Corporate Law in the Global South Through New Lenses

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 contain elements of truth in numerous contexts, they offer an incomplete and impoverished perspective on corporate laws in the developing world. 

The problem lies in that the corporate laws of Global South jurisdictions are typically studied through Global North lenses. Whether through case studies or through large cross-country comparisons, the legal systems of developing countries are typically analyzed based on the issues or benchmarks that are salient in the Global North. This approach has led commentators to downplay the degree of legal innovation in the Global South and the diversity of corporate governance arrangements worldwide. 

Rather than being inevitably antiquated or mere copies of Global North models, Global South jurisdictions 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 distinct, 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 view 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 helps 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.

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.

Appreciating the different manifestations of heterodox stakeholderism in the Global South not only expands our institutional imagination but also suggests a different picture of the evolution of corporate law around the world. Scholars had long predicted that globalization would promote convergence to a shareholder-oriented model. However, in environments of rampant inequality, low competition 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 with greater force. This brings about the surprising prospect of ‘reverse convergence’ in comparative corporate governance—with corporate law institutions of the developed world coming to more closely resemble their developing country counterparts.

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By Mariana Pargendler, Fundação Getulio Vargas School of Law in São Paulo. 

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