Just Published: "A Lex Mercatoria for Corporate Social Responsibility Codes Without the State?: A Critique of Legalization Within the State Under the Premises of Globalization"

I am happy to announce the publication of my article: "A Lex Mercatoria for Corporate Social Responsibility Codes Without the State?: A Critique of Legalization Within the State Under the Premises of Globalization," Indiana Journal of Global Legal Studies 24(1):115-146 (2017).  My great thanks to Anna Beckers (Maastricht) whose marvelous doctoral thesis, now a must read monograph, inspired this essay.  

The abstract and introduction follows; comments and engagement always welcome.

A Lex Mercatoria for Corporate Social Responsibility Codes Without the State? A Critique
of Legalization Within the State Under the Premises of Globalization

Indiana Journal of Global Legal Studies, Vol. 24, No.1, 2017
Larry Catá Backer

Abstract

Recent efforts have sought to theorize the legalization of the social and economic sphere that is undiminished by time. Though the context has changed over time, the project remains the same—to embed behavior control within a network of mandatory proscriptions attached in some authoritative way to the state. Corporate social responsibility has been bound up in corporate codes of behavior and related private governance standards systems. In that form, it serves as a key site for the evolution of legalization and legitimacy in governance. That evolution appears to take corporate social responsibility from its twentieth century formalist rigidity into something of a bridge between the political and social sphere. This essay considers the legalization project and its challenge to the logic and legitimacy of law and the dangers—for state and business enterprise—that flow from the fundamental ideological premises that appear to make this legalization project within the state both necessary and inevitable. These dangers include the misdirection of labeling—dismissing nonlaw as necessarily illegitimate, the obliteration of the fundamental construct of and constraints inherent in the corporate form, the error of conflating regulation with law, the unintended consequence of subverting law through the incorporation of a societal element in lawmaking, the error of denaturing the societal element of corporate codes, and the production of perversity through the formalism of law that masks inverted power relations between powerful enterprises and weak states. Paradoxically, perhaps, the project of legalization evidences how a love of ancient custom, in this case the customs and patterns of the post-Westphalian law-state, remains, while power shifts to those, enterprises included, that have brought about a revolution in the state and in the meaning of legalization in a new world order that has yet to be revealed.

Keywords: Multinational corporations, corporate codes, CSR, international law

JEL Classification: A13, M14, K22

I. Context: The Problem of Legalization and the Management of Economic Enterprises.

The robust development of the project of legalization within the logic of globalization has proceeded with increasing ferocity over the last several decades.[1] The object of this work is to bring globalization, and especially its regulatory aspects tied to economic enterprises operating across borders, back into law and legal systems.[2] To that end, law and legal systems are traditionally understood as sourced in and as an expression of the legitimate exercise of authority by states whose governments are lawfully constituted.[3] Transnational regulatory systems are meant to mimic and then perhaps work within or be absorbed into aggregated or harmonized domestic legal orders.[4] It is to that effort that much by way of international law in the economic sphere is devoted.[5]

Yet legalization ought not to be understood solely in its international aspects—that is, as a cluster of methodologies that set legal standards in or through international legal instruments. Efforts to legalize emerging transnational normative consensus on behavior within the legal structures of contemporary domestic legal ordering have been equally energetic. This is a national project rather than an international one, though it draws on the powerful instinct to harmonize approaches among states recognizing the distinctiveness of national legal traditions.[6] This project focuses on both legal transformation through the exercise of judicial authority (especially in common law states),[7] and reinterpretation of customary legal principles (especially, though not exclusively, in civil law states).[8] Its object is transnational in the sense that its foundation requires the willingness of supranational actors to embrace international standards within their own governance communities and to incorporate these standards as a sort of informal law.[9] It should then be a small step to transform the informal law of the enterprise into a part of the formal law of a domestic legal order and to seek to enforce these standards by resorting to the commonplace legal rules of states that might be moved to construct some connection between events that transpire in transnational space and their own domestic legal orders.[10]

