International business should advance the rule of law
Rule of law is not only about legal constraints on the exercise of state power, limiting arbitrary decisions of government officials.
It is the basic principle that absolutely no one is above the law. Everyone gains from supporting and strengthening the rule of law.
The international development community, for example, is seeking to establish rule of law as a requirement in policy and practice: government donors, multilateral institutions, and development banks exert pressure on host governments to put in place enforceable laws, independent judiciaries and efficient public institutions.
Recently some actors in the international business community, too, have taken interest in committing to advance a rule of law agenda. This is because it is increasingly acknowledged that strong rule of law is essential both to economic and social development and to advance responsible business opportunities. Rule of law promotes and implies numerous advantages for business, including:
Clear, fair and predictable laws,
Protection of investments,
Contractual rights, and
Rule of law ensures accountability, stability, equality and access to justice, which benefits business, not just society as a whole.
An illustration - the Panama Papers revelations in global media exposed the very negative impact of tax evasion on the rule of law and we heard all the strong arguments for legal compliance. Not ending tax evasion and tax secrecy, or engaging in corrupt practices for that matter, clearly undermines the rule of law.
Corporations and intermediary actors (lawyers, bankers, accountants) engaged in tax abuse deprive the governments of funds required to fulfill their duty to provide health, education, and other public services. The world’s poorest people pay the price.
Business for Rule of Law Framework
For good reasons the UN Global Compact (UNGC) is now encouraging business to do more to respect and support the rule of law and with this in mind developed a tool called Business for Rule of Law Framework (B4ROL):
At the minimum corporations must respect and comply with the letter and spirit of the laws and regulations of the host country, and do so throughout the value chain and request business partners to do the same. Compliance with tax laws and policies is one obvious example of business respect. Where international standards exceed those in national law, respect for the rule of law calls on businesses to strive to meet those higher, international standards.
Business respect for the rule of law is not only a matter of not causing legal abuse or not being implicated in such. It also has a positive aspect. Paying fair corporate taxes to the host government, for example, contributes to the country’s legal infrastructure (including operating the judiciary).
According to B4ROL businesses can do more to advance the rule of law. The B4ROL website describes and exemplifies four strands of proactive support for the rule of law in host countries, through core business activities, strategic social investment, philanthropy, partnerships and collective action.
Needless to say, the entry of corporations into business support for the rule of law should be approached with much caution because the roles and functions of host governments and businesses, respectively, must not be blurred. One must not allow business involvement in ways that lead to their abuse of the host society. There are too examples of corporations having acted as de facto legislators, designing laws and regulations that fitted their particular needs, and not those of the local population.
That said the ability of corporations to assist the weak legal infrastructure of countries that are short on both cash and expertise should not be dismissed out of hand if it can help promote more accountable institutions.
But because the viability of business methods and approaches to promote the rule of law may well be contested, it is worth calling for more analytical reflections on the nature and implications of business respect and support for the rule of law.