Departmental Papers (School of Law)

Document Type

Book Chapter

Date of this Version

January 2003

Comments

Reprinted from The Art of the State: Governance in a World without Frontiers, edited by Thomas Courchene and Donald Savoie (Montreal: Institute for Research on Public Policy, 2003), pages 165-184.

Note: At the time of publication, the author Ronald Daniels was affiliated with the University of Toronto. Currently, he is Provost of the University of Pennsylvania.

Abstract

The subject of this paper is the impact of the new globalized order on the integrity of corporate governance. Corporate governance is the system of laws, markets and institutions that seeks to control and discipline corporate activity in the service of the public interest. Over the last several years, many critics have bemoaned the growing integration of various economic markets across national boundaries because it is seen to lessen the capacity of states to regulate corporate behaviour. Essentially, the claim is that in a setting of reduced barriers to factor and product mobility, corporations are rendered much more effective in their capacity to extract regulatory concessions from host governments, and these concessions have the effect of lowering social welfare. The argument is that in a setting of high international corporate mobility, footloose corporations will relocate their operations to whichever jurisdiction offers the most congenial (meaning least stringent) regulation.

In the face of certain corporate migration in response to more stringent regulation, states will have no choice but to refrain from adopting socially optimal regulation. This is because states fear the loss of benefits associated with corporate activity: namely, employment, investment and tax revenue. The effect is an international "race to the bottom" in which states are rendered helpless in countering the effect of heightened corporate mobility.

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Date Posted: 17 July 2008