It is in this second sense of legalization that Anna Beckers,[11] in her profoundly important and provocative book Enforcing Corporate Social Responsibility Codes, looks out across more than a century and across two germinal events—one a fire in a sweatshop in New York[12] and the other a building collapse of a sweatshop in Bangladesh.[13] These germinal events, undiminished by time across a century of substantial turmoil, serve as a basis to theorize, and quite persuasively, the continuity of a project that has as its object the legalization of the social and economic sphere. From both germinal events one hears the same cry, a cry out for something, some reaction, some effort to ensure that each event would be the last of its kind—the way political elites sought to cabin war after the First World War, what had then been sometimes nicknamed “the war to end all wars.”[14] But in place of a legal architecture to end impunity in aggression, one is now confronted with a great effort to construct a similar architecture to end all impunity in the economic sphere.

Though the context is quite different, the project remains the same—to embed behavior control within a network of mandatory proscriptions attached in some authoritative way to the state.[15] Yet its very different context, rather than its ultimate object, that poses the challenge. It is grounded in a set of basic premises: that law embedded within the domestic legal orders of states with legitimately established governments is the most authoritative form of regulation,[16] that authentic remedies must be embedded within domestic legal orders of legitimately constituted states,[17]and that law across jurisdictions can be harmonized in part because it reflects universal values, or can be made to be coherent, at least at some reasonable level of generality.[18]

But these premises produce contradiction within the emerging context in which they might be applied to the overall project of legalization within the state. Those contradictions might be understood as touching on the political, social, and economic contexts in which regulatory systems are increasingly embedded. The political context is globalization and its resituating of the state (or perhaps currently all but the most powerful of them) as perhaps not the sole occupant of the apex of political and social power in the world.[19] The social context is rule systems being developed by private actors. These private actors include primarily corporations,[20] nongovernmental organizations (NGOs),[21] and public-private hybrid actors.[22] But also included are public actors, most effectively within the Organization for Economic Cooperation and Development,[23] and the apparatus of the U.N. Human Rights Council.[24] The economic context is the business enterprise unconstrained by borders, political or otherwise.[25] These efforts have produced not just more conventional efforts to extend the jurisdiction of law to the societal sphere, but also efforts to transform the nature and basis of law and legal systems outward to better account for the reality of lawmaking within, between, and beyond the state,[26] and within transnational legal orders.[27]

This applies with particular force in the context of the regulation of economic activity, especially organized economic activity across borders.[28] Corporate social responsibility,[29] bound up in corporate codes of behavior and related private governance standards systems,[30] thus serves as a key site for the evolution of legalization and legitimacy in governance, from its 20th century formalist rigidity into something of a bridge between the political and social sphere.[31] And for this purpose, the state, like the corporation before it, is reduced to a nexus of connections within the structures of governance. But its reduction has an additional character as well, for the state is not merely reduced to a meeting point of governance webs, but it simultaneously changes its character from a public to a private economic actor operating within global private markets.[32] In addition, the state is a member of a community of states whose own power and governance must struggle with issues of democratic legitimacy now several steps removed from any direct connection with popular power or accountability.[33]

But even as the project of code legalization develops what may well become a most sound theory rationalizing the legalization of societal norms within the state, even as this project produces the best case for the reform of law within the state, and even if this best case theory for legalization within conventional parameters is convincingly both plausible and necessary to achieve the foundational aims of legitimacy, enforcement, and authority in governance, I look on this quite worthy and necessary project with dread. It is a dread born of an assumption that Beckers is right in the sense of crafting theory pointing the way to a possible, indeed plausible, set of approaches that might be undertaken in the service of that project should states be self-conscious enough in the project of self-preservation that they undertake them and coordinate the undertaking among them. It is a dread informed, in part, by a contemporary application of Aristotle’s insights about a more ancient relation between law and the state. The first suggests the difficulty of instrumentalism in law systems, especially where legal instrumentalism may create a tension with the normative or societal norms of the subject population: “For a law derives all its strength from custom, and this requires [a] long time to establish; so that, to make it an easy matter to pass from established laws to other new ones, is to weaken the power of laws.”[34] The other suggests the relationship between law and power. “For the people do not easily change, but love their own ancient customs; and it is by small degrees only that one thing takes the place of another; so that the ancient laws will remain, while the power will remain in the hands of those who have brought about a revolution in the state.”[35] To make law, then, within a changed context requires that law itself be unmade. That is, law must be reconstituted to fit within an environment for which it was not developed.

