Shared corp globalpersp3-2012

The Corporation in Global Perspective?

*************************************************On the Evolution of MNC Regulation

From the External Regulation of MNCs to Self-GovernanceLarry Catá Backer

W. Richard and Mary Eshelman Faculty Scholar and Professor of LawProfessor of International Affairs

Pennsylvania State University239 Lewis Katz Building

University Park, PA [email protected]

Introduction

Roadmap: Overview of the evolution of Multinational Corporations from objects to sources of lawMNCs as objects of law:

--traditional governance landscape and regulatory gaps--failures of domestic law-state in the wake of

globalization--international governance alternatives

MNCs as Subjects--the MNC as government

-self regulating entity-regulator through supply chain based governance systems

The relationship between State and Corporation

Framing Assumptions:

--The feral corporation domesticated—the corporation as a creature of the state

--Economic activity as territorially bounded--Collective action approaches consistent with the parameters of the law-state ideology

traditional governance landscape and regulatory gaps

• Traditional focus on public and positive law• Domestic corporate law• Domestic substantive law (environmental, labor, etc.)• International process/enforcement activity (arbitration, lex

mercatoria, etc.)• International substantive law

• Hard law—human rights• Soft law –behavior frameworks and principles

Failures of domestic law-state in the wake of globalization

• Globalization: The rug gets pulled out from under the state

• Tensions between ideology of globalization and that of the law-state system• Law-state grounded in territorial principle and command

approach to law • Globalization grounded in free movement of goods, enterprises

and capital and managerial approach to governance• Stubborness• States remain reluctant to cede regulatory authority over

economic actors

Result –Strategic Gaming of Regulatory Environment

• Corporations operate across borders that obliterates effectiveness of territorial principle as foundational structure of governance units• Dispersion of assets and operations (global MNC strategic

placements)• Strategic use of legal personality to divide operations (Bhopal)• Operations auctions among states (concessions based

approach)• Law (and all regulatory systems) becomes a factor in the

production of value with respect to which national loyalties play less of a role (CSR and supply chain governance)

Globalization and the functions of MNCs

• Conflation of private and public spheres • from an emphasis on markets and de-emphasis of command

role for states in economic regulation• States engaging in private mafrket activities (SWFs)

• Privatization of governmental activities• Conflict zone governance • Political actors• Chile in the 1970s• Trade relationships with less developed states (agreements for

favorable treatment between large MNCs and small states)• Civil society actors with substantial impacts in political life (even

in the US—Citizens United)

Result: Governance Angst

• Alternative approaches to the use of law-state systems to regulate border crossing enterprises:• Extraterritoriality (state based sovereignty based) (Critique of

“Brussels Effect”)• Shrinking Sovereign immunity (state based sovereignty debasing)• Responsibilities of MNCs (complicity in state obligations)• Commodification of law

• Alternative Reforms • Expand veil piercing rules• Universal jurisdiction• Enterprise liability theories• Legal harmonization (Labor, corruption, taxation, etc.)• Civil liability for criminal acts of officers

international governance alternatives

• Developed World:• New systems of governance developed by functionally

distinct communities: • (i) self-constituted as autonomous governance unit; • (ii) rule making authority grounded in power vested in constituting

documents; • (iii) institutionalized through development of a governance apparatus

(government); • (iv) mechanisms for enforcement of rules and disciplining of members.

• Networked but autonomous• Role of the state: facilitator; participant, partner but not

owner of systems

international governance alternatives (cont.)

• Developing World:• TWAIN (3rd World Attitudes to International Law)• Castro critique (ALBA):

• MNCs are disguised agents fo the states form which the derive their operational control.

• The system itself is disguised imperialism asserted through developed state control of international organizations and their regulatory (monitoring, technical assistance and aid) machinery in the service of hegemony.• World Bank = U.S.• IMF = E.U.

• Worh through some tof these approaches moves us closer to• Regimes where corporaitons become more actively involved in

regulaiton• Division between public and private governance fade.

OECD System• three sets of related governance structures that touch on the

transparency of enterprises in their operations. • OECD Principles of Corporate Governance (OECD 2004) • OECD Guidelines on Corporate Governance of State-Owned

Enterprises (OECD 2005) • Guidelines on Multinational Enterprises (OECD 2011)

• reflect a consensus, among developed states, of the basis for corporate organization in markets-based, welfare maximizing economic systems.

