From Corporate Social Responsibility to Corporate Social Liability

A Socio-Legal Study of Corporate Liability in Global Value Chains

Anna Aseeva

• Publisher: Hart Publishing
• Year: 2021
• ISBN:
  9781509930593
• Edition: 1
• Topic: Jura
• Subtopic: Gesellschaftsrecht

This book provides a critical socio-legal study that brings together the latest scholarly advances on corporate social responsibility, and, at the same time, addresses the pressing issue of corporate liability for harmful acts across the supply and production chains. Corporations have seldom been held responsible and virtually never liable for the acts of their subsidiaries and subcontractors. Actors as different as workers, investors, individual consumers, and shareholder activists claim that corporations should accept greater responsibility for communities and environments affected by their activities. The book argues that a global value chain's head corporations remain immune to any liability because of the 'economically dependent-legally independent' relationships between core corporations and their periphery suppliers and subcontractors. To tackle this problem, globally, the author acknowledges that 'we' as a society need to reduce the economic dependence as described above – which is far too excessive – by ensuring a level playing field both economically and socially. More concretely, she argues that in order to realise transnational corporate liability, 'we' as lawyers need to find a way (or ways) to establish legally effective relationships between head corporations and their economically dependent entities. Readers of this book will be able to export the concept of corporate social liability, developed in the context of value chains, and apply it to other contexts involving corporate activities where they need to tackle unrestrained corporate freedom and make global businesses responsible and socially useful.

PART I

On the Limits of Law and a Limitless Globalised Market

1

Introduction

I.Meet Corporate Social Liability

Globalisation has overwhelmingly expanded the operating scope of corporations, rendering commonplace cost-saving arrangements such as subcontracting. Today’s global economy is shaped by transborder production webs – global value chains (GVCs). In 2019, GVCs accounted for more than two-thirds of the world’s economy.¹

However, to date, virtually limitless corporate power along GVCs bypasses traditional forms of both private law liability and state public control. Indeed, at each distinct attempt to regulate such power through corporate social responsibility (CSR), transparency, due diligence disciplines, and orthodox contract and corporate governance, as well as public international law and human rights channels, law – properly so called – did not seem to work. Arguably, the existing framework of applicable law acted as an enabler of corporate irresponsibility in GVCs, and, indeed, of the massive increase in the number of GVCs themselves. At the same time, the advent and proliferation of GVCs seemed to bring about a structural change to the legal face of the global political economy. Namely, through GVC production and trade, core corporations created a relationship of high economic dependence between them and the periphery firms, and thus introduced a whole system of economically dependent but legally quite independent entities.

Simultaneously, a general acceptance of the fact that at the end of the day corporations do whatever maximises their profits has resulted in a normalisation of both social irresponsibility and legal impunity of corporations operating transnationally. Throughout this book, I aim to challenge this somewhat fatalistic acceptance.

More precisely, I intend to fill the relevant gaps by adding to the research on and practice of the preventive, anticipatory and proactive ethical obligations of corporations, their transparency and due diligence obligations, which are prescriptive in nature, as well as some proscriptive disciplines such as corporate and contractual liability. The latter disciplines, whilst proscriptive, are mostly toothless in the context of GVCs, as they generally protect corporations from liability for the acts and omissions of their economically dependent entities – typically, subcontractors and other suppliers. Therefore, I chose the context of GVCs as a litmus test that helps to reveal the true colours of corporate responsibility towards third parties and society at large, hence the ‘social’ in the term ‘corporate social liability’.

A key argument of this book is the following: due to the particular form of GVC production and trade, a chain’s head corporations remain immune to any liability because of the ‘economically dependent-legally independent’ relationships between core corporations and their periphery suppliers and subcontractors. To tackle this problem, globally, ‘we’ as a society need to reduce the economic dependence as described above – which is far too excessive – by ensuring a level playing field both economically and socially. More concretely, in order to realise transnational corporate liability, ‘we’ as lawyers need to find a way (or ways) to establish legally effective relationships between head corporations and their economically dependent entities. While my ambition in this book is not to propose concrete legislation, as I aim rather at canvassing a roadmap towards such corporate liability, I will of course paint a picture of an emerging legal framework in my conclusions. Readers of this book will be able to export the concept of corporate social liability (CSL), developed in the context of value chains, and apply it to other contexts involving corporate activities where they need to tackle unrestrained corporate freedom and make global businesses responsible and socially useful.

The present book is a critical and contextual study of the ‘why’ and ‘what’ of CSL in the context of GVCs. The ‘why’ question is also followed by a ‘how’ question, which highlights the complexities inherent in CSL. In this introductory chapter, I set the stage for thinking about CSL. I begin by addressing the questions, ‘why CSL?’ in section II and ‘what does CSL cover?’ in section III. I also explain the focus, theory, approach and methods of the present book, as well as its apparent limitations (section IV). In section V, I summarise the structure of the book.

