Research Categories: International Business

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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