Creating Private Norms for Corporate Social Responsibility in Brazil

The development of the structures, regulations, and enforcement mechanisms for corporate governance, especially for the governance of multi-national corporations has gotten much more complicated. This is an area in which the political community has always played an important part. But the almost monopolistic role of the nation-state as source of all rules has given way to a more complicated system in which international and transnational political actors have become more involved. A more fundamental shift in the locus of regulatory power has come with economic globalization and the embrace of the politico-economic ideology of "democracy-free markets." Regulation has gone private. On the one hand, that has meant that economic collectives have attained more power to regulate themselves. On the other hand, it has meant that individual and non-state collectives have more power to directly participate in the regulation of these entities. For a sense of the complications, see my recent article, Multinational Corporations, Transnational Law.

Corporate social responsibility has been one of the principal areas of development of the private law of corporate behavior. Most academic writing as well as media coverage has focused on the efforts at this form of regulation within the developed world. American and European multi-nationals have spared no expense in crafting systems and webs of institutions producing friendly versions of codes of good behavior. Human rights organizations; comfortably based in the developed world, produce their own equally sophisticated webs of such codes.

My purpose here is to remind us that much of the great work in the area of the private law of corporate regulation is not occurring in the developed world, but outside the frontiers of English speaking America, Europe and Japan. For purposes of illustration I wanted to focus on Brazil. I admit that in many respects, Brazil ought to be included among the world's developed states. But it has served the political purposes of both Brazil and the rest of the developed world to continue to express a belief that Brazil is still developing, though from my perspective it appears to be developing in the same was as one can think of Spain "developing" today.

At any rate, industry organizations in Brazil are quite active in the production of private regulation, and a culture of private regulatory activity. My focus is on one particular business oriented NGO, the Instituto Ethos, which describes itself as "a leading CSR organization in Brazil and a global reference on the theme. Ethos mission is to mobilize, encourage and help companies manage their business in a socially responsible way, making them partners in building a sustainable and fair society" (Id.). Many of the more important businesses in Brazil are associated with this organization, which produces a list of current members.

Like most politically conscious non-governmental actors, the members of the Instituto Ethos are well aware of the changing dynamic of regulatory production in the world. Their vision statement suggests that "The various sectors of society are redefining their roles. When companies adopt a socially responsible behavior, they become powerful agents of change to build, along with governments and civil society, a better world. This behavior is characterized by an ethical coherence in their actions and relationships with the various publics with which they interact, contributing to the continuous development of peoples, communities, and the relationships between themselves and the environment." (Id.). But rather than focus on the actual craft of producing regulation (the usual sets of standardized voluntary codes put out by many similar groups in developed states), the Instituto Ethos focuses on five basic strategies:

1. Expanding the CSR movement. The Instituto seeks to become a leading voice in the construction of behavior norms. For that purpose it has devised a number of projects aimed at “(a) sensitizing companies all over the country and securing their engagement in actions aimed towards deepening institutional relations with - and the partnership between - the business sector and civil society, unions and government, (b) attracting media attention to the CSR theme and, finally, (c) better organizing and structuring the movement itself.” These include expanding partnership networks with business, business associations, other NGO, the media and educational institutions. They recognize that without an audience no voice carries far. It is interesting to note that this seems to be the highest priority strategy on their agenda.

To make this priority more effective, the organization has created a number of awards. One targets students. The Ethos-Valor Award, given “annually since 2000, the Ethos-Valor Award is a national competition for graduate and post-graduate university students - the company directors and managers of the future - that highlights and recognizes graduate and post-graduate theses and monographs on themes related to CSR and sustainable development.” Another is targets the media. The Ethos Journalism Award “annually selects the best journalism conceived and produced in accordance with CSR concepts in the categories of radio, TV, photojournalism, magazines and newspapers.” Yet another is used to develop relationships with other NGO actors in this area. The Balance Award is awarded by the Instituto Ethos in partnership with four other NGOs and is targeted to business, awarding to businesses with the best compliance record on social responsibility practices. One of these awards is give to small companies, the other targets the largest companies.

2. Deepening of CSR practices. The Insituto’s principal method of aiding companies is through an assessment program based on what they call “Ethos Social Responsibility Indicators” (ESRI) described as a “set of tools and initiatives that also serve to strengthen and deepen relationships between the Institute and the companies and between the companies and their partners.” These are administered by means of a “filled in annually, the objective of the indicators is to help companies diagnose, plan for and monitor their incorporation of CSR practices.” These ESRI are customized for the relevant business sector. Instituto Ethos reports that “more than 600 companies have completed the self-assessment and sent their responses back to Ethos for interpretation.”

In lieu of a bank of forms of voluntary codes, the Instituto has developed a “Practices Bank.” This data base includes a description of the practices of model companies which have earned the highest scores on the ESRI. They also produce a social practice self assessment tool for use by companies. This may prove more useful than the quasi-legal codex that seems to be the usually favored vehicle for memorializing appropriate behaviors elsewhere. If code writing tends ot mimic civil law lawmaking models in the public sector, this form of behavior modification tends to mimic common law lawmaking practices and may be more suitable to the decentralized environment of economic globalization based on free and open markets.

Not that the Instituto eschews code writing. “The Ethos Institute also participated in the process of drafting the Brazilian Social Responsibility Norm, the NBR 16001, which was launched in December 2004 by the ABNT, Brazilian Association of Technical Norms. This norm establishes the minimum requisites expected of a social responsibility management system, considering the legal requirements, ethical commitments, the need for transparency and a concern with the promotion of citizenship and sustainable development. The Brazilian Norm will serve as a reference for the creation of the ISO 26000, an international norm that certifies companies in terms of their adherence to social responsibility practices.”

3. Information production. Disseminating information is the crucial step in any private system of rule making. The Instituto produces the usual set of newsletters, distributes publications of various sorts and has developed a fairly sophisticated web presence. The Website (www.ethos.org.br), according to the Instituto itself “is now in its fourth version and has become the Brazilian corporate social responsibility portal. The site receives 40,000 individual visitors per month accessing 450,000 pageviews. . . The objective is to offer companies an oriented navigation through the site, simplifying their access to content that speaks directly to their reality and which could serve as a parameter for their own actions and initiatives. The portal also has an English version, which is to be improved this year, and there is also a monthly newsletter in English entitled 'CSR in Brazil', which aims to publicize the Brazilian CSR movement and the work of the Ethos Institute abroad.” It has also developed a series of targeted web pages. The most visible of which is what they call InternEthos, described as a “platform for the promotion of a structured dialogue and exchange of information amongst people and organizations participating in CSR networks, using the internet as a vehicle and implementing a cycle capable of generating and renewing CSR-related knowledge. InternEthos will function through the Institute’s website as a data and knowledge codification and reference system.”

4. Influence on markets and their most important players. The organization works with business to develop criteria for socially responsible conduct. These will shape relationships with suppliers, the nature of investment, and the provisions in loan agreements. An index of socially responsible companies is also planned, to mimic the Dow Jones Sustainability indexes and the English FTSE4GOOD index series. Unlike many of these organizations, though, the Instituto plans to focus on small companies as well as the usual transnational players. Particularly interesting, from a private law making perspective, is the Instituto’s plans to reach out to labor organizations and non-industry NGOs.

5. Public policies and social responsibility. Lastly, the Instituto has attempted to become a player in private-public partnerships. It has sought to become a voice in the formulation of public policy, especially where it might lead to legislation. This is, of course, a critical step for any organization involved in modern rule making. There is a bit of necessary self-interest involved. “The Ethos Institute has promoted participation in and the formation of partnerships between companies and governmental programs. Given their ability to mobilize and articulate society, companies are a fundamental way of guaranteeing the efficiency of governmental actions.” But this is a necessary role in a world in which overlapping quasi-sovereigns may affect the way in which private actors must adjust their conduct.

Globalization can no longer be thought of a a developed nation’s game. Other states have begun to play, and to shape the discourse in important ways. More importantly, private actors with no necessary allegiance to the culture and values of the developed world, have also begun to contribute to the dialogue. This is not to say that these voices will be antagonistic. Quite the contrary, these voices suggest the reality of the rise of a more truly international class of actors speaking to each other across national boundaries, really beyond national boundaries, working individually but collectively toward the construction of global networks of private governance. See Peter T Muchlinski, Global Bukowina Examined: Viewing the Multinational Enterprise as a Transnational Law-making Community, in GLOBAL LAW WITHOUT A STATE 79 (Günther Teubner ed., 1997); Gunther Teubner, Societal Constitutionalism: Alternatives to State-Centered Constitutional Theory, in TRANSNATIONAL GOVERNANCE AND CONSTITUTIONALISM (Christian Joerges, Inger-Johane Sand and Gunther Teubner, eds.) 3-28 (Oxford & Portland Oregon: Hart Publishing, 2004).