II.Why Corporate Social Liability?

A.Purposes of This Book

Until now, stories of nature, livelihoods, or lives being destroyed by GVC capitalism in countries on the periphery of global production have failed to shock the public anywhere near as much as the story of humans dying from a virus, such as the 2020 coronavirus (Covid-19) pandemic, in the centre of global production. Possibly, if the media provided daily updates (as they did for the number of Covid cases) on the natural habitats destroyed and thousands of people dead or dying along GVCs, this might challenge the status quo. But it is entirely possible that even that level of publicity would fail to generate a response. This leads to one of the biggest issues of our time, which goes beyond legal or even legal-political problems: the normalisation of irresponsibility and impunity for the wrongdoings of corporations who operate transnationally. It is therefore crucial to tell a different story, which, before looking for solutions to the above problem, first addresses its root causes.

Hence, the question ‘why CSL?’ arose because, until now, corporations had seldom been held accountable – and virtually never legally responsible – for transboundary harm along GVCs that often results from their subsidiaries’ and subcontractors’ acts or omissions. The wrongs attributable to corporations operating transnationally stretch from armed conflicts and atrocities within and across third world countries, through discrimination and violence against indigenous peoples and local communities in both first and third worlds, to pollution, destruction of the environment, and global climate crisis. For some time, actors as diverse as academics, workers, investors, members of civil society, and individual consumers have argued that corporations should finally take on a fair part of their responsibility for the individuals, communities, and environments affected by the outsourcing of their operations. At the same time, nowadays there seems to be a certain acceptance by society at large that such atrocities are here to stay, thanks to the ever-tightening grip of global capitalism.

The question ‘why global value chains?’ arose because GVCs epitomise contemporary forms of global capitalism. It is argued that GVCs are essentially marked by a shift from vertically integrated firms to the horizontal contractual arrangements between affiliated entities within a transnational network of enterprises.² For more than a century, traditional contract and corporate law constructs of privity, separate legal personality, and limited liability have been reducing the exposure of vertically-integrated corporations to law enforcement action. Today, those constructs make it even more difficult to enforce law against the GVC lead firms because of the horizontal nature of dispersed GVC production. GVCs thus reshape and streamline the whole geoeconomics of – now, globalised – production, thus also marking a legal transformation of transborder business transactions and broader international economic relations. Those dynamics, in turn, introduce multiple governance gaps: not only distributional disparities both in terms of geographic location and social group, but also regulatory ones across and between jurisdictions and regions. Together those gaps constitute, in legal terms, a responsibility deficit within, and indeed of, GVCs.

As Duncan Kennedy said, in paraphrasing Max Weber, ‘interpretation positing gaplessness requires the interpreter to apply in every case, according to their meanings, the legal norms he or she can derive textually, conceptually, or through precedent; it categorically forbids reference to purposes and policies’.³ While Kennedy addressed particular issues of legal interpretation, and not GVC capitalism, the opposite, gap-filling, approach of this book is an inclusion of other relevant contexts, looking precisely at the purposes and policies behind applicable – as well as non-applicable – legal norms. As noted above, today we badly need a story that, before looking for the solutions to the problem, will address the root causes of the problem. This book is different from most book-length existing literature on the subject-matter, in that it looks squarely at other, non-legal but nonetheless still relevant contexts to explain the contemporary legal status quo regarding transnational corporate liability. Relevant historico-dogmatic, social, economic, and political accounts all blend together to form what I refer to in this book as ‘GVC context’.

Today’s transnational ‘GVC’ norms comprise CSR, corporate, and contractual regimes, as well as transparency, due diligence, and liability legislation. My general idea behind the project for this book is that canvassing everything that happens under the banner of ‘corporate social liability’ – all that is debated, decided, produced, and dropped – can give us a new understanding of transnational economic governance in more subtle ways, moving beyond either doctrinal and dogmatic deficit or excess.

Where does the term ‘CSL’ come from? Contrary to corporate accountability, sustainability, CSR, just social responsibility and just corporate liability, it is not a phrase that is widely – if at all – used, as I coined the term ‘corporate social liability’ myself. Corporate liability generally covers the extent to which a corporation as a legal person can be held liable for the actions of its managers and employees, including personal injury claims, corporate manslaughter and corporate homicide – thus being a mere employer’s responsibility for whatever its employees do, typically by negligence, including numerous exceptions to such liability. The tort of negligence and the tort of breach of statutory duty are the typical venues, and corporations are thus virtually never exposed to broader claims by local communities, environmental groups, and civil society in ge...