• Enforcement facilitated through states• National Contact Point System• Has produced some important decisions in last several years

• Vendanta Corporation example

U.N. General Principles of Business and Human Rights (2011)

• posits a three-part framework—a state duty to protect human rights, a corporate responsibility to respect human rights, and an obligation to provide remedies for human rights wrongs. • State duty grounded on and limited by state legal commitment

under international law• Corporate responsibility is grounded in international normative

standards (International Bill of Human Rights) (built in polycentricity)

• Remedial right based on shared obligations by states and MNCs• Centerpiece: Human Rights Due Diligence System• Now incorporated into OECD MNC Guidelines (Principle IV).• Networked governance; autonomy within interlinked

governance systems

Global Compact• one of the most recognizable and easy-to-follow initiatives relating

to gathering and asserting CSR disclosures • Organized around ten conduct oriented principles, a set of

aspirational statements covering subjects of human rights, labor, environmental and anticorruption values, the UNGC seeks to create a framework for corporate accountability, though it is one that continues to suffer issues of legitimacy

• provide an annual Communication of Progress (CoP) indicating via self-reporting their continued aspiration to greater adherence to the Ten Principles.

• Failure to comply can result in listing the company as ‘non-communicating’ or “inactive,’ which has been employed against 600 companies for failing to submit CoPs.• Expulsion most extreme sanction• Problem of “bluewashing”

ISO and GRI Sysetms• International Organization for Standardization (ISO)• NGO; World’s largest developer of standards for sale• Network of national standards institutes of 163 states (some are

private and some are public)• ISO 14000 environmental standards• ISO 26000 CSR standards

• Global Reporting Initiative (GRI)• promotes economic, environmental and social sustainability. • developed comprehensive sustainability reporting framework that

is widely used around the world. • GRI Sustainability Reporting Guidelines consist of a complex system

of disclosure elements, described as ‘performance indicators’, which can be quantitative or qualitative and reflect issues and elements of corporate behavior at practically every level.

Product and Process Certification Organizations

• Substitute for role of the state in developing and assessing conformity with behavior standards• Greenwashing?

• Product certification• Forest Stewardship Council certification

• assess forest management using the FSC principles, criteria, and standards, each certifier uses their own evaluative process

• Process certification• Fair Trade (http://www.fairtradeusa.org/)

• To earn a license from Fair Trade USA to use the Fair Trade Certified™ label on their products, companies must buy from certified farms and organizations, pay Fair Trade prices and premiums and submit to a rigorous supply chain audits.

• Market codes and the legitimacy of arms length evaluation of performance• Success depends on ability to balance perceived consumer tastes with

company willingness to change behavior

From External to Self Regulation

the MNC as government-self regulating entity

-regulator through supply chain based governance systems

MNCs as Self Regulating Entities

• Corporate control over bundle of national regulatory regimes to which it will subject itself• Supply chain regulation is itself a testament to this move to corporate

control• Haliburton

• Developer of standards applicable to itself and its supply chain• For the largest MNCs this has a powerful regulatory effect (private

“Brussels Effect”?)• Example March 2011 Wal-Mart bans use of P.B.D.E.’s, or polybrominated

diphenyl ethers, found in products like fabrics, car interiors and electronics from consumer goods sold at its stores

• Developer of self-imposed codes of conduct• 2011 KPMG International Corporate Responsibility Reporting Survey

2011 reported that “[n]inety-five percent of the 250 largest companies in the world (G250 companies) now report on their corporate responsibility (CR) activities, two-thirds of non-reporters are based in the US

From objects to sources of governance—Wal-Mart and the construction of autonomous self-constituted

governance systems

• Governance is not confined to political territory but only to the intangible frontiers of the governance community

• Increasingly used by other communities as well:• Indigenous communities• religious communities

• Basic structure:• Contract replaces law• Networks of relationships replace political community,• Interest replaces territory• the regulated becomes the regulator

• Functionally differentiated community that is self constituted and operates within the parameters of its own organizing structures

Elements of MNC Supply Chain Regulatory System:

• MNCs• NGOs• Media• Consumers/Investors• States/ IOs

At the Center—The MNC• Legislative role• Imposes norms, including norms with social and political effects as part of the working

• Effectuated through supplier agreement and related policies• Enforces standards• relationship internally and with supply chain partners• Through monitoring, retraining, audit, changes in organization and operation, assess

penalties or terminate contract • Shaper of behavior norms• Targeting consumers and investors as well as regulated group

• Techniques• The governance contract• Policies with governance effect• Networks with third party providers of

• standards (Product/process certification) or • Verification (Apple and FLA)

• Accountability to consumers and investors• Central role of transparency regimes (engagement and information harvesting

NGOs—Monitors and Partners and Competitors

• Legislative function• Monitoring function• Normative function• Shaper of norms sometimes with and sometimes in opposition

to MNC

• Nature of interest:• Enhances status• Action at the center of their reason for existing• Increase membership• Useful for enhancing contributions and attention

Media—Legitimators and Transparency Medium

• Legitimacy role• Communication function to all stakeholders• Nature of interest• In the business of generating news—basic commodity of media

production• Enhanced role increases influence of media• Enhanced role good for institutional position of media actor and

may also work on readership numbers and advertising revenues

Investors and Consumers—Demos

• Corresponds to the demos in law-state system• By their actions they determine the efficacy of actions by

MNCs• Effected through market based actions—buying securities or

products• Both MNCs and NGOs (as well as the state and international

organizations) look to these for the construction of norms and the management of common values.

