Keywords

This chapter is based on a transcript of the Panel Discussion on Legal Challenges for Corporations in the 21st Century, held on 23rd January, 2021. The session was chaired by Prof. Kaushik Basu and the three panelists were Dr. Naushad Forbes (Co-Chairman, Forbes Marshall), Mr. Dhruv Sawhney (Chairman, Triveni Group, India), and Mr. Janmejaya Sinha (Chairman, Boston Consulting, India). After the panelists shared their views, other participants joined in the discussion. We have kept the conversational style intact.

The landscape of the global economy is changing at a pace rarely seen before. This is throwing up new challenges for regulation, policymaking and the law, for not just India, but the world. We have had two days of discussion with contributions from prominent scholars, economists and lawyers on various issues within the broad field of law and economics. In this session, we have speakers, who are running businesses, advising corporations and living the life amidst the very changing global landscape that scholars have been analysing. The aim of this session is to hear the views of these practitioners from their own perch of business and their interactions with governments and regulatory authorities, and to engage with them on some key questions.

FormalPara Question 1:

The regulation of big corporations—from Big Tech to Big Pharma —has created controversies all over the world. Traditional antitrust laws do not seem to be working. Should we leave markets unregulated or do we need to think out of the box as to how we regulate big corporations to ensure that the benefits are widely dispersed?

Kaushik Basu opened the discussion by pointing out how the challenge of regulation has got heightened by the rise of the mega corporation. At one level, the largeness is of value because industries like those related to technology and pharmaceuticals have great economies of scale; their size makes them efficient and enables them to conduct expensive research. On the other hand, such market dominance is not good for the workers, nor for the consumers, as old-fashioned oligopoly theory taught us. Not surprisingly, this has led to a contentious debate. While many economists believed, and a few still do, that big corporations should be left free to face the market forces on their own, this view is not shared by many. Even in countries like the US where the market has been important, there has been concern that there should be some regulatory structure for the big players especially now that business has become bigger than ever anticipated. The challenge is made harder by the fact that traditional policies such as the antitrust laws, which in the US go back to the late nineteenth century, do not seem to be working as effectively as one would have wished.

Naushad Forbes: As economies move on, law should move along with them. Looking at the history of antitrust activities, the world used to be better for antitrust interventions. Examples include the breaking up of Standard Oil in the early twentieth century or an unsuccessful attempt to break up US Steel or the recent breakup of AT&T along with breaking up of IG Farben in Germany which ended up in three leading chemical companies. If there are monopolies having dominant power in certain regions, then they end up with not just excessive pricing power but also with lower productivity. In such cases, companies spend their resources in buying out competitors instead of investing in technology and R&D. Thus, instead of competing on the basis of R&D, they compete to gain market dominance. The present antitrust legislation in the countries reflects a time when people priced aggressively to put others out of business and then raising prices after they had done so. The big tech companies today operate without charging for their services, and don’t need similar pricing strategies to expand. In such a situation, it is possible for these companies to fulfil all requirements of the antitrust legislation and still attain dominance without falling foul of any legislation.

For this reason, the legal structure needs to keep up with how the industries are moving. We therefore require internationally coordinated action by governments to set new rules that would operate to break up the existing technology company monopolies. Breaking these up is much tougher than preventing them from being formed. The present antitrust legislation can be used to prevent acquisitions which prevent competition from developing. For example, when Facebook acquired WhatsApp, they were both not so large that it would have been a matter of concern. It is, however, questionable as to why the acquisition by Facebook of Instagram was allowed to take place. Facebook at that time was already a huge corporation, and Instagram was an emerging competitor. This could have been prevented through existing antitrust legislation. Governments around the world need to agree on some rules relating to what a competitive behaviour constitutes and what a competitive market requires. They need to be willing to ensure that the market remains competitive.