These insights apply, I believe, with equal force to the constitution of a law for corporate codes, and provide the foundation for my thesis: the move to reconstitute law within a legalization project threatens the underlying foundations of the current law-state, and this can threaten the authority of law and of the state. The victory for law that is finely crafted through the legalization project may well undermine the foundation of the very system in the service of which legalization is undertaken. Paradoxically, perhaps, the project of legalization evidences how a love of ancient custom, in this case the customs and patterns of the post-Westphalian law-state, remains while power shifts to those, enterprises included, that have brought about a revolution in the state and in the meaning of legalization in a new world order that has yet to be revealed. This is not to suggest that Beckers’ project serves the forces of dissipation or that the project will help usher in an age of chaos or anarchy.[36] Rather, it points out that law, and the state system on which much of its legitimacy is founded, may not be able to overcome its own contradictions in the face of new technologies of power or the internationalization of politics and economics, in which the state may no longer claim, even within its territory, a monopoly of power.[37]

This essay, then, serves to briefly sketch out what I see as the danger—for the state and for the business enterprise—that flows out of the fundamental ideological premises that appear to make legalization within the state necessary and inevitable, when it may be neither but for the blinders of the ideology that appears to make them so.[38] I offer this in an effort to excavate under the fairly thick walls of the ideology of law and state, not to undermine this ideology but to offer a view of the world from beyond its walls. And so, when I look across the century from the Triangle Shirtwaist fire of 1911 to the Rana Plaza building collapse of 2013, I might see the process of legalization in a substantially different light. I might see that process from 1911 to 2013 as one in which the state comes to play a substantially reduced role and from which legalization itself might be made possible only by the state’s absence. But I might also see a process in which a legalization of the social and economic sphere may be indeed proceeding, but not in an unbroken line nor in the shadow of the state.

* * *

[1]. See generally Legalization and World Politics (Judith L. Goldstein, Miles Kahler, Robert O. Keohane & Anne-Marie Slaughter, eds., 2002) (examining global changes in politics and law); David Levi-Faur, The Political Economy of Legal Globalization: Juridification, Adversarial Legalism, and Responsive Regulation. A Comment, 59 Int’l Org. 451 (2005) (discussing a study of global legal and regulatory change).


[2]. See generally Kenneth W. Abbott & Duncan Snidal, Values and Interests: International Legalization in the Fight Against Corruption, 31 J. Legal Stud. 141 (2002); Law and Legalization in Transnational Relations (Christian Brütsch & Dirk Lehmkuhl eds., 2007).


[3]. See generally Hans Kelsen, What Is the Pure Theory of Law?, 34 Tul. L. Rev. 269 (1960); Roscoe Pound, What Is Law?, 47 W. Va. L. Q. 1 (1940); Luis de Garay, What Is Law?, 16 Notre Dame Law. 261 (James J. Kearney, trans., 1941); Joseph Raz, Legal Principles and the Limits of Law, 81 Yale L.J. 823 (1972). Those still invested in the question of what is law, many of whom are in the political and academic elites, tend to treat the issue within a larger discourse. See, e.g., John Griffiths, What is Legal Pluralism?, 24 J. Legal Pluralism & Unofficial L. 1 (1986) (discussing law within the discourse of legal pluralism); Paul Schiff Berman, Global Legal Pluralism, 80 S. Cal. L. Rev. 1155 (2007) (same); Gillian K. Hadfield & Barry R. Weingast, What Is Law? A Coordination Model of the Characteristics of Legal Order, 4 J. Legal Analysis 471 (2012) (discussing law within the discourse of coordination and public choice); Anne Marie Slaughter, A New World Order (2004) (discussing law within the discourse of networked systems); Gunther Teubner, The Two Faces of Janus: Rethinking Legal Pluralism, 13 Cardozo L. Rev. 1443 (1992) (discussing law within the discourse of societal constitutionalism).


