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THE CORPORATE GROUP: SYSTEM, DESIGN AND RESPONSIBILITY
Published online by Cambridge University Press: 12 January 2022
Abstract
Lungowe v Vedanta Resources plc presages more liberal criteria for determining when a parent company owes a duty of care to third parties injured by subsidiary activities. It invokes systems language and points to potential parent company liability for omissions in managing the group. This article develops these ideas. It portrays the corporate group in systems-managerial terms. The parent creates group-wide structures and deploys management strategies and integrating mechanisms that facilitate achievement of its purposes. It has a substantial causal influence upon subsidiary acts and omissions. Prima facie the parent cannot avoid extended liability claims by hiding behind the “pure omissions” rule.
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- Copyright © Cambridge Law Journal and Contributors 2022
Footnotes
*
National University of Singapore.
Thanks to Ernest Lim, Martin Petrin, Tan Cheng Han, David Tan, Tan Zhong Xing and the two anonymous reviewers for feedback and suggestions. All errors are mine alone.
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78 LoPucki, “Essential Structure”, 157–58. This is enterprise liability as loss–spreading because the precision needed in identifying liability targets for deterrence is absent.
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81 Noted in Dearborn, “Enterprise Liability”, 249.
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89 Ibid., at 908.
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91 Ibid., at 512–13, 522.
92 The major division is between power and authority-relations: R. Scott and G. Davis, Organizations and Organizing: Rational, Natural, and Open System Perspectives (Upper Saddle River 2007), 208.
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98 Ibid., at 531.
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100 Lungowe v Vedanta Resources [2019] UKSC 20, at [49].
101 Harper Ho, “Theories of Corporate Groups”, 886.
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105 See e.g. Companies Act 2006, s. 1159(1).
106 Belenzon et al., “Towards a Legal Theory”, 6.
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109 E.g. Companies Act 2006, sched. 3, reg. 4, Model Articles for Public Companies, arts. 20–21.
110 Companies Act 2005, s. 1159. They are common in large unlisted companies: Lacave and Urtiaga, “Corporate Groups”, 24.
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113 Ibid., at 5.
114 E.g. Chandler, Scale and Scope, 191; Muscat, Liability of the Holding Company, 58–59.
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122 E.g. Okpabi v Shell [2021] UKSC 3, at [156].
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126 Recognised e.g. in Okpabi v Shell [2021] UKSC 3, at [122], [124]–[125], [140]. This has been the case since A.P. Sloan brought together General Motor's disparate brands: Chandler, Strategy and Structure, 130–62.
127 Chandler, Scale and Scope, 623.
128 Belenzon et al., “Architecture of Attention”, 1612, 1616; E. Alfoldi, J. Clegg and S. McGaughey, “Coordination at the Edge of the Empire: The Delegation of Headquarters Functions through Regional Management Mandates” (2012) 18 Journal of International Management 276.
129 M. Kuntz, Conceptualising Transnational Corporate Groups for International Criminal Law (Baden-Baden 2017), 275.
130 E.g. Sloan Jr, My Years with General Motors, 433.
131 Chakravarty et al., “Multinational Enterprise”, 298.
132 Mintzberg, Structuring of Organizations, 133. See also Harper Ho, “Team Production”, 505, 518.
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134 Harper Ho, “Team Production”, 528.
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136 See Muscat, Liability of the Holding Company, 58.
137 D. Collis, D. Young and M. Goold, “The Size and Composition of Corporate Headquarters in Multinational Companies: Empirical Evidence” (2012) 18 Journal of International Management 260, 263.
138 See Antunes, Liability of Corporate Groups, 159; Muscat, Liability of the Holding Company, 402.
139 R. Coase, The Firm, the Market and the Law (Chicago 1988), ch. 2.
140 Antunes, Liability of Corporate Groups, 101.
141 H. Collins (ed.), “Introduction to Networks as Connected Contracts” in G. Teubner (M. Everson trans.), Networks as Connected Contracts (Oxford 2011), 25.
142 R. Tuomela, The Philosophy of Sociality: The Shared Point of View (Oxford 2007), 27.
143 For qualified empirical support, see D. Vora et al., “Us and Them: Disentangling Forms of Identification in MNCs” (2021) 21 Journal of International Management 100805, 2, 12.
