This document discusses the evolution of how multinational corporations (MNCs) are governed, moving from being objects regulated by states to becoming subjects that self-regulate through their own governance systems. It describes how MNCs now set standards for their supply chains through contracts and monitoring, functioning similarly to governments. Other actors like NGOs, media, investors and consumers also play roles in these decentralized regulatory networks. The future involves polycentric governance with multiple overlapping systems between states, international laws, and corporate norms.

1. The Corporation in Global Perspective?
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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
lcb11@psu.edu

2. Introduction
Roadmap: Overview of the evolution of Multinational
Corporations from objects to sources of law
MNCs 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

3. 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

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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

16. From External to Self Regulation
the MNC as government
-self regulating entity
-regulator through supply chain based governance
systems

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. 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. Elements of MNC Supply Chain Regulatory
System:
• MNCs
• NGOs
• Media
• Consumers/Investors
• States/ IOs

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. 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. 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. 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. 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. 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. The future:
Governance polycentricity

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. 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

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).
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

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).
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

31. 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
(21 July 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

32. Thank You!!!