Capitalism: A Lawyer's Role
In 2008, Harvard Business School celebrated its 100th anniversary of its Global Business Summit. Prior to this event, the school polled numerous business and government leaders around the globe to learn what issues should be on the agenda. Communicated by all was concern over the sustainability of the global markets. In other words, will capitalism survive? Some of the key trends that were cited for raising this concern were volatile financial markets, pressure on free trade and the rise of state-sponsored capitalism, widely divergent industrial policies, and failure of the rule of law. Harvard took the position that in order for capitalism to prosper it is incumbent on businesses to innovate new strategies that turn the systemic problems into opportunities for growth. Further, Harvard promotes an activist model whereby business looks beyond its own balance sheet and works to mobilize coalitions of companies and government in an effort to support and strengthen current market infrastructure - even develop new institutions which will sustain the system. In order for business to succeed in this mission lawyers will have to play a key role. Some are already doing so.
There are two related concepts that are in play here for lawyers to advance the most influence on markets – the rule of law and globalization of law. The rule of law (as mentioned above as one of the disruptive trends) is a very capacious concept with many different definitions. Read Robert Gordon’s piece The Role of Lawyers in Producing the Rule of Law: Some Critical Reflections from the Yale Faculty Scholarship Series for a detailed discussion. During a recent conference, I was in the audience to hear Frank Steeves, General Counsel of Emerson Electric Co. speak about the globalization of law. While the two concepts are similar in terms of their focus on building legal frameworks to foster stability and predictability in the law they differ in their targets for such creation. The focus of rule of law is on governments and political institutions. Globalization on the other hand addresses the laws and regulations of private interests in dealing with one another and the markets. According to Steeves, in globalization there are no agreements between sovereigns but rather between private parties. This in turn weakens sovereign borders and their ability to impact society and the markets. In a way it subverts international law and is in many ways the advancement of private law making.
Developments in technology of course have played a role in allowing globalization to occur - the grease on the wheel so to speak. The wheel is trade and commerce. With the dynamics of the global trade markets changing this has created the opportunity and outright need for globalization of law to expand. With the advance of the BRIC nations and other developing countries coupled with the retreat of formerly powerful trade countries such as most in the Eurozone, the leverage points have and are being altered. To use Steeve’s words, “[this] movement of different power is just really a product of millions of different commercial transactions between businesses and government [and] customers . . . all those commercial transactions have to have rules for things to be able to move. Where are those rules? Well standardization of contracts clauses.” So as the global trade and power structure adjust to the corresponding transactions – those transactions take new forms as new parties contract with one another and formalize agreements. What happens is that the incumbent trade party will use an existing contract, modify it to fit the situation and look to the new party to agree to it. Rather than start from the scratch both parties recognize the value in doing this. While this is a gross simplification of what occurs it nonetheless represents the reality out in the marketplace.
Steeve’s used the example of reviewing employment contracts for his company’s China division. In reviewing them they seemed quite similar to what he recalled from his time as a lawyer in Wisconsin. Upon further research he not only found that the majority of the provisions were identical to the State of Wisconsin’s but that there was a common thread across other subject areas beyond employment law. To explain this he stated, “[i]t really came into being as a result of private law making within the contracts. It’s got nothing to do with governments or government enforcement. The global markets are pressure for uniform contract and commercial terms obviously because you can’t function otherwise; the business doesn’t work. Private agreements take on a uniformity and that uniformity then becomes a global standard you see in this country and this country, wherever else you deal with it.”
Fortunately for US lawyers, the US is still the global leader in many rights. And English is the universal language of business. Therefore, there is a tremendous gravitation pull exerted from the US in the adoption and use of our contractual language and practices. This is one of the key elements that place lawyers in the pivotal positions to exert influence and impact market capitalism around the world. If you are an in-house lawyer for a global company doing business in a developing country where perhaps there is less developed law and practice in a certain arena, you will be able to influence that arena through the use and adaption of US law and your own company practices. This in turn will create a standard for the foreign company that they may use in future dealings, and so on. This is how globalization of law works. To bring the point more close to home. If you have ever dealt with the commercial behemoths such as Walmart, Apple, and ExxonMobil you know that it is typically not a negotiation but rather an acceptance of terms. Take a look for yourself how Walmart allows for zero ability to negotiate. From their FAQs for new supplier process this language appears.
“After the buyer reviews this questionnaire, the supplier will receive an email granting the vendor agreement. The supplier will complete and sign the vendor agreement by clicking the ACCEPT button. This will start the approval process”
This is a prime though somewhat atypical example of how globalization proliferates. By being in the dominant role, Walmart is able to extend its own contractual language across borders. Another example would be to look at how the US FCPA or UK Bribery Act extends their reach into any foreign jurisdiction in which one of their companies are doing business in. These do not look to foreign governments to grant jurisdiction rather each exercises jurisdictions based on private action – that is that due to the fact the a company is located or does business in the US or the UK – these governments then have the right to monitor and act in any foreign nation the company acts in. In both instances it can be said that the US and UK are exporting their own versions of the law and demanding that companies comply regardless of local custom or behavior.
Granted the globalization of law is more evolutionary than revolutionary it nevertheless represents a significant influence on global commerce. Since the US is a market-based economy and one that subscribes to capitalism as the underlying philosophy, our business practices reflect this. Business practice is not something found in an employee handbook or spelled out in some policy or handout. Business practice consists of culture, behavior, language (jargon), and people and how these elements combine to interact with other companies, consumers, and governments in conducting its business. One of the key troves of tangible evidence of business practice can be found in the language of a company’s contracts and how it utilizes these instruments to conduct its business. Lawyers typically control this language and so have real power to control the transaction and thus the market.
While lawyers have the ability to strengthen capitalism by exporting these commercial legal assets we must be careful to limit or avoid exporting other uniquely US legal elements into the world economy such as extensive litigation and tremendous expense. But then again such work creates jobs and increases transactions so in some sick way our legal system –though broken in the minds of some – also promotes a healthy market of activity. So it can be said that litigation itself promotes capitalism. Ok I wrote that last sentence just to see if you were still paying attention.