[4]. See Errol Meidinger, Beyond Westphalia: Competitive Legalization in Emerging Transnational Regulatory Systems, in Law and Legalization in Transnational Relations, supra note 2, at 121, 121.


[5]. See generally Larry Catá Backer, Essay: Considering a Treaty on Corporations and Human Rights: Mostly Failures but with a Glimmer of Success (Aug. 28, 2015) (unpublished essay) (describing how treaty negotiations are affected by changing power dynamics of globalization), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=

2652804.


[6]. See generally Larry Catá Backer, Essay: Considering a Treaty on Corporations and Human Rights: Mostly Failures but with a Glimmer of Success (Aug. 28, 2015) (unpublished essay) (describing how treaty negotiations are affected by changing power dynamics of globalization), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=

2652804.


[7]. See, e.g., Mara Theophila, Note, “Moral Monsters” Under the Bed: Holding Corporations Accountable for Violations of the Alien Tort Statute After Kiobel v. Royal Dutch Petroleum Co., 79 Fordham L. Rev. 2859 (2011) (examining whether international or domestic law should control a court's determination in Alien Tort Statute cases); David L. Sloss, Kiobel and Extraterritoriality: A Rule Without a Rationale, 28 Md. J. Int'l L. 241 (2013) (discussing the different international and domestic rationales for judicial decisions applying the presumption against extraterritoriality); Roger P. Alford, Human Rights After Kiobel: Choice of Law and the Rise of Transnational Tort Litigation, 63 Emory L.J. 1089 (2014) (reframing human rights violations as international wrongs resolved through transnational tort litigation).


[8]. See, e.g., Simon Deakin & Richard Hobbs, False Dawn for CSR? Shifts in Regulatory Policy and the Response of the Corporate and Financial Sectors in Britain, 15 Corp. Governance 68 (2007) (presenting a reflexive model of corporate social responsibility in Britain); Charis Kamphuis, Canadian Mining Companies and Domestic Law Reform: A Critical Legal Account, 13 German L.J. 1459 (2012) (offering a legal account of mining law reform efforts in Canada); Ruben Zandvliet, Corporate Social Responsibility Reporting in the European Union: Towards a More Univocal Framework, 18 Colum. J. Eur. L. F. 38 (2011) (examining the legal framework for corporate social responsibility in the European Union).


[9]. See, e.g., Karin Buhmann, Corporate Social Responsibility: What Role for Law? Some Aspects of Law and CSR, 6(2) Corp. Governance 188, 188 (2006).


[10]. See, e.g., Andreas Rühmkorf, Corporate Social Responsibility, Private Law and Global Supply Chains (2015).


[11]. Anna Beckers, Enforcing Corporate Social Responsibility Codes: On Global Self-Regulation and National Private Law (2015).


[12]. See generally David Von Drehle, Triangle: The Fire that Changed America (2003) (describing the devastating 1911 fire that destroyed the Triangle Shirtwaist factory in New York's Greenwich Village).


[13]. See generally Larry Catá Backer, Are Supply Chains Transnational Legal Orders?: What We Can Learn from the Rana Plaza Factory Building Collapse, 1(1) U.C. Irvine J. of Int’l, Transnat’l, & Comp. L. (forthcoming 2016) (recounting the 2013 collapse of the Rana Plaza, an eight-story commercial building, in Bangladesh).