Political Liberalism and the Temptations of Managing Private Conduct: Spain, the EU, and Legislative Control of the Private in Rights Based Regimes

There is a certain tension in the conception and operation of modern Western liberal states. On the one hand, these states are based on notions of rights--especially those that reduce the power of the state to intrude in the affairs of individuals. Europe especially has cultivated a cult of the private and even the communal sub-national right: human dignity, culture, language, association, sexual practices, private political and social belief, lifestyle, etc. At the same time, modern Western states have increasingly formalized their legal foundations in a peculiar kind of democratic theory and legislative positivism that suggests (and Rousseau would be pleased with the result) that the state, as the embodiment of the genius of the nation (that is the collective will of the population from which sovereignty derives), ought to be able to elect to govern (through positive law enacted by its legislature), when and as it will.

Very large receptacles could be filled with the extraordinary, and sometimes very interesting, material written on this tension and its effect on the construction of legitimate states. In the United States, the issues are sometimes considered from the perspective of the "counter-majoritarian difficulty." The object is to attempt to balance the rights of individuals against the power of the state (that is the power of the tyranny of the majority exercised through the legislative power) while preserving the democratic and participatory character of the state. In Europe and other parts of the world, the tension is more directly stated and governed by competing instruments: constitutions, human rights conventions, and supra-national treaties.

But my purpose here is not to consider again the difficulties of of institutionalizing some sort of legally framed balance between the collective and the individual. Rather it is to note a study, recently released by the Future Foundation on the attitudes of Europeans to the notion that government ought to take a more aggressive stance toward the regulation of private or social conduct ("El 37% de los españoles no quiere que se vendan refrescos en el 'cole','" Qué!, June 22, at 2). The Future Foundation conducted a survey of 11,000 Europeans to discern attitudes toward regulation. They discovered a willingness by a majority of Europeans to tolerate even fairly intrusive legislation, including the funding of government campaigns to change purely private social behavior. Most of the sort of legislative action approved is not surprising: reducing highway speeds, limiting the consumption of certain types of food at schools, eliminating vending machines from hospitals and the like. These are all actions and opinions that European share with Americans. But the more interesting result was in general opinion about the role of the state in private lives. "En él se recoge que el 53% de los europeos está en favor de imponer algún tipo de restricción en distintas esferas de la vida privada, y que un 37% de los españoles apoyaría campañas para reducir el consumo de alcohol . . . ¡en los hogares!" (id.). That is right-- at least 53% of European would favor intrusive legislation and a minority, though a substantial minority, of Spaniards even favor spending public money on government efforts to reduce alcohol consumption in the home.

As the state expands its role in social organization, as it seeks to take on for itself a monopoly role in the construction of the social state, it would seem necessary for the state to take on powers that, in an earlier day the West condemned in governments like those of the USSR under Stalin or the PRC under Mao. Still, it is not unusual for the state to seek to direct social policy, even in the most private of sectors. Princes since Augustus have sought to regulate everything from marriage and family formation, to the food and consumption behavior of its citizens, all with more or less success. And in a social order in which the state could not hold a monopoly of power over behavior, because it had to share that power with competing social, religious, ethnic and cultural communities, state power was a healthy ingredient. State regulation, in effect, provided the bond that tied all the disparate members of a political community together. In the old days, the balance would be tipped in favor of private communities when they managed to co opt the state. For example, institutional religions of one sort or another commonly used the state as a vehicle for the imposition of their "law" on all members of the political community, even those who rejected the view of that sect. On the other hand, in the absence of substantial competition for control, the balance can too easily be tipped the other way. When technology and a public policy favoring efficiency and harmonization of practices may tip the balance far too much toward state domination of social norms. But rather than use the state to protect individual social conduct choices, individuals prefer to use the state to favor one set of norms over another. And we are not speaking about the great foundational norms that affect the character of a nation or its foundational culture. Those norms appear to be out of bounds. Instead we are looking at a growing taste for formal. legalistic control of sub foundational matters--not whether one can drink at home, but what kind of wine is offered and how much is appropriate at table. This is the sort of micro-management that used to be impossible, but given technological advances who knows how well the state may be able to impose choices on individuals (and by state here I mean the majority of the people through their elected representatives exercising legitimate state power). Cf. Larry Catá Backer, Culturally Significant Speech: Courts, Society and Racial Equity, 21 U. Arkansas Little Rock Law Review 845 (1999).

The Future Foundation study, thus suggests that an important level, the population of many democratic states, are still more than willing to use the state to impose social conduct rules. The notion of soft law, or of rules that bind like minded members of affinity groups, like religious organizations, etc., seems to continue to fade in the public arena in favor of a more formalistic and legalistic approach to political regulation. The great irony here is that this sentiment, as it may affect government policy, arises just at a time when in other sectors of communal life, and principally in the economic sector, we have witnessed the rise of great systems of soft law and a growing movement in favor of functionalist, communal norms controlled by those who are affected. Thus, as business tends to lobby states for greater independence from control through legislation, individuals seem more disposed to direct control. Free markets appear to be good for business but bad for individuals. Or the great social communities that used to guide individuals before int he West--clubs, churches, social networks, etc, may no longer be strong enough to provide the foundation necessary to order everyday life, and into this void the state may step in.

On the Serendipity of Enforcement of Regulations: Of Body Odor and Air Travel

No one likes to sit for long periods of time next to a fellow air passenger who has not bathed and whose pungency has reached extremes (by the usual standards of measurement in ordinary society). Odors are strong stimulants. Most airlines have regulations, sometimes vaguely written, sometimes more direct, empowering their employees to remove passengers for a variety of offenses, including body odor. But the rules are vague and enforcement spotty. The result is the appearance of arbitrariness that may contribute to an increasing lack of respect for the authority of the airlines and its agents.

Consider the case of the German tourist who was recently refused the right to board a flight from Los Angeles to Honolulu after the person in the seat next to him complained that the man "stank of high heaven" or something like that ("Le bajan de un avión en Hawaii por apestar," Qué!, June 20, 2006 at 28). Well, OK, I guess. The airline used its authority to make a decision about a particular person at a particular time. But the story becomes more interesting, at least as reported. Having been denied the right to board the flight to Honolulu, the German gentleman was required to "stew" for several hours at the Los Angeles airport, after which he was permitted to board (an even longer duration) flight to the East Coast for eventual return to Germany (which took even longer because he missed a connection). Same man, perhaps now considerably more pungent, first denied passage and now encouraged to fly on an even longer air travel journey without objection of any passenger or airline personnel.

Consider this from the perspective of the passenger: the aggregate conduct of the airlines appears arbitrary. One airline on one flight denies him passage, and yet another (and perhaps even the same carrier) on another flight permits him to fly. Of course we do not have all the details (perhaps he was made to wash between flights, but then why not fly to Honolulu on the next post-bath flight?; perhaps he flew home on different carriers with different rules; perhaps people on the eastbound flights had colds or stuffy noses). Still, the impression one might be left with is that one's right to travel is entirely in the hands of "front line" staff with the power to enforce or not enforce a set of badly communicated and ambiguously written rules, triggered sua sponte or on the complaint of a fellow traveler whose motives may not always be "odorless."

The consequences for both passenger and airline are not positive. First, this is the sort of system that might breed corruption--might it have been possible for the passenger to induce a different result with a little money? It also amplifies the dangers that the rules will be applied in a manner that mirrors the prejudices and presumptions of airline staff--African American passengers for years have complained about the much greater attention they tend to receive from staff than their similarly situated majority race traveling companions. Even in the absence of corruption, this sort of rule set-up may easily produce in the passenger an increasing sense that the rules are not fair, or fairly applied, or that there are no mechanisms readily available to discipline those charged with enforcing the rules. Where the rules are also difficult to access, and even more difficult to understand, it is easy to see how a passenger might begin to develop a sense that the rules themselves are unfair or arbitrary and not within his control. Certainly the passenger will feel disconnected from the rule and alienated from its enforcers. The rule, and perhaps even the institutional structures for its enforcement, become less legitimate in the eyes of the passenger. As a consequence, the passenger might be more inclined to subvert them in the future, or to permit others to subvert either the rule system or the institutions charged with their enforcement. While this may matter little when it comes to the enforcement of odor rules, the consequences may be more severe when the subversion leads to less attention in matters of security on board planes.

Thus, the tale of the smelly passenger has important institutional and legal implications, not so much for air travel, but for the way Americans increasingly relate to law and the institutions created to enforce them. As American law becomes more remote, byzantine, complex and difficult to access or understand, as American enforcement institutions lose traditional restraints in their relationship with the populations they serve (all in the name of excellent causes to be sure), the likelihood that positive law will become less authoritative, that corruption will become more prevalent, and that the population may become more willing to reject the system producing such a legal environment, becomes more real. At a time when security and global concerns make fairness, institutional integrity and legitimacy more important, Americans charged with the preservation of its political institutional legitimacy ought to have more a care about how they go about crafting and enforcing law in the United States. The American Republic's Founders were concerned with the twin evils of inefficiency and tyranny; the story of the smelly passenger reminds us of the ease with which even the most finely crafted set of institutions in any political system can slide toward both inefficiency and tyranny at once.

