Law prof offers novel approach to global regulation

From a legal standpoint, globalization is a “messy affair”, says Peer Zumbansen. 

Lawyers used to compare it to the Wild West – anarchic, lawless, unfettered capitalism no state could control or survive. “Quite the opposite is true,” says Zumbansen, a law professor and holder of the Canada Research Chair in Transnational & Comparative Law of Corporate Governance at York’s Osgoode Hall Law School. 

He and University of Bremen colleague Gralf-Peter Calliess prove it in their new scholarly book, Rough Consensus and Running Code: A Theory of Transnational Private Law, released in May by Oxford-based Hart Publishing. “We show that globalization is anything but free from rules,” said Zumbansen earlier this week from Germany, where he is on sabbatical at the Hanse Institute for Advanced Study. 

Over the past two decades, consumer transactions and corporate activities have developed with scant regard to legal and national boundaries. Nevertheless, corporations have fashioned their own rules, regulations and codes of conduct to abide by. While these privately made codes are discretionary, consumers and non-profit watchdogs challenge corporations to honour them. As a result, such "soft" law can become socially binding and part of a mixed regulatory landscape. Often complemented by state-made "hard" law, "soft" law sometimes crystallizes into "hard" law. It’s hardly the Wild West, says Zumbansen.

The authors dispel a lingering myth among lawyers that globalization disempowers the state and renders state laws and regulations toothless. Nations have never been helpless observers watching the forces of globalization from the sidelines, they argue. Not only do nations lay the ground for globalization to flourish with privatization and deregulation, state-appointed expert committees play a significant role in the proliferation of a mixed regulatory landscape. Furthermore, the privately made "norms" (consumer contracts, corporate codes of conduct, alternative dispute mechanisms etc.) evolve in the shadow of the law and form an integral part of regulatory governance in nation-state law, argues Zumbansen. 

This complex hybrid of "soft" and "hard" law poses a formidable challenge to lawyers and legal theorists trying to devise a global regulatory framework governing transnational corporations.

Left: Peer Zumbansen

“What we try to do in this book is ask what a legal theory for global activities could look like by paralleling regulatory change in and outside the nation state,” says Zumbansen.

The title of their book reveals the inspiration for their novel approach. Rough consensus and running code (RCRC) was the process used to develop technical standards for the Internet. Working groups would propose a rule, subject it to public scrutiny, seek comment and come to a rough consensus on revisions, leaving room for future adaptation. A rule becomes a running code if it is accepted in practice, at which point lawyers recognize it as customary law. 

“The Internet is a powerful illustration of an emerging global ‘space’. Its borderless and non-territorial qualities make it highly attractive for legal theorists interested in the possibilities of global law and even democracy,” says Zumbansen. "Without a world constitution or government, without centralized or otherwise effective law-making, how could you deal with competing interests and conflicts? Rough consensus and running code seemed a pragmatic and democratic approach."

Zumbansen and Calliess applied RCRC to two areas of transnational commercial activity – consumer contracts and corporate governance. In the end, “we found that it was only an inspiration for inquiry” rather than a ready-made solution to drafting a global regulatory framework. 

Left: Gralf-Peter Calliess

They write in their preface that “as the economic crisis of 2007-2009 and its embeddedness in a tragically misregulated financial system makes abundantly clear, the need to develop adequate transnational legal models will only become more urgent in times to come.” 

The BP spill underlines that urgency. “National governments can be undermined by competing private interests. That’s why we need to understand the tricky connections between private activity and public scrutiny,” says Zumbansen.  

“Companies don’t exist in a vacuum. There’s no separate space called globalization. It’s not a distinct planet.” 

Reviewers have called Rough Consensus and Running Code “path-breaking” and “essential reading for anyone who wants to understand how transnational law works in theory and practice.” One writes: “The authors brilliantly bridge the growing gap between law and evolving transnational governance practice.” 

On Oct. 8, Zumbansen will give a lecture at York on Transnational Law and Legal Pluralism.

By Martha Tancock, YFile contributing writer