Multinationals and the Constitutionalization of the World Power System

Jean-Philippe Robe, Antoine Lyon-Caen, Stéphane Vernac, Jean-Philippe Robe, Antoine Lyon-Caen, Stéphane Vernac, Jean-Philippe Robé

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9781472482921
• eBook ISBN: 9781317093336
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

This collection offers a powerful and coherent study of the transformation of the multinational enterprise as both an object and subject of law within and beyond States. The study develops an analysis of the large firm as being a system of organization exercising vast powers through various instruments of private law, such as property rights, contracts and corporations.

The volume focuses on the firm as the operational unit of governance within emerging systems of globalization, whilst exploring in-depth the forms within which the firm might be regulated as against the inhibiting parameters of national law. It connects, through the ordering concept of the firm in globalization, the distinct regimes of constitutionalization, national and international law.

The study will be of interest to students and academics in globalization and the regulation of multinational corporations, as well as law, economics and politics on a global scale. It will also interest government leaders and NGOs working in the areas of MNE regulations.

Part I
Firms and power

1 Globalization and constitutionalization of the World Power System

Jean-Philippe Robé

The effective operation of the economy evidences the globalization of a power system in which the largest enterprises (the so-called multinationals) play a driving role that is hard to conceptualize with classical analytical tools. Globalization, as a historical process, has moved the locus of power by reducing the ability of “public” authorities (i.e. States and public international organizations) to act effectively and by granting more autonomy to certain “private” powers (those of the largest enterprises and of various investment funds). This has taken place progressively without any grand plan or any official institutionalization. The power system has evolved by itself and analytical tools are missing to describe and analyze what will be designated in this chapter as the “World Power System” that is taking shape as a consequence of this evolution. The challenge is to conceptualize this new power system.

The general thesis developed here is that via no formal institutionalization, no single international treaty, the World Power System has now become a “constitutional system”.

The notion of constitution is traditionally attached to the State.¹ But it can be thought about in a pluralistic manner, both in a territorial sense (which is now a classical way of thinking about the European Union,² for example) and in a de-territorialized sense. Enterprises, in particular, can be thought about at the same time as political orders (it is within them that partially common and partially conflicting interests are being conciliated as a matter of principle) and as legal orders.³

The “constitutionalization” process of the various types of powers operating in the global economy has been at work for a very long time. One of the challenges of the globalization of the World Power System is to find ways to have an impact on this process of self-institutionalization (constitutionalization). For this purpose, a series of micro-devices has been imagined and will be presented at the end of this chapter. Via their virtuous circle effects, they could contribute to a consolidation of the self-constitutionalization of the World Power System and improve the taking into account, by the various subsystems of power within the World Power System, of the interests and individual rights at stake.

The scheme of analysis proposed here offers a new field for research, enabling to think globalization in a new way. It seeks to identify various means to accompany globalization’s development so as to make it more compliant with the wishes and needs of the people, society and the natural environment. It is still very open and is likely to benefit from multiple enrichments coming from other fields of study (such as corporate social responsibility, for instance, which currently suffer from a lack of proper conceptualization).⁴

I will present the analysis of the process of globalization of the World Power System in Section 1. I will show the very substantial role played by enterprises in the globalization of the power system and in the numerous challenges it presents. In Section 2 I will explore one possible route to restore some equilibrium in the operation of the World Power System by applying to enterprises themselves the constitutional idea developed to subject States to constitutional norms and procedures. The main point is that since we have successfully managed to subject States’ operations to constitutional constraints, why not develop a similar framework for the management of global firms? Since all this may seem quite theoretical with no teeth, a few micro-devices that could help in reorienting the self-constitutionalization of the World Power System are presented in Section 3.

1. Globalization of the World Power System

Globalization challenges the analyses conducted within classical social sciences. Being mainly the outcome of enterprises acting on a global scale, while enterprises do not have any official existence in law or as political institutions, globalization challenges the traditional way of understanding the political and legal structure of today’s global society. Although scholars may not always be aware of it, classical approaches in the social sciences implicitly treat society as if it were operating within one single State. Often unconsciously, society is taken as if it were always operating under the State’s umbrella. In fact, if such analyses can be valid in the context of relatively closed societies, they are not pertinent for the understanding of a globalizing society that they fail to explain in a satisfactory manner. They treat whatever is “inter-national” as something marginal, secondary, coming “after” a dominant, “internal” analysis.⁵ In their very existence, social sciences remain anchored in the State System – and they are deceiving themselves with the illusion of “interdisciplinary approaches”, when what is at stake are the disciplines themselves and their borders, which are nothing but a distant by-product of States borders.⁶

This challenge to classical social sciences could be good news: It could open the way to a scientific analysis of the actual operation of the power system by forcing to place oneself-at the only level of analysis where there are no external factors anymore: the World Power System.

A. Diagnosis: Deconstructing/reconstructing power structures

There has been a historical process of deconstruction-reconstruction (decentralization/reconcentration) of power in favor of “business firms” (enterprises) via business corporations.

1. Deconstruction

(A) Today, the largest enterprises are organizations that control centers of production and of distribution of products and services, communication and trade networks, via resources they control and by producing and distributing on a worldwide basis. The resources they use obviously include natural resources, labor and capital. But among the resources used by enterprises, one also finds law. This is the case for the legal instruments used to structure enterprises’ business activities, whether these instruments are legitimate ones (e.g. corporate and contract law instruments) or not (e.g. opportunities provided by tax havens, bank secrecy). Beyond that, enterprises operating on a global scale are presented with a series of “regulatory environments” to choose from. These legal environments, created by the various States, offer more or less protection to the various interests present on States’ territories, and are therefore more or less attractive for the localization of the various activities conducted by firms. Some are attractive for production; some are attractive as financial centers; some are attractive for distribution, and so on.

