From moral obligation to international law: disclosure systems, markets and the regulation of multinational corporations.

Author:Backer, Larry Cata

    The topic of the Georgetown Journal of International Law's 2008 symposium was how international law can influence international business to work toward "public" goals, for example reducing corruption and protecting the environment, when entering into international transactions. (1) The object of the symposium was to get its participants to consider if international law could provide incentives (either positive or negative) for international business to consider "public" goals? (2) This essay argues that, at least in one important respect, the answer is yes--international law provides an important, though limited, framework for regulating the behavior of economic entities. The purpose of this essay is to provide a preliminary sketch of a plausible approach to international regulation. More specifically, the essay suggests that international law can provide a better framework for the management of a values-based behavior structure for multinational corporations without mandating any particular sety of values. (3) Indeed, international law ought to serve as a vehicle for the enhancement of a market environment in which corporate stakeholders, and principally consumers and investors, might incorporate information about corporate "social" behavior in their consumption and investment decisions. (4) The contours of social responsibility would thus shift from a focus on governmental regulation to private choice, informed by the products of markets for information and values. (5) Without incorporating any particular set of "public" values, international law can make it easier for people to manage the "public" or "social" behavior of multinational corporations through a mandatory regime of global reporting. (6) The heart of any such international regulation would be a mandatory system of information gathering, monitoring and disclosure. Using public or political power to compel the generation and distribution of information to key internal and external enterprise constituencies may serve as the most efficient means of articulating and applying rules for "moral" behavior without the need to incorporate any one version of appropriate manifestations of social responsibility on corporate entities. Markets might provide a more legitimate framework for substantive governance than the mandatory impositions of any one state in the form of positive substantive law. Law serves a more subtle purpose--to create a framework for private governance consistent with overarching objectives that form the essence of the system of disclosure itself. (7) Through systems of monitoring and disclosure, international law can create incentives for appropriate entity behavior without actually mandating any specific version of that behavior. This essay essentially posits another form of new governance. (8)

    The essay starts by posing a problem that will serve as the basis for the analysis--the responsibility of corporate actors for the working conditions of indirect employees, that is of the employees of an entity hired to produce products or deliver services to another party. (9) This problem nicely frames the regulatory issues for both business and law. The law does not appear to compel any sort of responsibility for the working conditions of indirect employees. Law is particularly unhelpful where the indirect employees are employed in a country other than that of the indirect employer. (10) Recent efforts to create mandatory legal obligations touching on corporate social responsibility in the international level have been forcefully rebuffed, principally by representatives of developed states. (11) There has been a strong objection to the use of law, and especially international law, to privilege one set of behavior norms over others in a context in which there is no consensus over appropriate conduct norms for economic entities.

    However, while in the recent past there might not have been even a moral obligation extending to such employees, contemporary standards suggest otherwise--there may now be a moral obligation of some kind to indirect employees. This moral obligation might be derived from a variety of sources, both secular and religious, but it is not grounded in law enforceable by any state. Other non-binding sources of moral obligation might include human rights declarations from international organizations and supra-national human rights organizations. (12) Yet, even in the absence of enforceable standards written into hard law, moral obligations can be enforced. Under the private law of contract, for example, the principal parties can bind themselves voluntarily to behavior standards they might deem proper. (13) The nature and extent of that obligation may be dependent on the values of the stakeholders or the normative system under which all actors operate. Similarly, the parties might agree to certain behaviors in order to receive a certification of compliance with "good" behavior issued by a reputable third party in the business of making such certifications. (14) Those obligations are usually enforced privately as well--through mandatory agreements to disclose information and permit the monitoring of behavior.

    Such moral obligations, and the methodologies of enforcement, are coming to be institutionalized in private regulatory efforts, principally in corporate ethics and behavior codes. (15) But institutionalization is not law. Virtually all of these responses have been in the form of "soft law," usually voluntary codes that are not enforceable by any political organization. (16) Indeed, the rise of this much-touted corporate social responsibility movement has resulted in the proliferation of a number of responses at every level of governance. (17) The soft law character of these efforts suggests deficiencies. (18) And there is no institutionalized procedure for enforcement. (19) Moreover, the proliferation of these private forms of regulating moral behavior poses a more fundamental substantive problem. These voluntary codes tend to be written in the most general terms, permitting a tremendous variation of behavior that can be claimed to be consistent with the form or substance of these codes. (20) For those who are looking for both certainty and consistency, the private elaboration of susbtantive behavior exacerbates the problem of uniform standards.

    The problem of indirect employees, then, suggests the overlapping dimensions of the problem posed by any effort to formally regulate the behavior of economic entities across borders through law: the disjunction between moral obligations across borders in the construction of economic relationships across such borders, the multiple sources of values informing regulatory policy even within states, and the difficulties of transposing moral obligation into a substantive law of corporate social responsibility that effectively reaches across borders. Yet, despite these limits, it may be possible to construct a plausible system of mandatory regulation at the international level that adds value to economic activity without threatening the contemporary system of market based globalization. The foundation of that regulatory system is tied to monitoring, disclosure and reporting. These serve as both the application of an enforcement mechanics common to the private law of contract, and as the essence of modern soft regulation through the disciplines of informed choice. (21) From out of the means by which moral obligations are enforced among private parties may come a framework for creating a plausible hard law at the international level. This framework would provide incentives (either positive or negative) for international business to consider "public" goals without actually mandating those goals in any specific form--the market would make that determination. These incentives can be provided through law, but in a way that retains a strong sensitivity to the current market bias of globalization--and to the privileging of private arrangements among stakeholders principally involved in economic transactions.

    For this purpose of providing incentives through law while retaining sensitivity to market bias, this essay posits a global system of monitoring and disclosure and transparency, of monitoring and surveillance. The object of these disclosure mandates would not be to establish a definitive set of behaviors, but rather to establish a framework within which corporate stakeholders--consumers, investors, labor, and others--could adjust their relationships on the basis of the behavior disclosed. In a sense, then, monitoring regimes can serve as a framework for incorporating moral obligations within a legal structure of relationships between economic actors, without hardwiring any particular set of ethical standards in law. It avoids both the problem of state intervention in corporate regulation and the difficulties of direct shareholder intervention in corporate activity. (22) Instead, market actors would help determine the taste for certain behaviors by doing what they ordinarily do--buy and sell shares, products, and engage in commercial transactions. For those in search of avenues for the implementation of corporate social responsibility at a transnational level, international agreements for transparency, disclosure and information dissemination might be more effective as a means of hardwiring ethical obligations in the relationships between economic enterprises, than commanding obedience to any set of such obligations.

    The essay then suggests that this sort of mandatory regulatory regime is plausible as international "hard" law for five reasons. First, a mandatory global monitoring system is plausible because it only requires of economic enterprises actions (the gathering and dissemination of information) that have been well internalized by the great majority of these entities. Economic entities harvest, use and report information all the time--for example to...

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