How The Private Sector Can Promote The Rule Of Law - The General Counsel Perspective

Monday, May 1, 2006 - 01:00

Editors Note: On November 9-10, the American Bar Association held an International Rule of Law Symposium on Advancing The Rule of Law To Solve Global Problems.

The views of the corporate counsel who participated in a number of the panels should be of great interest to our readers since almost all are employed by corporations that are, or soon will be, operating in a global arena. The entire Symposium can be viewed on line by going to

In this issue, we will focus on the session entitled How Different Stakeholders Can Promote the Rule of Law: Track 3: The Private Sector. The moderator was Ambassador David R. Andrews, former General Counsel, PepsiCo, and former Legal Adviser, U.S. Department of State. The panelists were Thomas A. Gottschalk, Executive Vice President, Law and Public Policy, and General Counsel, General Motors; William H. Neukom, Chair, Preston Gates & Ellis LLP and former General Counsel, Microsoft, and John Scriven, Senior Vice President, General Counsel and Company Secretary, ABB Ltd.

Please note that the transcript from which this article was prepared has not been reviewed by the panelists. The panelists' remarks were edited and condensed by the editor and may not necessarily accurately reflect what was intended by panelists.

Over the next few months, we will be providing our readers with articles covering the remarks of other panelists at the Symposium.

The Rule Of Law Must Be Adapted To Fit The Circumstances Of Developing Countries

The panelists first discussed the meaning of the rule of law and how it applies to developing countries. Bill Neukom suggested that a working definition for the private sector to use to advance the rule of law would be "a rules-based system of self-government which includes a strong and accessible legal process featuring an independent bench and bar." He noted that the version we promote should be adapted to take into account the unique characteristics of various communities.

Tom Gottschalk remarked that from a Western and corporate private sector standpoint, what we're looking for in a rule of law is "respect for contracts, a protection of private property and a protection of basic human rights." But, he suggested the "Western way" may not be preferred across the globe. For example, Islamic states may have systems of punishment and notions of what is right and wrong that are not consonant with Judeo-Christian ethics in certain respects. What we should be working toward in developing countries is promoting predictability, codification of laws and a judiciary, that while not necessarily independent, has integrity in terms of the resolution of specific disputes according to the codified laws and procedures that have been established, rather than varying from them as a result of political influence, corruption, despotism, or whatever.

John Scriven agreed that in looking at the rule of law, we should move away from one model - and noted that multinational companies are in for the long and not the short term. ABB has a number of constituencies to think about. It is a Swiss company with strong Swedish stockholding as well as numerous shareholders in the U.S. - CalPERS owns shares in ABB. There are people of at least fifty different nationalities working in its corporate headquarters. That implies a large difference in cultural background. Many of them are Europeans, and Europe today is a secular society. It's not a Christian society like the United States. He felt that it is not practical to promote a strictly U.S. model outside the U.S. today.

Multinational Companies Should Invest In Promoting The Rule Of Law In Developing Countries

Bill cited the following three reasons to invest in the rule of law:

First, it is more expensive and more risky - even dangerous - if you are in a community which doesn't have some semblance of the rule of law, and a lot less efficient.

Second, developing countries that observe the rule of law are more likely to attract investment. This means that their economies will have the wherewithal to increase the demand for products and services offered by multinationals.

Third, multinationals have an interest in doing business in functional communities in which their contributions to the community, both in terms of what they contribute to its economic growth and in terms of community growth, are properly recognized. A functional community is a better place for a company to create its intellectual property or create and improve its services.

Tom mentioned that he would add a fourth - a level playing field. GM doesn't want to be disadvantaged because it doesn't pay bribes or otherwise attempt to corrupt those with whom it does business or whose help is needed to transact business. That is important in terms of employee training, employee culture, employee morale and GM's reputation generally - because clearly much of the world is looking to leading American corporations to set an example.

The Benefits Of The Rule Of Law Should Be Effectively Communicated

Bill mentioned Microsoft's message to governments of countries throughout the world where Microsoft is either doing business or wants to do business. Microsoft explains to those governments that the people of your country need to know that, if they spend the sweat equity, use their brains and create something useful for which there is a demand, they can expect to get a fair return on that demand. Then, if you do these things, we believe that you have a chance to become a creator economy and to compete viably in a world economy. Microsoft has an interest in your having a vibrant economy not just because we want your country to become a safe, predictable, efficient market for us, but because it will make for a better life for your people.