The Catalan Autonomy Statute and Economic Globalization

After a long and often tedious multi-year effort, combining the sometimes Byzantine politics of Catalonia and the increasingly bitter national politics of Spain, the deal cut by mainstream political leaders and presented to voters in the form of the new Catalan Autonomy Statute has been approved (“El ‘Sí’ Guanya,” Qué, June 19, 2006 at 1). All 107 pages of the new Autonomy Statute may be viewed at http://www.gencat.net/nouestatut/cat/index.htm.

I have written a little about the campaign in support of the Statute, on at least one negative perspective, and the attempts by outsiders to some outsiders, like Jerry Adams from the North of Ireland, to influence the outcome (). Not that the vote presented Catalan leaders with any sort of mandate—one way or another. Fewer than one half of the electorate even bothered to participate in the referendum; according to a local newspaper, only 49.42% of registered voters participated (“Sí al l’Estatut, pero la majoria de votants es queda a casa,” Qué, June 19, 2006 at 2). On the other hand, 73.9% of those who voted approved the revision (id.). Yet, this is hardly a mandate, and is barely legitimate, even by the measure of extreme devotees of formalist “winner-take-all” democratic theory, except perhaps by American standards. In any case, the Spanish central government has accepted the result, even as the opposition party (the Partido Popular) prepares to fight the new Statute.

But my purpose today is not to analyze the vote for the new Statute. I will assume that that Statute is not only legitimate but will be implemented successfully in full—no necessarily easy task. Instead I want to suggest some consequences that follow on the adoption of this new Autonomy Statute from the perspective of EU and international business. The short answer is that the Autonomy Statute changes little for the business community. The longer answer is that, to the extent that the Autonomy Statute reconstitutes Catalonia as a solo national player, it will make it easier for large and wealthy multi-nationals to deal successfully with the new government with little fear that the central government of Spain will interfere in defense of Catalonia. Catalonia will join the ranks of smallish states at the mercy of much more powerful economic collectives against which it must bargain for its share of the global economic pie with much less to offer as a small quasi-state.

What will change for global business in Catalonia with the adoption of this new Autonomy Statute? Very little. To a great (and increasing) extent, Catalan economic regulation is controlled from Brussels and not necessarily from Madrid. It is true that Barcelona will have a little more leeway perhaps in the extent to which it might transpose EU framework legislation that will have very little effect on the objectives or focus of such legislation. Business will continue to look increasingly to Brussels rather than to the capitals of the Member States. To the extent that Member State economic legislation is important it is with respect to the usually marginal advantage that one form of transposition offers over others.

Two issues might be of more interest to business—the elevation of language issues and the greater judicial autonomy granted Catalan courts. But these changes have more theoretical than practical effect for business. With respect to language, it is true that Catalan now becomes a more officially important language, but that is of little moment to business. First, Catalan has served a one of the two lingua franca of the Catalan provinces for years. Businesses with interests in serving that language community have already invested in the appropriate language advertising. The market has long dictated the appropriate language of consumer products (at least) in the region. Second, language may not matter. The EU has recognized, in a series of decisions of the European Court of Justice, that business is required only to convey information in a form which can be understood, even if it is not in the national or regional language of a place. Thus, even if it wanted to, it is unclear at best whether the Catalan authorities could force business to label in Catalan. Certainly they would be unable to mandate Catalan only communication (since Castilian and Catalan are now formally equivalent official languages of these provinces).

With respect to judicial autonomy, again, Catalan independence, or autonomy, is trumped, on the one hand by the powers retained by the Spanish central government, and more importantly, by the power of the European Court of Justice with respect to the competences of the EU. While there may be room for some changes at the margin, in the long run, that margin will prove far less important for business than for politics in Catalonia. Catalan courts remain bound at the outer boundaries by the Spanish Constitution, the European Human Rights Convention and the EU Treaties. The move to independence does little to provide Catalonia with much legislative leeway.

On the other hand, autonomy may advantage business. To the extent that Catalonia now stands alone, its power, relative to that of global businesses, will have been reduced. Catalonia now more directly must compete for global capital and investment with a host of other states. This alone will reduce the possible freedom Catalan political officials may be able to assert. Especially within the EU, any move toward increasing the transaction costs of operating within Catalonia will only have the effect of moving business either to other parts of Spain or to other parts of the EU. Other than transportation costs, companies can operate anywhere within the EU and retain the same rights to free movement of goods, workers and services. To the extent that Catalonia attempts to increase the transaction costs of foreign business, they also can move to other parts of the EU and then freely move their goods into Catalonia. The result could well be a surfeit of goods in Catalonia and an absence of job creation. Independence appears to vest Catalonia with power it cannot use effectively, except at the margin.

Perversely, the separation of Catalonia makes it a more interesting target for large global corporations in search of willing states in which to settle. A Catalonia fearful of losing jobs may be more willing to deal with companies seeking advantageous treatment—the principal complaint of developing countries in their relations with large multi-nationals. As a small state, Catalonia may to agree to terms that might otherwise be unpalatable to retain work. The recent difficulties of keeping the local Braun plant open in Catalonia is a case in point and perhaps a harbinger of future problems ("The German multinational Braun, which is owned by Gillette, which, in turn, is owned by Procter & Gamble, has announced the closure at the end of 2008 of its only manufacturing plant in Spain -in Esplugues de Llobregat (Barcelona)." "700 to Lose Jobs at Braun Plant," ThinkSpain.com, May 19, 2006, available at http://www.thinkspain.com/news-spain/11159).

The reality of self-determination in a world dominated by the realities of economic globalization is that it provides a great symbolic value but fairly small practical value, especially for states closely tied into networks of supra-national regulation. Catalonia has been able, at last, to overcome the ghosts of its tragic past. Perhaps this movement toward autonomy was necessary to extirpate the ghost of Franco. But a move to more independence in fact will yield Catalonia little in practical terms, much more in symbolic terms (ambassadors, acceptance of the Catalan language as an official form of expression within Europe, etc.), and open the possibility for greater exploitation by business that are consolidating even as Catalonia fractures itself from Spain. The future of this region will prove instructive indeed.

Corporate Social Responsibility and Voluntary Codes: Apple, its Stakeholders, and its Chinese Laborers

The last 30 years or so have seen a growing interest in voluntary corporate codes. These codes have been advanced as a means of regulating the behaviour of economic collectives—and especially multinational corporations—and those with whom these corporations interact in the global market. Voluntary codes have been crafted to regulate both internal corporate governance and corporate business ethics with a variety of stakeholders, including labour, suppliers, customers and nation-states.

Voluntary codes are essentially an unregulated global products market. Producers of all sorts have gotten into the market for the production of these codes. Voluntary Codes have been produced by individuals, organizations, states and international bodies. Codes are produced for direct consumption by business entities. All efforts to regulate these products have been unsuccessful.

Among the most well known public and public/private voluntary code producers are the United Nations (the U.N. Global Compact; http://www.unglobalcompact.org/), and the Organization for Economic Cooperation and Development (OECD, http://www.oecd.org/about/0,2337,en_2649_201185_1_1_1_1_1,00.html), a group of 30 mostly developed states working with a larger number of states, NGOs and other elements of civil society to produce a variety of codes of conduct for business.

Non-governmental organizations have also produced a large variety of voluntary codes, usually closely tied to their own particular political, social or other agendas. These range from those of human rights organizations to those or industry groups. Governments sometimes try to help frame the format and content of these codes—for example the Canadian Minister of Industry and the President of the Treasury Board has distributed a volume called, “Voluntary Codes : A Guide for Their Development and Use” (http://strategis.ic.gc.ca/epic/internet/inoca-bc.nsf/en/ca00863e.html).

The greatest sourced of voluntary codes, of course, are those produced by businesses themselves to govern their own conduct. While many of these follow guidelines established by industry associations or other industry friendly groups, these codes tend to vary widely to suit the tastes and needs of the adopting company. Most major corporations have many codes of conduct—some of them required by government. In the United States, for example, the Sarbanes-Oxley Act of 2002 created strong incentives to adopt codes of financial conduct. Yet most voluntary codes owe their existence to perceptions by corporations that the codes, and the conduct they describe, are good for business, and even better if these codes also describe the institutional view of the adopting corporation.

Human rights organizations especially have criticized these codes, or at least those versions of voluntary codes produced by governments and business organizations as ineffective and self serving. A typical critique is displayed on the web site of Human Rights Watch:

“These codes have been effective in changing some corporations' conduct, but they have shortcomings. They are typically written without consultation with the workers most affected, many of whom are not even aware of their company's code. They are usually written in vague language which looks good in corporate brochures but avoids some of the stickier human rights issues, such as how to do business in a country that bars labor unions, restricts the rights of women, guards company facilities with abusive soldiers, or uses joint-venture revenue to fund military abuses. With notable exceptions, the codes generally give independent organizations no formal role in monitoring compliance. They commonly address only workplace issues and the conduct of subcontractors, not broader societal concerns.” http://www.hrw.org/wr2k1/intro/intro04.html.

