Research

Conventional wisdom holds that lawsuits harm a corporation’s reputation. So why do corporations and other businesses litigate even when they will likely lose in the court of law and the court of public opinion? One explanation is settlement: some parties file lawsuits not to win but to force the defendant to pay out. But some business litigants defy even this explanation; they do not expect to win the lawsuit or to benefit financially from settlement. What explains their behavior?

The answer is reputation. This Article explains that certain types of litigation can improve a business litigant’s reputation in the eyes of its key constituents — constituents that help it succeed in the marketplace. It is their changed views of the litigant — and subsequent actions taken based on those changed views — that provide the financial benefit from a lawsuit that the court may not deliver. For example, technology companies use patent litigation to discourage employee flight, consumer products companies may use litigation to affect consumers’ opinions about competitors, and some corporate plaintiffs may even use litigation to address reputational harm following a crisis. In all these examples, business litigants may benefit from the reputational effects of the litigation even if they lose in court.

This Article makes two contributions. Descriptively, it challenges the conventional wisdom that lawsuits are always bad for business by revealing hidden incentives found outside the courthouse that are neglected in the standard explanation for litigant behavior. Specifically, it explains how litigation can contribute to reputation-building through signaling or framing strategies. It also describes how this reputation-building can result in different types of distributed gains: interparty, intertemporal, and interinstitutional. Practically, it highlights that the legal rules that could address this reputation-building may lack utility due to the timing of reputational effects in litigation.

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When organizations act in ways that offend the public interest, parties seeking to change that behavior traditionally turned to litigation to force these organizations to reform, whether by command or consent. For example, following Brown v. Board of Education, “structural reform litigation” forced large-scale organizations, from school boards to prisons, to change their practices. Similarly, federal prosecutors have used agreements with large corporations to introduce significant structural reforms.

This Article identifies an alternative strategy for organizational change that relies on the indirect reputational effects of litigation. Under this approach, organizational change does not result from court order or parties’ settlement but from the informational effects of litigation: litigation transmits information about an organization into the public space; this information has reputational consequences for the affected organizations; voluntary organizational change is a response to that reputational shaming. Critically, these reputational sanctions can accompany all types of litigation and not just those specifically seeking structural reform remedies. This Article identifies and explains the operation of four reputational sanctions: financial, policy, regulatory spillover, and barriers to entry. We are most familiar with the financial sanction, where consumers adopt “naming and shaming” boycotts to punish corporations for their behavior, thereby encouraging the latter to change their practices. But reputational sanctions also take the other three forms and can encourage large organizations to change their practices even when financial sanctions are weak or inoperative. Collectively, these reputational sanctions—operating outside the boundaries of traditional legal and regulatory processes—are employed by both public and private actors and play an increasing role in the decisions that organizations make.

This Article identifies and explains the operation of four reputational sanctions: financial, policy, regulatory spill-over, and barriers to entry. We are most familiar with the financial sanction where consumers adopt “naming and shaming” boycotts to punish corporations for their behavior, thereby encouraging the latter to change their practices. But reputational sanctions also take the other three forms and can also encourage large organizations to change their practices even when financial sanctions are weak or inoperative. Collectively, these reputational sanctions – operating outside the boundaries of traditional legal and regulatory processes – are employed by both public and private actors and play an increasing role in the decisions that organizations make.

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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.

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On February 24, 2022 Russian troops invaded Ukraine. Almost a year later, the war has claimed tens of thousands of lives and led to the displacement of millions. This spring, both Ukrainian and Russian forces prepare new offensives to gain territory, while the U.S. has committed to providing Ukraine with military tanks – a move that Russian officials have warned constitutes direct involvement in the war. While NATO countries debate how to respond, we also witness the privatization of foreign policy as hundreds of companies around the world similarly seek to assist Ukraine or punish Russia using the very tools of national foreign policy – humanitarian aid and economic sanctions. Companies assist Ukraine by donating millions of dollars to relief organizations or offering aid directly to those fleeing the war. Other companies punish Russia by closing stores, postponing investments, and exiting altogether.

This Article explains that these individual business decisions illustrate a broader phenomenon of corporate foreign policy, which refers to business policies that use the traditional tools of national foreign policy to influence a government’s conduct towards another government or international organization. It develops a market framework to explain that corporate foreign policies result from the interaction of two sets of factors: demand factors, such as preferences of governments, consumers, and investors, and supply factors, which refer to organizational, contractual, and regulatory factors that enable or inhibit the capacity of companies to meet those preferences, such as business model used for Russian operations; contract provisions that enable suspension of performance obligations; availability of political risk insurance and international investment dispute resolution to absorb losses; and organizational preparedness for crisis response.

