Doing the right thing

Are global corporations under just a moral obligation rather than a legal duty to behave responsibly around the world?  See Reuben Guttman’s October 5, 2012 blog in The European Lawyer.

DUBLIN – As the annual conference of the International Bar Association moved into its final stages, lawyers wrestled with the vexed issue of whether being environmentally conscious and treating workers fairly are not just matters of moral responsibility, but also a legal obligation.
For multi-nationals incorporated in the US, at least some aspects of corporate responsibility may be mandated by the laws of a foreign nation under the sometimes forgotten doctrine of ultra vires. Examine the articles of incorporation for numerous multi-nationals and there will be language restricting the company to endeavours that are legal.

Governing language

For instance, General Electric’s articles state that the purposes of the corporation are, in part, ‘to engage in any activity which may promote the interests of the corporation, or enhance the value of its property, to the fullest extent permitted by law…’ Multi-nationals operate in many jurisdictions, and this type of governing language could mean that they have to abide by the laws of the jurisdictions where they set up shop.
‘Application of the ultra vires doctrine to overseas conduct might most readily be extended to violations of international law — at a minimum where it has been incorporated into US law,’ noted Professor Robert Ahdieh, the vice-dean at Atlanta’s Emory University law school and director for its Center on Federalism and Intersystemic Governance. He continued: ‘The reference to lawful business in most state codes might also be read more broadly to reach even conduct illegal merely under some applicable body of foreign law. The scope of such an application, however, would require careful parsing.’
Although some nations struggle to enforce compliance with their laws, foreign regulations should not be considered irrelevant and compliance by large corporations should not be optional. One can feasibly argue that corporate directors have a duty to ensure that their companies comply with local and foreign laws. Accordingly, enforcement of these duties can improve the impact that corporations have on stakeholders worldwide, including consumers, workers, and the local environment.

Economic power

In his book, The Failure of Corporate Law, Boston College law professor Kent Greenfield observes that ‘corporate law is a big deal’ and argues that it ‘determines the rules governing the organisation, purposes, and limitations of some of the largest and most powerful institutions in the world. The largest corporations in the world have the economic power of nations. By establishing the obligations and priorities of companies and their management, corporate law affects everything from employees’ wage rate (whether in Silicon Valley or Bangladesh), to whether companies will try to skirt environmental law…’
At the IBA conference, where lawyers from across the globe struggle to understand how the myriad of laws governing multiple lands meld together, the ultra vires doctrine may be another piece in the puzzle.