The Braganza gambit

And now, if I may digress momentarily from the main stream of this evening's symposium,* … I'd like to raise a question which relates more to regulatory compliance than to Quality per se, but which has bothered me from time to time, and which seems to lurk on the margins of other—more normal—Quality topics. (In fact I plan to discuss one of these next week, in a follow-on essay.)

The background is this: First, we all know there is such a thing as global trade. In fact, the whole point of international standards is to facilitate global trade. As I explained once in this forum a couple of years ago, "A standard is like a common language: it allows us to do business with strangers, because we know that we are both talking about the same thing."

Second, we all know there are global (or at any rate multinational) corporations. Over the course of my career I've worked for at least two companies headquartered in Europe (LM Ericsson and Robert Bosch), even though both times my local office was in southern California.

Third, we all understand more or less how companies are regulated. Some authority codifies a set of rules: those rules might be voluntary (like ISO 9001) or legally mandatory (like health and safety regulations). Then the company decides whether they want to abide by these rules. (In the case of mandatory legislation, we should assume that the answer is always Yes.) If yes, the company takes steps to implement the rules; and if they fail, there is some kind of system in place whereby someone can complain. When the authorities get a complaint they check the facts; and if the company has indeed failed to meet the requirements, the authorities react accordingly. In the case of ISO 9001, the responsible Certification Body can decertify the company; in the case of legal noncompliance, the relevant government can impose civil or criminal penalties.

Now finally here's the question: How do you regulate an international company?

I fear that the answer may be: Mostly you can't. I'll explain why, but I would be delighted if you can show me where I am wrong.

Let's say that some local company violates a local regulation. Government inspectors come out to check the status, and—depending on the severity of the issue—they might give the company written notice to correct the problem in a defined time, or they might padlock the doors. If company personnel try to interfere with the government inspectors, they can be arrested. And since it's a local company, that's all it takes to stop them doing whatever Bad Thing they were doing. Problem solved.

Suppose that the company has multiple branches in the same state: then, depending on the nature of the Bad Thing that Law Enforcement is trying to stop, they might have to take a heavier approach. Or they might leave the branches alone but target headquarters. If the company has branches all over the United States, Law Enforcement has to get more ambitious still, because sometimes state laws disagree (so the Bad Thing might be legal in another state). Also, local Law Enforcement is unlikely to have jurisdiction in another state, and so will have to coordinate with other agencies in order to stop the Bad Thing once and for all.

But if the company has offices all over the world, then what? The very most that American Law Enforcement authorities can possibly do is to arrest whichever company personnel happen to be located inside the United States. But they are powerless over the offices in Ruritania or Grand Fenwick.    

In the ordinary course of things, a multinational company will probably find it convenient to comply with routine local regulations, because they will see those regulations as just a cost of doing business. As long as the opportunities in a country are bigger than the costs, they are likely to cooperate. But this cooperation is strictly a voluntary choice on their part. In an extreme case, they can always shut down the local offices and leave.

This strategic departure from a country because you don't like the laws is what I call the Braganza gambit. The Braganza family ruled Portugal and the Portuguese Empire from 1640 until 1910. During the Napoleonic Wars in the early nineteenth century, Napoleon Bonaparte installed many of his relatives in thrones across Europe. His method—used for example in the Peninsular War against Spain—was to defeat a country and capture the royal family; then he could force them to abdicate in favor of one of his relatives and move on to the next country.

By Lumastan - Own work, CC BY-SA 3.0, Link

But not in Portugal. The Braganzas saw what Napoleon was doing and realized they were next. So they moved the entire royal court to Brazil, which was at that point part of the Portuguese Empire. When Napoleon conquered Lisbon, the royal family was nowhere to be found. (In the end they liked it in Brazil, and didn't move back until 1821—long after Napoleon was no longer a threat.)

So there you have it. Multinational corporations have the privilege—unavailable to local corporations—that they can (within limits) decide which legal regulations they feel like following. And in case any regulation is too burdensome for them to tolerate it, they have the option of leaving the country.** 

If a multinational corporation decides to use the Braganza gambit to avoid an onerous regulation, about the only leverage the abandoned country has is to close its markets. "If you won't abide by our rules, you can't sell your goods here." Whether that's a meaningful threat depends very much on the particular details, and of course sometimes the same maneuver plays out in reverse: a company might refuse to sell into a certain country until this or that policy is changed. It is hard to generalize about how effective either tactic is.*** 

What do you think? Am I wrong? Is there something I've neglected?

Or can multinational corporations escape troublesome regulation just by moving abroad? 

Please leave me a comment with your perspective. 

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* Tom Lehrer, introduction to "The Elements," Reprise/Warner Bros. Records, track 4 on An Evening Wasted With Tom Lehrer, 1959, LP record.  

** There's even a related line of thought that protects international organizations. Concretely, if you or I (as private citizens) feel wronged by some decision from an international organization like the WEF or the ISO, we may find it hard to sue them for redress because it's not at all clear which court—if any—has the appropriate jurisdiction.

*** Certainly this is the logic behind international economic sanctions, where—in this case—one government requires all the companies subject to it to avoid business in another country until that other country changes its policies. When small countries are subjected to coordinated sanctions, the effects can be crippling. When large countries are subjected to them, the results are not so immediate. Consider, for example, this recent video by a YouTube creator "Eli from Russia," who publishes travel information (and strictly avoids politics). She describes the impact of sanctions on Russia, and the results have been (to say the least) not uniform.