Leveraging Legal Frameworks for the Greater Good

• New legal frameworks offer business schools the means to maintain their financial freedom while also responding to stakeholder demands to address sustainability in their curricula and operations.
• For example, several French business schools have become Établissements d’Enseignement Supérieur Consulaire, an arrangement in which investors provide financial support to the schools in exchange for having input in strategic decisions.
• Some of these schools also have earned Société à Mission status—similar to the international B Corp certification—which requires them to report their progress toward their sustainability goals.

The world of business schools is undergoing a major transformation. It’s a shift that will ultimately lead them to adopt a mode of operation in which continuous change becomes the new normal.

We can see this transformation across higher education, in the form of more frequent co-creation between academic and nonacademic actors; the rise of online degree and nondegree education; an ever-stronger call for more relevance in research; and, to some degree, changing institutional objectives. And these are only the trends that make up the visible part of the iceberg. Many more lie beneath the surface.

At the same time, business schools face increasing demands to promote and advance sustainability, both in their ecosystems and in society at large. More stakeholders are assessing their commitment to societal impact against frameworks such as the United Nations Sustainable Development Goals (SDGs). This scrutiny is shaping how business schools interact with stakeholders—especially with students. Business school administrators are finding that they must act as positive role models that “walk the talk” of societal impact.

Equally important for business schools is their coverage of environmental, social, and governance (ESG) issues. The ESG triptych (sometimes also referred to as ethics, sustainability, and governance) has grown more important for research and teaching, as associated rating systems wield greater influence on investor behavior, corporate decision-making, and higher education.

Against this backdrop, business schools must reconcile the tension between two dimensions. On the one hand, business schools must maintain financial flexibility and strengthen (or at least maintain) their competitive positioning in a transformational environment. On the other hand, they are expected to pay more attention to the greater good and less to the bottom line.

We frame this tension as an emerging two-piece puzzle that can be particularly challenging for schools to solve. But many schools are adopting one or more emerging legal frameworks—such as Société à Mission in France—as a way to put this puzzle together.

Do these legal frameworks help schools balance flexibility and sustainability as potentially two sides of the same coin? The French example offers a potential answer to this question.

Achieving Flexibility by Changing Legal Status

Flexibility, the first piece of the puzzle, has been increasingly important to French grandes écoles de management. These schools have seen significant change in their business models since 2016, the year that the French government introduced Établissements d’Enseignement Supérieur Consulaire (EESC) legal status.

Since then, several French business schools have transformed themselves into EESCs, viewing that status as a path to obtaining the strategic and financial flexibility they need in today’s business education market. Institutions that become EESCs—which now include HEC Paris, ESCP Business School, Grenoble École de Management, and Toulouse Business School—are granted partial freedom from the historical tutelage of the French Chambers of Commerce.

Under the EESC legal framework, a Chamber of Commerce maintain majority control of the institutions by retaining at least 51 percent of the equity. However, higher education institutions have the freedom to bring in noncollecting investors to build capital and diversify governance. The government designed EESC status to provide the grandes écoles with greater strategic, financial, and developmental autonomy than they enjoyed under full Chamber of Commerce control.

By modifying the legal form of their institutions, schools can bring in new perspectives and make their strategic planning more robust and focused on long-term objectives.

Technically speaking, the adoption of EESC status opens a pathway for schools to obtain equity financing. However, while buyers of common stock typically receive cash flow as well as control rights, EESC investors—often alumni or a school foundation—are content with a minority control position that they exercise as custodians on behalf of the school.

This relationship is comparable to being a shareholder of the community-owned Green Bay Packers of NFL fame. The team’s stock cannot be sold, except back to the team at the issue price; stock ownership does not yield any dividends or other pecuniary benefits. It does, however, come with voting rights. This structure of equity financing is therefore an effective mechanism to give stakeholders with idealistic motives a stake in the school.

HEC Paris was the first school to make the switch in 2016. As its next step, the school added the HEC Foundation and the HEC Alumni Association as minority investors.

In 2019, emlyon business school took this strategy one step further by becoming a public limited company, again with the objective to achieve greater financial and developmental flexibility. According to Isabelle Huault, emlyon’s dean and board executive director, the school made this move “partly because of the planned reduction in funding from France’s Chambers of Commerce and partly to give fresh impetus to the deployment of its strategic plans.”

As schools take stronger control of their financial and developmental destinies, they not only invest in their change readiness, but also harness their resilience. By modifying the legal form of their institutions, schools can bring in new perspectives and make their strategic planning more robust and focused on long-term objectives.

That said, becoming an EESC is not a panacea. If a school widens its investor base so much that it allows its governance to become unbalanced, the chips can easily fall in the other direction. Bringing on too many investors might lead to short-term thinking and copycat-type resource allocation.

Fortunately, a commitment to the second piece in our puzzle—sustainability—can reduce the likelihood of this happening.

Making Sustainability Commitments Tangible

Business schools have a fundamental responsibility to act as thought leaders and as testing and proving grounds for all types of organizations. Through their teaching and research, business schools help organizations prepare for the unprecedented shift they will need to make to respect planetary limitations, promote social cohesion, and adhere to ethical standards.

