Thursday, January 03, 2019

"Globalization, Sustainability and Firm Cultures"-- Program of the AALS Section on Economic Globalization and Governance Presented at the 2019 AALS Annual Meeting

The Association of American Law Schools (AALS) sponsors an annual meeting attended by substantial numbers of academics based primarily in U.S. law schools. This year, the annual gathering is being held in New Orleans, Louisiana from Wednesday, January 2 – Sunday, January 6, for the 2019 Annual Meeting. Under the theme of “Building Bridges.”  Wendy Collins Perdue, the AALS President noted in her "President's Message", in part that:
Lawyers are not social workers, but they are, as Lon Fuller put it, architects of social structure. And in that role as architects, they can be—we can be—enormously helpful in reconnecting a fractured world. That is to say, in building bridges. So that is my theme for the year: building bridges. I hope that we can put on display our traditions of professionalism, civility, and reasoned disagreement, and inspire the next generation to “think like a lawyer” about society’s problems: to listen, consider, reason, collaborate, resolve, and even heal." (President's Message)
The AALS' many interest sections sponsor programs that tend to highlight and interrogate current issues of substantial concern to its members and of genera interest to the legal academic community.

I am a member of the AALS Section on Economic Globalization and Governance, and its chair elect.  Our current chair, Lynne L. Dallas, University of San Diego School of Law, developed a quite provocative program, Globalization, Sustainability and Firm Cultures. The program is one that highlights many of the critical issues at the intersection of law, economics, national, and international, public and private law that continue to bedevil actors and institutions within what we euphemistically call globalization. Its investigation is enriched by the scholars contributing to that discussion, Miriam A. Cherry, Saint Louis University School of Law, Virginia Harper Ho, University of Kansas School of Law, Jeff Schwartz, University of Utah, S.J. Quinney College of Law, and me.

The details of the Section Program follows below, along with very brief thoughts.

Globalization, Sustainability and Firm Cultures
Thursday, Jan. 3, 2019, 10:30AM-12:15PM

Chair: Lynne L. Dallas, University of San Diego School of Law
Moderator: Cheryl L. Wade, St John’s University School of Law
Larry Cata Backer, Penn State University, Penn State Law
Miriam A. Cherry, Saint Louis University School of Law
Virginia Harper Ho, University of Kansas School of Law
Jeff Schwartz, University of Utah, S.J. Quinney College of Law
This panel will evaluate progress in promoting sustainability standards for multinational enterprises (MNEs). It will explore why some MNEs continue to engage in abusive practices that support environmental degradation, unsafe working conditions, and the like. It will also explore various actions taken by some MNEs, institutional investors, and banks that further sustainability objectives. The panelists will debate the moral and ethical responsibilities of MNEs, whether to maximize shareholder value or to pursue sustainability objectives that take into account the interests of society and all firm stakeholders. They will present their perspectives on the importance and effectiveness of corporate codes of conduct and the significance of social exhortations by various public bodies to pursue sustainability objectives. They will also explore regulatory gaps due to the loss of national sovereignty over global enterprises and how corporate cultures can change to further sustainability objectives.

The panelists will focus on the following scenarios. Time permitting, audience participation will be welcomed after each scenario.

Scenario One: Can we see progress in sustainability standards followed by multinational enterprises (MNE)? For example, a recent study showed that 78% of S&P 500 companies are issuing sustainability reports. Is this a reflection of corporate cultures that embrace sustainability or are they mostly greenwashing? What measures (legal, nonlegal, internal or external) are most effective in encouraging sustainability practices by MNEs? What are the impediments to these measures? Is sustainability an appropriate goal for for-profit corporations? If so, what weight should it be given to it in corporate decision making? Panelists: Jeff Schwartz, Virginia Harper Ho, Miriam Cherry

Scenario Two: In September 2018, global NGOs, including Friends of the Earth and the Sierra Club, kicked off a campaign to pressure BlackRock, one of the world’s largest investors, to (1) divest from fossil fuel companies, (2) vote its shares in support of shareholder proposals on sustainability and climate risk disclosure, and (3) actively engage with companies it owns in order to pressure them to align with the Paris Climate Accord. How should BlackRock respond? What factors should it take into account? Is its involvement regarding these issues justified and consistent with its fiduciary duties? Panelists: Virginia Harper Ho, Jeff Schwartz, Larry Cata Backer

Scenario Three: Agri Corp, a multinational corporation incorporated in Delaware, has multilayered subsidiaries that constitute a massive global supply chain for agricultural products. One of its subsidiaries has a joint venture with a cooperative that allegedly practices gender discrimination by imposing informal rules (strongly supported by local custom and tradition) that prevent women from controlling agricultural land. It is claimed that Agri Corp has failed to meet international guidelines for gender equality. How should Agri Corp. respond? Panelist: Larry Cata Backer

Scenario Four: Babble, Inc. is a digital platform headquartered in Palo Alto, California. It provides language lessons on a digital crowdwork model. 170-plus countries can get language tutoring for $10 an hour. Only $4 is passed on to workers. Because of flexible working time, Babble argues that these workers are are not really “employees,” and it shouldn’t have to pay applicable taxes or social security contributions. What are the potential problems, issues, and concerns that go along with the crowdwork business model? How can corporate codes of conduct be used to alleviate the problems? How can such codes be formulated? Panelist: Miriam Cherry

The Section’s business meeting will follow.


The discussion around the scenarios highlighted a large number of issues, all substantially unresolved.  It was interesting to see in the U.S. discussion, a parallel with discussions I have heard in other legal systems, manifest certain tensions and hesitations.  

