Public Relations Litigation

Conventional wisdom holds that lawsuits harm a corporation\u27s reputation. So why do corporations and other businesses litigate even when they will likely lose in the court of law and the court of public opinion? One explanation is settlement: some parties file lawsuits not to win but to force the defendant to pay out. But some business litigants defy even this explanation; they do not expect to win the lawsuit or to benefit financially from settlement. What explains their behavior? The answer is reputation. This Article explains that certain types of litigation can improve a business litigant\u27s reputation in the eyes of its key constituents-constituents that help it succeed in the marketplace. It is their changed views of the litigant-and subsequent actions taken based on those changed views-that provide the financial benefit from a lawsuit that the court may not deliver. For example, technology companies use patent litigation to discourage employee flight, consumer products companies may use litigation to affect consumers\u27opinions about competitors, and some corporate plaintiffs may even use litigation to address reputational harm following a crisis. In all these examples, business litigants may benefit from the reputational effects of the litigation even if they lose in court. This Article makes two contributions. Descriptively, it challenges the conventional wisdom that lawsuits are always bad for business by revealing hidden incentives found outside the courthouse that are neglected in the standard explanation for litigant behavior. Specifically, it explains how litigation can contribute to reputation-building through signaling or framing strategies. It also describes how this reputation-building can result in different types of distributed gains: interparty, intertemporal, and interinstitutional. Practically, it highlights that the legal rules that could address this reputation- building may lack utility due to the timing of reputational effects in litigation

Investors as International Law Intermediaries: Using Shareholder Proposals to Enforce Human Rights

One of the biggest challenges with international law remains its enforcement. This challenge grows when it comes to enforcing international law norms against corporations and other business organizations. The United Nations Guiding Principles recognizes the “corporate responsibility to respect human rights,” which includes human rights due diligence practices that are adequate for “assessing actual and potential human rights impacts, integrating and acting upon the findings, tracking responses, and communicating how impacts are addressed.” Unfortunately, many corporations around the world are failing to implement adequate human rights due diligence practices in their supply chains. This inattention leads to significant harms for the victims of these human rights abuses and a variety of risks – legal, reputational, business, and regulatory – for the companies involved. Over the years, lawsuits have been brought against Walmart, JC Penney, Hershey, Nestle, Purina, Tesla, Google, Chevron, and many others regarding their human rights practices. As part of Berle XII’s exploration of “Corporate Capitalism and the City of God,” this Article explores how shareholders have attempted to change the human rights due diligence practices of companies by submitting shareholder proposals requesting information on a company’s human rights policies, assessments, and implementation strategies. While many of these proposals are filed by faith based organizations and other members of the Interfaith Center on Corporate Responsibility (ICCR), recent proposals have also received support from actors such as BlackRock and Vanguard. This Article provides a descriptive account of the proposals submitted, evaluates the various shareholder reasons for proposing and supporting these proposals, discusses the outcomes of these proposals (such as approval, exclusion, and withdrawal), and analyzes the possibilities and limitations of enforcing international human rights norms through the mechanism of shareholder proposals

Improving Human Rights Compliance in Supply Chains

Corporations try to convince us that they are good global citizens: “brands take stands” by engaging in cause philanthropy; CEOs of prominent corporations tackle a variety of issues; and social values drive marketing strategies for goods and services. But despite this rhetoric, corporations regularly fall short in their conduct. This is especially true in supply chains where a number of human rights abuses frequently occur. One solution is for corporations to engage in meaningful human rights due diligence that involves monitoring human rights, reporting on social and environmental performance, undertaking impact assessments, and consulting with groups whose human rights they can harm. The challenge is how to encourage corporations to make these changes. We often rely on two types of tools to improve corporate compliance: legal institutions and reputational mechanisms. However, each of these faces significant limitations when it comes to human rights compliance in the supply chain. This Article develops a strategy based on complementarity between the two so that each compensates for the limitations of the other. Specifically, reputational mechanisms can help create incentives for compliance with international legal institutions with weak or absent enforcement mechanisms. Alternatively, legal institutions can create “focal points” regarding corporate best practices that can improve reputational markets for corporate social responsibility. The reputational typology developed in this Article offers three important contributions to policy and academic discussions concerning corporate misconduct. First, it allows us to create better human rights institutions by revealing the types of “carrots and sticks” that we should include to encourage corporate cooperation; this lesson is particularly timely because an international treaty on business and human rights is in development. Second, this typology illustrates how corporations may voluntarily undertake organizational change in response to a reputational crisis. Finally, this typology identifies drivers of cross-border compliance for transnational corporations