Janmejaya Sinha: An overarching regulatory framework needs to be laid out before going into the details of the regulations. Four things need to be considered while talking of such a regulatory framework. First, is the regulation within the country or is it present internationally? Second, if it is international, then what is the geopolitical (international) context? Third, if it is domestic, then how is the geopolitical context impacting the domestic choices and how does the political economy of the country express itself? Lastly, what are the areas of regulation?

The foundational issue in the areas of technology regulation is the international dimension. This means that we first need to specify issues that are internationally agreed upon to be regulated and further identify the underlying common value structure, allowing such a discussion internationally. But, in terms of the international context, the world’s leading powers, the US and China, do not share the same value structure. The US values liberty, privacy, and entrepreneurialism. On the other hand, China values state control, public good and the primacy of the Party towards certain national goals. In such a situation, even creating a framework of discussion becomes difficult. The same dilemma is reflected in the domestic context as well, the world is getting divided into spheres. As the Singapore Prime Minister had stated, choosing between US and China is quite hard both because of the nature of Singapore’s trade, and the strategic importance of both countries in the long run. It makes geo-political navigation very hard if one wants to stay on good terms with both.

In terms of specifics, there are eight areas of concern in relation to tech regulation. They are as follows: (1) privacy, (2) data localization, (3) immigration, (4) tax, (5) sanctions (any country with a dollar account can get sanctioned in ways which are awkward for them), (6) cyber, (7) monopoly and (8) content oversight. It is a complicated discussion which cannot be easily simplified. These are the important questions that we need to come to terms with before delving into questions about who should regulate monopolies and how. The framework laid out here is to problematize the issue that is being dealt with and appreciate why it is so difficult to deal with.

In India especially, we need to see how we can create bilateral constructs where we can at least agree upon the underlying framework to start making some progress to effectively regulate firms operating in our boundaries. Bilateral or trilateral discussions would help us come to clear standards with which we can move forward. The exact details of regulations have to be jointly discovered even as interests would be varied.

Dhruv Sawhney: There are some basic problems in relation to the question. First, in capitalism, the winner takes all. There is a concentration of power by success. Second, there is the question whether we want to have decentralized legislations. This is a concept that we need to start thinking about because the governance aspect is really about the individual, when we speak of liberties or data.

Legal procedure today is based upon precedents which is dangerous given that the technological developments in the last five years have destroyed all the precedents. There is very little in law talking about what has happened in the last five years with large corporations that were not conceived of then but surfacing now. We need to realize that regulation cannot change the dynamics.

The national and politically narrow-minded constructs cannot be avoided. While it is important to talk of breaking monopolies, for them not to be there, the paradigm has to be constructed differentially. The foundation of global standards may already have a bias having been formed by special groups. We are in a time of not very high growth with a realization that things like demands for jobs are going to be very difficult to satisfy. While the concentration of power in big corporations is dangerous, at the same time, we need to make sure that the international regulation that we bring does not add to the problem. Many multinationals have used the existing regulations especially in the area of trade to stifle competition.

We need a different paradigm to approach the problem of regulation of corporations with new concepts and constructions. The regulations that we do bring about cannot be long term and should have the ability to change very fast because the present technological changes will not be there a few years down the line, to be succeeded by fresh ones. We need to understand that we are putting something in the interim and that it would not continue for a long time to come.

FormalPara Question 2:

While globalization began at least 5,000 years ago, its pace picked up after WWII and especially in the last 3 or 4 decades with the advance of digital technology. Yet, our laws remain by-and-large balkanized and nation-specific. This is creating hurdles to business and also creating incentive to spend time and energy navigating these laws. We have also not been able to grapple well with global issues like climate change and labor migration. How should we handle globalization? Should there be more effort to have global laws and conventions?