The first is what I call the traditionalist nativist problem; the reflex to focus problem definition and solutions around native law, law systems, and national legal-cultural principles.  This suggests that national law remains to some extent detached form law making elsewhere.  It also suggests a detachment form international and national sources.  It is in a way a very traditional approach to the context of national law systems of which the United States and China remain the most influential drivers.

The second is what I call the second order solution problem; the willingness to effect, without much worry, an effective governmentalization of the private sector by relying on disclosure based transparency solutions without requiring the political branches to directly confront the need for normative (substantive) law making.The difficulty here, of course  is that in the process law is itself transformed from the source fo norms to the apex router; law becomes a systems manager while the actual expression of normative content in rules is left to the institutions onto which disclosure is mandated producing a regulatory governance structure that leaves normative development to the market(s). 

The third is what I call the law-norm conundrum. This is a global disease with its own set of contradictions. On the one hand, the second order solution problem creates incentives toward delegation of substantive rule making.  On the other none law based substantive rules are viewed as ineffective shadows of the legitimacy of law making by political bodies. The problem becomes more pronounced where global structures of regulatory governance are viewed as less legitimate precisely because either markets source rules or because the normative basis of such rulemaking is not binding in the snese that it does not reflex the definitive word from within specific domestic legal orders.

These problems make the resolution of the acute problems of the age--nicely summarized in the four scenarios that formed the basis of the discussion--both intractable and incoherent.  It is intractable because the contradictions inherent in the three great problems create unavoidable conditions un-acountability, of norm shopping, and as a result of the certainty that solutions, however adopted will be neither scale-able nor comparable.  Each enterprise, and each problem, will produce solutions that are themselves unique, and to that extent, of less value to markets and thus to the risk management, compliance, accountability framework within which firms operate.  That is a pity unlikely to be resolved anytime soon.

Yet within that context it is possible to identify five broad issues areas that will likely factor into the resolution of each of the scenarios.  They include the following.

1. The issue of definition.  One tends to paint compliance in the sustainability area with a broad brush.  Alternatively one divides corporate responsibility into categories for which "sustainability" embraces environmental (and sometimes climate change) issues, and "human rights" and "labor" embrace others.  Even within those categories, the ability to define the normative scope for each for purposes of creating  objectives that ca be assessed becomes difficult at best.  Difficult because there is no consensus, and indeed, a marketplace of standards has now arisen.  In the absence of coherence here, definition loopholes can be used to the best advantage of the enterprise.  This is not to suggest intentional efforts to subvert, but certainly incentives to use the concepts strategically within the business model of specific forms.

2.  The issue of scope. What comes within and what falls outside the problem and the solution has become substantially contentious. In the absence of consensus standards, there is little guidance and much strategic use of variations to suit the needs of civil society, consumers, government and enterprises. These issues of scope bedevil all aspects of the "social responsibility" context, irrespective of the foundation in law or norm, national or international. These are old issues as well, and ones that pit the fundamental ordering principles of corporate law, against international human rights law regimes, against environmental law regimes and the like. In the absence of intra-state resolution of these contradictions, international approaches are unlikely to provide a solution.

3.  The issue of the character of active engagement.  Outsiders want enterprises to be actively engaged.  Financial firms ought to be actively engaged with the enterprises to which they have loaned money or whose securities they hold.   Operating companies ought to be actively engaged in the operations and structures of decisionmaking (including operational values making) down the production chain all the way to the origin of base materials. This active engagement can sometimes run against principles of national or firm autonomy built into legal or political systems.  And they might well transform regimes of liability beyond the field of social responsibility without any sort of debate about these externalizes or the larger issues of policy coherence involved.   That last comment does not suggest a judgment but rather the certainty that this state of affairs will create the sort of oppositions that impede any progress toward solution of "corporate responsibility" related issues.

4.  The issue of soft law models. Soft law models provide both the most likely source of normative values and the least satisfying source for those seeking the certainties of law.  More troubling, of course, is that these soft law models contribute to a great market for values (and regulation) that now characterizes this field.  To some extent this is similar to the traditional problem of regulatory competition within and between states. And form the perspective of the enterprise it contributes to the evolution of law (and norm) from an operational principle to a consumable commodity in the production of goods and services.

5. The hardwiring issue. When all else fails (and "all else" appears to fail comprehensively in this area), it is left to delegate rulemaking and enforcement to the enterprise.  This governmentalization of the firm pushes downward from the state (through programs of incentives and disclosure rules) and upward from constituents (civil society as proxy for communities, consumers, and investors).  But hardwiring produces problems of its own.  These include tailoring the rule system to exclude critical stakeholders (e.g., codes of conduct provide no remedial rights to affected workers and others) and makes it impossible to develop uniform policy--even within industrial sectors--as enterprises pick and choose the standards it will adopt and enforce, as well as the manner of enforcement.  

Within these constraints, the discussion of the issues, and the breadth of approaches to solution, was lively and quite interesting. If there was any consensus, it revolved around the problems of greenwashing--the all to tempting use of the ambiguities and lacunae--to produce the appearance but not the fact of compliance. It also revolved around the utility of transparency regimes as a second order governance tool.  In a sense, this conforms a slow but now clear move in the development of tastes for regulatory governance--and reliance on the market--for resolving governance issues now impossible for the state to confront directly. The market, then, becomes the space within which consumers and investors, produce and consume disclosure, and thus drive norms. The state manages the process the way it manages financial markets.  That may be enough. Consequential issues of democratic participation and legitimacy, though, still will be left for another day--it might be enough, though, that law is used to provide the constraints within which regulatory governance functions.  Yet one is left to wonder whether under such regimes, if enterprises will effectively be treated as administrative agencies. And if that is the case, then the gaps between state owned enterprises and private enterprise managed through regulatory governance structures narrows just a little more.

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