This Article makes three primary contributions to the study of foreign policy and international business transactions. First, it provides an analytical framework for understanding, evaluating, and even predicting whether companies will use a particular foreign policy in a crisis. Second, it uses this framework to analyze whether companies may similarly exit from China because of fears of military aggression in the region. Third, this framework offers practical guidance to both policymakers and business executives on using foreign policy effectively in future crises. For policymakers, this framework explains that economic sanctions imposed by governments can encourage a second wave of private sanctions imposed by companies that magnify the economic, social, and political consequences of the former. This Article’s framework helps policymakers to predict the nature, breadth, and strength of these private sanctions so that they can better evaluate if and how to use sanctions. For executives, this Article explains the relevance of business model, contract design, and strategic partnerships for preparing for the next crisis. Many of these decisions are made decades before a crisis arises but can inhibit a company’s ability to respond when it does. It is therefore important to evaluate these decisions now in order to respond effectively in the future.

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This paper identifies factors that may lead transnational companies to support transnational regulation in order to level the field between themselves and their rivals when they confront an uneven field produced by either public regulation or private governance. Transnational regulation offers these companies a means to reduce competitive losses by distributing compliance costs to rivals. Differential regulation is necessary but insufficient to result in corporate advocacy for an international agreement or other forms of transnational regulation. Instead, other factors influence the strength or weakness of those preferences for transnational regulation, such as (i) the extent of global footprint, (ii) the net gain or loss resulting from heightened compliance costs, (iii) targets and mechanisms for regulatory change, (iv) market participant profiles, (v) stakeholder characteristics, and (vi) a company’s susceptibility to private governance.

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Conventional wisdom predicts that international law must proceed through a “state pathway” before regulating corporations: it binds national governments who then bind corporations through enactment and enforcement of domestic laws and regulations. But recent corporate practices confound this story by presenting two realities difficult to reconcile under this traditional view: The Trump administration withdrew the United States from several international agreements and organizations. But, surprisingly, American corporations complied with these same international laws even when the state pathway broke down. This unexpected compliance leads to three questions: How did corporations comply? Why did they do so? Who enforced international law? These questions are important for two reasons. First, many international laws depend on corporate cooperation in order to succeed. Second, the state pathway is not robust, then or now. It is therefore vital to identify alternatives to the state pathway in order for international laws – on human rights, climate change, labor rights, corruption, and other issues – to reach corporate boardrooms, C-Suites, offices, and supply chains.

This Article synthesizes two traditionally separate fields – public international law and corporate governance – to offer a descriptive account of how corporations incorporate international law into board governance, management decision-making, and contractual relationships. Through original research, it offers three case studies in climate change, human rights, and sustainable development that reveal important incentives and mechanisms for international law compliance that are neglected under the traditional view. It explains that corporations comply in order to manage risks, appease stakeholders, and advance corporate purpose and strategy. Proxy advisors, investors, civil society actors, and even peer corporations enforce international law when a government actor will not. Normatively, these insights enrich academic debates concerning the operation and effectiveness of international law. On a policy level, this Article offers three recommendations for designing international agreements in order to encourage corporate compliance: facilitate comparability, create indicators, and identify corporate purpose compatibility. It applies these lessons to two international agreements in development: (a) treaty on business and human rights, and (b) treaty on pandemic prevention and preparedness.

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There is an important but oft neglected relationship between the problems of corporate governance and international law. Corporate managers grapple with how to respond to society’s demands that their enterprises do better when it comes to protecting people and the planet. These demands take many forms, including increased pressure for “sustainability” and “environmental, social, and governance” (“ESG”) measures. These demands are made in response to the economic, social, environmental, and political crises facing our world and a recognition of the responsibility of corporations and other business actors to contribute to their resolution. What is often unrecognized is that many of these crises occur because corporations fail to follow international law. Corporate misdeeds often arise from the violation of international law norms on human rights, environmental protection, sustainable development, and use of force, among others. International law can guide corporate managers on meeting the public’s demand for more responsible business practices if they would only follow it. The problem is enforcement: Many corporate actors do not abide by international law because the international legal order lacks adequate mechanisms to ensure their compliance. Specifically, an international legal order based on enforcement by state actors may fail to produce robust corporate compliance because, on many occasions, governments are unwilling or unable to ensure that corporations within their jurisdictions obey international law. This Article borrows insights from stakeholder management to reveal that corporate actors frequently align their behavior to conform to the values and expectations of a range of non-state actors—corporate stakeholders—such as consumers, employees, insurers, financial institutions, investors, industry organizations, and non-governmental organizations (“NGOs”), among others. These stakeholders can address important gaps in the international legal order by offering incentives that nudge corporate actors toward compliance with international law. This Article develops a typology of enforcement strategies practiced by corporate stakeholders: predicative, facilitative, direct, and amplification. It emphasizes the multiple audiences for international law enforcement: The actions of corporate stakeholders not only change the preferences of the targets—the corporate actors—to comply with international law, but also the incentives of the intermediaries—other corporate stakeholders—to enforce international law. This Article thereby contributes to the scholarship on who enforces international law, why they do so, and if they can be relied upon to do it again. In so doing, it provides corporate stakeholders with a framework to contextualize their own individual efforts and to calibrate their efforts with those of other stakeholders for more effective enforcement of international law.

