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This chapter explains that business actors comply with legally nonbinding institutions because of an exchange between legitimacy and influence. Specifically, the information effects produced by both binding and nonbinding institutions can cause reputational damage to a company. To regain its legitimacy, that company associates itself with a more reputable organization than itself, regaining legitimacy through that association. However, that association often comes at a price. In exchange for conferring legitimacy, the external organization will promote its own institutions for the company’s adoption. Companies therefore adopt these institutions in order to credibly signal the quality of their association with the external organization and maximize legitimacy gains. This analysis is applicable to the wide array of nonbinding guidelines, declarations, codes of conduct, principles, and other international institutions that increasingly govern the global conduct of corporations and other business nonstate actors.
Oxford University Press
Business Organizations Law | Commercial Law | Comparative and Foreign Law | International Trade Law | Law | Transnational Law
Kishanthi Parella, Compliance as an Exchange of Legitimacy for Influence, in The Oxford Handbook of Global Legal Pluralism (Paul Schiff Berman ed., 2020),