If you create a rule of law framework in your country along the lines of some definition that we can agree on, your country can enjoy the benefits of a creator economy. A creator economy needs to have a superstructure of laws that provide an opportunity for a creator of useful technology to both discourage the unauthorized use of that technology and afford a licensing system where the creator can get a return on his or her investment. If this is the case, the people of your country will become more productive and can compete on an equal footing with people any place in the world. We know that IQ is evenly distributed throughout the world and technical training is widely available.

John felt that the most effective way that large corporations can advance the rule of law was how they behaved on a day-to-day basis - and noted that ABB has a set of ethical principles, which in fact govern its conduct. In every country in which it does business it is a good corporate citizen - and it does business in over ninety countries in the world. In each of those countries, it is advancing the rule of law because it lives by a higher standard than many local businesses do.

As part of the shared interest in creating viable economies and functional communities that Bill mentioned, ABB recognizes that it must face risks. China is a case in point. It is a country that has already made progress in introducing a rule of law - but much remains to be done. ABB has 7,000 employees in China, fifteen joint ventures and nearly two billion dollars of sales.

ABB is a New York Stock Exchange foreign filer so it is subject to SEC jurisdiction, and has compliance programs to assure that it complies with the laws of the many countries in which it does business. Many of its foreign competitors lack such programs. But, by having a compliance program in Mexico or Brazil, ABB is actually advancing the rule of law because there's somebody there who takes living by the law seriously.

Tom Gottschalk suggested that, as a result of the discussion, the letter "E" comes to mind for "Effort" - because what you heard from Bill was "Engagement" and what you heard from John was "Example." So, if GM is there, it's engaged and it's leading by example.

The Role Of Volunteerism

While recognizing that volunteerism is largely a uniquely U.S. phenomenon, both Bill and Tom felt that foreign companies could demonstrate their commitment to creating functional communities in the developing world. Bill remarked that at least in Europe and Latin America there is real curiosity at the senior management level about volunteerism, about taking some responsibility for the community. Even though it may not be making as much headway in other areas, Bill felt that it is a notion that is growing. Tom concurred, stating that the notion of recognizing and rewarding employees for volunteerism in terms of community activity was taking hold in terms of giving back - that there was an appetite around the world for helping the community through activities like Habitat for Humanity type of projects.

Bill referred to a compelling example from the U.S. that seemed to indicate that showing concern for the community could indeed have legs abroad; namely, Microsoft's Libraries Online initiative. He mentioned that in Microsoft's community affairs efforts, it tried to make wise investment decisions about how to help the communities in which it was doing business.

John said that, while such activities were good from a reputation point of view, he thought that reliance on the free market system had the greatest impact. Too much generosity, subsidization and paternalism is probably not, in the final analysis, good for developing countries. John would much rather see a free market system in China or in the whole of Africa or Latin America, where competition actually raises the standard of living and creates wealth. John felt that this was a very tricky issue for multinational corporations. He felt we should do what we do best, which is to create wealth, and do that in an ethical and law-abiding way - to him, that is the best driver for extending the rule of law.

NGOs Can Be Helpful Allies

Tom remarked that for obvious self-interest reasons - and so as not to become a pariah with governments - it is very good to have NGOs and international associations working as pressure groups with respect to rule of law and corporate social responsibility. Some NGOs can be very helpful - Transparency International is a good example. When fighting corruption, corporations generally love company. They don't want to stand out, but they're happy to be one of sixty. They're pleased to be part of a group, contribute some money, and have the NGO go front and center and create pressure. NGOs offer a more effective way to get things done. People tend to overestimate the influence of a single company.

Tom emphasized that organizations like ABA CEELI offer tremendous support for the rule of law by creating the infrastructure which it requires, including helping to recruit and train judges. Such organizations offer a natural way for companies to contribute to building the rule of law.

Counsel Play A Key Role

Bill remarked that, in the aftermath of Sarbanes-Oxley, inside and outside counsel for companies are reclaiming their traditional role of being, in the best sense, consiglieri to senior managers - sitting at the shoulders of the decision-makers on a broad range of strategic issues. He said that these trusted, knowledgeable and wise lawyers are there to find ways to do things in a lawful and ethical way.