The Stewardship of Trust in the Global Value Chain

Global governance has not yet caught up with the globalization of business. As a result, our headlines provide daily accounts of the extent and consequences of these governance gaps. The ability of corporations to evade state control also contributes to an unusual, even frightening, phenomenon: corporations are governing like states. Some governance functions traditionally delivered by state actors are now increasingly undertaken by transnational corporations. One area that is experiencing this substitution is dispute resolution of human rights. Corporations and other business enterprises, individually or collectively, are creating a variety of grievance mechanisms to address human rights and other conflicts associated – even caused – by their business activities. When these roles are fulfilled by state actors, we rely on procedural fairness to guide, even discipline, decision-makers. Procedural fairness improves our faith in decision-makers and their institutions even if we might disagree with the outcomes reached. What does procedural fairness mean when it is undertaken by a corporation providing quasi-public governance? What factors might improve its disciplining potential on corporations and increase the likelihood that the watching public, local and global, might accept the outcomes reached? Current guidance to corporations is based upon public law traditions. Consequently, success has been limited because these approaches fail to address the characteristics and dynamics of governance by the business sector. By contrast, this Article offers a new framework for procedural fairness that is based upon a neglected but significant source: contract law. This framework draws upon interdisciplinary research on relational contracts to develop a strategy for trust-building that can improve the quality of governance performed by the transnational business sector

Protecting Third Parties in Contracts

Corporations routinely impose externalities on a broad range of non-shareholders, as illustrated by several unsuccessful lawsuits against corporations involving forced labor, human trafficking, child labor, and environmental harms in global supply chains. Lack of legal accountability subsequently translates into low legal risk for corporate misconduct, which reduces the likelihood of prevention. Corporate misconduct toward non-shareholders arises from a fundamental inconsistency within contract law regarding the status of third parties: On the one hand, we know that it takes a community to contract. Contracting parties often rely on multiple third parties—not signatories to the contract—to play important roles in facilitating exchange, such as reducing market transaction costs, improving information flows, and decreasing the risk of opportunism. On the other hand, we deny this community protection from the externalities that contracting parties impose on them. This article examines a corporation\u27s duties to others in its role as a contracting party. Normatively, this article proposes an alternative view of contracts as an ecosystem with three attendant principles that result from this view: (a) third-party protections from negative externalities, (b) contract design obligations of contracting parties, and (c) recourse to legal remedies for third parties. On a policy level, this article proposes the following duty to contract in order to translate theory into practice: Contracting parties are required to take into account negative externalities to third parties when the contracting parties could reasonably foresee that performance of the contract would create a risk of physical harm to these third parties

The Information Regulation of Business Actors

A transnational legal order (TLO) is emerging regarding the role of businesses in respecting human rights. This legal order includes multistakeholder initiatives, international organization recommendations and guidelines, NGO certifications, and other voluntary instruments. Many of the norms within this TLO are nonbinding and therefore lack mandatory compliance; what they may possess is persuasive power, particularly when the norms are developed, endorsed, and managed by reputable organizations. It is that reputational, or legitimacy, advantage that matters for encouraging industry associations to comply with the nonbinding norms associated with these organizations. Industry associations and other business actors will gravitate more towards legitimacy enhancing organizations when their own legitimacy is at stake. They pivot towards public organizations such as the United Nations or private NGO initiatives like the Rainforest Alliance, seeking to associate themselves publicly with these organizations that enjoy more perceived legitimacy. These business relationships with legitimizing bodies can take the form of partnerships, certifications, or other arrangements where an industry association adopts and incorporates nonbinding norms when it otherwise might not. In this essay, I discuss three transnational legal processes that encourage industry associations, their members, and other business actors to abide by nonbinding transnational legal norms concerning business and human rights