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Corporations try to convince us that they are good global citizens: “Brands take stands” by engaging in cause philanthropy; CEOs of prominent corporations tackle a variety of issues; and social values drive marketing strategies for goods and services. But despite this rhetoric, corporations regularly fall short in their conduct. This is especially true in supply chains where a number of human rights abuses frequently occur. One solution is for corporations to engage in meaningful human rights due diligence that involves monitoring human rights, reporting on social and environmental performance, undertaking impact assessments, and consulting with groups whose human rights they can harm. The challenge is how to encourage corporations to make these changes.

We often rely on two types of tools to improve corporate compliance: legal institutions and reputational mechanisms. However, each of these faces significant limitations when it comes to human rights compliance in the supply chain. This Article develops a strategy based on complementarity between the two so that each compensates for the limitations of the other. Specifically, reputational mechanisms can help create incentives for compliance with international legal institutions with weak or absent enforcement mechanisms. Alternatively, legal institutions can create “focal points” regarding corporate best practices that can improve reputational markets for corporate social responsibility.

The reputational typology developed in this Article offers three important contributions to policy and academic discussions concerning corporate misconduct. First, it allows us to create better human rights institutions by revealing the types of “carrots and sticks” that we should include to encourage corporate cooperation; this lesson is particularly timely because an international treaty on business and human rights is in development. Second, this typology illustrates how corporations may voluntarily undertake organizational change in response to a reputational crisis. Finally, this typology identifies drivers of cross-border compliance for transnational corporations.

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Global governance has not yet caught up with the globalization of business. As a result, our headlines provide daily accounts of the extent and consequences of these “governance gaps.” The ability of corporations to evade state control has also contributed to an unusual, even frightening, phenomenon: corporations are governing like states. Some public governance functions traditionally delivered by state actors are now increasingly undertaken by transnational corporate actors. One area that is experiencing this substitution is dispute resolution of human rights. Corporations and other business enterprises, individually or collectively, are creating a variety of grievance mechanisms to address human rights and other conflicts associated – even caused – by their business activities.

When these roles are fulfilled by state actors, we rely on procedural fairness to guide, even discipline, decision-makers. Procedural fairness improves our faith in decision-makers and their institutions even if we might disagree with the outcomes reached. What does procedural fairness mean when it is undertaken by a corporation in relation to quasi-public governance? What factors might improve its disciplining potential on decision-makers and increase the likelihood that the watching public, local and global, might accept the outcomes reached? This Article addresses this challenge by developing a framework for procedural fairness that is based upon human rights research and contract law. The result is a strategy for trust-building that can improve the quality of governance performed by the transnational business sector.

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One of the biggest challenges with international law remains its enforcement. This challenge grows when it comes to enforcing international law norms against corporations and other business organizations. The United Nations Guiding Principles recognizes the “corporate responsibility to respect human rights,” which includes human rights due diligence practices that are adequate for “assessing actual and potential human rights impacts, integrating and acting upon the findings, tracking responses, and communicating how impacts are addressed.” Unfortunately, many corporations around the world are failing to implement adequate human rights due diligence practices in their supply chains. This inattention leads to significant harms for the victims of these human rights abuses and a variety of risks – legal, reputational, business, and regulatory – for the companies involved. Over the years, lawsuits have been brought against Walmart, JC Penney, Hershey, Nestle, Purina, Tesla, Google, Chevron, and many others regarding their human rights practices.

This Article explores how shareholders have attempted to change the human rights due diligence practices of companies by submitting shareholder proposals requesting information on a company’s human rights policies, assessments, and implementation strategies. While many of these resolutions are filed by faith based organizations and other members of the Interfaith Center on Corporate Responsibility (ICCR), recent proposals have also received support from actors such as BlackRock and Vanguard. This Article provides a descriptive account of the proposals submitted, evaluates the various shareholder reasons for proposing and supporting these proposals, discusses the outcomes of these proposals (such as approval, exclusion, and withdrawal), and analyzes the possibilities and limitations of enforcing international human rights norms through the mechanism of shareholder proposals.

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This Article addresses the problem of preventing human rights violations abroad that result from the globalization of business. It specifically explores the challenge of promoting corporate social responsibility in global value chains. The modern business has changed dramatically and has “gone global” in order to court foreign markets and secure resources, including labor. Familiar household names, such as Nike and Apple, have “outsourced” many of their functions to suppliers overseas. As multinational buyers, they dominate one end of the global value chain. At the opposite end of the value chain are the local managers and owners of the factories and workhouses where tablets are assembled, running shoes are made, and gowns are sown. These facilities are often the sites of serious human rights violations, such as forced labor and child labor.

