Thursday, June 25, 2009

Governance Without Government OR Government without a State?: Gunther Teubner on Complications of Umooring Corporate Governance From Corporate Law

In a simpler time, about a generation ago, the fictional divisions into which social, cultural and legal life were segmented, were both simple and powerful methods for organizing communal life. It was especially straightforward with respect to the construction and control of fictional persons, and especially fictional actors organized for the purpose of conducting economic activity.

Like Athena born fully formed from out of the head of Zeus, these juridical persons were said to be given form by the state under whose rules these entities were "organized". While some might argue that these corporate or entity charters gave these fictive entities life, it might be more useful to think of state charters as granting economic entities certain rights and obligations in the public sphere. These entities exist in the form of their internal organization and connections among pits principle stakeholders, but can claim the public rights of natural persons only to the extent that the public authorities permit it. In the absence of those permissions, these entities exist only as private arrangements (through contract) rather than as public juridical persons (through law).

As the state served as the source of the public character of the entity, only that law could be said to impose general obligations on the stakeholders intimately connected with the governance of the organization. Specific obligations, of course, remained a vital part of private law (through contract). But these specific obligations gave no rights as against the entity to others. Nor was the corporation obligated to comply with behavior norms with respect to its conduct or governance beyond those mandated by the state through law. All of this was in accord with the core notions of rechtsstaat notions and substantive constitutional law principles that flared out like a sort of legal supernova for a brief burst at the conclusion of the last World War in 1945. Moral obligations were consigned to marketing departments. Just as states had no obligation and little incentive to comply with hortatory international declarations, corporations and other juridical persons had little incentive to comply with norms that were not imposed by law, nor to acknowledge the power of purported stakeholders with no legal connection to the entity. Governance, in effect, was firmly grounded in government.

But this simple notion of state, law and juridical persons, of governance and government, has been undergoing substantial changes over the last quarter century. See Larry Catá, Backer, Multinational Corporations, Transnational Law: The United Nation's Norms on the Responsibilities of Transnational Corporations as Harbinger of Corporate Responsibility in International Law, Columbia Human Rights Law Review, Vol. 37, 2005. Governance is no longer purely the province of government, though it hasn't abandoned the state entirely. Contract, moral obligations, communal consensus expressed in otherwise non-binding instruments have begun to assert a regulatory power far in excess of the extent of their formal effect in law within a system in which only legitimately enacted state measures are vested with a power to demand conformity and which may be enforced through the instrumentalities of the state. But this is a complicated process, messy and not clearly headed toward "success" in the conventional sense.

Gunther Teubner recently reminded us of the complexity and tentativenes of the process. Gunther Teubner, "The Corporate Codes of Multinationals: Company Constitutions Beyond Corporate Governance and Co-Determination," in Conflict of laws and Laws of Conflict in Europe and Beyond: Patterns of Supranational and Transnational Juridification (Rainer Nickel, ed., Oxford: Hart, 2009). Professor Teubner starts with a contradiction: the defeat of labor in its bid for formal and significant status as a corporate governance stakeholder through the German co-determination law by notions of corporate governance has not directed power back to shareholders or directors, but rather, in the form of corporate codes might have pushed power elsewhere "with a potential that is hard to gauge." (Id., at 1). Teubner lays the blame for this contradiction on the dynamics of globalization. "A strategy in which the pressure amassed by worldwide social conflicts, protest movements, domestic courts, non-governmental and international organisations, coerces multinationals into adopting codes of conduct in which they assume an obligation to uphold social standards, is more likely to succeed." (Id.).

But this is an odd state--for these codes have no legal effect--except perhaps as contract (and in many places and under most circumstances even the contract model is a stretch).
Legal aspects of the codes of conduct appear only at the periphery; that is to say, these codes occupy a juridical “no-man’s land”. As soft law, they are not enforceable; instead, they morally oblige companies. Everything depends on political relationships, namely, the pressure exerted by the leading actors and the mobilisation of the public. (Id., at 2).
But the contradictions of "soft" law that exhibits critical characteristics of "hard" law require examination. And thus, Teubner proposes a thesis: "that corporate codes are emergent legal phenomena in the constitutionalisation of private governance regimes. Unlike when they were first spawned, they are no longer mere public relations strategies; instead, they have matured into genuine civil constitutions – in the fashion of constitutional pluralism." (Id.). Teubner advances five factors contributing to the evolution of soft law regimes, of governance without government. These include what he calls, "(I) Juridification; (II) Constitutionalisation; (III) Judicialisation; (IV) Hybridisation; and (V) Intermeshing." (Id.). What is not clear is whether these factors have produced governance without government, that is the rise of fictive governance that supports fictive entities beyond the control of the state (itself a fiction but one with quite a sting), or whether it has produced a method fore the rise of intergovernmental governance, that is of public governance through private actors.

