Corporate Law in the Global South: 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 or plagued by problems of enforcement and misfit despite formal convergence. While these views reflect more than a kernel of truth in numerous contexts, they offer an incomplete and impoverished perspective on corporate laws in the developing world. Rather than being inevitably antiquated or blind copies of Global North models, my recent working paper shows how emerging economies have pioneered distinct stakeholder approaches to corporate laws. I call these approaches ‘heterodox stakeholderism’ as they are different from and often bolder than the long-standing strategies of corporate law to protect non-shareholder constituencies in the Global North.

Preceding the ‘rise of ESG’ and the renaissance of a stakeholder focus in the Global North, core developing jurisdictions such as Brazil, India, and South Africa had 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 for the benefit of stakeholders, such as workers, consumers, and victims of environmental harm;
• India mandated corporate social responsibility spending;
• India and South Africa required dedicated committees in charge of social responsibility;
• South Africa boldly pushed for Black ownership and board representation in corporate governance;
• 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, this helps to overcome the ‘World Series’ syndrome in the comparative literature, understood as the pretense that insights from a select group of ‘usual suspects’ from the developed world are representative of global developments. Second, it also helps to overcome what I have called the ‘odd duck’ syndrome: because Global South jurisdictions are often examined in single-country studies, this can easily produce misleading diagnoses of exceptionalism. For instance, commentators have described India’s approach to parent company liability for environmental disasters as ‘unique’ and ‘revolutionary’ from a comparative perspective, 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 driving forces behind the evolution of corporate law. Heterodox stakeholderism in corporate law can be viewed as an institutional adaptation to environments of high inequality and insufficient state capacity to curb externalities and promote social welfare through other areas of law. This is the flip side of the implicit ‘modularity approach’ that has traditionally dominated law-and-economics analysis. Under a modular approach 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 laws) fail in accomplishing their objectives, the case for such a modular approach—whether or not it is optimal to begin with—falters accordingly.

In environments 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 law rules 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 questionable on efficiency grounds but also has perverse distributive implications in enriching wealthy Global North companies and their investors at the expense of poor Global South victims. The erosion of limited liability of parent companies in developing countries likely responds not only to failures of their regulatory state in preventing harm but also to the South-North distribution dynamics that limited liability entails.

Mariana Pargendler is Full Professor of Law at Fundação Getulio Vargas School of Law in São Paulo, Global Professor of Law at New York University School of Law, and a Research Member of the European Corporate Governance Institute (ECGI).

A previous version of this post was published on the CLS Blue Sky Blog and can be accessed here.