144 E.g. B. King, T. Felin and D. Whetten, “Finding the Organization in Organization Theory: A Meta-theory of the Organization as Social Actor” (2010) 21 Organization Science 290, 293–94.
145 E.g. C. Heckscher, “Defining the Post-Bureaucratic Type” in C. Heckscher and A. Donnellon (eds.), The Post-bureaucratic Organization: New Perspectives on Organizational Change (San Francisco 1994), 25.
146 E.g. Iberdrola, Corporate Governance System, 4.
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148 Antunes, Liability of Corporate Groups, 78.
149 E.g. Mintzberg, Structuring of Organizations, 83, 95, 191, 290, 384.
150 E.g. Okpabi v Shell [2021] UKSC 3, at [40].
151 See Tuomela, Philosophy of Sociality.
152 Scott and Davis, Organizations and Organizing, 185.
153 See e.g. Galbraith, Designing Organizations, 42; Sloan Jr, My Years with General Motors, 433–34.
154 M. Gilbert, A Theory of Political Obligation (Oxford 2006), 128.
155 Watson O'Donnell, “Managing Foreign Subsidiaries”, 532.
156 E.g. Blumberg, Multinational Challenge, 140; Mintzberg, Structuring of Organizations, 384.
157 Watson O'Donnell, “Managing Foreign Subsidiaries”, 532–33.
158 Weigelt and Miller, “Implications of Internal Organization Structure”, 1415–18.
159 Vora et al., “Us and Them”, 1–2.
160 Watson O'Donnell, “Managing Foreign Subsidiaries”, 542–43.
161 E.g. Ibarra-Caton and Mataloni, “Headquarters Services”, 96; Watson O'Donnell, “Managing Foreign Subsidiaries”, 534.
162 Ibarra-Caton and Mataloni, “Headquarters Services”, 95–96.
163 Gilbert, Theory of Political Obligation, 130.
164 Ibid., at 115.
165 Ibid. See also C. List and P. Pettit, Group Agency: The Possibility, Design, and Status of Corporate Agents (Oxford 2011), 173.
166 See also Mevorach, “Role of Enterprise Principles”, 475.
167 Galbraith, Designing Organizations, 198.
168 Chandler, Strategy and Structure, 303.
169 Galbraith, Designing Organizations, 195. The holding company is likely to be modest in size: ibid., at 204; Lungowe v Vedanta Resources plc [2017] EWCA Civ 1528, [2018] 1 W.L.R. 3575, at [12].
170 Galbraith, Designing Organizations, 198, 204.
171 Ibid., at 195.
172 Chandler, Strategy and Structure, 42, 99.
173 Galbraith, Designing Organizations, 213; Mintzberg, Structuring of Organizations, 151.
174 Chandler, Scale and Scope, 613–14; Chandler, Strategy and Structure, 2, 9.
175 A. Colpan and T. Hikino, “Foundations of Business Groups: Toward an Integrated Framework” in A. Colpan, T. Hikino and J. Lincoln (eds.), The Oxford Handbook of Business Groups (Oxford 2010), 26.
176 Volkswagen AG, Annual Report 2018, 51 et seq.
177 Galbraith, Designing Organizations, 186, 189.
178 J. Dunning, Multinational Enterprises and the Global Economy (Wokingham 1993), 217; V. Mahnke et al., “How Do Regional Headquarters Influence Corporate Decisions in Networked MNCs?” (2012) 18 Journal of International Management 293, 293–94.
179 Galbraith, Designing Organizations, 265.
180 See e.g. Okpabi v Shell [2021] UKSC 3, at [160].
181 Galbraith, Designing Organizations, 194.
182 Dunning, Multinational Enterprises, 224; Chandler, Strategy and Structure, 232.
183 Mintzberg, Structuring of Organizations, 381; Chandler, Strategy and Structure, 138.
184 Galbraith, Designing Organizations, 39–40.
185 Ibid., at 11.
186 “Mutual adjustment achieves the coordination of work by the simple process of informal communication”: Mintzberg, Structuring of Organizations, 3.