In a sense, then, codes are viewed as less legitimate because they are not imposed from outside by legitimate or authoritative political sources and are meant to deflect criticism arising from conduct consumers or other stakeholders find offensive. Putting aside the possible inanity of this line of reasoning (for example, does this suggest that the only legitimate action possible for non-state actors are those imposed by a government?) there is a legitimate issue worth exploring: to what extent do these voluntary codes, and especially those codes developed and adopted by a company, actually change corporate behaviour.

A recent story reported by the BBC on its web site, “iPod Slave Claims Investigated,” BBC News (UK Version), Business, June 14, 2006, available at http://news.bbc.co.uk/1/hi/business/5079590.stm, suggests that at least at some level, these voluntary codes—when coupled with monitoring from outside sources (for example NGOs or the media) may well tend to affect corporate behaviour at least to some small extent.

The story reads substantially as follows:

“Apple is investigating a newspaper report that staff in some of its Chinese iPod factories work long hours for low pay and in "slave" conditions. The article in the Mail on Sunday alleged that workers received as little as £27 a month, doing 15-hour shifts making the iconic mp3 player. Employees at the factory lived in dormitories housing 100 people and outsiders were banned, the paper said. Apple said it did not tolerate its supplier code of conduct being broken. . . . In a statement the firm said: "Apple is committed to ensuring that working conditions in our supply chain are safe, workers are treated with respect and dignity, and manufacturing processes are environmentally responsible." The company added it was "currently investigating the allegations regarding working conditions in the iPod manufacturing plant in China". The report said that at a different factory, in Suzhou near Shanghai, which makes the iPod shuffle, workers were paid £54 per month - but that half of that went on accommodation and food within the factory complex. According to the Mail on Sunday, women rather than men were employed on the production line. Apple is one of thousands of companies that has outsourced manufacturing to China where labour costs are low.”

There are several points to this story that make it interesting from the perspective of corporate social responsibility. First, Apple has adopted a code of conduct that essentially exports a set of behaviour norms on to its suppliers. Apple targets communication of this information to its investor community (http://www.apple.com/investor/) where it explains that “Apple is committed to ensuring that working conditions in Apple's supply chain are safe, that workers are treated with respect and dignity, and that manufacturing processes are environmentally responsible.” The Code itself is also available (id). The code itself is interesting. It is based on a model code prepared by the relevant industry group (this comes as no surprise), but it also incorporates certain international human rights and labor norms.

“Apple’s Supplier Code of Conduct is modeled on and contains language from the Electronic Industry Code of Conduct. Recognized standards such as International Labour Organization Standards (ILO), Universal Declaration of Human Rights (UDHR), Social Accountability International (SAI), and the Ethical Trading Initiative (ETI) were used as references in preparing this Code and may be useful sources of additional information. A complete list of references is provided at the end of the Code.” (Id.).

Second, Apple’s reaction to reports of the story of sub-standard wages was positive. It did not deny the allegations, it did not lash out at the monitors who brought the story to the press. Instead, it reaffirmed its commitment to its behaviour norms as set forth in its voluntary code, and promised an investigation of the allegations. Of course, we do not yet know the results of the investigation, or the depth of Apple’s ardour in pursuing this investigation, but here is an example of a voluntary code working more or less the way it is supposed to: serving as a basis by which corporations guide their workplace behaviour in a system in which informal monitoring mechanisms do sometimes produce effects. Stakeholders in global labour norms effectively were able both to monitor corporate behaviour and, at least in this initial phase, seek enforcement of inter-corporate standards.

Third, and this is not good news for those stakeholders seeking to rely on such codes, it is not clear that Apple’s voluntary supplier code was violated. Relevant language in the code provides

“Suppliers must pay wages, benefits, and overtime to workers in accordance with applicable laws, including those related to minimum wages, overtime, hours, and legally mandated benefits. Suppliers may not discriminate based on race, colour, gender, sexual orientation, ethnicity, religion, political affiliation, or marital status. The basis on which workers are being paid must be clearly conveyed to them in a timely manner.” (Apple Supplier Code of Conduct--Labour and Human Rights-Remuneration).

It is not clear that the conduct complained of violates the Code. And that is the trick to these codes. The problem here is that the nature of the violation—very low wages, much of which goes to pay for housing and food—may not violate the applicable laws of the People’s Republic of China, though surely they violate the laws of the United Kingdom and the United States.

The result is a mixed bag for stakeholders. On the one hand, Apple may be able to conclude its investigation with a vindication of sorts for its supplier, its Code, and the current wage policy. This may produce changes in the way Apple's supplier will conduct its business in the future, irrespective of the minima required under Chinese law. The changes would result not from an application of Chinese law or legal process, but by the application of remedies and powers available to Apple through its supplier agreement. Thus, for example, Apple may be able to cut off the supplier, refuse to accept goods from the supplier, or stop payments to the supplier under the contract until the supplier agrees to inspection, mediation and some action indicating a willingness to comply with the terms of the supplier agreement, at least as Apple understands it.

On the other hand, Apple might just "play to the media" and engage in a pro forma investigation producing no changes. But this latter approach carries dangers of its own. The same complex of civil society monitors and the media that produced the initial reports of possible violation can also distribute widely reports of Apple's refusal "to do anything about it." Even technical compliance unfavorably reported can be dangerous. Consumers may be disgusted by such technical compliance (especially in light of their own standards of right conduct) and that may affect sales of Apple products. As a consequence, Apple may wind up having to renegotiate labor conditions even though no policy was formally violated.

Thus the lessen: voluntary codes work best when they produce standards that can be monitored, when they are embraced by companies willing to investigate stakeholder claims of violation, and when stakeholders can affect the consumer markets for companies irrespective of the existence of the codes. Thus, ironically enough, the codes are merely a means through which stakeholder power is most effectively asserted—by affecting consumer markets. For proponents of free market globalization, this works very well indeed, even if it is uncomfortable for the affected companies; that is only business. For the stakeholders, including NGOs, this works well, too. They are able to skip the governmental middleman, so-to-speak, and directly affect corporate behaviour in a precise and targeted way. For NGOs weaned on the need for government intervention, this should serve as an assurance that the state is not a necessary predicate for effective action, even by those with no state power. Free market globalization was opened a great new market for consumer information; it is up to NGOs and other elements of civil society, as well as corporations and other economic actors, to get into the game.

Voluntary codes can work in the market, without formal bureaucratic structures or direct government intervention. All it seems to require are consumers, producers and taste-makers. Here is a very productive confluence of democracy and capitalism. But one in which there is very little room for the active participation of the state.

Building the Death Star of European Constitutonalism: Prodi and the French Prepare to Strike

In one of the great scenes of the old movie from the 1970s, Star Wars, the protagonists discover the great secret project of the small group of elites who have managed to capture the old interstellar Republic and convert it into an empire of sorts. This project involved the creation of an elaborate machine for the destruction of rebellious planets. The hope was to use the weapon, or the threat of its use, to broaden and deepen the imperial project of the new elite.

Recent reports out of the great halls of the European mandarinate suggest that, fresh from the slimmest of victories in Italy, the new Italian Prime Minister has begun to connive with the French elite for the resurrection of the EU´s attempt at a Death Star of sorts, its constitution (or rather its constitutional treaty) for Europe. The Italian Prime Minister, a long time supporter of greater, and more formal, European consolidation, has spoken of the need to resurrect the constitution project in conjunction with a necessary (if cautious) expansion to the East (the recent EU´s Ostpolitik) and, interestingly enough, an expansion to the Mediterranean basin (perhaps in hopes of restoring, after several millennia, the virtues of the Roman Mare Nostrum to Italy).

These three projects will no doubt serve as the main course of the upcoming meeting of the Member State heads next week. And rightly so. Though I suspect that the realities of the discussions will not find their way past the well-orchestrated media campaign that will seep out of the proceedings. I will suggest some reasons for importance here, but a fuller analysis will have to wait for the end of next week’s meetings.

EU Constitutionalism: events since 2001 have convinced the French elite that the only way to counter American presence in the world is to create a political organism of equal stature and (potentially) equal power. The French remain convinced that the construction of something that looks like a state is the solution. Otherwise, the EU will continue to remain at the mercy of American foreign policy, and increasingly, at the mercy of Chinese economic power. Looking out past the borders of the smart districts of Paris, the French, not unwisely, see a political field not unlike that which confronted post-war Europe in 1945: a relatively disunited and fractious Europe potentially at the mercy of its larger, and well consolidated rivals. In 1945, those rivals were the Soviet Union and the United States, each of which was ready to swallow up large chunks of Europe. Today the situation is more complicated but not dissimilar: the United States and China/Japan (rather than the Soviets) remain a constant--happy to swallow up (now through globalization rather than through more direct means of control) Europe, piece by piece--and the migratory threats from Africa, Asia and Latin America threaten the economic prosperity and perhaps even the stability of the Member States themselves. More importantly, the EU has been unable to effectively project power. The recent almost comical dialogue between Cuba and the EU over sanctions over Cuba’s gross human rights abuses (the supposed core of the value system that makes Europe unique and a beacon to the world) resulting in a suspension of sanctions, is an excellent case in point.