• Governmentalization of markets

The State—A De-Centered Role

• Secondary and indirect role in this system• Memorialize potentially applicable standards• Like MNCs and NGOs target masses for the development and

normalization of values which can then be expressed politically through voting and in market regulatory systems through purchases.

• Set outside boundaries for governance• Provide an alternative space for disputer resolution

Cut Out of the System• Suppliers, especially form developing states• The host states to the extent that their domestic legal orders

become irrelevant to supplier conduct• The objects of the social, environmental and human rights

norms• Consumer sand investors, mostly in developed states exercise a

disproportionate and privileged role in this sort of governance• Sometimes ambiguous results

• Example—employment of children in India.• Example—role of women in traditional societies

The future:Governance polycentricity

Polycentricity• Embrace idea that states and international frameworks work

simultaneously• States work through law systems• Corporations work through norm systems• International law and governance serves as a nexus point for state

and non-state interests• Soft law in this context changes character• Soft with respect to application within the law system of states• Soft with respect to its binding effect international law through states• Hard with respect to governance communities in which such norms

serve as the rules of internal organization and governance• Implemented through contract and custom• Enforced internally through processes set up by the governance

community

Additional Readings• Transparency and Business in International Law, in TRANSPARENCY IN

INTERNATIONAL LAW (Anne Peters and Andrea Bianchi, eds., Cambridge: Cambridge University Press, forthcoming 2012); http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2025503

• Globalization and the Socialist Multinational: Cuba at the Intersection of Business and Human Rights, in HANDBOOK ON CONTEMPORARY CUBA: ECONOMY, CIVIL SOCIETY, AND GLOBALIZATION (New York: CUNY/Paradigm Press, forthcoming 2012). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1646962

• From Institutional Misalignments to Socially Sustainable Governance: The Guiding Principles for the Implementation of the United Nation’s “Protect, Respect and Remedy” and the Construction of Inter-Systemic Global Governance, 24 PACIFIC MCGEORGE GLOBAL BUSINESS & DEVELOPMENT LAW JOURNAL – (forthcoming 2012) ; http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1922953

More Stuff• Private Actors and Public Governance Beyond the State: The Multinational

Corporation, the Financial Stability Board and the Global Governance Order, 18(2) INDIANA JOURNAL OF GLOBAL LEGAL STUDIES 751 (2011). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1658730

• From Moral Obligation to International Law: Disclosure Systems, Markets and the Regulation of Multinational Corporations, 39 GEORGETOWN JOURNAL OF INTERNATIONAL LAW 591 (2008). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1112882

• Multinational Corporations as Objects and Sources of Transnational Regulation, 14 ILSA JOURNAL OF INTERNATIONAL & COMPARATIVE LAW 499 (2008). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1092167

• GLOBAL PANOPTICISM: SURVEILLANCE LAWMAKING BY CORPORATIONS, STATES, AND OTHER ENTITIES, 15(1) INDIANA JOURNAL OF GLOBAL LEGAL STUDIES 101 (2008). HTTP://PAPERS.SSRN.COM/SOL3/PAPERS.CFM?ABSTRACT_ID=1081242

Even More• Economic Globalization and the Rise of Efficient Systems of Global Private

Law Making: Wal-Mart as Global Legislator, 39(4) UNIVERSITY OF CONNECTICUT LAW REVIEW 1739 (2007). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=953216

• Bric à Brac• Governance Without Government: An Overview, in BEYOND

TERRITORIALITY: TRANSNATIONAL LEGAL AUTHORITY IN AN AGE OF GLOBALIZATION (Günther Handl and Joachim Zekoll Editors, Leiden, Netherlands & Boston, MA: Brill Academic Publishers, forthcoming 2012). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1568934

• Sovereign Wealth Funds as Regulatory Chameleons: The Norwegian Sovereign Wealth Funds and Public Global Governance Through Private Global Investment, 41(2) GEORGETOWN JOURNAL OF INTERNATIONAL LAW 425-500 (2010). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1398835

Sovereign Investing in Times of Crisis: Global Regulation of Sovereign Wealth Funds, State Owned Enterprises and the Chinese Experience, 19(1) TRANSNATIONAL LAW & CONTEMPORARY PROBLEMS 3-144 (2010). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1444190

Case Note: Rights And Accountability In Development (Raid) V Das Air (21July 2008) And Global Witness V Afrimex (28 August 2008); Small Steps Toward an Autonomous Transnational Legal System for the Regulation of Multinational Corporations, 10(1) MELBOURNE JOURNAL OF INTERNATIONAL LAW 258-307 (2009). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1427883

Thank You!!!