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. Should reflections on how in the past, companies have been run, and in the future, might be run, be of relevance today? What is the value of such analysis in the context of the 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 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 environmental, social, and corporate governance (ESG). As the global pandemic throws a bright light on the (in)stability of public institutions, regulatory frameworks, and system resilience, its revelations are readily observable (as during any shock). Given the now-evident importance 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 to the way things are now and how they might be after COVID-19.
Our recent article 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.
The Historical Argument
Historically, we argue that the evolution of corporate governance norms must be seen against the background of continuing transformations in the relationships between states and markets, given the privatization 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 debates about the purpose of the corporation up to the present moment. Particularly, we consider the role of institutional investors, banks, expert committees, and other private, 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.” The current crisis creates veritable disruptions for markets, firms, directors, shareholders, and employees, for corporate acquisitions as well as for suppliers and supply chains. We believe that it offers an important opportunity to reconnect today’s corporate governance themes (e.g. 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 encourages debates around the promises and limitations of stakeholderism and sustainable corporate governance.
The Sociological Argument
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 corporate law’s inherent legal pluralism in terms of co-existing public and private, hard and soft, formal and informal norms. The end of “embedded liberalism” in the early 1980s seemed to pave the way for new regulatory frameworks which sit uncomfortably beside and in-between traditional categories of “public authority” and “private power.” Such hybrid governance regimes blur the borders between differently legitimated regulatory authorities, and they pose lasting challenges for the assessment and evaluation of corporations’ power, legitimacy in society, and accountability to a wide range of societal stakeholders, leading to what has been described as “the paradox of corporate globalization.”
The Legal Doctrinal/Legal Theoretical Argument
Finally, our legal doctrinal and legal theoretical argument posits that the emerging constellations of corporate governance are mirrored in changing understandings of rules applied to corporate responsibility and trust, director liability, or 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 (confronting a triple fallacy of vain competition between shareholder versus stakeholder oriented concepts of the firm, 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 best 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 as a methodological laboratory to inquire into emerging forms of authority and legitimacy, scrutinizing competing claims of effectiveness and testing the empirical impact that emerging regulatory forms, such as stewardship codes, have on a wider set of stakeholders and affected populations. Moreover, transnational corporate governance prompts a reconceptualization of the “transnationally embedded” corporation and its key actors as a countermodel to today’s financialized economic governance.
This big picture understanding of corporate law production is complemented by a continuing and 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 market democracy. Until a few months ago, discussions (not least triggered by declarations from the Business Roundtable and the World Economic Forum) focused on curbing short-term value-maximizing practices and identifying companies’ ability and responsibility to foster the sustainability of 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 experiences of corporate law, to become a hotly contested, transnational regulatory field with 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 Senior Lecturer in Corporate Law at The Dickson Poon School of Law, King’s College London.
Peer Zumbansen is the Inaugural Chair of Transnational Law, King’s College London & Professor of Law, Osgoode Hall Law School, Toronto.