The problem, of course, is that the entity to be created has to look like a state, but for most purposes may not act like one. That difficulty produced a monster of a document filled with ambiguities and subterfuges. And the great irony, of course, was that it was the French electorate that sparked the popular rebellion against the mandarinate’s unification project. Those subterfuges, of course, are at the heart of the matter. The great difficulty (for the French) is in the creation of a document that somehow manages to produce French dominance under the guise of equal participation. Thus, the real trick will be to create a document for the amplification of French diplomatic ambitions with the consent of the majority of France’s European partners.

EU Ostpolitik: Expansion, while not yet a dirty word in Europe, has become a greater cause for concern. This is nothing new. Every great increase in size has brought labor and capital dislocation as the markets for economic production adjusted. Before the 21st century, a fairly generous program of subsidies would soften the dislocations. But those days are over. Subsidies are harder to come by; the "Europeans" being integrated in the EU are less "European" in the sense of a sharing of the cultural and social basics of Western Europe--the great foundation of the mores of the EU. Moreover new members increase the potential disruptions to labor markets potentially more severe, and are less stable politically than states in prior ways of admission to EU membership. Lastly, the cultural, religious and social issues associated with the next batch of candidates is enormous and will cause Europe to finally face the core issue of its identity and purpose. None of these will be easy.

Yet the EU mandarinate continues to skip its way to growth without much of a thought in the world. Part of it, of course, is the politics of gesture. The appearance of movement may well mask the reality of a firm determination never to come to agreement. Dialog, after all, is the specialité de la maison europeéan. But, combined with the recent renewal of EU constitutionalism, these integration issues will have to be faced. The combination is an explosive one. Expansion requires a readjustment of the delicate political balances that constitue the institutions of the EU. As the last rounds of expansion negotiations made clear, new sattes want an effective place at the table and older Memnber States do not want to have their on influence within the EU diluted. More importantly, older Member States may not want to sacrifice the goodies thay have enjoyed--perhaps acquired in return for membership or to keep them quiet--to finance the modernization of new entrants.

EU Regionalism: And the answer to growth may well lie in the development of the EU’s association policies for the nations on its Southern borders on the other side of the Mediterranean. Specifically, the EU’s development of associational status, something like an integrated trade union with limitations may well solve some of the EU’s more socio-political growth difficulties. The EU, at least since Maastricht, has naturalized a system of uneven participation. Not all Member States have the same obligations, or the same benefits. This has actually worked reasonably well. It requires only a slight extension of this pattern to envision a system of "full" membership, "partial" membership, and "associational" status (by whatever name might be palatable to the parties for internal and external consumption). This approach might complicate EU constitutionalism. But the benefits might be worth the complexity. The Turkish problem might be solved; a means of integrated North Africa into an economic but not social system might be achieved, and Europe can continue on its greatest project--the creation of a European demos from out of the core states of that continent.

The real issue will be the reaction of the recipients of this largesse. Turkey would tend to view any action like this as an insult at best. On the other hand, if Turkey is offered an “almost” membership along with a nice assortment of Christian states—prominent among them Serbia, Montenegro and maybe even the Ukraine, then the pill might go down with a bit less bitterness. There are some interesting possibilities in an approach of this sort. As an example, the EU would be in a greater position to influence affairs in Israel and Palestine were both (whatever their borders) to be included in the firm embrace of associational status within a Mediterranean “sort-of” EU. Really, if France were as eager as it seems to re-emerge as a great imperial power, the construction of a set of associational relationships keyed to EU norms and EU administration might be more effective than any baroque effort to fashion a non-state constitutional state. But France tends to learn its lessons hard, and neither the Germans, nor the Italians nor the Spanish are likely to seek to discipline their unruly sibling.

My prediction for next week: (1) the constitutional project will be put back on track with the appointment of another committee of old people who appear (at least to the satisfaction of the media) to have some claim to legitimacy in this work; (1) much will be made of the need for expansion, but the stage will be set for the death of expansion by a thousand annoying and complicated details; and (3) the EU will quietly begin to send out feelers about the possibilities of multi-level memberships across the Mediterranean.

Labor Wars in Spain: A Tale of Cigarettes and Coffee

Two recent actions in Spain affecting labor relations, one involving the government of the town of Getxo, and the other a decision of a judge in Valencia, are worth noting.

The first involves a decision of the town of Getxo to obligate those of its employees who smoke, to make up the work time lost to smoking ("Salir a fumar te puede costar horas extra, Qué!, June 8, 2006, at 1). Smoking breaks will be timed and that time off, not available to non-smoking employees, will have to be made up. The report notes that this imposition is not popular among Spanish workers. Only 40% of those sampled in Spain thought this was a good idea. In Catalonia, the number of people approving this policy was even less--about 30% of those surveyed. The difficulty is easy enough to see--the employer is seeking to use the employment relationship to legislate social and health policy, and affect the choices of its employees. In one sense, conservatives might say--well and good, all life choices are economic in this way, just usually not so blatantly obvious. That an employer seeks to take on for itself the role once asserted by the church, or the state (for example under Communist totalitarian governments) should make no difference. But, of course, the answer is not that easy. It is true enough that employers ought to be able to direct the work of their employees, and it is also true that a foundation of that direction has to be the fundamental relationship between work duties, time spent at work, and wages. On the other hand, the nature of that fundamental relationship ought to be limited to the economic relationship itself. The difficulty here is that the policy also touches on non economic aspects of worker lives. Those aspects are less clearly the domain of an employer. And certainly employers would seem to have less legitimate authority over non-economic aspects of workers lives than even the state, the church, or a worker's family. But, one might object, this is the sort of thing employers have been doing all along. The response, of course, is that while employers have traditionally had the power to discipline workers for violation of positive law and social custom (for example firing adulterers or women who got pregnant out of wedlock in the early part of the 20th century), employers did NOT take a hand in the formulation of those policies. What one is beginning to see here is the employer as a positive source of social custom rather than as a site where such custom may be implemented or enforced. That distinction is critical, though not widely perceived.

Thus, this regulation seems to privatize the power to regulate an aspect of life once beyond the central control of purely economic actors, like corporations. The economic actor, once a purely passive social actor, has become a serious source of social mores. This suggests, in a very small way, another aspect of the increasingly public role of private economic actors. With globalization, and the privatization of regulation, those aspects of positive regulatory power once solely in the control of the state, or the church, or social groups, now seems destined to those economic actors in which norm making power of an economic kind is increasingly vested. Regulatory power continues to be diffused throughout the social system in ways that might have seemed impossible even a generation ago. With this sort of power may come more state responsibility, a matter with respect to which I have written before. We will be seeing more of this in the coming years.

And, of course, all the fuss about employees using employer time for smoking takes attention away from what may be a greater problem--the very common employer practice of extracting lots and lots of unpaid "extra" work hours from employees. Recent reports form Spain indicate that at least half a million workers routinely work extra hours without compensation ("Medio millón hace horas extra sin cobrar por ello," Qué! June 12, 2006 at 2). It is thus ironic that, having without a whisper about the long tradition of reducing worker pay through the cultivation of work cultures of "extra" work, employers now appear ready to assume a vanguard position in the fight for worker fairness, by championing rules that force employees to work longer hours. There is nothing like a good cause to veil unfair practice.

The other action involved coffee rather than cigarettes. A judge in Valencia ruled that staff members could not be commanded by their bosses to get them coffee ("No estamos para servir cafee al jefe," Qué!, June 7, 2006, at 1). The case is interesting on a number of levels. First, the judge who made the ruling is female. She was likely far more sensitive to the sort of abuse that was at issue in the case--the (male) boss demanding domestic service from his (usually female) staff. To that extent, the increase in gender equality within the judiciary has produced a certain positive movement in the amelioration of the worst aspects of patriarchy in economic settings. Second, the case is even more interesting for the way in which it seeks to regularize the conditions of labor at the lowest levels, that is at the levels where exploitation is most likely to take place without worker objection. Subordination in the work environment can breed exploitation, and the judge noted the many ways in which bosses tended to exploit their position by demanding that their lowest level employees undertake a number of often purely domestic tasks. This is an old story. But it is also a story that most in many cultures, not just ion the West, tend to ignore.

Employers are quick to condemn the ruling as unjustifiably limiting employer flexibility, and there is a certain great truth to this argument ("Se acabó lo de servirle el café al jefe por decreto," Qué!, June 7, 2006 at 2). But flexibility that is not sensitive to exploitation, privileges one aspect of the employment relationship over another equally worthy of the protection of public policy. While the judicial decision in this case, suggesting that workers are limited to those tasks described or reasonably implied from their job description may make for a certain amount of inflexibility, the solution need not be in a system that forgives exploitation in the name of efficiency. Such a choice would essentially impose on the lowest level employees, those with the least wealth, the obligation to subsidize their employers by forgoing remuneration for work required of them essentially without compensation. That would seem unfair, even by the standards of the market--if only because the resulting employer/employee framework is unbalanced and the playing field tilted to one side. The state ought not to subsidize that sort of imbalance. Not that I am against employer freedom to set the terms of employment--but that would require greater care in the definition of the terms of employment; a not too difficult task for large employers used to complex drafting, or even for small employers who are used to honest dealing. It will be interesting, in this as well, to see where this sort of judicial intervention in the employment relationship will lead.

