help companies to control risks.

Therefore, it will be up to the corporate governance system to develop an appropriate governance model, or system, for each company, considering the social interest and the role of all the company’s stakeholders in order to maximise its performance and sustainability. This governance model will consist of a set of legal norms and rules and good practices that structure the company's management and its relationship with its respective stakeholders.

Aware of the importance of sustainability, corporate governance has evolved to support solid, viable and lasting corporate organisations, and is a key component in improving efficiency, economic growth and investor confidence. What was once seen as an exogenous requirement (sustainability for environmental reasons), now incorporates the most endogenous dimension of corporate governance, where different «interests are aligned in order to preserve and optimise the long-term economic value of the organisation, facilitating its access to resources and contributing to the quality of the organisation's management, its longevity and the common good”[1]. This reflects a paradigm shift in corporate governance, which in the past was based on the primacy of shareholders or, in the absence of shareholders (due to dissemination of capital or inactivity), on the primacy of management, is now refocused on the primacy of the sustainability of the company or its business, i.e. on business sustainability. The central theme of corporate governance is already SUSTAINABILITY, since companies exist with the purpose of continuing to exist! And, for this reason, sustainability is a path, more than a destination.



[1] Definição do Instituto Brasileiro de Governação Societária