Juridification suggests, for Teubner, the quite correct insight that the notion of soft law is itself no longer useful as either descriptor or concept. The notion essentially "beg the same question as lex mercatoria, internet law and other global regimes in which private actors make rules, the binding nature of which is not guaranteed by state power, yet which display a high normative efficacy." (Id., at 3). And here one comes to the great conundrum of transitions in law and the assumptions of legal regimes: In global political systems which worked so hard, and through two centuries from the time of the French Revolution to the destruction of the Nazi Regime in Germany to cement the notion (in both higher law and statute) the the rule of law, grounded in legitimate state power, law assumes a central place as a legitimate expression of popular will, and popular will is the critical foundation for legitimate action. But at the moment of its global triumph these system of law appears upended by the semblance of law without the foundations in legitimacy. In short form--the usual question of academics and politicians confronted with the realities of governance through instruments like corporate codes, 'is this law?', is thus a shorthand for, is this a legitimate expression of governance or merely a private arrangement of no interest as law.

Teubner thus looks for other bases of legitimation, one "which self-perpetuates by recycling symbolic global (not national) validity. The first criterion, binary code, distinguishes global law from economic and other social processes. The second criterion, global validity, differentiates between national and international legal phenomena." Id., at 3). Still, Teubner concedes, not every code, or every expression of aspiration, is worthy of the moniker--law. He draws on Martin Herberg's formalist construction (if it mimics law it may be law) approach. (Id., at 3-4, citing Martin Herberg, "Private Authority, Global Governance and the Law: The Case of Environmental Self-Regulation," in Multilevel Governance of Global Environmental Change: Perspectives From Science, Sociology and the Law (Cambridge: Cambridge University Press, 2006). Formalism, it seems, leads to functional effect, or at least to comfort. But not enough without a certain level of institutionalization. Law must not merely be complete, it must exist within a differentiated sphere in which its own autonomy is grounded ion its own will. In other words--the juridical personality must assume the autonomy of that ultimate autonomous personality, the state, if it is to make law beyond that state. "A “global law without a state” should not yet be assumed upon the basis that non-state institutions judge behaviour pursuant to the normative code, but, rather, that it may be acknowledged only when processes which observe these judicial functions under the binary legal code have been institutionalised. Only then do corporate codes satisfy the structural pre-requisites of a transnational law outside of state law." Teubner, "The Corporate Codes of Multinationals, supra, at 4.

This requires juridification--a self reflexive mechanism for enforcement and elaboration.
This reflexive process requires certain institutional precautions, in particular, the development of actors or instances, who or which are responsible for the establishment, modification, interpretation and implementation of the primary norm formation. Fundamental to this is the growth of the central level of internal control and implementation organs, which mediates between the two other normative levels, thusly grounding the legal character of the corporate code. Id. at 5.
Thus the form of law may be contract--the essence of soft law in the 21st century (see Larry Catá Backer, Multinational Corporations as Objects and Sources of Transnational Regulation. ILSA Journal of International & Comparative Law, Vol. 14, No. 2, 2008), but the function is regulatory within a contractually elaborated governance system. (See Larry Catá Backer, Economic Globalization and the Rise of Efficient Systems of Global Private Lawmaking: Wal-Mart as Global Legislator, University of Connecticut Law Review, Vol. 39, No. 4, 2007.

But juridification requires a higher law that can serve as framework both for regulation and as the process basis for a legitimate application of process rule of law. In other words, as Teubner elaborates, juridification requires constitutionalization. However, for Teubner, this "occurs only when the reflexive processes in the organisations are appended to reflexive legal processes - in other words, when inter-systemic linking institutions tie together secondary rule-making in the law with fundamental, rational principles of the organisation." (Teubner, "The Corporate Codes of Multinationals, supra, at 5-6). This idea of auto-constitutionalization suggests that the "will to organization" of states, memorialized in constitutions, can migrate, and legitimately so, to non-state entities.
This is based upon a constitutional concept which is not limited to nation states constitutions, but which, instead requires that, under particular historical conditions, even non-state civic orders give birth to autonomous constitutionalisation. The positivisation of constitutional norms moves from the global political level to various social sectors, which, in parallel to political constitutions, produce their own constitutions of civil society. (Id., at 6).
The idea, one increasingly accepted among international actors, is that the constitution of states is not something to unique to states. Instead, any juridical person might also acquire a certain legitimacy as a regulatory entity by mimicking states. "We can observe the typical components of a constitution: regulations about the establishment and functioning of decision-making processes (organisational and procedural rules), and the codification of the boundaries of the organisation in relation to individual freedoms and civil liberties (basic rights)." (Id., at 7).

