Adapting corporate governance for sustainable peace.

• Author: Fort, Timothy L.

ABSTRACT

Acts of violence toward multinational corporations have important consequences for the way these companies will need to structure their approach to international business. This Article proposes four contributions that corporations can make to sustainable peace. By incorporating sustainable peace as a business objective, multinational corporations may be able to blend extant corporate governance principles with a goal that can significantly contribute to the reduction of violence in society.

TABLE OF CONTENTS I. INTRODUCTION II. THE ROLE OF BUSINESS AND SUSTAINABLE PEACE A. The Contemporary Context: Balance of Power and the State B. The Parliamentary Models: Germany, Japan, and the United States C. Benefits of Democracy D. The Role for the Corporation 1. The Paradox of Globalization and Democracy 2. The Huntington Thesis and the Spillover Effects of Corporate Behavior III. IMPLICATIONS FOR CORPORATE GOVERNANCE A. Corporation Governance Regimes of Competing Market-State Models 1. The U.S. Model 2. The German Model 3. The Japanese Model B. Corporate Governance Regimes and Sustainable Peace 1. A Comparative Assessment a. Citizenship and Voice i. Citizenship ii. Voice b. Mediating Institutions and Lessons to Counteract Cynicism i. Mediating Institutions ii. Lessons to Counteract Cynicism c. Comparative Assessment 2. A Proposed Model of Corporate Action a. Fostering Economic Development b. Adopting External Evaluation Principles c. Nourishing a Sense of Community d. Mediating Between Potentially Conflicting Parties IV. CONCLUSION I. INTRODUCTION

In May 2002, as President Bush was preparing to embark on a trip to Germany in an attempt to convince European countries to back tougher action against Iraq, large protests sprung up in the city of Berlin. (1) The fear of unrest prompted the German government to call over 10,000 police, the largest contingent ever assembled, into the city. (2) A large composite protest group composed of 240 smaller organizations, including such diverse ideologies as anarchists and environmentalists, which referred to itself as the Axis of Peace (in response to the labeling by President Bush of Iran, Iraq, and North Korea as the "Axis of Evil" in his 2002 State of the Union Address), targeted corporations with U.S. ties in order to express their disapproval of the current U.S. foreign policy. (3) Police had earlier thwarted an attempted firebombing on a Wal-Mart store in Bonn, and they feared further attacks against the retail giant, as well as against McDonald's restaurants and DaimlerChrysler offices. (4)

Of course, such protests are not limited to those groups expressing displeasure with U.S. policy. In January 2002, Argentinian protesters ransacked Spanish and U.S. banks, and a McDonald's restaurant in Buenos Aires. (5) These violent acts arose from an initially-peaceful protest aimed at the economic reforms of the new and unstable Argentinian government in a financial system where most of the investment is obtained from foreign sources. (6)

The above examples point toward an increasing trend in current global politics: the targeting of local branches of international corporations, especially U.S. corporations, to express disapproval with the policies of the corporations' home or host country, or both. U.S. corporations, such as Wal-Mart, McDonald's, Nike, and Coca-Cola, are prime targets because of their size, business practices, and the way that these companies symbolize the capitalist free market to the rest of the world. The problem has become so troublesome and widespread that before the 2001 Summit of the Americas in Quebec City, a McDonald's restaurant in that city shut down for the duration of the event and removed all identifying signs in an attempt to escape now-routine protester outbursts. (7)

These acts of violence toward multinational corporations have important consequences for the way these companies will need to structure their approach to international business. It has thus become apparent that companies need to assure that their international business relationships are profitable on both sides. This has become important in this era of increasingly destabilized and fluid international relationships, where the perceived dominance of one country leaves its multinational corporations subject to violent reprisals. The companies that are likely to be targeted are often the largest and most visible, and those that are also perceived as being uncaring about the conditions that they create in their host country. This has been evidenced by the ongoing debate over "sweat shop" labor that has resulted in protests against Nike both in the United States and abroad. (8) Therefore, it becomes vital for these companies to strive to foster peaceful relations in the countries in which they conduct business and to use their influence in a positive way to attempt to create a peaceful environment in which to conduct beneficial business relations.