187 Galbraith, Designing Organizations, 101.
188 Mintzberg, Structuring of Organizations, 164.
189 Dunning, Multinational Enterprises, 216; Chandler, Strategy and Structure, 12.
190 E.g. Chandler v Cape plc [2012] EWCA Civ 525, at [8].
191 E.g. Dairy Containers Ltd. v NZI Bank Ltd. [1995] 2 N.Z.L.R. 30.
192 Muscat, Liability of the Holding Company, 57, 59. See also Re Hydrodan (Corby) Ltd. [1994] B.C.C. 161, 164.
193 See e.g. Galbraith, Designing Organizations, 201.
194 Okpabi v Shell [2021] UKSC 3, at [54].
195 Penrose, Theory of the Growth of the Firm, 46; Chandler, Strategy and Structure, 44, 297. See e.g. Iberdrola, Corporate Governance System, 51 et seq.
196 Okpabi v Shell [2021] UKSC 3, at [47]–[49].
197 See Muscat, Liability of the Holding Company, 55–56.
198 Ibid., at 93–95, 399.
199 Ibid., at 57.
200 Ibid., at 56.
201 Ibid., at 97–98, 312ff.
202 Von Bertalanffy, General System Theory, 11–12, 31, 44–45.
203 Ibid., at 19, 31; L. von Bertalanffy, “The History and Status of General Systems Theory” (1972) 15 Academy of Management Journal 407, 410–11.
204 Von Bertalanffy, General System Theory, 36–37.
205 T. Belinfanti and L. Stout, “Contested Visions: The Value of Systems Theory for Corporate Law” (2018) 166 U. Penn. L.R. 579, 599. See von Bertalanffy, General System Theory, 34–37.
206 A. Calnan, “Torts as Systems” (Unpublished, 2018), 11.
207 Von Bertalanffy, General System Theory, 27–28.
208 Ibid., at 5.
209 N. Luhmann, Introduction to Systems Theory (Cambridge 2002), 28; von Bertalanffy, General System Theory, 39.
210 Belinfanti and Stout, “Contested Visions”, 603–04.
211 Ibid., at 599–600.
212 L. LoPucki, “The Systems Approach to Law” (1997) 82 Cornell L.R. 479, 482–83, 487.
213 Von Bertalanffy, General System Theory, 27–28, 194–95, 198.
214 A. Montuori, “Systems Approach” in M. Runco and S. Pritzker (eds.), Encyclopedia of Creativity, vol. 2 (London, Burlington and San Diego 2011), 416.
215 [2019] UKCSC 20, at [52].
216 Antunes, Liability of Corporate Groups, 115–16; Blumberg, The Multinational Challenge, 73–75.
217 Belinfanti and Stout, “Contested Visions”, 605, 609; Scott and Davis, Organizations and Organizing, 17–18; F. Kast and J. Rosenzweig, “General Systems Theory: Applications for Organization and Management” (1972) 15 Academy of Management Journal 447, 455–56.
218 Chandler, The Visible Hand, 145, 147.
219 Ibid., chs. 6–11.
220 Scott and Davis, Organizations and Organizing, 152.
221 Chandler v Cape plc [2012] EWCA Civ 525, at [8], [75].
222 LoPucki, “Systems Approach to Law”, 489.
223 See e.g. I. Anabtawi and S. Schwarcz, “Regulating Systemic Risk: Towards an Analytical Framework” (2011) 86 Notre Dame L. Rev. 1349.
224 LoPucki, “Systems Approach to Law”, 499.
225 Chandler, The Visible Hand, 8–9.
226 Ibid.
227 Von Bertalanffy, General System Theory, 34, 200. See e.g. Anabtawi and Schwarcz, “Regulating Systemic Risk”, 1406ff.
228 E.g. Lungowe v Vedanta Resources [2019] UKSC 20, at [49]; Okpabi v Shell [2021] UKSC 3, at [141]–[142].
229 F. Gevurtz, “Groups of Companies” (2018) 88 Am. J. Comp. L. 181, 205.
230 See also Mevorach, “Role of Enterprise Principles”, 489.
231 E.g. Thompson v The Renwick Group [2014] EWCA Civ 635.
232 K. Strasser, “Piercing the Veil in Corporate Groups” (2005) 37 Conn. L. Rev. 637, 639–40.
233 E.g. M.E. Diamantis, “The Extended Corporate Mind: When Corporations Use AI to Break the Law” (2020) 98 N.C.L.R. 893, 895, 899.