[14]. See Erik Sans, WWI Centennial: “The War to End All Wars, Menmtal Floss (Aug. 16, 20914 (available http://mentalfloss.com/article/58411/wwi-centennial-war-end-all-wars) (“For this is now a war for peace. It aims straight at disarmament. It aims at a settlement that shall stop this sort of thing for ever. Every soldier who fights against Germany now is a crusader against war.” Quoting H.G. Wells, The War that Will End War, The Daily News (Aug. 14, 1914)). In a similar way one sees each of the victims of enterprise human rights abuses as a crusader against impunity in corporate irresponsibility in the human rights wrongs that are a aconseqeunce of their operations. See generally, Basak Cali, International Law for International Relations 57 (2010).


[15]. Beckers, supra note 11, at 306-63.


[16]. See Larry Catá Backer, The Emerging Normative Structures of Transnational Law: Non-State Enterprises in Polycentric Asymmetric Global Orders, 31 B.Y.U. J. Pub. L. – (forthcoming 2017), draft available at http://ssrn.com/abstract=2038103.


[17]. See generally Régis Bismuth, Mapping a Responsibility of Corporations for Violations of International Humanitarian Law Sailing Between International and Domestic Legal Orders, 38 Denv. J. Int’l L. & Pol’y 203 (2010) (discussing lower legal expectations of corporations as a “legal person”).


[18]. See, e.g., David Bilchitz, The Necessity for a Business and Human Rights Treaty 15 (Nov. 30, 2014) (unpublished article), available at http://ssrn.com/abstract=2562760.


[19]. See, e.g., Richard L. Dixon, The Challenge & Complexities of Nation-State Sovereignty in the Era of 21st Century Internationalism 2-4 (June 15, 2011) (unpublished article), available at http://ssrn.com/abstract=1886727.


[20]. See generally Gunther Teubner, The Corporate Codes of Multinationals: Company Constitutions Beyond Corporate Governance and Co-Determination (explaining how multinationals’ corporate codes react to the disappearance of traditional actors due to the globalization), in Conflict of Laws and Laws of Conflict in Europe and Beyond: Patterns of Supranational and Transnational Juridification (Rainer Nickel ed., 2010).


[21]. See, e.g., Philipp Pattberg, The Institutionalization of Private Governance: How Business and Nonprofit Organizations Agree on Transnational Rules, 18 Governance 589 (2005) (examining how private actors like NGOs make their own rules and standards that acquire transnational authority).


[22]. See generally Larry Catá Backer, Private Actors and Public Governance Beyond the State: The Multinational Corporation, the Financial Stability Board, and the Global Governance Order, 18 Ind. J. Global Legal Stud. 751 (2011) (explaining how the rise of transnational corporations create governance systems in which public and private actors are integrated stakeholders).


[23]. See generally Organization for Economic Cooperation and Development [OECD], OECD Guidelines for Multinational Enterprises (May 25, 2011) (committing forty-two countries to standards of corporate behavior), available at http://dx.doi.org/

10.1787/9789264115415-en.


[24]. See generally U.N. Human Rights Office of the High Comm’r, Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework, U.N. Doc. HR/PUB/11/04 (June 16, 2011) (setting forth guidelines for states on the issue of human rights and transnational corporations and other business enterprises), available at http://www.ohchr.org/Documents/Publications/GuidingPrinciples

BusinessHR_EN.pdf.


[25]. See, e.g., Larry Catá Backer, Multinational Corporations as Objects and Sources of Transnational Regulation, 14 ILSA J. Int’l & Comp. L. 1, 6 (2008).


[26]. See Calliess & Zumbansen, supra note 6, at 11 (2010).


[27]. See generally Transnational Legal Orders (Terence C. Halliday & Gregory Shaffer eds., 2015) (discussing institutionalization of legal orders across national boundaries and the ensuing implications for law and social ordering).


[28]. See, e.g., Larry Catá Backer, Regulating Multinational Corporations: Trends, Challenges, and Opportunities, 22 Brown J. World Aff. 153, 154 (2015).