But neither juridification and constitutionalization are enough for more than "independent law formation." (Id.). If this was all there was to the corporate codes of multinational entities, then the academic debate would center on whether these entities constitute new forms of states. That is an anachronistic position--suggesting a return to the age of the Hudson's Bay Company and antique mercantilism, rather than to grasp the subtleties of the current movement. Teubner, though, suggests the necessity of structural coupling with national systems. Multinational codes may be autonomous, but they exist in a networked community of law and power. States still control territory, and multinational corporations manifest their activity within territories. "For the implementation success of codes of conduct, their judicialisation in the national legal order will be one of the most important pre-requisites. At the same time, it should be clear that their reception in national law is not a condition of the legal character or binding effect of the codes." (Id., at 8).

Still, the key here, for Teubner, lies in globalization, that is in international judicialization.
The corporate codes are neither prescribed by national legislation, nor adopted, nor integrated. More pertinent is the notion of conflict of laws: the autonomous legal orders of the multinationals collide with national and international laws. In this collision between autonomous legal orders, both undergo a deep process of change. (Id., at 8).
Structural coupling is not merely communicative, or interactive, it is also dynamic., "there is a reciprocal reconstruction of the state law in the corporate code and vice versa." (Id.). When it rebounds it changes all meta-system participants. But, of course, there is more to this. Teubner suggests within this notion a further layering of judicialization. This time, not in the service of the construction of an autonomous system, but instead as a meta-nexus point where structural coupling, systemic interactions, may be bureaucratized within a legitimacy-producing institution.
Here, we are concerned with regime-transcending legal conflicts, with effects in both legal orders. The only escape route in such a case of inter-regime conflict would be for the tribunal concerned to develop its own substantive norms. Mindful of the “domestic” and the “foreign” legal order, and with one eye on the third order, trans-institutional substantive norms, following the fashion of an asymmetrical law-mélange, could be formed. (Id., at 8).
This is certainly the framework that has emerged as the form of bureaucratization, par excellence, for legitimacy producing communication among systems above the state. In the West, the judge has again assumed the role as both Hebrew prophet and Greek oracle. See, Larry Catá Backer, Retaining Judicial Authority: A Preliminary Inquiry on the Dominion of Judges, 11 William & Mary Bill of Rights Journal 117 (2003). "Thus, the most pressing task might be the organisation of mutual awareness and reciprocal acknowledgment between decentralised tribunals." (Id., at 9).

Teubner has now moved us from the creation of a law-state conventionally understood as derived from the state as the supreme legal person to the possibility of the creation of governance-communities that are not states but acquire a legitimate form through constitutionalist organization and which exist autonomous of the state. But can the corporation, in the context of its great codification projects, pull away from the orbit of the state and its traditional law to become its own autonomous governance unit? There is always a danger, Teubner relates, that such codes will become little more than the privatised expression of public law. (Teubner, "The Corporate Codes of Multinationals, supra, at 9). Already there is a great tendency among Western states to do just that. The boundaries of the public and private sphere are sometimes blurred not at the instance of power seeking private juridical persons, but at the insistence of states that seek to privatize their governmental responsibilities. These present a more discrete method of governance. (See Larry Catá Backer, Surveillance and Control: Privatizing and Nationalizing Corporate Monitoring after Sarbanes-Oxley, Law Review of Michigan State University, 2004). "Instead, the hybridisation of the corporate codes is a developmental trend, in which the autonomy of the codes is preserved, but in which state agencies and international organisations are involved to the extent that they contribute to the delineation of the borders of the private code and to its implementation and regulation." (Teubner, "The Corporate Codes of Multinationals, supra, at 9). Ironically, the success of this strategy might well serve as a barometer of state power vis a vis their corporate regulatory competitors.

