A case for corporate board introspection on China

Photo by Zhang Kaiyv

BY JOSEPH M. MOSCHELLA

It’s always difficult to admit policy failures, but by their actions across the Trump and Biden administrations, US policymakers have implicitly admitted the failure to achieve a number of the historical justifications for economic engagement with China.

Through the recently-enacted Uyghur Forced Labor Prevention Act (UFLPA), the ongoing additions to trade blacklists of China-based companies for their complicity in human rights abuses, and the Department of State’s designation of an ongoing genocide in Xinjiang – amongst numerous other policy changes – it’s fair to say that the era in which such engagement was seen as no worse than a net-neutral bargain has come to an end.

In President Clinton’s speech in March of 2000 in favor of permanent normal trade relations with China, he noted that critics of the move say that “China is a growing threat to Taiwan and its neighbors; we shouldn’t strengthen it. Or, China violates labor rights and human rights; we shouldn’t reward it.” The concerns were as familiar then as they are today; however, Beijing knew that if these concerns really mattered, then a two-track process of engagement would never have been created. Even as to economic engagement, Beijing has repeatedly failed to reciprocate on market entry and create a level playing field for foreign firms, and global frameworks have provided no timely or effective recourse for the aggrieved. (“Beijing” is used herein as shorthand for the political and party leadership of the PRC, differentiating it from its people who are also often its victims).

But while the US government has made some recognition of this failure of policy, it’s important to ask whether corporate boards are undergoing the same sort of introspection, and whether the decisions being made today are with consideration of the shifting mood of policymakers on matters of engagement and the increasingly hostile and nationalistic attitudes of Beijing. Americans are also becoming well-educated on these concerns, and executives who feign ignorance or attempt neutrality no longer mollify Beijing or placate the public. Those directors who aren’t currently reviewing their corporate plans may also find themselves on the wrong side of policymakers, the public, and potentially, the law.

Directors are generally subject to the duties of care and loyalty, the latter of which includes a duty of oversight, i.e., setting up systems and controls to monitor and identify risks to the corporation, and implementing measures that remediate those risks and enhance compliance. In any changing legal and operational environment, meeting one’s duties is no longer a passive activity, and simply doing things the way they’ve successfully been done in the past is unlikely to be a satisfactory defense.

Read the rest of the article on The Daily Journal.

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Joseph Moschella is a member of the Pacific Council. Joe is general counsel at Jukin Media Inc. and assistant general counsel at Trusted Media Brands. You can with him on Twitter.

This article was originally published by The Daily Journal on 2/7/22.

The views and opinions expressed here are those of the author and do not necessarily reflect the official policy or position of the Pacific Council.