Some actors have attempted to rein in transnational corporate misconduct through litigation in domestic courts regarding the corporation’s actions abroad. However, after Kiobel v. Royal Dutch Petroleum, it is unclear how successful such strategies will prove in the future. This Article takes a different approach and focuses on preventing these human rights violations by strengthening corporate social responsibility (CSR) practices. Unfortunately, current CSR approaches focus on encouraging better corporate due diligence regarding the behavior of their suppliers. These approaches rely on auditing, monitoring, and disclosures and have dominated international (UN’s Protect, Respect, and Remedy Framework), national (Danish Act on Financial Statement) and sub-state (California’s Transparency in Supply Chains Act of 2010) efforts to combat human rights violations. However, this Article explains that these and similar efforts will be limited in their effects because of the problem of misaligned incentives between buyers and suppliers in global value chains. Suppliers have different business profiles, interests, and constraints compared to their multinational buyers. Therefore, conventional drivers for CSR that rely on reputational risks and consumer boycotts will not work for suppliers. Instead, public actors and other stakeholders must identify incentives that are appropriate for suppliers. Second, they must also adopt a reflexive law governance approach in order to transmit these incentives effectively in global value chains. This Article concludes by offering examples of CSR strategies that public actors should adopt in order to prevent another Foxconn or Rana Plaza tragedy.

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In 2019, the Business Roundtable announced its commitment to all corporate stakeholders – consumers, employees, suppliers, and communities – and not only shareholders. This announcement has re-awakened an old debate over corporate social responsibility. “Stakeholderism advocates” argue that corporate leaders must take into account the interests of the various stakeholders impacted by corporate decision-making. “Stakeholderism critics” challenge this view, expressing concerns that stakeholderism will magnify managerial agency costs, chill regulation, risk inauthenticity, and lead to impractical solutions.

This Article proposes “contractual stakeholderism” to operationalize stakeholderism in accordance with its advocates but in a way that is attentive to the concerns of its critics. Normatively, it advocates for a shift from a benefits-based approach for stakeholderism to one focused on the prevention of harms. The former often justifies stakeholderism by highlighting the various benefits that stakeholder protection can offer for advancing shareholder value or other advantages for the corporation. But this basis for stakeholderism will fall short because it is not always true that what is good for the stakeholder is good for the shareholder; instead, sometimes their interests conflict. In these situations, the benefits-based approach will inevitably lead to the prioritization of the shareholder over the stakeholder. That is why this Article advocates for a harms based approach that focuses on the risks that a corporation’s activities create for stakeholders. This latter approach applies to a wider range of corporate activity and protects a broader range of stakeholders than the scope of the benefits-based approach. This Article justifies the normative shift to a harms-based approach by identifying five dimensions of inequality that place stakeholders at unique risk of harm from corporate conduct: notice, choice, risk management, legal remedies, and the fruits of exchange. Practically, it explains that many stakeholder harms arise from the contracting choices that corporate leaders negotiate, draft, and bind their companies to perform. A harms based approach would require corporate leaders to design contracts differently to mitigate or eliminate the risks that their contracts create for stakeholders. In order to incentivize corporate leaders to do so, this Article concludes by proposing the following duty: Corporate leaders, as contracting parties, must take into account the interests of stakeholders when performance of the contract creates a risk of physical harm to them.

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Corporations routinely impose externalities on a broad range of non-shareholders, as illustrated by several unsuccessful lawsuits against corporations involving forced labor, human trafficking, child labor, and environmental harms in global supply chains. Lack of legal accountability subsequently translates into low legal risk for corporate misconduct, which reduces the likelihood of prevention. Corporate misconduct toward nonshareholders arises from a fundamental inconsistency within contract law regarding the status of third parties: On the one hand, we know that it takes a community to contract. Contracting parties often rely on multiple third parties—not signatories to the contract—to play important roles in facilitating exchange, such as reducing market transaction costs, improving information flows, and decreasing the risk of opportunism.

On the other hand, we deny this community protection from the externalities that contracting parties impose on them. This article examines a corporation’s duties to others in its role as a contracting party. Normatively, this article proposes an alternative view of contracts as an ecosystem with three attendant principles that result from this view: (a) third-party protections from negative externalities, (b) contract design obligations of contracting parties, and (c) recourse to legal remedies for third parties. On a policy level, this article proposes the following duty to contract in order to translate theory into practice: Contracting parties are required to take into account negative externalities to thirdparties when the contracting parties could reasonably foresee that performance of the contract would create a risk of physical harm to these third parties.

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