What Is a Multinational?
Tim: Multinational corporations – from the clothes we wear, to the technology we use – they influence and control our lives in ways we possibly don’t even understand. We’ll show you how the law shapes their behaviour to keep us safe.
In this first episode, they’re bigger than many countries, but what exactly is a multinational corporation? With huge resources and growing power, what keeps them in line? And is the law keeping up as these companies change themselves and the world around us?
Multinational corporations – private companies which operate in many nations – can be richer than some countries...and they’re getting richer.
Food and drinks maker Nestlé, famous for Kit Kats and Cheerios, was worth around 350 billion dollars in 2020. That’s more than the economic output of Portugal. Oil company Shell is worth 87 billion dollars – more than the Democratic Republic of Congo. And Apple, whose products you might be using now, is worth 2 trillion dollars. That puts its wealth ahead of both Russia and Canada! How have companies got so big recently?
Katie Silver: Well, in part the growth of the internet means that a company can be based in one place, but sell around the world. And that means it can grow and become very powerful. Another aspect is China: it has opened up in recent decades and so has been able to attract investment from around the world, helping these companies to grow bigger.
Tim: The world is changing. These powerful international organisations can know what we buy, who our friends are and virtually everything else about us.
Questions have already been raised about how they’re using this power. If they chose to abuse that power and even break the law, what would stop them? We spoke to lawyer Mark Stephens and asked how the law is changing as multinationals get bigger.
Mark Stephens: The law’s had to adapt and change from a nationally-based system where, you know, a company would only work in one country, where…to the modern day, where companies will have multitudes of jurisdictions that they operate in and therefore they need some kind of almost global control and that’s where international law comes in, because it sets the standards – the basic minimum standards – that they have to comply with.
Tim: Mark thinks the law needs to develop to set basic standards for multinational corporations. Many laws were designed when companies were in just one country. So, how effective is the law in dealing with multinationals?
Mark Stephens: I think the complexity of companies today, on an internationalised basis, makes the law very difficult to be enforced against them. So, I’ve got one client, which has 748 companies in about 47 different countries, and so getting an oversight of that, getting control of that from a legal and regulatory side, can be very challenging. And that’s the opportunity that international law provides, because, essentially, it’s giving the minimum standards to which they need to operate.
Tim: Companies are very complex, so sometimes it’s hard to enforce the law when they are spread out around the world. Can we punish a parent company for something it’s responsible for in another country?
Mark Stephens: It’s becoming easier to punish a... a mother company – the holding company, if you will – for the actions of its subsidiaries. But on the face of it, it’s the subsidiary that is going to be liable. It’s only if you can show that there was a controlling mind back at the headquarters, or that, in some way, they should be accountable, that you can hold the parent company to account.
Lawyers are becoming increasingly ingenious in the way in which they are visiting accountability on the parent companies, and that’s only got to be a good thing because if they’re accountable, they will behave better.
Tim: It is becoming easier to punish companies for wrongdoing in different countries, and if they are accountable, it will influence their behaviour. Of course, many companies do what’s right without being forced to, but it can take something shocking happening to start change.
In 2013, the Rana Plaza building in Bangladesh collapsed, killing more than a thousand people. It was the worst of many such incidents in the country. The following month, international clothing manufacturers quickly made a legal agreement to improve safety in factories in Bangladesh.
Katie Silver: This is what’s known as Corporate Social Responsibility or CSR. These are the practices or policies that a business can implement that do good in the world. Think charity, or volunteering, or the environment and it’s more than just about profit.
Tim: But what about when companies don’t choose to behave? How can the law control something that is so big? Ranjan Agarwal, a Canadian lawyer who deals with big companies, explained who is responsible for enforcing the law on multinational companies.
Ranjan Agarwal: In our system around the world, we seem to have accepted that the obligation or responsibility to police corporations is with individual states. In international law, there is no general rule that companies are responsible for wrongful acts, even if they’re committed internationally or abroad. There are treaties, multilateral treaties, that impose requirements or obligations on countries, but not on companies.
Tim: There is no international body that regulates multinationals. Instead, there are treaties that impose obligations on countries, but not companies. So, do these companies have to follow things like international human rights laws?
Ranjan Agarwal: For the most part, no. In our system, we require companies to follow the domestic laws of their states. Those domestic laws may align with international human rights laws, or human rights norms – expectations that we have as a community. There are a couple of exceptions, where states...where – sorry – companies may be governed by international treaties, but those are generally exceptions.
Tim: Companies followed the domestic laws of their states, but they don’t necessarily have to follow international human rights laws, which are designed for countries. How do people decide which state’s laws a company follow?
Ranjan Agarwal: For the most part, people don’t decide where the law’s going to be enforced. We require our governments – sometimes working together – to establish rules. In essence, we have jurisdictional laws across the world: each country gets to decide where and how it’s going to take jurisdiction over companies. Sometimes it’s where the company operates – that is, where its headquarters is. Sometimes it’s where the company does business, but again we rely on unique... individual states to make those decisions.
Tim: Sometimes governments work together to establish rules, but each country gets to decide where and how it’s going to take legal action over companies. So, is international law fit for purpose as these companies develop?
Ranjan Agarwal: I believe that international law is moving to a place where companies may be held to account. For example, several years ago, the UN established guiding principles on business and human rights, which were intended to create a global standard, to implement a framework to prevent and address the risk of human rights on business activity. But as long as we have nation states, I believe that we will rely on individual countries to enforce these norms.
Tim: Even though the UN established principles to guide businesses on human rights, we rely on individual countries to enforce the law on companies.
So, we’ve heard that the way multinational corporations are spread around the world makes them hard for the law to control. We also heard that the law is changing to deal with that. But international laws will always depend on countries to agree to follow them.