A point of vocabulary: “Multinational”⁷ no longer qualifies a noun; it became a noun in itself. But by using the word “multinational”, what are we referring to? A multinational corporation? A multinational company? Even though authors use these terms very imprecisely (this is mainly a result of the widespread confusion between the notions of “enterprise” and “corporation”;⁸ more on that later), the word “multinational” designates a multinational enterprise. The word “company” lacks precision and there is no such thing in law as multinational corporations. There exist international corporations (these are corporations created by international public law treaties, such as the corporation that operates the Mont Blanc tunnel between France and Italy), but this is not the type of organization we are dealing with here.

A “multinational” is an enterprise. It is an economic organization producing goods or services, having structured its business activities on the territory of numerous States. To do so, a corporation, used to legally structure the enterprise, may create branches or representation offices outside of the territory of its State of origin. A multinational enterprise can be structured using a single commercial corporation, a single legal entity, as neither the branch nor the representation office is granted legal personality – but it is usually at the very early stages of its international development that an enterprise is structured in this fashion. In most cases, even in the early stages, the corporate structure of a multinational enterprise is that of a group of corporations.

In most cases, the parent corporation holds all or part of the shares issued by other corporations incorporated on the territory, and created under the laws, of other States than the parent corporation’s State of origin. The corporate structure may be very complex, including sub-subsidiaries, cross-holdings, joint-ventures, and so on, but it is always the same mechanism that is at work: Via direct or indirect control over a sufficient portion of the shares issued by the subsidiaries or by sub-subsidiaries, one single economic organization can be created and managed. The parent corporation being incorporated in a specific State, oxymorons such as “American multinationals” or “Japanese multinationals” are used to designate these enterprises. This is precisely where the complexity begins: Each subsidiary is a legal entity with its own legal personality, its own legal representatives, its own assets, its own financial statements, its own contractual partners, its own torts (if it commits any) and contractual liabilities, and its own creditors and debtors. The group of corporations does not have any legal existence as such. It does not constitute a different legal entity, additional to that of the subsidiaries, to which anything can be imputed. Yet, it is thanks to this group of corporations that a unique enterprise, a unique organization coordinated by a single management team, exists in reality, although it does not exist as such in the legal system.

One should therefore make no confusion between the notions of “multinational” and of “group”. “Multinational” refers to the economic organization. “Group” refers to the corporate structure that allows the economic organization (the “enterprise”) to operate in the legal system, and each subsidiary within the group is granted legal personality in the various legal systems (State legal systems) in which the “multinational” enterprise carries out its activities. The group merely corresponds to the enterprise’s corporate structure. It is far from covering the great legal complexity of a multinational enterprise’s legal structure, which goes far beyond its corporate structure and involves many suppliers, employees, subcontractors, franchisees, and so on, and (sometimes) clients, which are all third-parties vis-à-vis the companies constituting the corporate group. The boundaries of the enterprise go well beyond the perimeter of the group’s subsidiaries.

Being an organization (i.e. an institutional arrangement of assets and people over which a form of power is exercised) the enterprise’s limits can be found where its effectiveness in organizing its business activities reaches its limit.⁹ What is organized by the enterprise is part of the enterprise. What is not organized by it (i.e. what is merely purchased or sold) is not part of the enterprise. One then realizes that employees, probably franchisees and often subcontractors too, belong to the enterprise for at least part of their activities – although they, of course, do not form part of the group of companies that is the corporate structure of the enterprise. They are legally only contracting parties to one of the group’s subsidiaries, but they are certainly part and parcel of the enterprise.

The consequences of the de facto existence of the enterprise (here, of the “multinational” enterprise) as an organization and of its inexistence in law are endless. For instance:

1. a) Contracting partners to a subsidiary enter into agreements with a particular subsidiary only and do not have, in principle, any right against the other companies of the group. It is the case for all contractual partners including employees, who deal only with the subsidiary’s local management and assets; they benefit from local laws only. Subordinates are in fact subordinated to other subordinates, while the ultimate decision makers remain unreachable locally.
2. b) The law applicable to each subsidiary is the one of the State where the subsidiary is incorporated. Thus, a single organization (the multinational enterprise) may choose to establish part of its activities in specific legal environments. Such an opportunit...

Table of contents

• Cover Page
• Half-Title Page
• Title Page
• Copyright Page
• Table of Contents
• List of tables
• Contributors
• Foreword: constitutionalization and the regulation of transnational firms
• Introduction
• Part I Firms and power
• 1 Globalization and constitutionalization of the World Power System
• 2 The corporation and the new aristocracy of finance
• 3 Corporate power in the global economy
• 4 Powers and responsibilities in multimember organizations
• Part II The concept of constitutionalization
• 5 Reflections on the constitutionalization of the World Power System
• 6 From orthodox to societal constitutionalism
• 7 Constitutionalization outside of the State?
• 8 The concept of constitutionalization and the multi-corporate enterprise: from body corporate to sovereign enterprise
• Part III The concept of constitutionalization applied to the firm
• 9 Human rights and the constitutionalized corporation
• 10 The responsibility of multinational enterprises: a constitutionalization process in action
• 11 Constitutionalization and the status of the director: The test of “Say on pay”
• 12 Can States regain fiscal sovereignty over globalized business?
• Afterword
• Index