Naushad Forbes: Post the Second World War, the world set up many multilateral institutions such as the UN, WHO, WTO, and more recently the Paris Accord which could in the future evolve into a climate change related multilateral institution. These are what we need right now. Thus, a mechanism does exist for addressing issues of global regulation. It is important for the leading countries to subscribe to these multilateral institutions—especially the US. Under Donald Trump, the US actually dropped out of several multilateral institutions. Trump in fact directly attacked the premise of these institutions having any kind of say over national sovereign rights. Out of the seventeen executive orders that President Biden signed on his first day, two were to re-join multilateral institutions (the WHO and the Paris Accord). But the world cannot be held hostage to the outcome of the US elections every four years. We therefore need a different mechanism. For instance, a group of like-minded countries such as Germany, Japan, South Korea, Australia, Canada, Indonesia and India that subscribe to international law and systems could give multilateral institutions the credibility they need so that we are not completely dependent on what happens in the US over the electoral cycles. However, these countries would have to commit to accept what the multilateral institution determines to be the right decision, even if it is against their own immediate interests.

Janmejaya Sinha: We need multilateral institutions for negative global externalities like climate and health. For mercantilist and economic issues, we need to think of creating bilateral or regional structures which can determine how to function given the disparities in the underlying value system that different parts of the world have. In addition, countries need to develop soft power as it helps them be able to shape the narrative by being able to constrain the powerful by getting them to answer questions on what is fair and therefore more universally acceptable.

Dhruv Sawhney: Broadly speaking, globalization has not worked. Corporations have adopted globalization because that is what makes them successful. Now, we want to stop such globalization and bring in regulations to move back. Secondly, globalization has received setbacks politically. For instance, in the case of Brexit, the British have moved out of globalization, a move that took place democratically. Further, laws related to globalization have to be implementable. We have frequently seen that UN resolutions (laws) have failed to be implemented. For example, in the case of the Iraq war, whatever was prescribed could not be implemented.

There are national groups and interests which are also at work. For example, China has become one of the superpowers of the world without being properly globalized, and now, it can come in and out as per its own convenience and for a national not a global purpose. The intent now therefore has to be global cooperation which is the soft power bit. There cannot be a law which you can implement and everyone would follow. The soft power and cooperation aspect is recognized when they are doing it for their national and individual good.

The whole construct of globalization needs to change. A great example is the issue of climate change. There has to be an accord on climate change because it affects individual countries (and citizen living inside) though some countries may be affected sooner than others. Trade, however, cannot be put in the same basket as climate change because if we were to put it all in one basket, there would be innumerable examples of things not having worked in the past. Similarly, labour migration is an example of an issue that requires international cooperation but we have to ensure that it does not take away jobs domestically. So, some mechanism has to be there to take into account labour issues in international cooperation. This is not to be seen as international labour laws which have been used to stifle national competition, and we have to be careful about the power of big corporations to do that. Security too needs a global approach because of its impact on so many people across different countries.

We need to think of globalization not just in terms of trade where we can never get away from the national aspects. There has been a big point of India not joining the Regional Comprehensive Economic Partnership (RCEP). We need to think of how we can join such global structures while considering the national prerogatives. Thus, it is cooperation rather than globalization that we need to talk about.

FormalPara Question 3:

Corruption is a big challenge for all emerging economies. What people do not often realize is that just determination and anger are not good enough to control corruption. We need expertise and proper design because a poorly planned corruption control scheme with ill designed laws can devastate the economy and hamper legitimate business. What can be done in this regard?

Kaushik Basu pointed out that what makes corruption control harder than people imagine is that corrupt and legitimate activities are intertwined in an economy. If the heavy hand of regulation is used unmindful of collateral damage, legitimate activity can be brought to a halt while going after corruption. For example, if we were to investigate and question every international transaction of every Indian in order to stop illegal money from being parked abroad, we would end up creating bureaucratic hurdles that would slow down the legitimate engagement of Indians with international business, and this would negatively impact India’s connectivity with the world and ultimately hurt the nation’s growth. At the same time, we do need to curb corruption. What we have to realize is that to do so, without bringing the whole economy to a halt, is not easy. There is also the risk of government nurturing cronyism in its effort to control corruption. Corruption containment requires intelligence, expertise and design. We have to look around the world for experiments, successes and failures. For example, the Indonesian government created a completely independent body comprising of thinkers, regulators and corporations to deal with corruption and the government did not have a say as to who is corrupt. This is because often corruption control mechanisms become instruments for the government to use to attack and persecute those whom they do not like.