Violence is not limited to the international front, however. The United States has one of the highest rates of workplace violence in the world, with over 2 million instances reported. (9) In 2000, 11 percent of the 5,914 fatal work injuries experienced in the United States were due to some form of violence. (10) The increasing pressure of a global recession has ignited new rounds of workplace violence throughout the world. In Japan, the sagging economy has led to rapidly-increasing instances of "bullying" of white-collar workers, as the idea of an individual remaining with one company for his or her entire working career is rapidly becoming a thing of the past. (11)

These incidences take a toll on the workers themselves as well as on the countries' economies. In the United States alone, instances of workplace violence are estimated to cost U.S. companies over four billion dollars each year. (12) In Germany, the direct psychological effects of workplace violence are estimated to cost over USD $112,000 for every company with 1,000 workers. (13) The indirect costs are estimated to be around USD $58,000. (14)

In previous work, we argued that a link exists between corporate governance and the reduction of violence. (15) In this Article, we further explore that link, focusing on how corporations can work toward the goal of reduction of violence in the societies in which they operate. (16) Here, we pose the question of how well-suited various corporate governance regimes are to face these complexities, and how they may cope in ways that are consistent with their fundamental principles. We focus on the corporate governance regimes of the United States, Germany, and Japan. A common denominator of the political entities addressed is a commitment to a political regime of democracy. At least in the post-World War II era, and particularly in the post-Cold War era, all of these countries have been committed to democratic governments and principles.

This Article is thus organized as follows. Part II outlines our thesis that corporations are in a position to make contributions to peace in society because of shifting political balances of power. Part III analyzes comparative models of corporate governance and considers the extent to which contemporary corporate governance models may be adapted to consider peace as a goal they should achieve. Concluding remarks follow in Part IV

2. THE ROLE OF BUSINESS AND SUSTAINABLE PEACE

   It can be difficult to understand how corporations might be engaged in issues of building democracy and sustainable peace. Economic imperatives and competitive pressures seem to make consideration of such political and moral goals beyond the scope of corporate responsibility. Historically, there may be some justification for this reticence, but it is important to see that the 21st century may not replicate the geopolitical conditions of the previous several centuries. In large part, this may be due to the balances of power that exist among various institutions including nation-states and multinational corporations, and the relationship corporations have with governments and nongovernmental organizations (NGOs). Thus, this Section (1) addresses the contemporary geopolitical set of conditions that add complexity to the balances of power; (2) delineates the newly-emerging alternate forms of democracies that may account for this reality; and (3) articulates various reasons why these alternatives are important to sustainable peace. It then suggests how corporations might foster the stabilizing benefits of democracy, as well as how they might unwittingly undermine those benefits.

   1. The Contemporary Context: Balance of Power and the State

      Particularly in developed countries, there can be an understandable tendency to think of corporations as private organizations with relatively-autonomous authority through state chartering. Under this conception, businesses may act to maximize profits, provided they do not violate laws enforced by a government. There is confidence in this model because, at least in first-world countries, governments have the capability to enact and enforce regulations. It is not so clear, however, whether governments of developing countries have the same power vis-a-vis corporations, particularly when considering the transcendence of multinational corporations beyond geographical borders. The comfortable and traditional characterization of corporations as profit maximizers within the confines of the law might be insufficient in today's world.

      A key reason for the concern is the increasing complexity of the world in light of the number of states that now exist, the proliferation of NGOs, the power of multinational corporations, and perhaps most profoundly, the changing nature of the nation-state. (17) In an ambitious book, constitutional law scholar Philip Bobbitt examines the changes in the state throughout history. (18) Bobbitt argues that the construction of legal constitutions has historically resulted from...