Corporate Governance & International Law

Abstract

Stakeholder activism by NGOs, consumers, employees and others can incentivize corporate managers to comply with international law on climate change, armed conflict, human rights and access to medicine, among other issues. But familiar difficulties with collective action impede the success of stakeholder enforcement of international law. Similar challenges compromised the ability of shareholders to monitor corporations; these same problems similarly jeopardize the ability of stakeholders to monitor corporate compliance with international agreements, principles, and other institutions.

This Article synthesizes the insights of corporate governance with the challenges of international law. Descriptively, it identifies both a problem and solution: Stakeholders are rationally apathetic because they confront high per capita costs (information, coordination and conflict) but low per capita benefits. But this Article explains how sequential stakeholder activism provides incentives for more stakeholder activism. Actions by one group – such as consumers, employees, suppliers, financial institutions or the media – can lower detection, verification and transmission costs while increasing the benefits each stakeholder receives from enforcement by socializing stakeholders to share preferences, thereby reducing conflict and coordination costs. Critically, international law converts particularized company wrongdoing into violations of global norms – thereby offering economies of scale to stakeholders. Stakeholder enforcement of international law has two distinct audiences: the corporation that is persuaded to change and fellow stakeholders who are persuaded to act. Enforcement is a chain reaction.

Normatively, this Article addresses the implications of stakeholder enforcement for how lawyers and scholars imagine the international legal order. It answers two questions exposed by the phenomena of stakeholder enforcement: (1) Is it “enforcement”? and (2) When is it preferable to courts or political processes? It answers the first by adopting an interdisciplinary approach to contextualize stakeholder enforcement against traditional international law enforcement practiced by courts and intergovernmental political processes. Despite their differences in form, all three approaches qualify as enforcement because they increase its benefits while lowering its associated costs. This Article answers the second question by using comparative institutional analysis to explore how well the three enforcement strategies achieve the following functions: deterrence, punishment, and reparations. This Article concludes that stakeholder enforcement is especially valuable for deterrence but has limited value for punishment and almost no value for reparations to victims.

Keywords: corporate governance, international law, human rights, business, corporations, stakeholders