Cross-Border Corporate Governance Challenges: Issues faced by MNC’s adhering to diverse corporate governance laws

The evolution of the global economy has enabled companies to operate seamlessly across borders, capitalizing on diverse market opportunities.[1] However, this expansion introduced the complexity of adhering to varied corporate governance laws, as Multinational Corporations (“MNCs”) must navigate and adhere to distinct legal and regulatory frameworks, across their operations.

One of the primary challenges faced by MNCs is the diversity of corporate governance laws and regulations across different jurisdictions.[2] While both the US and Germany operate as market-based systems and are major global competitors, their systems of corporate governance, differ significantly. For instance, the United States emphasizes shareholder primacy, focusing on maximizing shareholder value. In contrast, many European countries, such as Germany, adopt a stakeholder approach, emphasizing the interests of employees, communities, and other non-shareholder entities. Companies operating in both jurisdictions must reconcile these differences and thus, find a balance.[3]

This divergence is further complicated by the rise of Environmental, Social, and Governance (“ESG”) standards. While the European Union has implemented stringent ESG reporting requirements under its Corporate Sustainability Reporting Directive (“CSRD”), the U.S. currently lacks a comprehensive federal framework regulating ESG, leaving companies to navigate a patchwork of state-level regulations.[4]

Operating across multiple jurisdictions exposes MNCs to a range of legal and regulatory risks, including the need to comply with Europe’s General Data Protection Regulation (“GDPR”), Anti-Money Laundering (“AML”) and Know Your Customer (“KYC”) regulations, as well as navigating sanctions and embargoes that vary across regions.[5] For instance, the Foreign Corrupt Practices Act (“FCPA”) applies broadly, requiring U.S. companies to ensure compliance with its provisions both domestically and in foreign markets, particularly when their activities have a connection to the United States.[6] Similarly, anti-bribery regulations in the United Kingdom, such as the UK Bribery Act, impose stringent requirements that often overlap with local laws, creating potential conflicts. Moreover, MNCs are required to adhere to the tax laws in each country where they conduct business. Thus, global financial compliance involves adhering to a variety of domestic and international regulations, which can create challenges.[7]

Furthermore, cultural differences introduce an additional complexity, requiring MNCs to operate within varied cultural environments. MNCs must function in various cultural settings, which may affect decision-making and management styles. For instance, some cultures may enjoy hierarchy while making decisions, while others appreciate a collaborative approach. It is important to strike a balance between maintaining consistent standards across all operations while also adapting to local regulatory and cultural requirements.[8]

To address cross-border corporate governance challenges, multinational corporations (MNCs) should develop a unified framework that ensures alignment of global standards with local laws. Conducting regular audits ensures compliance with evolving regulations. Inclusion of local representatives in management can help bridge cultural gaps. Policies should balance adaptability to cultural differences while maintaining core global standards. MNCs should monitor local regulatory changes, maintain agile compliance processes, and foster relationships with regulators to stay informed. In order to ensure transparency, MNCs must use standardized reporting systems and conduct regular training to remain updated with the regulatory changes.[9]

Shanaia Carvalho is a staff member of Fordham International Law Journal Volume XLVIII. 

[1] See Patrick Thomas, Globalization 2.0: Navigating the Evolving Landscape of International Business, 15 Bus. Stud. J. 1 (2023).

[2] See Accounting Insights, Financial Strategies and Challenges for Multinational Corporations, (Sept. 11, 2024) https://accountinginsights.org/financial-strategies-and-challenges-for-multinational-corporations/

[3] See Shamsher Mohamad & Zulkarnain Muhamad Sori, Corporate Governance from a Global Perspective (Apr. 21, 2011), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1817082.

[4] See Datafisher, Comparing ESG Regulations Between the EU and the US (Feb. 7, 2024), https://datafisher.com/news/esg-regulations-between-the-eu-and-the-us/.

[5] See Aermill, Navigating the Waters of Global Financial Compliance: A Guide for Multinational Corporations (Mar. 23, 2024), https://www.aermill.com/navigating-the-waters-of-global-financial-compliance/.

[6] U.S. Attorney General Issues Memorandum Redirecting FCPA Enforcement Away from the U.S., Nat’l L. Rev. (Sept. 30, 2021), https://natlawreview.com/article/us-attorney-general-issues-memorandum-redirecting-fcpa-enforcement-away-us

[7] Aermill, supra note 5.

[8] See Legalvidhiya, Cross-Border Corporate Governance Issues in Multinational Corporations (Sept. 25, 2024), https://legalvidhiya.com/cross-border-corporate-governance-issues-in-multinational-corporations/.

[9] See id.

This is a student blog post and in no way represents the views of the Fordham International Law Journal.