Shared corp globalpersp3-2012


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Shared corp globalpersp3-2012

  1. 1. The Corporation in Global Perspective?************************************************* On the Evolution of MNC Regulation From the External Regulation of MNCs to Self- Governance Larry Catá Backer W. Richard and Mary Eshelman Faculty Scholar and Professor of Law Professor of International Affairs Pennsylvania State University 239 Lewis Katz Building University Park, PA 16802 1-814-863-3640
  2. 2. IntroductionRoadmap: Overview of the evolution of MultinationalCorporations from objects to sources of lawMNCs as objects of law: --traditional governance landscape and regulatory gaps --failures of domestic law-state in the wake ofglobalization --international governance alternativesMNCs as Subjects --the MNC as government -self regulating entity -regulator through supply chain based governance systems
  3. 3. The relationship between State and CorporationFraming Assumptions: --The feral corporation domesticated—the corporation as a creatureof the state --Economic activity as territorially bounded --Collective action approaches consistent with the parameters of the law-state ideology
  4. 4. 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
  5. 5. 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
  6. 6. 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)
  7. 7. 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)
  8. 8. 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
  9. 9. 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
  10. 10. 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.
  11. 11. 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
  12. 12. 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
  13. 13. 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”
  14. 14. 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.
  15. 15. 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 ( • 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
  16. 16. From External to Self Regulation the MNC as government -self regulating entity -regulator through supply chain based governance systems
  17. 17. 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
  18. 18. 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
  19. 19. Elements of MNC Supply Chain Regulatory System:• MNCs• NGOs• Media• Consumers/Investors• States/ IOs
  20. 20. 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
  21. 21. 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
  22. 22. 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
  23. 23. 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
  24. 24. 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
  25. 25. 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
  26. 26. The future:Governance polycentricity
  27. 27. 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
  28. 28. 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);• 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).• 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) ;
  29. 29. 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).• From Moral Obligation to International Law: Disclosure Systems, Markets and the Regulation of Multinational Corporations, 39 GEORGETOWN JOURNAL OF INTERNATIONAL LAW 591 (2008).• Multinational Corporations as Objects and Sources of Transnational Regulation, 14 ILSA JOURNAL OF INTERNATIONAL & COMPARATIVE LAW 499 (2008).• 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
  30. 30. 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).• 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).• 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).
  31. 31. Sovereign Investing in Times of Crisis: Global Regulation of SovereignWealth Funds, State Owned Enterprises and the Chinese Experience, 19(1)TRANSNATIONAL LAW & CONTEMPORARY PROBLEMS 3-144 (2010). Note: Rights And Accountability In Development (Raid) V Das Air(21
July 2008) And Global Witness V Afrimex (28 August 2008); Small StepsToward an Autonomous Transnational Legal System for the Regulation ofMultinational Corporations, 10(1) MELBOURNE JOURNAL OF INTERNATIONAL LAW258-307 (2009).
  32. 32. Thank You!!!