Towards a more realistic vision of corporate social responsibility through the lens of the lex mercatoria.

Author:Bellish, Jonathan
 
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Globalization has led to a shift in power away from states and towards the private sector, which has resulted in multinational corporations taking a place among the most powerful international actors. This phenomenon has had many positive consequences, but it has also resulted in human rights, labor, and environmental abuses in developing nations. Such abuses are inconsistent with the way these multinationals behave at home and have led to a subsequent call for increased corporate social responsibility ("CSR") through enforceable norms. Though there is substantial agreement as to the contents of CSR norms, there is little such accord where enforcement is concerned. Some have suggested that binding CSR norms will ultimately emerge from multinational corporations themselves along the lines of the lex mercatoria. This article seeks to counter that argument by suggesting that, even if the traditional narrative of the lex mercatoria is true--an assertion upon which considerable doubt has been cast--modern multinational corporations are not likely to take the lead in developing and enforcing such norms. This is because, while lex mercatoria norms tend to increase profits and reduce liability, CSR norms tend to shrink margins and expose corporations to an additional form of liability. From this assertion, the article concludes that political and macroeconomic developments are likely to overtake legal and normative developments, particularly those emanating from the corporate suite, in leading to corporate responsiveness to a broader community of stakeholders.

  1. INTRODUCTION

    When an American court hears a medical malpractice tort claim, it applies the professional standard of care to the doctor's actions to determine liability. (1) This standard requires the court to look into the prevailing practice of doctors who are similarly situated to the defendant to determine whether or not the doctor-defendant was negligent in a particular case. Centuries from now, when legal historians look back at the widespread application of the professional standard of care as applied to doctors in the United States of America, they are unlikely to conclude a multi-state, American lex doctoria created independently binding legal norms governing a doctors' treatment of patients, despite the prevalence of different state courts using the doctor's custom to determine legal liability. Rather, these historians will conclude that twenty-first century courts applied the legal standard of reasonableness, looking into the custom of doctors as factual matter to support their legal argument, as was indeed the case.

    Yet the existence of mercantile custom and the explicit insertion of that custom into medieval mercantile disputes have led to the conclusion that there was an international lex mercatoria that created independently binding legal obligations. Some scholars have even gone so far as to use the concept of the lex mercatoria to characterize norms of corporate social responsibility ("CSR"). This paper argues that, even if the prevailing characterization of the lex mercatoria is historically accurate, an extension of this characterization to norms of corporate social responsibility is unfounded. To characterize corporate social responsibility norms as a new lex mercatoria is to ignore the stubbornness of the shareholder primacy model of the corporation as well as the practical effects of CSR norms on a given corporation.

    Where actual implementation is concerned, market-driven CSR norms have been the most successful in shaping corporate behavior. This is mainly because multinational corporations find themselves outside the reach of home country laws, (2) host country laws, (3) and international law. These corporate actors generally adhere to the shareholder primacy model of the corporation in which managers' only goal is to maximize shareholder returns. Some scholars view the success of market-driven CSR norms to suggest that the larger world of corporate social responsibility is properly seen as a new lex mercatoria. (4) Under this characterization, CSR norms will become so widespread that they crystallize into independently binding legal norms later applied by government-sanctioned courts. (5) The application of modern market-driven CSR norms, as well as the respective natures of lex mercatoria and CSR norms more broadly, makes it unlikely that this optimistic phenomenon will materialize.

    Because ancient lex mercatoria norms fall directly in line with a corporation's desire to maximize profits and minimize liability and CSR norms tend to cut into profits and expose the corporation to new forms of liability, the marketplace embraced the former but will reject the latter to the extent that it impedes shareholder value. Nonetheless, exploring the contrast between the lex mercatoria and corporate social responsibility remains a useful exercise. Such exploration helps to illuminate both the need for binding CSR norms and the fact that such norms are more likely to come from the broader international community than from within the executive suite.

    Part II describes the varying interpretations of the lex mercatoria and ultimately characterizes it as a blank canvas upon which scholars and commentators may paint their own desires for the concept. Part III describes the history, evolution, and enforcement mechanisms for establishing corporate social responsibility norms, as well as their respective merits and shortcomings. Part IV looks at the application of market-driven CSR norms and concludes that, though they have been the most successful in coercively binding corporations to norms of corporate social responsibility on a large scale, such market-driven CSR norms are better explained by the shareholder primacy model of the corporation than a deviation from that model in favor of social responsibility. Market-driven CSR norms tend to emerge in the presence of a consumer base that explicitly values corporate social responsibility over low price, in the wake of an egregious and widely publicized CSR atrocity, or both, and as such are likely to be adopted by a small minority of corporate actors. Part V argues that, because of a dubious historical foundation and opposite financial and economic consequences, CSR norms are not likely to develop along the supposed lines of the lex mercatoria. Instead, Part VI asserts a continued need for the international community to develop coercive, binding CSR norms to deal with the worst abusers and suggests that macroeconomic and political developments are likely to overtake legal developments and in the creation of binding CSR norms. Part VII concludes.

  2. THE BLANK CANVAS THAT IS THE LEX MERCATORIA

    Lex mercatoria, or "the law merchant," refers to a set of mercantile customs that began voluntarily within the merchant community but eventually crystallized into binding norms. (6) The concept of the lex mercatoria is one of the most obscure concepts in international law. In fact, only two certainties surrounding the lex mercatoria and its history truly exist. The first certainty is that "[i]nternational trade is in some measure a constant thing." (7) The story of the lex mercatoria has its roots in medieval Europe, but it is a matter of historical fact that the Europeans traded with the Arabs during the Crusades and "before the Arabs came the Romans, and before the Romans the Greeks, and before the Greeks the Phoenicians." (8) As long as human beings have been able to travel across borders they have engaged in international commerce.

    The second certainty is that cross-border merchants had a set of customs through which they dealt with one another, and this set of customs became known as the lex mercatoria. Indeed, the concept of lex mercatoria is recognized in The Hague and Vienna Conventions on the International Sale of Goods (9) and is explicitly incorporated into the United States' Uniform Commercial Code. (10) More recently, the concept of lex mercatoria has played a central gap-filling role in international arbitration. (11) The application of lex mercatoria is seen as preferable to national law because of the uncertainty and one-sidedness inherent in the latter. (12) These two certainties, the existence of ancient international trade and the fact that a body of law came to govern that trade, are clear, but drawing a logical connection between these certainties and characterizing that connection has proven to be highly problematic. Attempts over many centuries to characterize the lex mercatoria have been so disparate that the concept has essentially become a blank slate upon which scholars and practitioners project their beliefs about the nature of international trade and the regulation of such trade.

    1. The Character of Lex Mercatoria

      The centuries-old debate surrounding the lex mercatoria has been riddled with ambiguities regarding the definition, importance, contents, and current state of the concept.

      1. Definitional Ambiguity

        An American court has defined the concept not as a set of laws, but rather principles and custom that result from "general convenience" and "a common sense of justice." (13) One scholar defined lex mercatoria as the sum total of customary international law, interstate, and state law relating to international trade. (14) Still another views it as a set of general principles of commercial law, which operates in a similar fashion as "general principles of law recognized by civilized nations" as described in Article 38(1) of the Statute of the International Court of Justice. (15)

      2. Ambiguity in Attributed Importance

        With such definitional ambiguity, it should come as no surprise that there is disagreement regarding the importance of the lex mercatoria. On one end of the spectrum lies the notion that lex mercatoria is an inexorable part of transnational commercial law because domestic laws were not written with international trade in mind and are too deeply intertwined with a...

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