Global corporations and the accountability of international law

While amending existing Australian laws and corporate governance goes some way toward addressing concerns around compliance with tax, employment, competition, and environmental laws, the nature of global corporations means that ultimately, effective international laws must coexist with a reimagining of how such corporations function within a social, historic, cultural and legal framework.

Professor of International Law and Director of the Institute for International Law, Sundhya Pahuja, has been investigating the topic of global corporations and their accountability under international and domestic laws for more than a decade, having authored numerous books on the intersection of international law and colonialism. Two years ago, she began a major project funded by the Australian Research Council, “Global Corporations and International Law”.

Pahuja says, “It seems like we need to rethink the relationship between corporations and states in a more profound way to understand what’s really going on, and what might be able to recalibrate the relationship.”

In an interview with LSJ, Pahuja discusses the necessity of an intense, international focus on the drivers that have shaped international law and created the environment and tools for global corporations to hold the power and authority they do. As she points out, nations have repeatedly failed to use national laws to regulate global corporations because there is a failure to recognise global corporations are creations of law, not separate economic entities existing parallel to regulation.

A lack of accountability

“This project is unusual because it starts from the international plane. So far, there has been little investigation of the rising transnational influence, legal unaccountability and assertion of political authority by corporations as dimensions of a coherent global phenomenon. Our intuition is that this phenomenon is substantially produced by international law, and it may be international law that can offer potential solutions,” Pahuja says.

“Specifically, what is new about how this project understands the problem is that it treats the rise of corporate power as an emerging phenomenon in which corporations are behaving as global entities which overlap with, rather than exist within, nation-states and their laws, and which rival the authority and law-making capacity of states. There are not really any disciplinary resources available yet to perceive, measure, analyse and adjust the role that international law and institutions play in producing this phenomenon.”

International organisations, including the International Monetary Fund (IMF), the World Bank, the World Economic Forum (WEF), and the United Nations have normalised standards of corporate governance globally, inclusive of the establishment of a board of directors, environmental, social, and governance (ESG) standards, corporate and tax legislation.

Pahuja tells LSJ, “I’m less interested in the power of global corporations than the sense of authority they have. At the world economic forum, corporations are increasingly saying ‘we have a right to govern’.”

Of her intensive research project, she explains, “Many smart people are trying to come up with solutions which address particular problems created by the rise in corporate power.  These include solutions with respect to taxation, human rights, climate change, data protection, privacy and so on.  A lot of these solutions are being offered in the regulatory space in the form of binding laws.  Often the corporate response is that no regulation is necessary, or that self-regulation is better [or] adequate.”

“So, when corporations push back and say they don’t need external regulation, the proposed solutions end up being located in the ‘corporate social responsibility’ space which replaces the idea of laws which bind, with compliance with social norms tied to reputation and risk.”

Corporation’s legal personality challenges borders

Pajuha’s ARC-funded project has enabled her team to collaborate far beyond Melbourne, with contributing academics from the US, UK, Europe, South Africa, India, and China. Her sentiment is echoed in international scholarly work, including Mariana Pargendler’s Washington University study into comparative corporate governance which is critical of the prominent focus on “prevailing differences across legal systems or on spontaneous legal transplants of foreign institutions in response to global competition”.

Like Pahuja, Pargendler argues that “corporate law today is not only a product of the invisible hand of the market but also of the soft (and not-so-soft) hands of international organisations and standard setters.”

Professor Pahuja explains, “A corporation is not a natural person.  It is a legal person and has legal personality.  This personality enables it to do legal things, like enter into contracts [such as to] sell things or own property.    A company can’t use ‘regulatory arbitrage’. making use of the differences between laws in different places, to avoid tax in a place in which it is doing business unless it can carry its legal personality across borders.”

Parts of Google’s business are incorporated in Ireland, which has been hugely beneficial to the company in terms of providing a tax haven.

“Google can enter into a contract in Australia because we recognise its legal personality as a matter of private international law. But why do we do that?  What battles had to be fought and won for that to happen? How did the idea get normalised, or made to seem natural and inevitable? This was a contested battle.  If we make the idea strange again, what regulatory possibilities open up? For example, could we think about attaching conditions to that recognition?” Pahuja says.

She posits that because we take for granted the idea that legal personality is portable, we recognise foreign corporations as corporations in Australia without demanding anything in return.

“I want to make this idea strange through telling people about its history. This could create the possibility for creative new law and policy making around conditional recognition of legal personality, like obtaining a social licence to operate in return for recognition. This is just one example of ‘background laws’ which allow corporations to operate globally, but which if we bring into the foreground, open up regulatory possibilities.”

State law versus rethinking of global corporations

Pahuja wants a “slow” approach to replace the quick-fix attitude that has fundamentally failed to appreciate the nature of global corporations.

“This idea of looking for specific legal techniques which enable the global operational form of a corporation is different to the imagining that the corporation is a large economic entity which already exists before law, and which we try to regulate through law after the fact.  So, it’s not an economic monster over which we try to throw a weak net of state law. Instead, it’s more like the corporation is itself a kind of web or network held together by legal strings which we can reshape through snips and stitches.”

The ARC grant has enabled Pahuja to work with collaborators from the UK, US, Canada, Germany, Netherlands, India, South Africa, Kenya, China, Hong Kong, New Zealand, and Australia-wide across different disciplines (historians, sociologists, experts in company law, tax law, and international law).

“This grant is such a gift, because how can you think about a problem this pressing, with this many researchers to do this in-depth research without such a big grant?”

While it might challenge most lawyers, who hunger for a strategy and a solution, this research is not for purpose of ‘what should we do?’ but ‘how should we understand?’, which, Pahuja says, “has to be the core of the question”.

If we knew how to solve the problem, we would have solved it, she argues.

“There have been so many people interested, so much ink spilt, conferences had, and yet there’s a mismatch between global corporate forms and global legal capacity. If a solution were available, it would have been found. We’re not idiots, we need to think historically about this relationship and what has prevented us is what has happened in the world in the last 60 years.”

To that end, she says, “We’ve been building relationships with people in international institutions, UN special rapporteurs on the right to food and the right to housing, and non-governmental institutions are engaged with much of what we’re doing. Another part of what I’ve been trying to do is make a documentary film to get the public to think differently about companies, states and law… to get people to engage emotionally and intellectually with the issue.”

How will the far-reaching research be accessible?

Professor Pahuja says, “The project began in earnest in February 2023, so we are about 18 months in.  We have another four and a half years to go. We have about 30 global collaborators from some of the world’s leading universities – Harvard, Cambridge, MIT, LSE, SOAS, Osgoode Hall, Geneva Graduate Institute – and from several disciplines.  We have established the Transnational Association of Legal Scholars, with about 30 members, which inaugurated a global online program for advanced legal research, the  ‘Academy Advanced in Legal Research’.”

There are many academic outputs published and impending, including books and articles. Her team are also developing a graduate course to be taught next year on Global Corporations and International Law.

The project team are also working on publishing an archive of the UN Centre on Transnational Corporation’s work in the 1970s, 80s and early 90s, including its efforts to draft a binding Code of Conduct for Transnational Corporations. This archive will be an important resource for activists, researchers and policy-makers to understand how a previous generation sought to ensure that corporations benefited the Global South rather than only the Global North.