In the corporate sphere, financial investors appreciate a company’s commitment to ESG, whose concepts serve as a bridge between the SDGs and capital markets. In fact, ESG has become a proxy measure for a company’s long-term orientation and attracts value investors rather than short-term profiteers.

The same logic applies to business schools. By bringing in investors, schools might acquire more financial and developmental freedom to shoulder the challenges ahead—but this freedom should not come at the expense of long-term strategic planning. That’s where pursuing a status such as Société à Mission (SàM) comes into play.

Like the international Certified B Corporation (B Corp) status, SàM is designed to prevent organizations from defaulting to short-term-thinking. SàM was created in 2019 within France’s Plan d’Action pour la Croissance et la Transformation des Entreprises—known as the PACTE law. PACTE aims to rethink the position of businesses in French society and to provide a framework for their transformation. As part of PACTE, SàM enables organizations to fully integrate social, societal, and environmental commitments into their objectives.

Grenoble was the first business school to apply for and earn Société à Mission status, to be quickly followed by emlyon and Toulouse Business School. Schools outside France have adopted similar strategies—for example, POLIMI Graduate School of Management in Milan, Italy, became a B Corp in 2020. Other B Corps in the education sector include Coursera and Singularity University.

SàM enables organizations to fully integrate social, societal, and environmental commitments into their objectives. It is designed to prevent organizations from defaulting to short-term-thinking.

As an SàM, a school has publicly declared its purpose—its raison d’etre—in terms of its engagement with societal and environmental objectives. In this way, it must show how it has mobilized its stakeholders to work on sustainability goals, and it must adhere to a process of transparency (which also is proposed by the PACTE law). Once an institution meets initial SàM qualifications, its board of administration votes on whether to formally adopt the status; once the board grants approval, the institution integrates SàM requirements into its bylaws.

SàM institutions must fulfill specific responsibilities and reporting obligations. For example, an organization with SàM status must create a separate external governance body, called a Mission Committee, whose objective is both to provide support and to monitor progress on strategic and operational objectives that have been set out ex ante. The Mission Committee also assists in drafting an annual report, which the school must submit to an independent third party. This third party then audits the SàM every two years to validate its compliance with stated objectives and indicators.

In many cases, schools with SàM status are more responsive to the demands of learners—both younger degree seekers and the executive population. As part of meeting SàM requirements, these schools are more likely to equip students with tools and know-how that employers will need to solve problems threatening the future of humanity.

Turning a Puzzle Into an Opportunity

The two characteristics demanded of business schools today—flexibility and sustainability—might at first appear as if they are polar opposites. But as shown above, legal frameworks now exist to help schools unite both elements in harmony.

And this is timely and necessary. The full spectrum of stakeholders will continue to demand that business schools prioritize societal impact. More prospective students want to enroll at schools with tangible commitments to societal and environmental issues. More faculty want to work at an institution that dedicates resources to preparing them for imminent shifts in content and curriculum. And more organizations want to enable their own sustainable transformations and find cross-disciplinary solutions for increasingly urgent economic, societal, and environmental challenges.

Schools and their corporate partners will be engaging more often in the co-creation of content and competencies. This engagement will provide fertile ground for research—both academic and applied—on questions that require new and different answers. Scholars need to design innovative approaches for areas of business where current tools and methods will soon become obsolete.

Within the stakeholder ecosystems of business schools (and their parent universities), investors may begin to demand proof of engagement with sustainability issues. Labels such as SàM and B Corp may provide the credentials schools need to prove their commitments. Hence, we are coming full circle.

Opportunities for Public-Sector Business Schools

The “flexibility + sustainability” puzzle is currently easier for private-sector business schools to solve, simply because they have greater freedom to determine their legal structures. Most schools in the public sector must currently find different options to enjoy the same level of developmental flexibility.

This flexibility might rely on government-funded excellence initiatives or on eased regulations for accepting corporate grants, as we have seen in the U.S. and U.K. Or it might require giving schools new freedoms to enter the executive education market, as we have seen in Germany and Switzerland.

Nonetheless, public-sector institutions are increasingly engaging with sustainability. To cite the French example once again, a joint task force of grandes écoles and French universities has developed the Développement Durable & Responsabilité Sociétale (DD&RS) certification. DD&RS encourages all higher education institutions to demonstrate exemplary commitment to sustainability in five areas: governance and strategy, education and training, research and innovation, campus operations, and social policy and outreach. All five areas are directly tied to the 17 SDGs.

Furthermore, the DD&RS commitment calls on schools to make a greater investment in their sustainability agendas. Such certifications are one way that public business schools can undergo the same transformation that is now occurring among their private counterparts. This is a trend that promises to put funding and financing flexibility for higher education institutions more firmly on the political agenda.

In the years to come, new legal frameworks will help schools reconcile how to bring together flexible financial strategies and sustainable objectives. But these frameworks likely all will have largely the same flavor, in that they will give businesses and educational institutions a clearer path to linking their endeavors to the planet’s larger sustainability goals.