The Debate Over the New Autonomy Statute for Catalonia: Perspectives From the Marxist Left

I last wrote about the new Autonomy Statute for Catalonia from the perspectives of the left, progressive and green parties, all of which favored the revisions to the relationships between Catalonia and the central government. Today I write, with a certain degree of mirth, about the position of the Spanish and Catalan Communist Parties in the debate.

As it turns out, these parties strongly oppose the new Autonomy Statute precisely for the reasons their more moderate progressive sometimes-fellow-traveler allies support the Autonomy Statute--it produces a greater independence of Catalonia from the Spanish central government. For Spanish and Catalan Marxist, this position privileges the state over the workers and on that basis must be rejected. In a sense, the Spanish and Catalan Communist Parties are right. A consequence of the Autonomy Statute revisions will be to divest the central government of a significant amount of political authority with respect to the regulation of labor. As a consequence, the power of labor is also diffused. Rather than deal with the central government on behalf of the unbreakable alliance of all workers (in their view of things), the Statute fractures worker power even as it fractures the power of the centralized state. Workers suffer. Consolidation of political power makes the consolidation of labor power that much easier, and, in a sense, follows from basic understanding of Marxist economic determinism.

There is an element of irony in this basic discourse from the Marxist Left. To some extent, it tends to parallel the arguments that one would expect from the Right, especially those who adhere to a belief in the value of economic globalization based on the free movement of capital. Both the Marxist Left--with respect to labor--and the proponents of market oriented economic globalization--with respect to capital-- fear the creation of impediments to free movement. The rise of petite states works, from a Marxist perspective, like the rise of the petite bourgeoisie, as an often parochial and reactionary force that is unaware of the conceptual shackles under which it labors for the benefit of others. Small states can as effectively impede transparent and free flowing capital markets like they can impede the creation of global markets (or in Marxist terms alliances) among labor. In this respect, at least, the free market right and the Marxist Left have made themselves strange, but quite compatible, bedfellows. For both, an autonomous Catalonia must fail so that the process of economic globalization, on the one hand, or the triumph of the laboring class, on the other, may move one step closer to fulfillment. . . .or at least one step closer to the time that international capital and international labor will, at last be able to meet on the field of competition for dominance and the right to shape the global economic/political shape of the future.

Disney/Ovitz: The Delaware Supreme Court Augments its Complication of Fiduciary Duty

The Delaware Supreme Court has finally delivered its 91 page opinion in RE THE WALT DISNEY COMPANY DERIVATIVE LITIGATION, No. 411, 2005, C.A. No. 15452, June 8, 2006.

There were few surprises in a well crafted, and conservative, decision. The Court was careful not to break new ground. It also resisted the numerous attempts by counsel for both sides to play fast and lose with the opinions of the Chancery Court and to sneak new and sometimes marvelously odd arguments into the litigation at the last minute. The examples are everywhere in the opinion.

The most interesting portion of the opinion was the ten pages or so (Pages 66-75 of the opinion) in which the Supreme Court began to plot the more or less definitive outlines of the separable fiduciary duty of "good faith." It explained this effort by noting that "Because of the increased recognition of the importance of good faith, some conceptual guidance to the corporate community may be helpful. For that reason we proceed to address the merits of the appellants’ second argument." (Slip op. at 67).

The Court differentiated between three broad categories of behavior as bases for the imposition of breach of good faith liability. The "first category involves so-called “subjective bad faith,” that is, fiduciary conduct motivated by an actual intent to do harm." (Slip op. at 67) is clearly the sort of conduct that will sustain a claim for breach of good faith duty (citing with approval McGowan v. Ferro, 859 A.2d 1012, 1036 (Del. Ch. 2004) (“Bad faith is ‘not simply bad judgment or negligence,’ but rather ‘implies the conscious doing of a wrong because of dishonest purpose or moral obliquity...it contemplates a state of mind affirmatively operating with furtive design or ill will.’”) (quoting Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1119, 1208, n. 16 (Del. 1993)).

The second category of conduct--gross negligence--is not a basis for claims of breaches of good faith, at least without more. (Slip op. at 67-68). It is in connection with this point--the distinction between gross negligence, on the one hand, and bad faith, on the other, that the Court attempts some guidance. (Slip op. at 68-72). It draws on statutory sources for the construction of the distinction--principally Del. Code Sections 1032(b)(7) and 145, concluding on the basis of the distinctions drawn in those provisions between care and good faith that: "Section 145, like Section 102(b)(7), evidences the intent of the Delaware General Assembly to afford significant protections to directors (and, in the case of Section 145, other fiduciaries) of Delaware corporations.108 To adopt a definition that conflates the duty of care with the duty to act in good faith by making a violation of the former an automatic violation of the latter, would nullify those legislative protections and defeat the General Assembly’s intent." (Slip op. at 71).

None of this is particularly novel. And the Court had been working its way to a formal statement of these understandings for years. Much more interesting, I think, is the last category--the one drawn from the Chancellor's analysis of the peculiar nature of the derelictions of the Board in the approval of the Ovitz Employment Agreement and its termination a year later: "This third category is what the Chancellor’s definition of bad faith—intentional dereliction of duty, a conscious disregard for one’s responsibilities—is intended to capture. The question is whether such misconduct is properly treated as a non-exculpable, non-indemnifiable violation of the fiduciary duty to act in good faith. In our view it must be, for at least two reasons."(Slip op. at 72). First, the Curt recognized that some conduct that was neither comfortably classifiable as a breach of the duty of loyalty (for lack of appropriate levels of self interest or domination) or as a breach of the duty of care (because the judgment was terrible but the formalities of decionmaking was even barely sufficient)--precisely the case in the Ovitz matter--ought to be actionable as well. "Cases have arisen where corporate directors have no conflicting self-interest in a decision, yet engage in misconduct that is more culpable than simple inattention or failure to be informed of all facts material to the decision. To protect the interests of the corporation and its shareholders, fiduciary conduct of this kind, which does not involve disloyalty (as traditionally defined) but is qualitatively more culpable than gross negligence, should be proscribed." (Slip op. at 72-73). Thus, in a sense, the statutory distinctions between good faith and care ought to lead, at least in some cases, to the imposition of liability for breach of duty--the duty to be understood as that of "good faith" in contradistinction to those of care and loyalty. The Court explained it this way:

"[T]he legislature has also recognized this intermediate category of fiduciary misconduct, which ranks between conduct involving subjective bad faith and gross negligence. Section 102(b)(7)(ii) of the DGCL expressly denies money damage exculpation for “acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law.” By its very terms that provision distinguishes between “intentional misconduct” and a “knowing violation of law” (both examples of subjective bad faith) on the one hand, and “acts...not in good faith,” on the other. Because the statute exculpates directors only for conduct amounting to gross negligence, the statutory denial of exculpation for “acts...not in good faith” must encompass the intermediate category of misconduct captured by the Chancellor’s definition of bad faith." (Slip op, at 74).

More importantly, it noted that neither its discussion, nor that of the Chancery Court, defined the universe of breach of good faith claims. "To engage in an effort to craft (in the Court’s words) “a definitive and categorical definition of the universe of acts that would constitute bad faith” would be unwise and is unnecessary to dispose of the issues presented on this appeal." (Slip op. at 75).

The Supreme Court has effectively declared open season for lawyers seeking to bring cases to flesh this now important and unexplored aspect of fiduciary duty. Indeed, the Court was very careful to note, in footnote 112 of the opinion that "we do not reach or otherwise address the issue of whether the fiduciary duty to act in good faith is a duty that, like the duties of care and loyalty, can serve as an independent basis for imposing liability upon corporate officers and directors. That issue is not before us on this appeal." (Slip op. at 75).

There thus is likely to be much more litigation on the way. I suspect that this basis of liability, defining an important area of actionable conduct lying between loyalty (self-interest) and care (gross negligence), will prove a more fertile ground for litigation than even the traditional breaches of the duty of loyalty or care. Good faith claims may provide plaintiffs’ with a greater ability to avoid the difficulties of proof in duty of loyalty cases while avoiding the statutory limits of liability (especially Section 102(b)(7) waivers) for duty of care cases.

