The Paradox of Corporate Globalization: Disembedding and Reembedding Governing Norms

Corporate globalization has been the most transformative geoeconomic development of the past half century, and shareholder primacy its force multiplier. Their combination brought great benefits to people and countries well positioned to seize the new opportunities. But that their unfettered expansion would also disrupt social fabrics and overtax natural capital was not only predictable; it was predicted. In a seminal keynote address to the January 1999 Davos gathering, then UN Secretary-General Kofi Annan warned that unless globalization develops stronger social and environmental pillars it will remain vulnerable—“vulnerable to backlash from all the ‘isms’ of our post-cold-war world: protectionism; populism; nationalism; ethnic chauvinism; fanaticism; and terrorism.”

Today, corporate globalization and shareholder primacy are under duress. The former plateaued even before the COVID-19 crisis. The latter has been subject to intense criticism by growing numbers of “stakeholder capitalism” advocates. The debate intensified after the August 2019 U.S. Business Roundtable statement committing signatory CEOs “to lead their companies for the benefit of all stakeholders—customers, employees, suppliers, communities and shareholders.” But the terms of the debate have not changed fundamentally since the days of Milton Friedman, Michael Jensen, and R. Edward Freeman in the 1970s and 1980s. Those writers may be excused for conceptualizing their analysis and advocacy as though the United States economy existed in a bubble, largely independent of the rest of the world; their current counterparts cannot.

Given how consequential corporate globalization and shareholder primacy have been to weaken the provision of public goods, social cohesion and broadly shared prosperity, any discussion of corporate purpose today must be broadly framed in global terms. More than that, behind the Business Roundtable statement and similar pronouncements, there is a larger story: for more than two decades, social actors including civil society, workers organizations, elements of the United Nations, some governments, corporate “intrapreneurs,” and socially responsible investors have generated an ecosystem of norms and policies that constitutes the backstory of the current “repurposing” debate. This paper addresses both developments: the “disembedding” of national capitalism from postwar normative understandings and institutional arrangements, resulting in the ascendance of corporate globalization and shareholder primacy; and transnational efforts to reembed the corporation in a normative understanding of itself as a social entity, not merely a piece of private property “owned” by shareholders.

The scale mismatch between the global private and public domains is narrowing from both directions. Corporate globalization as we have known it is unlikely to be fully restored any time soon. The construct of the corporation itself is in flux again. Markets are pricing in more of the external costs of corporate operations; ESG investing is becoming a market-moving factor; and leading corporates have moved well beyond traditional CSR to take more seriously the relationship between their own sustainability and that of the social and natural environments in which they operate. Whatever immediate rationales might be in play, corporate repurposing is not mere virtue-signaling; it is also an indicator of directional change, even as the precise destination remains unknown. That “will be worked out, not deduced,” as William Allen, former Chancellor of the Delaware Court of Chancery, wisely observed some years ago in a paper brilliantly entitled “Our Schizophrenic Conception of the Business Corporation.”

This paper is divided into five parts. To anchor the discussion, the first draws a baseline of corporate globalization and traces key policy measures that created its enabling environment. The second identifies the paradox of corporate globalization: at the very height of the recent globalization boom multinationals discovered that their legal license to operate, provided by governments, did not in itself translate into a social license. Firms responded by adopting enterprise-wide corporate social responsibility (CSR) as a management tool. Although quite superficial in its early iterations, in retrospect this marked the first step toward systematically engaging stakeholders, if only in the attempt to placate them. The following two sections recap the institutional strategies and cascading effects of two global initiatives intended to narrow the gap between legal and social license: the UN Global Compact, the world’s largest corporate citizenship platform, and the UN Guiding Principles on Business and Human Rights, the global standard in this space. Both reflect, and contributed to, the normative evolution through which the corporation has come to be viewed—in the end by many firms themselves. The conclusion returns to the current repurposing debate and reflects on what, if any, contributions it is making to rebalancing market and society, and to people and planet challenges humanity faces today.

The complete paper is available here.