Corporate governance in the cause of peace: an environmental perspective.

• Jurisdiction: United States
• Author: Mayer, Donald O.
• Date: 01 March 2002

ABSTRACT

This Article examines the role of multinational corporations in creating global peace. Part I discusses the role of multinational corporations in the global economy, emphasizing the relationship between multinational corporations, governments, and the environment. Part II explores whether corporations have a moral duty to oppose ill-conceived laws and policy proposals and to support well-conceived laws that encourage efficiency and sustainability, but may hinder short-term profitability. Part III expands and further explores the argument set forth in Part II by examining the continuing dependency of the United States and other industrialized democracies on oil from the Middle East. Part IV concludes the Article by noting that multinational corporations have both the power and responsibility to create products and services that materially enhance human well-being by preserving the natural environment.

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Peace is an uncommon subject for a law review article on corporate governance. An article on corporate governance from an environmental perspective also differs from the usual concerns about making management more accountable to shareholders. (1) Combining concepts of peace, corporate governance, and environment into one article will require both the author and reader to think more holistically about how corporations are governed, both internally and externally, and how corporations may help to co-create the conditions of peace and environmentally sustainable economies.

The idea that corporations may "co-create" the conditions of peace is contrary to the more customary view that in matters of creating or maintaining peace "the role of government completely dominates." (2) Yet, while many corporations may have an insignificant role in co-creating peace--or in disturbing it--larger companies do seem to have an impact. This Article contends that many large corporations have an important role to play in establishing and revising the rules of the global economic game. Moreover, corporations should support those rules providing structural efficiencies (3) that promote full-cost pricing, phase out perverse subsidies, and provide more meaningful information to investors and consumers. In so doing, corporations, consumers, and governments can create more peaceful, sustainable societies even while allowing maximum freedom of movement of people, goods, and services across international borders. (4)

Implicit in this view of corporations as "co-creators of peace" is that corporations are properly viewed as created by society (5) to serve public as well as private interests, (6) and that they are more than a "nexus of contracts." (7) Accordingly, well-traveled ideas on corporate governance from Milton Friedman (8) and his adherents deserve respect, but fail to place corporations in their wider social and political context.

Part I will discuss the role of multinational corporations (MNCs) in the global economy, with emphasis on the relationship between MNCs, governments, and the environment. Special attention will be paid to the oil industry, which provides numerous examples of corporate power vis a vis developing nations' governments. Often, collaborations between corporations and these governments do not adequately respect human rights, extant communities, or the natural environment. Instead of co-creating conditions of peace, these companies have instead contributed to environmental degradation, poverty, and social unrest.

Part II seeks to sort out the legal and ethical implications of Part I by asking whether corporations have a duty not just to obey the law, but also to support laws that may hinder their short-term profitability. The basic contention is that where corporations can make a difference, they are morally obliged to oppose ill-conceived laws and policy proposals and to support well-conceived laws that encourage efficiency and sustainability. It is not socially responsible for a large corporation to use its influence just to oppose those laws and proposals that threaten its short-term economic interests. The reader may well question this proposition; even more problematic will be the task of distinguishing laws and proposals that deserve support from those that require concerted opposition.

One of the major hurdles in believing that a corporation might have a duty to support a law or legislative proposal that would impair earnings in any way is the prevailing belief that corporations are relatively powerless to do so. One aspect of this prevailing belief comes from the conviction that the sole and ultimate purpose of a corporation is to maximize profits. The other aspect is a well-entrenched notion that corporations play a game in which government laws and market mandates--from consumers--largely dictate available strategies. (9) Consistent with this belief, Norman Bowie has said that governments set the rules and consumers command the market: accordingly, corporations have no special responsibility to the environment beyond what is required by law or demanded by consumers. (10)

The Bowie view, however, is at odds with the power of MNCs relative to governments in developing nations. It is also at odds with the role that corporations play in developed economies, where companies exercise free speech to inform consumers and suppliers in the market and also work to establish or reform certain governmental rules and regulations. Corporations have a role to play in co-creating peace by proactively collaborating with NGOs, governments, international institutions, consumers, and the public to create rules of the international trading game that globalize not just trade in goods, but make more available basic human needs, recognize fundamental human rights, and preserve critical habitat and natural resources for future generations. In so doing, these corporations can help to establish the pre-conditions for peaceful economic and human relationships. In theory, of course, business people everywhere should want such stable conditions, but under present arrangements they are systematically driven by short-term economic considerations to maximize current revenue (11) and ignore the natural environment that is the very basis for our economies. (12)

Part III continues this argument by looking at the continuing dependency of the United States and other industrialized democracies on oil from the Middle East. Readers whose primary concerns about peace relate to the attacks of September 11, 2001 and the resulting "War on Terrorism" (13) may wish to look first to this part. Its basic thesis is that, despite the shock of sharply increased oil prices in the 1970s, the United States has failed to diversify the energy basis for its economy and is paying a high military, diplomatic, and economic price for continued dependence on Persian Gulf oil. U.S. national and corporate policies have been closely aligned (14) and must change together to reduce dependence on fossil fuels, both for reasons of national security and, ultimately, for the sake of sustainable economies in many developing nations.

Part IV concludes by noting that MNCs have both the power and the responsibility to create products and services that materially enhance human well-being by preserving the natural environment that sustains life on Earth. This responsibility is more than the prudent pursuit of profit that makes companies strive to be--or seem--"environmentally friendly." It also includes an obligation to attend to the structural inadequacies of the economic and legal system. The rules governing that system--the "rules of the game"--are not only shaped by voting citizens and politicians, but by increasingly powerful corporations that have claimed a voice in public affairs and in the legislative arena. (15) In promoting or opposing national and international rules of the game, corporations should comply with and promote the kind of rules that level the global corporate playing field without leveling rainforests or degrading fisheries and other ecosystems. They should oppose rules or laws that promote unsustainble, uneconomic practices. Ideally, they should promote rules and practices that exemplify sound economics and sustainable values, rejecting "wild capitalism" (16) and its variants.

1. MULTINATIONAL CORPORATIONS IN THE GLOBAL ECONOMY

   Throughout history, economic progress has often led to environmental regress. (17) Since the end of the Cold War and the hope of a New World Order during the first Bush Administration, U.S. and European economies enjoyed a relatively prosperous decade. (18) New levels of affluence and well-being were reached, at least by significant numbers of people worldwide as part of global economic integration; Lee Tavis notes that "[i]n the twenty-two years between 1975 and 1997, global real per capita income increased substantially. Both developed and developing countries shared this growth, with industrialized countries gaining fifty-three percent (from a base of $12,589 in 1985) and developing countries gaining fifty-one percent (from a base of $600)." (19) MNCs were a substantial force in the global economy during that period. (20) At the same time, however, environmentalists were warning of increased degradation of the environment, limits to growth, and a collision between economic dreams and ecological realities. (21)

   1. Thoughts on Prosperity, Peace, and Corporate Culture

      The principles and institutions of economic globalization were designed to promote global prosperity and thus end or greatly reduce armed conflict. (22) U.S. and European corporations were not architects of that system, but have generally supported the GATT and subsequent incorporation of GATT principles into the WTO. (23) Key institutions of the international economic order include the World Bank, International Monetary Fund, and, more recently, the World Trade Organization, all of which have been criticized as compromising the social...