We need to decide if we should create such an autonomous body, if we should have a committee of corporates along with government officials and also social activists to think of the rules and regulations we need and the power and agency we should give to such an autonomous body.

Naushad Forbes: Corruption is not just a problem of emerging markets; it is a much broader problem. For example, if we were to consider the super  Political Action Committees of the US and their financing of politics, it is nothing but corruption. It does not involve a specific bribe but it involves financing in exchange of either favourable legislation or blocking of legislation later on. With recent changes in India’s political party donation laws, it is now completely legal, for a corporate, to make an anonymous donation to a political party. It is legal but that does not make it less corrupt. Here, there may be an exchange taking place that we may never know of since it is anonymous and opaque. We need much more transparency in all these areas. Consider for example, Goldman Sachs’ work with the Greek government before their currency crisis. This was legal at that time. The question is, does that make it less corrupt because it was legal at that time?

We normally tend to come up with very specific regulations that end up being met in most cases. The compliance does not necessarily improve matters. For example, in the case of SEBI regulations for corporate governance in India, corporates do comply with these regulations but it is not obvious that because of this we end up with more honest firms. Regulations cannot make dishonest firms turn honest. We need to address the ways in which the systems operate, where we could know everything about a transaction and its implications and nobody would mind such transparency. The metric has to be to see how we get as much transparency as we possibly can in dealings between companies and government without placing undue burden on parties for compliance.

Janmejaya Sinha: Corruption can be divided into three buckets. First is petty corruption (speed money) which is much more prevalent in emerging markets where bureaucratic delay can be easily engineered and well- developed institutions do not exist. The second form of corruption is political funding which prevails in many countries, not just in emerging markets. The third is contract corruption where one wants to change the odds of a deal where the counterparty is most often a government agency but sometimes, may even be a large corporation. Simplistic solutions like asking for the setup of an autonomous body to oversee corruption begs the question as to who regulates the regulators. Speed money is not a cause of worry in these markets because as the per capita income grows, petty money would become less of an issue. In terms of the other two, the central question is whether we can have transparency post the deal. For instance, in cases of election funding, at the end of the election term, without any consequences, we could come to know how much money was given to which party by whom. There need to be mechanisms which can enable such transparency.

Next, we need to have contract enforcement within a reasonable time unlike right now when civil cases go on for 20 to 40 years and the results of a civil case then do not have any consequence. Strengthening of institutions is critical but that comes with development and a lot of use. When institutions get established, accepted and used, then there are consequences and people try to follow the rules and recognize that getting caught has consequences.

Dhruv Sawhney: First, corruption is universal and not just a phenomenon of emerging economies. We need to make corruption a much broader subject.

Second, the political process in a democratic system is a very big cause of corruption, be it giving flush money in some emerging economies or having a deal-based system in some developed economies. It is still a quid pro quo. The primary issue is transparency and governance which should root out how we approach political funding. In large parts of the world like China, Russia and Eastern Europe, they have done away with such a system. Yet, China did not grow into a superpower from a developing economy without any corruption.

Third, it is crucial to use technology as a viable tool of lessening the impacts of corruption. With the digital age, the discretionary powers can be lessened.

Fourth, the stifling of competition by big corporations and globalization is also corruption. When a medium-sized firm has to deal with a big corporation and there has to be international arbitration, the big corporation is in a position to spend much more. While, the Indian system of contracts is not sustainable due to the absence of quick judgements, it is not right to have a mechanism which is going to make transparency more difficult and force the smaller people out of the system. In contracts, therefore, we should not have long-term resolutions like India has.