Writing about the past trajectories and future prospects of corporate law production amidst the COVID-19 crisis presents several challenges, above all with regard to motivation and justification. In other words, why should reflections on how companies have been run in the past and might be run in the future be of relevance today? What could be the value of such an analysis in comparison to a wider, public debate about what it is that companies do, and for whom? Millions of workers have lost their jobs, and, as some countries’ governments are engaged in the biggest ‘bail out’ the world has ever seen, a number of Fortune 500 companies are already claiming their share of the rescue package while declining to pay their branches’ rents or their employees’ sick leave. A focus on how companies are governed then sheds light on questions about the social function of corporations and their leadership in ESG governance. As the currently unfolding global pandemic throws a bright light on the in/stability of public institutions, regulatory frameworks and system resilience, its revelations—as during any shock—occur as under a flash of light rather than as evidence arising from longitudinal qualitative and quantitative analysis. Given the importance, particularly, of private market actors in generating and delivering urgently required products and in executing ‘essential’ services, the present experience also invites close scrutiny and comparison between the alleged normality of the ‘way things were’ before the crisis and how they are now, but also how they might be after COVID-19.
Our article, forthcoming in the University of Pennsylvania Journal of International Law, starts from the understanding of corporate governance as a transnational regulatory field of law production, contestation and policy conflict. It advances three arguments, a historical one, a sociological one and a legal doctrinal/legal theoretical one.
Historically, we argue that the evolution of corporate governance norms must be seen against the background of ongoing and continuing transformations in the relationships between states and markets in the provision of a growing range of formerly ‘public’ services and functions. As the societal role of corporations expands beyond an essentially financial role, corporate governance norm production mirrors the diversification of regulatory concerns associated with the firm’s place in society. In that vein, our research retraces the convergence-divergence and the purpose of the corporation debates up to the present moment, with a particular emphasis on the roles of public and private institutions in corporate law production. We consider the role of institutional investors, banks, expert committees and other private but quasi-public actors in shaping corporate governance norms. Substantively, we revisit the pivotal moments of ‘crisis’ and ‘reform’ (or, the lack thereof) in leading up to the more recent enunciations of ‘stakeholderism’ and concepts of ‘sustainable corporate governance’. We believe that the current crisis, amidst the veritable disruptions it effects for markets, firms, directors, shareholders and employees, for corporate acquisitions as well as for suppliers and supply chains offers an important opportunity to reconnect today’s corporate governance themes, eg around executive compensation, with pre-crisis ones. In other words, seeing the current crisis in historical perspective allows for a better appreciation of the long-term dimensions of corporate governance regulation, and it is also in that respect that the debates around promises and limitations of ‘stakeholder governance’ or a more sustainable understanding of corporate governance, whether in terms of a broader, stakeholder and ESG-focused approach or a ‘new paradigm’ might not all be ‘dead paper’ just yet.
From a sociological perspective, we argue that the transnationalization of present-day corporate governance regimes constitutes not so much a categorically different state of corporate law in an age of ‘globalization’, but a continuation of the corporate law’s inherent legal pluralism in terms of co-existing public and private, hard and soft, formal and informal norms. The end, in the early 1980s, of ‘embedded liberalism’ (a term coined by John G. Ruggie, the author of the most important set of guiding principles regarding human rights obligations for corporations), seems to have paved the way, inter alia, for the emergence of regulatory frameworks which sit uncomfortably besides and in-between traditional categories of ‘public authority’ and ‘private power’. Such hybrid governance regimes blur the borders between differently legitimated regulatory authorities and pose lasting challenges for the assessment and evaluation of corporations’ power, the legitimacy of their actual functions in society and with regard to their accountability to a wide range of societal stakeholders, leading to what has been described as ‘the paradox of corporate globalization’.
Finally, our legal doctrinal and legal theoretical argument posits that the emerging constellations of corporate governance are mirrored in a changing understanding of the rules that are applied to corporate responsibility and trust, directors’ liability, or to a company’s sustainability reporting standards. In order to further explicate the particular dynamics that characterize the new geographies of corporate governance norms today, we take the evolving law of shareholder stewardship as a case in point. Our analysis intervenes at the intersection of what is, normatively, a political challenge to the corporate governance understanding of the past twenty years—the latter being confined to a triple fallacy of a vain competition between shareholder and stakeholder oriented concepts of the firm, a polarization between monolithic national models of corporate governance, and a binary distinction between state-made, hard, binding law and non-state, soft, non-binding law—and, institutionally, the dramatic de-nationalization of market regulation through governmental fiat.
We argue that this plurality of corporate governance political economies today can only be scrutinized through a more differentiated, analytical lens which focuses on the emerging actors, norms and processes that constitute the intersecting and overlapping transnational regimes of corporate governance today. Transnational corporate governance is thereby rendered a methodological laboratory to inquire into emerging forms of authority and legitimacy, scrutinizing competing claims of effectiveness and testing the ‘real world’ impact that emerging regulatory forms, such as stewardship codes, have on a wider set of stakeholders and ‘affected’ populations. In that vein, a critical project of transnational corporate governance prompts a reconceptualization of the ‘transnationally embedded’ corporation and its key actors as a counter model to today’s financialized economic governance framework and has broader implications for corporate law production. This ‘big picture’ understanding of corporate law production is complemented by a continuing and, today, dramatically intensified examination of the role of the key corporate entities (shareholders, managers, directors and stakeholders) and their relations to civil society in making decisions about the future of the idea and the existing practices of market democracy. While, until a few months ago, not least triggered by declarations made by the Business Roundtable and the World Economic Forum, discussions still focused on curbing short-term value-maximizing practices and companies’ ability and responsibility to foster sustainability but with regard to the underlying system of capitalist market organization itself, Covid-19 gives these debates a drastically expanded meaning. In this context, the new geographies of corporate law production began to push against and, increasingly, grow beyond the confines of nationally specific cultures and historical experience of corporate law, to become, instead, a hotly contested, transnational regulatory field of competing visions of firms’ institutional and normative infrastructure in search of creating the most advantageous conditions to attract capital in volatile markets.
Dionysia Katelouzou is a Senior Lecturer in Corporate Law at The Dickson Poon School of Law, King’s College London.
Peer Zumbansen holds the Inaugural Chair of Transnational Law, King’s College London & Professor of Law, Osgoode Hall Law School, Toronto.