234 R.A. Duff, “Who Is Responsible, for What, to Whom?” (2005) 2 Ohio State J. Crim. L. 441, 456.
235 Dunnage v Randall [2015] EWCA Civ 673, [2016] Q.B. 639; P. Cane, Responsibility in Law and Morality (Oxford 2002), 67.
236 E.g. Lister v Hesley Hall Ltd. [2002] 1 A.C. 215.
237 See Cane, Responsibility in Law and Morality, 30–33.
238 B. Ewing, “The Structure of Tort Law, Revisited: The Problem of Corporate Responsibility” (2015) 8 J. Tort L. 1, 24.
239 Empirical evidence demonstrates that regulatory/tort law has its greatest deterrent effect among medium- and large-size organisations: L. Friedman, Impact: How Law Affects Behavior (Cambridge, MA 2016), 137.
240 Roe, “Corporate Strategic Reaction”, 10, 13.
241 Prest v Petrodel Resources [2013] UKSC 34. Veil piercing might be abolished completely in the UK: Hurstwood Properties (A) Ltd. v Rossendale BC [2021] UKSC 16, [2021] 2 W.L.R. 1125, at [71]–[72].
242 [2013] UKSC 34.
243 [1990] Ch. 433.
244 Ibid., at 539–40.
245 Ibid., at 544.
246 J. Arlen and R. Kraakman, “Controlling Corporate Misconduct: An Analysis of Corporate Liability Regimes” (1997) 72 N.Y.U.L. Rev. 687; D. DeMott, “Organizational Incentives to Care About Law” (1997) 60 Law & Contemp. Probs. 39, 54.
247 M. Caulfield and W. Laufer, “Corporate Moral Agency at the Convenience of Ethics and Law” (2019) 17 Georgetown J.L. & Public. Pol'y. 953, 965; M. Geistfeld, “The Coherence of Compensation-Deterrence Theory in Tort Law” (2012) 61 DePaul L. Rev. 383, 406–07.
248 E.g. C.A. Witting, Liability of Corporate Groups and Networks (Cambridge 2018), ch. 9; Hansmann and Kraakman, “Toward Unlimited Shareholder Liability”.
249 Luo, “Corporate Governance”, 10.
250 See e.g. In re Caremark International Inc. Derivative Litigation 698 A. 2d 959 (Del. Ch. 1996).
251 See R. Van Loo, “The New Gatekeepers – Private Firms as Public Enforcers” (2020) 106 Viriginia. L. Rev. 467.
252 [2012] EWCA Civ 525.
253 Ibid., at [18]–[26].
254 Ibid., at [7]–[8].
255 Lungowe v Vedanta Resources [2019] UKSC 20, at [56].
256 Ibid.
257 Noted in Choudhury and Petrin, Corporate Duties to the Public, 95.
258 Lungowe v Vedanta Resources [2019] UKSC 20, at [49], [51]–[53].
259 Ibid., at [53].
260 Ibid. See also Okpabi v Shell [2021] UKSC 3, at [153]; Chandler v Cape plc [2012] EWCA Civ 525, at [65].
261 [1970] A.C. 70.
262 Ibid., at 1037–39, 1055.
263 Choudhury and Petrin, Corporate Duties to the Public, 113.
264 Okpabi v Shell [2021] UKSC 3, at [7], [26].
265 Cf. B. Walker Smith, “Proximity-driven Liability” (2014) 102 Geo. L.J. 1777.
266 C. Witting, Street on Torts, 16th ed. (Oxford 2021), 43.
267 R. Burton and B. Obel, “The Science of Organizational Design: Fit Between Structure and Coordination” (2018) 7 Journal of Organization Design 5, 3.
