The French Civil Code provides as a general principle that every company must have a lawful corporate purpose and be constituted in the common interest of its partners.1 These provisions, which are applicable to all forms of partnership or public or private corporations, have been supplemented by the so-called "Pacte Statute" on the Development and Transformation of Businesses. Each French company must now be managed "in furtherance of its corporate interest" and "while taking into consideration the social and environmental issues arising from its activity".2
These changes, which affect millions of legal entities from the smallest partnership to the largest public corporation, are a direct consequence of the recommendations of the so-called Notat-Senard Report ("l'entreprise, objet d'intérêt collectif", available at https://www.ladocumentationfrancaise.fr/var/storage/rapports-publics/184000133.pdf ). Lawyers of Gibson Dunn's Paris office have been heavily involved in the work having led to this Report.
The Pacte Statute provides that non-compliance with these new obligations is not sanctioned by the nullity of the company.3 The intent is to protect companies from the most adverse consequences of a breach of what may appear as a loose obligation.
The Pacte Statute enshrines for the first time in statutory law the concept of "corporate interest" which, until now, had only been set forth by case law. The Pacte Statute, however, does not define the notion of "corporate interest" because "its practical interest rests on its great flexibility, which makes it restive to any confinement in pre-established criteria. The elements necessary to determine whether or not a decision is contrary to the corporate interest are too closely dependent on the multifaceted and changing characteristics of the activity and environment of each company."(Explanatory Memorandum)
In the minds of the promoters of the Pacte Statute, the acknowledgement of the concept of "corporate interest" implies the endorsement at the legislative level of a fundamental goal in the management of companies, i.e. "the fact that these are not managed in the interest of particular persons, but in their self-interest and in pursuit of their own ends." (Explanatory Memorandum)
The introduction of social and environmental issues in the management of companies is the most striking innovation. Measuring social and environmental issues in decision-making is meant to force company managers to...