Global Corporations are Institutions of Global Governance

In most accounts of global governance, where corporations are included they are seen as either subject to various international organisations’ regulatory impact or are identified as having (benign or malign) influence over agenda setting around the scope and practices of global regulation. However, there is a further under-analysed dimension by which corporations (and firms more widely) form part of the realm of global governance, as argued in my new book Global Corporations in Global Governance.

This is to say that global corporations and/or internationalised firms play a significant governance role within their own extended international supply chains and as such it makes some sense for political economists to consider this as a form of global governance in itself. If, as is commonly asserted, one third of world trade is between corporations, and a further third is within their global supply chains (as intra-firm trade) then the majority of trade activity in the international realm is in some way or other overseen by corporations. This represents a significant arena for political economic interactions, subject to inter-agent asymmetries, normative shaping and structural power

It is clear that these extended and complex supply chains utilised by many firms and corporations, bringing together a wide and varied group of subsidiaries, associated and independent suppliers, must require significant levels of governance to maintain the flow of products (and services) for the core organising corporation. This ranges from the governance of property rights (tangible and intangible) and technological development and deployment, to questions of labour relations and the impact on the environment of activity. An approach based on governance can be distinguished from much management school-derived discussion of (global) supply chains that focuses on their ‘efficient’ management, because it introduces the analysis of a governance function characterised by explicit and implicit power relations.

The political economy of the highly developed internal processes and practices of control and cross-ownership that make up any corporations’ governance of its supply chain, by virtue of the global reach of such networks, parallels the range of issues that are more usually identified as of importance to the analysis of global governance, including principal/agency issues as well the management of compliance, and the setting of agendas of action and legitimacy of practice. Thus, rather than only examining corporations as either influencing global governance institutions, or negotiating regulatory interactions with these institutions, both of which remain important issues, our understanding both of global governance and the political economy of the global corporate sector can be enhanced by taking a third (complementary) view. This is to say, it does not seem unreasonable to regard global corporations as institutions of global governance themselves.

If the supply chains of global corporations are effectively a realm of global governance then there is a need to understand the sorts of practices that characterise the governance function that shapes and controls this realm. Indeed, popular demands that corporations act responsibly under the rubric of corporate social responsibility (CSR) already recognise that corporations are governance institutions able to effect shifts and changes in practices (albeit imperfectly) within the political economic spaces they govern. Here, in the past, concerns around global governance have focused on how global corporations have interacted with regimes of CSR including various forms of guiding principles and agreements including but not limited to OECD Guidelines for Multinational Corporations and the United Nations Global Compact. However, the ability to enact the requirements of such agreements and principles involves firms and corporations in a series of governance arrangements that are parallel to the forms found in the ‘public’ realm of global governance even if the agents and practices are not exactly the same.

As Kate Macdonald has suggested in The Politics of Global Supply Chains, a focus on the political economy of the supply chain allows political economic analysis to recognise ‘the distinctive forms of social power and organisation that exist within these supply chains, and the contested distributional consequences of such power’. Moreover as she suggests ‘simple assumptions about the effective subordination of economic power to state authority in global supply chains are becoming increasingly implausible’. In parallel to work that recognises the growing pluralism in international law, therefore, we can also see a pluralism of institutional form and authority in contemporary global governance.  Thus, understanding global corporations’ control of these supply chains as global governance immediately opens up this realm of the global political economy to an interesting set of analytical tools already developed to examine more normally conceived forms of global governance, while also offering a complementary analysis that indicates how global governance may be experienced across the global system.

To be clear, the argument that this is a useful site of further research and analysis is not a claim that all corporations or firms are equally able to govern their networks to the same degree or level of effectiveness. Indeed, as with the constellation of globally focused institutions and organisations that represent the usual scope of global governance studies we are likely to find that some corporations achieve a level of effective governance as good as, or even beyond that which the most effective global regimes can claim. Equally, we will find other global firms and corporations that choose or are effectively unable to establish strong governance functionality in the same way that we can identify weak or partly ineffective global governance institutions.

Nevertheless, recognising corporations as institutions of global governance encourages a political economic analysis of the internal relations of the supply chain; one that identifies the operation of power (in its various dimensions) within an important realm of the global system which remains obscured when accounts focus only on states and intergovernmental organisations. Moreover this approach recognises that while specific corporate supply-chain constellations may be often rationalised as serving the goal of efficiency they are actually the result of a continuing process of power relations and effective governance.  Certainly research that has foregrounded private authority has gone some way in this direction, but by focusing on the role of private authority shaping inter-relations between corporations as well as other private actors and the more formalised institutions of the global political economy, the internal political economy of the corporate supply chain (despite its importance to global trade and economic relations) has been somewhat downplayed. We should move beyond this relative inattention to examine the realm of the supply chain as an interesting site of global governance in itself, and one that reveals how global corporations (re)shape their own political space(s).