Gopalan & Hogan: Ethical Transnational Corporate Activity at Home and Abroad: A Proposal for Reforming Continuous Disclosure Obligations in Australia and the United States

Sandeep Gopalan (Univ. of Newcastle - Law) & Katrina Hogan (Clayton Utz) have posted Ethical Transnational Corporate Activity at Home and Abroad: A Proposal for Reforming Continuous Disclosure Obligations in Australia and the United States. Here's the abstract:

MNCs routinely locate parts of their supply chain and production process in various countries primarily based on their ability to maximise profits for shareholders by lowering organizational costs. Inevitably, this goal creates incentives to establish operations in states with lower legal and ethical standards in areas including the environment, wages, labour standards, human rights, corruption, and company taxation. In turn, developing states compete to attract foreign direct investment by deregulating the above areas of their economies and creating a favourable business climate for MNCs. Going against the grain, the “home” legal climate for MNCs has become more complex due to a steady progression of new legislation aimed at better corporate behaviour whether it is in the form of increased disclosure obligations, greater empowerment of shareholders, mandatory codes of ethics, or the protections conferred on employees, consumers, and the environment. The result is a double standard whereby MNCs uphold higher ethical and legal standards in their own (developed) home state, but modify their behaviour to bare legal compliance with binding domestic laws when operating in developing host states.

Corporate law scholars cannot be indifferent to the horrific consequences – from a contribution to rapes and violent incidents from trade in conflict minerals in the DRC to the killing of workers due to poor conditions in garment manufacturing units in Bangladesh. Our argument – built upon a comparison of the United States and Australia – is novel in that it does not necessarily require the enactment of any costly new statutory provision or regulation. Rather, it is based upon clarifying and strengthening the existing model of disclosure-based regulation. We posit that a broader reading of the disclosure obligations of companies under existing legislation like the Reg. S-K in the United States, the continuous disclosure obligations under the Australian Corporations Act 2001 (Cth) (‘CA’), and listing rules (LRs) such as those adopted by the ASX and the New York Stock Exchange (‘NYSE’) would require the disclosure of material corporate practices outside our national borders. Since knowledge about the veracity of relevant business practices in foreign locations is likely to be possessed by contractors down the supply chain, we posit that enforcement should largely be reliant upon a system of rewards for whistleblowers who provide information about breaches.