[29]. See generally Larry Catá Backer, Multinational Corporations, Transnational Law: The United Nation’s Norms on the Responsibilities of Transnational Corporations as a Harbinger of Corporate Social Responsibility as International Law, 37 Colum. Hum. Rts. L. Rev.287-389 (2006)(discussing the contemporary challenges of corporation social responsibility as an object and source of law).


[30]. On corporate codes and their regulatory implications, see Gunther Teubner, Self-Constitutionalizing TNCs? On the Linkage of "Private" and "Public" Corporate Codes of Conduct, 18 Ind. J. Global Legal Stud. 617 (2011).


[31]. See, e.g., Paz Estrella Tolentino, Transnational Rules for Transnational Corporations: What Next?, in Global Instability: The Political Economy of World Economic Governance 177 (John Grieve Smith & Jonathan Michie eds., 1999).


[32]. See, e.g., Larry Catá Backer, Sovereign Investing in Times of Crisis: Global Regulation of Sovereign Wealth Funds, State-Owned Enterprises, and the Chinese Experience, 19 Transnat’l L. & Contemp. Probs. 3, 11 (2010).


[33]. See, e.g., Patrizia Nanz, Democratic Legitimacy and Constitutionalisation of Transnational Trade Governance: A View from Political Theory, in Constitutionalism, Multilevel Trade Governance and Social Regulation 59 (Christian Joerges & Ernst-Ulrich Petersmann, eds., 2006).


[34]. Aristotle’s Politics: A Treatise on Government 62 (William Ellis trans., 1895).


[35]. Id. at 134.


[36]. Mosés Naím answers the question, “who is in charge” by suggesting that no one is anymore. See generally Moisés Naím, The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being In Charge Isn’t What It Used to Be (2014). But no one ever was . . . completely. This impulse has been particularly acute in the context of the internationalization of political economy. See generally David C. Korten, When Corporations Rule the World (2001); Leslie Sklair, The Transnational Capitalist Class (2000); Kees van der Pijl, Transnational Classes and International Relations (1998). Every emergence of power systems, including the contemporary power system founded on states, was at one point characterized by anarchy (no ordering principle) which was then eventually ordered to some extent (in the case of states by the international system especially after 1945) in legal harmonization, the logic of which inevitably weakens the integrity of its component parts. See, Philip Allott, The health fo Nations: Society and Law Beyond the State 301-304 (Cambridge, 2002). The same may well be expected of the polyglot system of fractured power that appears to be emerging in this century, though most of us today will be dead long before it may be disciplined by some ordering principle or other. See, Larry Catá Backer, The Structural Characteristics of Global Law for the 21st Century: Fracture, Fluidity, Permeability, and Polycentricity, 17(2) Tilburg L. Rev. 177-199 (2012).


[37]. For further discussion of this idea, see Larry Catá Backer, Fractured Territories and Abstracted Terrains: Human Rights Governance Regimes Within and Beyond the State, 23 Ind. J. Global Legal Stud. 61 (2016); Larry Catá Backer, Governance Polycentrism or Regulated Self-Regulation: Rule Systems for Human Rights Impacts of Economic Activity Where National, Private, and International Regimes Collide, in Contested Regime Collisions: Norm Fragmentation in World Society 198 (Kerstin Blome et al. eds., 2016); and Larry Catá Backer, Transnational Corporations’ Outward Expression of Inward Self-Constitution: The Enforcement of Human Rights by Apple, Inc., 20 Ind. J. Global Legal Stud. 805 (2013).


[38]. See generally Larry Catá Backer, Governance Without Government: An Overview (reviewing the extent of contemporary reticence to embrace any "governance without government" framework that strays too far from the all-encompassing embrace of the state system and public power), in Beyond Territoriality: Transnational Legal Authority in an Age of Globalization 87 (Günther Handl et al. eds., 2012).