How Corporate Law in the Global South Has Pioneered “Heterodox Stakeholderism”

How do the corporate laws of Global South jurisdictions differ from their Global North counterparts? Prevailing stereotypes depict the corporate laws of developing countries as either antiquated, mere copies of Global North models or plagued by problems of enforcement. While there is some truth to these stereotypes, they are seriously incomplete. As I show in a recent working paper, emerging economies have pioneered distinct stakeholder approaches to corporate laws. I call these approaches “heterodox stakeholderism” as they are different and often bolder than the longstanding strategies of the Global North in protecting non-shareholders.

Before the rise of ESG and the renaissance of a stakeholder focus in the Global North, developing countries such as Brazil, India, and South Africa embraced novel, and ostensibly more aggressive, legal strategies to protect stakeholder interests through corporate law and governance. Consider the following developments in the last few decades, which took place before interest in ESG exploded in the Global North:

  • Brazil largely eliminated shareholders’ limited liability, making it easier for stakeholders, such as workers, consumers, and victims of environmental harm, to sue them;
  • India mandated corporate social responsibility spending;
  • India and South Africa required companies to establish committees in charge of social responsibility.
  • South Africa boldly pushed for increased Black representation on corporate boards and ownership of companies;
  • South Africa allowed workers to enforce directors’ duties under the Companies Act.

These findings illustrate the intellectual and policy payoffs of incorporating a broader array of Global South jurisdictions in studies of comparative corporate governance. First, doing so would help overcome the “World Series” syndrome, described in the comparative literature as the pretense that insights from a select group of usual suspects from the developed world are representative of global developments. Second, it would help overcome what I have called the “odd duck” syndrome: The common practice of examining Global South jurisdictions in single-country studies can easily produce misleading diagnoses of exceptionalism. For instance, commentators have described India’s approach to parent-company liability for environmental disasters as comparatively “unique” and “revolutionary” without recognizing that Brazil and other emerging economies are part of a similar trend.

Appreciating the different manifestations of heterodox stakeholderism in the Global South not only expands our institutional imagination, but also sheds light on the forces behind the evolution of corporate law. Heterodox stakeholderism can be viewed as an institutional adaptation in environments where inequality is high and state capacity to curb externalities is low. This is the flip side of the implicit “modularity approach” that has traditionally dominated law-and-economics analysis. Under a modular approach, which is premised on compartmentalization and functional specialization, each area of law should contribute to social welfare by focusing on one economic problem. For corporate law, the standard single objective is the reduction of agency costs associated with the corporate form. However, if other areas of law (such as tax, environmental, and antitrust) fail in accomplishing their objectives, the case for such a modular approach – whether or not it is optimal to begin with – falters.

In places of rampant inequality and significant social and environmental degradation, the view that corporate law should focus exclusively on shareholder wealth maximization tends to lose legitimacy, if not economic justification. These pressures, which have long been felt in the Global South, are now reaching the Global North, bringing about the surprising prospect of “reverse convergence” in comparative corporate governance – with institutions of the developed world coming to resemble their developing country counterparts.

Finally, heterodox stakeholderism in the Global South also responds to the distributional consequences of corporate laws across jurisdictional boundaries, which can be significant but have been thus far neglected. Upholding the limited liability of parent companies for environmental harm caused in developing countries is not only inefficient but also perverse in how it distributes wealth to already rich Global North companies and their investors at the expense of poor Global South victims. Reducing limited liability for parent companies would not only help make up for the failures of regulation in developing countries to prevent harm, but also redress imbalances in the distribution of wealth between the South and North.

This post comes to us from Professor Mariana Pargendler at Fundação Getulio Vargas Law School in São Paulo and New York University School of Law. It is based on here recent article, “Corporate Law in the Global South: Heterodox Stakeholderism,” available here.