Development of the notion of “good faith” in the conduct of corporate affairs will have a number of collateral effects on corporate governance. One of the most important is the utility of this form of fiduciary duty for solidifying the notion of the autonomy of corporations, that is of corporations as entities separate from that of the shareholders who own interests in them. A duty of good faith can suggest a duty owed to the entity directly rather than to the shareholders. While the Delaware courts traditionally have been very sloppy about distinguishing between the interests of the shareholders (embracing a contractarian view of corporations as an aggregate of property in the hands of its shareholders) and that of the corporation itself (embracing an institutionalist view of corporations as an entity independent of its shareholders), there is an intimation in the discussion that good faith is grounded in the relationship of director to the corporation itself, rather than to the aggregate interests of shareholders directly. It will be interesting to see if this line of reasoning is also expanded as the Court works its way through the developing doctrine.

The case, then, ends the long journey of the Ovitz Employment Agreement as the foundation of conventional fiduciary duty law. To that extent the case is interesting as confirmation of fairly conventional and well-established principles of Delaware law. The case is far more interesting for the way in which it opens the door to a new chapter ion the development of fiduciary duty. Not only will this prove a fertile area for litigation, but also it may well affect the way in which federal regulatory authorities respond in the context of the federal securities laws. More on that in the future.

Jerry Adams in Barcelona: On the Politics of Self-Determination in Constitutiuonal Systems

So, it appears that Jerry Adams, the President of Sinn Fein, the political wing of the Irish Republican Army, is spending several days in Spain, visiting Bilbao, Barcelona and Madrid, in support of the new initiative for dialog between ETA and the current central government of Spain, as well as in support of the proposed new Autonomy Statute for Catalonia. As reported in Spanish papers, Adams was quoted as saying that “El propósito de mi breve visita es reunirme y escuchar un amplio espectro de opiniones políticas y civiles y, cuando sea posible, reflejar la experiencia del Sinn Fein en el proceso de paz irlandés.” (The purpose of my brief visit is to meet with and listen to a wide spectrum of opinion from the political and civil sectors, and when possible, describe the experiences of Sinn Fein in the Irish peace process). Among the civil and political sector voices he meant to pay particular attention to were those of the Basque Nationalist Party (Partido Nacionalista Vasco (PNV)) and the Socialist Workers Party of Spain (Partido Socialista Obrero Español (PSOE). See Ademas visita España, 20 Minutos, June 8, 2006, available at http://www.20minutos.es/noticia/127895/0/otegi/adams/proceso/

I caught up with Mr. Adams when he addressed a large body of students, faculty and guests at the University of Barcelona on June 8, 2006. He along with several local leaders, were present to lend support to Catalan autonomy and specifically to the proposed Autonomy Statute, with respect to which I have recently written (http://lcbackerblog.blogspot.com/2006/06/debate-over-new-autonomy-statute-for.html). I am here relating the thrust of his remarks, and my initial reactions to them.

Mr. Adams began by contextualizing the Irish, Basque and Catalan experiences as expressions of similar desires for “self-determination.” He explained that the thrust of his remarks would seek to explore self-determination as it has affected the Irish situation with specific reference to developments in the Basque lands (or at least those portions of the Basque lands targeted, and quite cynically too, by the independence movement), and Catalonia.

For Mr. Adams, one starts with a set of basic assumptions:

--The partition of Ireland was a criminal act.

--The partition of Ireland is immoral.

--The partition of Ireland is the latest major act of consequence proceeding from the conquest of Ireland by the English.

From these assumptions spring consequences, an understanding of which is deepened through the use of an academic post-colonial discourse with its origins in the African liberation movements and the Marxist-Leninist political determinism of the last century. The conquest of Ireland could not have been as successful in the absence of the brutal dispersion of the native Irish population to the west of Ireland, and the transfer of power and wealth from the native population to colonial immigrants (occurring in waves as colonial immigrants naturalized, “went native” and required an infusion of fresh blood to revive the colonial system of control). Most important of all, the conquest of Ireland would have been impossible without the encouragement of a large wave of non assimilable immigrants—the Protestants who settled in the North of Ireland. These illegal immigrants, privileged well beyond their numbers or value, have served as the great hostage population that separates independence for purely ethnic Irish from the current unhappy partitioned status quo.

Inspired by the battles being waged by African-Americans in the United States through the 1960s, the people of the North of Ireland finally commenced armed resistance after 1969. Their struggle mirrored that of North African and Sub-Saharan African states, at least with respect to the relation between colonial oppressor and native peoples. To this extent, Mr. Adams emphatically asserted that the conflict in Ireland could not possibly be understood as a religious war.

But all of this is prologue. The principal point Mr. Adams makes returns us to the foundational notion of self-determination. This, Mr. Adams quite correctly notes, will serve as the most significant political question of the 21st century. It touches on the nature of globalization; it touches on the character of the obligation of developed states—assuming they survive waves of self-determination, to less developed states or to what will be less developed states carved from out of their former oppressors. Globalization must be understood as impossible in the absence of the free and privileged participation of all groups and nationalities arranged in a level and horizontal set of relationships—no group subordinated to another (expect perhaps minority groups in states which are the product of winner-take-all-by-majority-vote plebiscites).

And thus we arrive at the very core of Mr. Adams’ remarks—a point worth emphasizing, not because he said it, but because it serves as the core belief of many individuals and collectives currently acting on the world stage: self-determination is the critical methodology for the creation of the only truly subordination-free form of global order, a global order producing a worldwide single federation of free peoples freely associating. The Irish struggles can thus be appreciated as merely one (perhaps small) aspect of a global phenomenon—the creation of a single world state on a federal model consisting of political collectives, differentiated by any number of characteristics (ethnicity, language, religion, shared history, race, etc.) each given equal dignity, power and legitimacy to act on this single world stage. Each component of this single global system would be grounded in popular sovereignty producing a rights-based government on any one of a number of structural models (parliamentary democracy, presidential system, etc.).

Applied to Ireland, the answers come easy to Mr. Adams. The Irish have been stripped of sovereignty by the many usurpations of the English, who sought to assert Irish sovereignty in place of its rightful holders. For Mr. Adams, the idea that the English and Irish might constitute one people is impossible. Because of history, and because of the usurpations and colonial policies of the English, ethnic division is “natural” to him.

Given this context—the future is clear: an independent Ireland composed of the entire island. For that purpose dialog is critical, but not necessary. No amount of talk can change the eternal and unwavering fact of Ireland’s sovereignty. Talk can just make the process easier on everyone—exploiter and exploited.

And thus we get both to the end of Mr. Adam’s speech, and the critical end point of this thought—the purpose of dialog is not to contest the ultimate ends of the parties. The purpose of dialog is to make the attainment of the ends of those seeking self-determination less burdensome, and violent. But the end is inevitable. Thus, the Good Friday accords are described as a good temporary compromise on the road to the integration of the North of Ireland into the Republic.

This is the last insight Mr. Adams offered his Catalan hosts: Be firm in the inevitability of your goals, and work for their attainment. All negotiation leading the Catalan people closer to the goal are to be welcomed, but are to be understood as mere temporary measures on the road to inevitable independence. When that road becomes blocked, by the intransigence of those who disagree with the self-determining will of the Catalan people, then violence might help prod the parties back on the road to “peace” that is the fulfillment of the desires of the ethnos seeking to assert a fuller sovereignty. But dialog is not something to be left to the politicians, Mr. Adams reminds us. The battle in the political realm requires marshaling the media and civil society involvement. Because political communities in democratic states are particularly sensitive to the expressions of popular will (however changeable), it behooves political actors to ensure that this popular will is appropriately expressed. Mobilization of political, social and intellectual cadres is essential if this task is to be successfully accomplished. That was part of the secret of Sinn Fein’s success, especially in the United States.

For the Catalans, as for the Basques and Irish, Mr. Adams suggests that violence might well be the only lubricant necessary to animate dialog. This is a lesson that the IRA has been reinforcing to their ETA colleagues, and suggesting to friends of Catalan independence in Barcelona.

Mr. Adams’ speech was rich indeed. The basic assumptions from which Mr. Adams started his analysis were curious in several ways:

1. The partition of Ireland was a criminal act—though it was not clear what standard of criminality was used to make this assessment. I am not suggesting that the act of partition had or had not elements of criminality. I am, however, suggesting that the referent is somewhat questionable from the perspective of speaker and listener.

2. The partition of Ireland is immoral—though it was not clear what standard of morality was being applied. I have not been clear on Mr. Adams’ moral compass, though I have no doubt that he shares one with a number of others. I worry, though, about his expectations of others with respect to this moral foundation. If I do not share it, am I condemned to immorality? There is certainly a bit of traditional attitude to that moral stance that, if applied to Mr. Adam’s party, might not serve it well.

3. The partition of Ireland is the latest major act of consequence proceeding from the conquest of Ireland by the English. That statement, in any case, is true enough. Truth, morality and criminality determined by force of arms, it seems, form the system that appears to produce the one language that Mr. Adams has in common with the English that came before him. But that leads to a conundrum of sorts that I will pick up on in a little bit.

