Many business law scholars in the United States are attracted to research projects focused on domestic—and more particularly Delaware—corporate legal doctrine and enforcement. Rightly so, given Delaware’s historic prominence as a home for publicly traded and multijurisdictional corporations. Yet even in the throes of tariff wars being waged at the time this post was authored, business—corporate business—is international and often global.
Legal enforcement against corporations in a transnational context proves to be complex. Typically, it is undertaken through traditional approaches ordained by international law—legal actions brought in courts and governmental regulatory processes. These avenues of enforcement are most frequently seen as exclusive and distinct. However, in her article Corporate Governance & International Law, Kishanthi (“Kish”) Parella encourages inspection of a potential third enforcement option that can work with the others: stakeholder enforcement of international law. Her insights inform a fresh look at global corporate legal enforcement mechanisms in an era that tends to value, if not embrace, a more holistic participation of stakeholders in corporate governance.
Parella includes a broad swath of corporate constituencies in her definition of corporate stakeholders. Her conceptualization of stakeholders includes “individuals and groups who affect the success of a corporation and, in turn, are affected by that corporation. Familiar examples include not only shareholders but also consumers, employees, suppliers, and local communities, among others.” (P. 421.)
What can these stakeholders do to enforce law transnationally? Parella identifies and defines four categories of stakeholder enforcement—predicative, amplification, facilitative, and direct—and describes how each may be used in sequential patterns of enforcement that may reduce detrimental stakeholder conflict and lower collective action costs. Among other things, “stakeholder enforcement by one individual or organization,” she writes, “can change the willingness of other stakeholders to enforce by highlighting the benefits of enforcing a rule or highlighting the risks that occur when a rule is transgressed.” (P. 423.)
The stakeholder enforcement recognized by Parella looks and feels different from what we may commonly recognize as legal enforcement. In this regard, Parella explains that stakeholder enforcement does not derive its power from traditional judicial or regulatory remedies. Rather, its enforcement capacity derives from its ability to acquire significant information and convey it to market actors who can cost-effectively mete out punishment to those who transgress international aw rules and norms. Moreover, Parella notes, stakeholder enforcement initiatives have the capacity to perform expressive functions, influencing the creation and evolution of both corporate and stakeholder norms.
Having established the potential value of stakeholder enforcement in transnational legal enforcement, Parella then undertakes, through comparative institutional analysis, to identify the circumstances in which reliance on stakeholder enforcement of international law may be warranted—not exclusively, but as an adjunct to traditional enforcement efforts. She contends that the analysis hinges on the “three objectives of international law enforcement: deterrence, punishment, and reparations” and that different types of enforcement may have value in serving the three objectives, with stakeholder enforcement operating better as a tool for deterrence than as a means of punishment or as an avenue for securing reparations. (P. 424.) Specifically, Parella observes that
[s]takeholder mechanisms are particularly valuable for deterrence because they can help to institutionalize corporations to comply with international law. Many corporate violations of international law arise because of business decisions made regarding supply-chain management, corporate governance, and business models. These practices need to change in order to ensure that corporations do not repeat their violations or commit new ones. (P. 460.)
She expressly notes reservations about whether traditional court or governmental enforcement efforts can effectively alter corporate decision-making processes or outcomes to better ensure more efficacious compliance with international law. Id. In other words, Parella offers, stakeholder enforcement may have more capacity to influence the actions of corporate management—boards of directors and officers—toward compliance.
Parella’s work is compelling at the current moment given U.S. and global uncertainties regarding judicial and governmental enforcement. In addition to the earlier mentioned tariff wars, armed conflicts between Russia and Ukraine and in Gaza represent potentially large destabilizing forces in international political and economic relations that may impact the existence or effectiveness of traditional adjudicative and regulatory enforcement. Parella’s work suggests that stakeholder governance may provide a pragmatic and valuable way forward to better ensure corporate compliance with international law and, as a result, transnational corporate financial and operational sustainability.