268 Chandler v Cape plc [2012] EWCA Civ 525, at [75]; Okpabi v Shell [2021] UKSC 3, at [45].
269 Okpabi v Shell [2021] UKSC 3, at [46].
270 Antunes, Liability of Corporate Groups, 76.
271 Chandler v Cape plc [2012] EWCA Civ 525, at [75].
272 Okpabi v Shell [2021] UKSC 3, at [51].
273 [2021] UKSC 3.
274 Chandler v Cape plc [2012] EWCA Civ 525, at [77]–[78].
275 Okpabi v Shell [2021] UKSC 3, at [33].
276 See P. Smith, “Omission and Responsibility in Legal Theory” (2003) 9 Legal Theory 221.
277 Ibid., at 234–40; S. Steel, “Rationalising Omissions Liability in Negligence” (2019) 135 L.Q.R. 484, 503–07.
278 G.R. Sullivan and A.P. Simester, “Omissions, Duties, Causation and Time” (2021) 137 L.Q.R. 358, 362.
279 Kalma v African Minerals Ltd. [2020] EWCA Civ 144, at [128].
280 M.M. Mello and D.M. Studdert, “Deconstructing Negligence: The Role of Individual and System Factors in Causing Medical Injuries” (2008) 96 Geo. L.J. 599, 609.
281 See also ibid.
282 Such positive acts might create a relevant “source of danger”: Maran (UK) Ltd. v Begum [2021] EWCA Civ 326, at [62]–[64], [124].
283 Lungowe v Vedanta Resources [2019] UKSC 20, at [53].
284 In more egregious cases, judgment proofing happens after liabilities arise: e.g. S. Lo, In Search of Corporate Accountability: Liabilities of Corporate Participants (Newcastle 2015), ch. 2; Chemours Company, The v DowDuPont, Inc. (Ch. Del. 30 March 2020) (affd., Supr. Ct. Del. 15 Dec 2020).
285 Forsythe v Clark USA, Inc. 864 N.E. 2d 227 (Ill. 2007).
286 [1996] A.C. 923, 943–44.
287 Hill v Chief Constable of West Yorkshire [1989] A.C. 53.
288 Cf. Loi no. 2017-399 du 27 Mars 2017 relative au devoir de vigilance des sociétés mères et des entreprises donneuses d'ordre; Muchlinski, Multinational Enterprises, 320–22; Choudhury and Petrin, Corporate Duties to the Public, 113–14.
289 See K.E. Sørensen, “The Legal Position of Parent Companies: A Top-down Focus on Group Governance” (2021) 22 E.B.O.R.
290 Civil Liability (Contribution) Act 1978, s. 1(1).
291 J. Dietrich and P. Ridge, Accessories in Private Law (Cambridge 2015), 133, citing Schumann v Abbott and Davis [1961] S.A.S.R. 149, 155. See also Glaxo Wellcome UK Ltd. v Sandoz Group [2017] EWCA Civ 227, [2017] F.S.R. 32, at [31].
292 Unilever plc v Gillette (UK) Ltd. [1989] R.P.C. 583, 609.
293 Fish & Fish Ltd. v Sea Shepherd UK [2015] UKSC 10, [2015] A.C. 1229.
294 Ibid., at [21], [23], [37], [49], [57], [58].
295 Ibid., at [23], [37], [55].
296 Davies, P., Accessory Liability (Oxford 2015), 12–13Google Scholar; Dietrich and Ridge, Accessories in Private Law, 38
297 Fish & Fish Ltd. v Sea Shepherd UK [2015] UKSC 10, at [44]. See also Kalma v African Minerals Ltd. [2020] EWCA Civ 144, at [99] (intent can be inferred).
298 Ibid., at [27], [60], respectively.
299 Dietrich and Ridge, Accessories in Private Law, 4, 12–13, 29, 43–60, 93–4, 116–17, 127–30.
300 Glaxo Wellcome UK Ltd. v Sandoz Group [2017] EWCA Civ 227, [2017] F.S.R. 32.
301 Ibid., at [30].
302 Dietrich and Ridge, Accessories in Private Law, 37, 122.
303 Ibid., at 15–16.
304 Ibid., at 16.
305 Ibid., at 17.
306 Davies, Accessory Liability, 16.
307 Fish & Fish Ltd. v Sea Shepherd UK [2015] UKSC 10, at [57].