Abstract

This work examines the concept of Corporate Social Responsibility (CSR), particularly corporate human rights responsibility, by telling a “story of law and incentives” in way that fosters a comparative legal understanding of corporate risks and motivational drivers. The 2008 financial crisis has shown that trustworthiness on the part of corporations is indispensable for the sustainable well-being of society and corporate success alike. This reality mandates assessing the current legal and economic system and the incentives that it induces for corporations to ensure that the ‘social contract’ is not unconditional anymore, but rather encourages, induces, and eventually rewards trustworthiness. For this purpose, this work analyses the behavioral economics of legal liability enforcement as an exogenous measure of CSR implementation. The goal is to assess to what extent liability rules across different legal systems are incentive-compatible and affect corporate behavior as predicated under the ‘deterrence theory.’ It fills a troublesome gap in the literature that has not yet tested the ‘deterrence theory’ for legal CSR enforcement. This analysis shows that liability schemes in their current design and structure do not always influence corporate behavior in the desired way, but instead can generate ‘hidden costs’ of legal enforcement and therefore yield non-monotonic and suboptimal compliance results. Applying psychological game theory, it is concluded that, under specific legal regimes (here, corporate tort liability under the U.S. Alien Tort Statute (ATS)), incentives induced by liability enforcement are limited since intrinsic motivation is ‘crowded out.’ It is argued that law is not the only driver for CSR compliance and that it can be effectively complemented by economic self-interest and particularly social norms as endogenous compliance mechanisms. Underlying is the discussion about the tradeoff between personal trust and institutional trust as well as intrinsic and extrinsic motivation in the context of CSR compliance mechanisms. In an effort to map corporate legal risk before domestic courts and corresponding incentives, this work conducts a comparative legal analysis identifying key commonalities and differences between liability schemes for corporate human rights violations in the U.S. and selected European jurisdictions, namely France and Belgium. A civil-criminal divide can be observed, with the U.S. providing for civil human rights redress and European jurisdictions allowing for a ‘partie civile’ claim attached to the principal criminal proceedings. Rather than siding with existing scholarship that those differences are merely a country-specific “translation” into the “language” of the respective legal system, this dissertation illustrates that those differences arise for far more complex reasons. The question addressed focuses on why almost all major litigation against corporations for their overseas human rights performance has been brought in U.S. courts under the ATS, rather than in the courts of their European counterparts. It is concluded that aside from substantive law, differences in procedures (in terms of civil and criminal liability) and legal culture (in terms of a common law and civil law tradition) implicate corporate risk, the victim’s litigation preferences, and the overall effectiveness of the respective liability system in terms of deterrence. A critical look at the apparent supremacy of the ATS in human rights litigation against corporations shows that its immediate appeal to victims’ plaintiffs does not match-up with the long-term deterrence effect in behavioral economics terms. Thus, showcasing the landmark case of Kiobel v. Royal Dutch Petroleum Co. before the U.S. Supreme Court confirms the need for a strict deference to the criminal or civil nature of the proceedings, rather than conflating both concepts interchangeably and at will (as has often been done in ATS jurisprudence). Conflating civil and criminal elements has unintended consequences which undermine the incentive-compatibility of corporate liability under the ATS. Eventually, a paradox emerges: Whereas the European approach is in concept designed to yield incentive-compatible compliance results and is thus superior to the ATS structure, it in practice surrenders to the American approach with its unparalleled procedural rules, which are emblematic of the litigious character of American society. The overall goal of this work has been to move beyond pre-set notions of what lawyers believe does and does not work and present a fresh perspective on the doctrine of corporate liability informed by an empirical approach grounded in behavioral economics. The intent is to create a dialogue and provide a framework to assess the legal order per se (“de jure condito”) in the context of corporate human rights liability that informs normative innovation (“de jure condendo”) for more effective, i.e., incentive-compatible, liability regulation and enforcement in the field of CSR.