Teubner, however,
is not altogether optimistic about the ability of corporate code projects to reach escape velocity and detach from the orbital control of the states in which they operate. Or, more precisely to reach that escape velocity in a way capable of being seen as legitimate by competing governance organs. To work around this tension, Teubner suggests an approach, grounded in what he calls "intermeshing." (Id., at 9-10). Intermeshing involves the Europeanization of multinational regulatory enterprises. Just as the Member States of the European Union together might create broader and more powerfully effective cross state norms, so too might multinaitonal "states" do the same within cooperative regulatory communities. Thus he notes "the emergence of inter-company networks as an extension of the corporate code onto an entire production network. Global commodity chains have developed, which constitute neither market relationships nor integrated multinationals." (Id., at 9). These are "networks of independent companies, which have generated their own governance structures." (Id). Here is the model of the European Union in a privatized variant form!

But Teubner ultimately remains tied to the state and its forms. And he avoids the more interesting question of the possibility of communities of corporations (and other non-state actors), like the community of states, coming together for the elaboration of governance frameworks that can exist autonomously. Yet Teubner's argument can also be read to suggest something novel grounded in his concept of intermeshing: the intermeshing of networks of multinationals creating an autonomous framework which then with autonomous networks of states.

The model of the state and the multinational as a the basic and default binary foundation of analysis may no longer be as relevant as it once might have been. Just as Multinationals have congregated within networks, so too have states. It is those functionally differentiated networks of states--either formally or informally constituted--that might best serve the interests of helping corporate codes reach escape velocity. That result is not a product of altruism. But instead it might flow naturally from the value to groups of states of a consolidated and autonomous community with which it might negotiate for more efficient global relationships. Here, globalization is a crucial factor. The consequence suggests the construction of polycentric governance frameworks in which the corporation might owe duties to states in which they operate (and within the political system of which they assume a subordinate role), and also simultaneously assume obligations under social norm systems generated by and generally applicable to the global community of corporations. We move then from Teubner's state privileging universe--a universe in which the habits and forms of law-state systems are replicated--to a governance universe in which actors may acquire obligations and privileges sourced grounded in the social-norm frameworks of non.state regulatory communities, legitimated on their own terms. These are taking a variety of forms, from internally self constituted multinational enterprise governance systems, See Larry Catá Backer, The Autonomous Global Enterprise: On the Role of Organizational Law Beyond Asset Partitioning and Legal Personality, 41 Tulsa Law Journal (2006) and Larry Catá Backer, 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); to social norm systems grounded in the public obligations of private actors in international scial norm systems. See, e.g., John Ruggie, Towards Operationalizing the Protect, Respect and Remedy Framework: A Progress Report, A/HRC/11/13, 22 April 2009. Li-Wen Lin has recently argued that these private transnational law systems might well leak into the law of host and home states as well, and as such, ought to be an object of comparative law study. See Li-Wen Lin, Legal Transplants through Private Contracting: Codes of Vendor Conduct in Global Supply Chains as an Example, 57(3) AMERICAN JOURNAL OF COMPARATIVE LAW 711 (2009).

An excellent example of this, perhaps, is the work of the Business Leaders Initiative on Human Rights. "Initially, BLIHR developed a “tool box” consisting of several guides for businesses on human rights. In addition, BLIHR promoted the human rights global governance of businesses by submitting reports to the UN Special Representative on business and human rights and by organizing international events, including the December 2008 International Seminar on Business and Human Rights held in Paris, France. Mary Robinson, former United Nations High Commissioner for Human Rights, chaired BLIHR." Roadmap Announced for Human Rights Global Governance of Transnational Businesses, Economics & Development, Human Rights, Wednesday, June 24, 2009. In this complex intermeshing, one can discern the development of consolidated norms within networked aggregations of privately constituted autonomous groups, negotiating for a harmonized set of regulatory standards at a supra national level. At this level, the public law-private law distinction falls away as well. "This human rights impact assessment tool is to be used by companies to ensure that current and future business practices meet human rights standards recommended in the framework established by the UN Special Representative on business and human rights. " Id.

Still, Teubner has suggested the skeleton of the constitution of governance without government, and their elaboration int he form of corporate codes. But that skeleton suggests more the methodology of the constitution of non-state states than it suggests the growing irrelevance of the soft law-hard law distinction. In effect, the "harder" the regulatory institutionalization the "harder" the governance produced, whatever its form. It is the constitution of government without a state, rather than the deepening of governance without government, that is the real object of these constructions. The implications of this are as readily apparent in the work of the U as their deficiencies are evident in the construciton of an autonomous single corporation.

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