New report on the role of shareholders in hindering the transformation

How corporations serve shareholder interests instead of protecting the climate and human rights

A joint report by OXFAM Germany and Finanzwende on large, publicy listed companies in Germany shows: companies do not sufficiently consider the interests of society as a whole in their decisions.

• This leads, for example, to a lack of climate-friendly investments and exacerbates social inequality.
• The new German government could hold large corporations more accountable by, among other things, limiting payouts and ensuring diverse representation of interests.

Only a few years remain to limit global warming to 1.5 degrees and prevent the worst excesses of the climate crisis. At the same time, social inequality is increasing worldwide.

Both trends are often countered through subsidies and state aid for companies. But so far this has not been successful: Despite massive subsidies, the necessary change in large corporations, for example in the automotive industry, is still a long time coming.

Report “Profit at the expense of people and planet”

The question arises: Is there a need for companies to be more strictly oriented toward the common good?

To answer this question, OXFAM Germany and Finanzwende jointly investigated how 30 large companies from the DAX (German stock index) did justice to social and ecological aspects between 2009 and 2020.

The results reveal significant shortcomings among the companies: Shareholder interests outweigh the common good and there is a lack of climate-friendly investments. In addition, corporate decisions exacerbate social inequality. How does this spell out in the daily operations of firms?

Corporations primarily serve the interest of shareholders

Between 2009 and 2020, the profits of the companies studied increased by 48 percent. This results in financial leeway, which corporations could use in different ways: They get to decide whether they invest in more sustainable business models, pay employees higher wages, build up reserves or pay dividends to shareholders.

The report shows: The companies studied used their profits primarily to serve shareholder interests and build reserves. In the period under review, for example, dividend payments increased by 85 percent, significantly more than profits.

Some companies even paid dividends in loss-making years. These include RWE and E.ON – although it is precisely these energy companies that have an immense need to invest in the ecological transformation.

Lack of investment in climate-friendly technologies

Investments on the corporate side are urgently needed to achieve the EU Commission’s climate protection targets and effectively counter the climate crisis. Therefore, many of these investments are currently supported by government subsidies. However, our report shows that companies could often cover the necessary investments from their own profits – without subsidies or tax breaks.

In the transport sector, for example, companies would easily be able to meet the additional investment requirements (€13.8 billion per year according to the EU) from their profits. The transport companies would then even still be able to pay dividends at the level of the years 2009 to 2010.

Worsening social inequality

The payout policies and compensation structures of the companies studied exacerbate general income and wealth inequality. While employees have to accept pay cuts in times of crisis, lavish dividends flow to shareholders – even in economically bad years. In addition, salaries of top managers have grown significantly faster than those of their employees in recent years. Between 2009 and 2020, manager salaries rose by 34 percent. This compares with an average increase of 25 percent for salaried employees. The board members of the companies studied now earn an average of 3.4 million euros a year – 48 times that of their employees. Linde CEO Steve Angel even earns 245 times the average salary of Linde’s employees.

If Adidas, for example, were to ensure the payment of living wages along its supply chain, it would incur additional costs of around 567 million euros. This could easily be financed from profits averaging 1.22 billion euros per year.

Lack of common good orientation among companies as a cause

The German constitution states that ownership of property also entails social responsibility. Accordingly, the companies studied should ensure that their respective business model does not harm the common good – for example, by exacerbating the climate crisis.

This report illustrates that companies often fail to meet this requirement. Three reasons can be identified:

1. the prevailing corporate philosophy centers on short-term profit maximization of the share price.
2. 73 percent of top managers’ compensation in the DAX30 is based on variable, performance-related components such as bonuses or share packages – with almost no reference to issues of social justice and sustainability.
3. apart from shareholders and employees, no other group can effectively represent their interest in the management bodies of the companies.

The report contains approaches on how these misaligned incentives could be counteracted. These include limiting dividend payments or involving other interest groups more closely. In this way, it could be possible for large companies to better meet social and ecological standards.