Sovereign Wealth and the Extraterritorial Manipulation of Corporate Conduct: A Multifaceted Paradigm in Transnational Law

Abstract

Global legal harmonization is an aspect of transnational law whereby a family of norms is formed by a non-state legal order. Sovereign wealth funds, a diverse group in terms of their countries of origin, size, investment strategies, asset allocation tactics, and their underlying purposes, are contributing to the harmonization by setting and enforcing cross-border ethical norms and governance standards and by quickly becoming major participants in the community of merchants through their investment activities. This paper examines the various aspects of — and the implications for — SWFs as transnational law makers, a significant phenomenon for the global family of standards and a potential challenge for the more formalistic state-based legal orders. The chapter examines the SWF adoption of general legal principles and customs as advanced by a global civil society as well as through standardized contract forms and conduct codes. The chapter also analyzes the SWFs’ voluntary enactment of informal soft laws and the creation of norm setting institutions. The chapter concludes that SWFs are indeed a part of a diffused yet multilevel and coordinated political system that defies the state-centric paradigms, contributing to the dynamism that defines transnational law but also creating concerns related to legitimacy, democratic authority and democratic deficit.

Keywords: Sovereign Wealth Funds, lex mercatoria, SWFs, Transnational Law, Business Ethics, CSR, Corporate Social Responsibility, Legal Harmonization, Global Law, Shareholder Activism

JEL Classification: F21, F23, F33, F53, F68, K33