With respect to the post-colonialist analysis of the conquest of Ireland, Mr. Adams, quite rightly, suggested that the English control of Ireland was significantly strengthened through the use of a sustained and brutal colonial methodology—not unlike that used by the Irish themselves in helping to win for the European immigrants to the United States control of North America from the original inhabitants. But here he seems to have laid a number of traps for himself and his world-view. The suggestion that the Protestant immigrants were somehow illegitimate because they were used as instruments for the subjection of the Island by displacing its original inhabitants, would call into question the current pro-migration focus of progressive elements of civil society, on which Mr. Adams relies for political support. These groups would tend to support the rights of migrant groups and the free movement of peoples and the protection of their cultural, social and religious rights—as well as their rights, under appropriate circumstances, to self-determination within the borders of their new homes. The great irony of Mr. Adams post-colonial analysis is that it ought to strengthen the movement for Protestant majority autonomy from Catholic Ireland, and permit that portion of the North of Ireland to retain its majority practiced customs, society and associations—including associations with the United Kingdom. On the other hand, Mr. Adams makes the case for ethnic cleansing as well. If the immigration of Scots Protestants was illegitimate because of the motives of the English monarchs who made it possible, then their right to remain would be questionable as well. This is the sort of argument that Progressive elements of civil society are sometimes eager to support—when it comes to the movement of white farmers out of Zimbabwe or Jews out of Hebron. But not always. What is good for white farmers is impossible when one seeks to apply the same rationale to the South Asians in Fiji. A conundrum indeed—but only if one refuses to blind oneself to the application of Mr. Adam’s position to his purely self-interested aims.

More interesting to an outsider, however, was Mr. Adam’s assertion that there was no religious war in Ireland. Indeed not—it seems better understood as an ethnic war pitting native Irish who are bound together, at least by proxy, through their Catholic faith, against Anglo-Scots invader immigrants, who cultivate their distinction from the locals through their Protestant faith. But is this a better way of capturing the essence of the conflict—ethnic strife masked by religious difference?

Most interesting, of course, is the connection Mr. Adams makes between self-determination, globalization, state organization, and the nature of legitimate political organization. That these concepts are all bound together comes as no surprise—any number of current political and legal thinkers would agree, though the details would differ, and sometimes dramatically, between them. But no matter, the core notions are the same. But the manner in which these concepts are connected do raise some very interesting possibilities as well as point to some very strong differences between Mr. Adams’ vision and that which passes for modern economic globalization.

1. Mr. Adams seems to reject the notion of private ordered globalization—for him it is not globalization based on voluntary individual private transactions appropriately ordered in a fair system policed by the community of political states. Instead, Mr. Adams is a bit of a reactionary. Globalization is essentially a public act, and fundamentally political—it is not centered on the individual engaged in private transactions, but on the political acts of the state. Political collectives, rather than individual action, sit at the top of Adam’s legitimating power hierarchy. The legal consequences are enormous. His views are much more compatible with those of Fidel Castro in this respect, than with those of the elites in Europe and the United States. I explain these differences at great length in Ideologies of Globalization and Sovereign Debt: Cuba and the IMF, 24 Penn State Int’l L. Rev. (2006), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=880967.

2. Because for Mr. Adams globalization is political, public and communal, rather than individual, economic and private, self-determination becomes the key legal and political element in the relations between people in collectives, and between states. But self-determination is not an individual choice—nor even, for the Protestants in the North of Ireland, necessarily the choice of every self-conscious community. The difficulty of self-determination involves the identification of the communities capable of determining their political nature. If self-determination is to be the choice of any self-identifying community, then even the Protestants in the North of Ireland as entitled to it. But that can’t be right. If self-determination is based on the character of the people in a place, then as immigration changes the character of a demos, self-determination ought to be available to such people. But that can’t be right either. It suggests that self-determination is contingent and temporary. It lasts as long as demographic equilibrium exists. There is no eternal state within any territory. But if that is right, then what of Ireland, much less Catalonia and the Basque lands?

3. Instead, self-determination for Mr. Adams becomes the vehicle for the expression of the sovereign rights of some people. Who is to determine whether the territory of the whole of Ireland is to constitute one political unit with its own singular sovereignty, or whether the territorial unit within Eire having a self-consciously distinct majority is to sets the boundaries for self-determination? For Jerry Adams, the answer appears clear enough—the entire island of Ireland is the sole and eternal unit of sovereignty. But the generalizations from this certainty, based on little more than an anachronistic view of the imperatives of history, are troublesome. It might mean, for example, that the entirety of the Island of Ceylon—Sri Lanka—constitutes a single sovereign community, and that the relatively recent interlopers from the Indian subcontinent—the Tamil—ought to bend to the will of the eternal Sinhalese majority. I doubt that Mr. Adams would support the view. Yet it is hard to distinguish Tamil in Sri Lanka from Scots Protestant in the North of Ireland. But, if he does not, then he might be forced to suggest the exceptionalism of the Irish condition. But were he to retreat to this position, then of what value to Catalonia or the Basque lands, are the insights Mr. Adams seeks to share?

4. Self-determination also seems to serve Mr. Adams as shorthand for the notion of ethnos as the animating spirit of political community. Ireland is not England because the Irish are not English. Each ethnos must form the basis for the constitution of demos. Yet if this were true, then Mr. Adams would applaud the construction of the security fence between Israel and the Palestinian lands. That wall as surely separates Israeli and Palestinian as the Irish Sea separates Irish from English. But that couldn’t be right, Mr. Adams would suggest. Yet the road from ethnos to demos runs true despite the unpleasantness of the answer it may provide in other, more politically difficult situations. On the other hand, consistency, even in theory, may not run strong in the philosophy of Mr. Adams. And perhaps rightly so—he is an Irish patriot, and will bend his theories to suit his goals. But then again he offers little to the Catalan that might be palatable on the world stage at this point in its development. Ethnos has, except perhaps in the hands of Mr. Adams on the Left, been discredited since the failed experiments in Germany from 1933-45. Yet Mr. Adams’ view shares that of Carl Schmidt, or that of the xenophobes in France and other Western States. In this sense Mr. Adams does us a great favor—reminding us of the little that separates the concept of self-determination from the less popular one of ethnos, ethnic purity, ethnic cleansing, or subordination based on ethnic characteristics. Surely this is not what Mr. Adams has in mind for the Protestants in the North of Ireland.

5. Ironically enough as well, the community of sovereign ethnos envisioned by Mr. Adams might also essentially undo the centuries-long efforts to ensure the independence of Ireland. For a global federal community requires the ceding of sovereignty up to a more or less autonomous and competent entity, whose will exits superior to that of the Irish state. And that will could be manifested in ways that might be inimical to Irish sensibilities. But the world is not England—and rebellion or secession may be more problematic. Yet this is the world envisioned. But this also can’t be right. It suggests either a regression to a protectionist, inward looking world—a world vision shared by other reactionary communities—or to a world in which states arranged in a non-hierarchical world order could, through a democratic system arranged as a sort of tyranny of the majority—strip states of their character.

6. But perhaps this is too much. Mr. Adams does suggest the ordering of such states, and presumably of the world government imposed on them, will be based not only on democratic principles but also on rights-based governance. But what sort of rights does he mean? Rights based on consensus of the governed are easily enough revised to suit the needs of the majority—hardly protection at all. Unalterable rights require consensus on the source of those rights (God, nature, etc.) and on an interpretation of those rights as applied. Not an easy task even in a culturally homogenous community. Again, for Catalonia and the Basque land, this offers very little.

Mr. Adams’ last set of important observations, about the utility of violence as a predicate to negotiation, of negotiation as a means of attaining ends that are, in themselves, not subject to negotiation, and of the importance of manipulating popular opinion as part of military and political campaigns, are worth a mention as well. Mr. Adams correctly, if subtly, defines the reality of modern warfare—a lesson the Americans failed to learn to their utter detriment in places like Iraq and Afghanistan. Mr. Adams also lays bare the dirty little secret of international negotiation among states—its scope is far more limited than the term implies. Dialog, negotiation, for Mr. Adams, and for many in conflict situations, is the means by which the defeat of a more powerful enemy can be effected without severe political repercussions in the losing state. The English can capitulate utterly, but if done in the context of a dialog leading to negotiation, then the consequences for English politicians are lessened. The Americans lost Viet-Nam in the same way in the 1970s and are likely to leave, defeated, from Iraq through the same route. And in this way, the unpalatable can be ingested at far less cost to those attending the meal. But if this is correct, then negotiation, dialog, succeeds only before the fact—that is, dialog actually occurs at the time before the commencement of formal discussion, when global public opinion is being formed.

Mr. Adams provided an honest, and quite refreshing view of the nature of international relations, and of the relation of sovereign activity to law, to the rule of law from the perspective of those communities still seeking to fully join the community of nations. It is a view that marginalizes the individual—in the name of protecting individual rights. It is a view that centers all activity on the state as a public, all consuming entity. It suggests that the rule of law must incorporate violence, even arbitrary violence, in its vocabulary. These are views with more in common with post-colonial Marxist Leninist ideals, than with the post-Soviet world of economic globalization and private ordering that we have been told we now inhabit. Mr. Adams reminds us that a worldview exists, side by side with law and economics, and the market, that rejects them and would remake the world in a very different image.