What relevance does international law have for corporate governance? Why should corporate executives pay attention to it? The short answer is because their stakeholders do. In two separate articles, I explore the ways in which corporate stakeholders – including consumers, employees, suppliers, investors, financial institutions, benchmarking organizations, and NGOs – use various strategies to encourage corporate actors to integrate international law norms into their policies and practices, particularly in relation to human rights due diligence. These strategies include consumer boycotts, litigation, employee walkouts, open letters, insurance policy design, industry associations, codes of conduct, multi-stakeholder organizations, certifications, rankings, and shareholder proposals and agreements.

I identify four types of enforcement activities performed by stakeholders: direct, predicative, facilitative, and amplification. Direct enforcement occurs when stakeholders engage directly with a company without the involvement of other stakeholders. For example, the shareholder proposal is a form of direct engagement that often relies on the antecedent action taken by other stakeholders. In contrast, predicative enforcement involves actions that indirectly engage a corporation, creating conditions for other stakeholders to act. A classic example of predicative enforcement is the stakeholder actions that shareholders reference in their proposals to corporate management.  For example, when shareholders submit human rights proposals to corporations, they often highlight the ways that poor human rights practices can expose the corporation to litigation, regulatory, operational, and reputational risks. While the success of the proposal may depend on these risks, the shareholder proponent did not create them. Instead, that shareholder relies on the actions of other stakeholders for making the case for why the corporations should change its practices.

Facilitative enforcement occurs when a stakeholder refuses to take action that might otherwise disrupt the process of stakeholder enforcement that is performed by others. It is distinguishable by its absence of action or, more generously, its explicit non-interference with the stakeholder enforcement performed by others. While similar to predicative enforcement, it is different because it does not create the inputs that feed into a subsequent phase of stakeholder action. Instead, it is characterized by a refusal to interfere in the stakeholder chain reaction that is otherwise taking place, In the example above, facilitative enforcement may occur depending on the SEC’s response to management’s request to exclude shareholder proposals from proxy statements under Rule 14a-8.  Amplified enforcement refers to stakeholder action that magnifies the impact of action taken by other stakeholders. Those steps may have limited impact in the absence of amplification by other stakeholders. A classic example of amplification enforcement is performed by the news media. The media play an important amplification role in influencing the magnitude of reputational risk for a corporation. Collectively, these enforcement techniques offer important incentives for corporate actors to comply with international law.  These same strategies also influence other stakeholders’ commitment to enforcing it against corporate actors.

The interactions among these enforcement strategies address some of the collective action challenges that could otherwise compromise the enforcement of international law by corporate stakeholders, individually or collectively.  Specifically, stakeholders may confront many collective action challenges in monitoring a corporation’s compliance with international law. However, when stakeholder enforcement occurs through a sequential process, where each enforcement stage reduces information, coordination, and conflict costs associated with subsequent stages. The four types of stakeholder enforcement each lowers detection, verification, and transmission costs while increasing the benefits stakeholders receive from enforcement by aligning their preferences, thereby reducing conflict and coordination costs. The result is an enforcement process that can complement other mechanisms of enforcing international law against corporations and other businesses.

This post comes to us from Professor Kish Parella at Washington and Lee University School of Law. It is based on her recent articles, “Enforcing International Law Against Corporations: A Stakeholder Management Approach,” available here, and “Corporate Governance & International Law,” available here.