Regulation in the Shadows of Private Law

With proponents of deregulation ascendant, both domestically and around the world, private regulation appears to be an attractive solution to a seemingly intractable problem-assuming it is or can be effective. This Article adds an important corrective to standard accounts of private legal regulation and its effectiveness.Existing scholarship generally looks to the formal contract terms as the key to understanding private regulation and to evaluating its impact. This practice needs to be rethought. The relationship between contracting parties, as well as the regulatory authority that one party exerts over the other, can be quite different than the relationship described by the formal contract terms. This Article illustrates the problem with the scholarly assumption that formal contract language reliably describes the private regulatory relationships they establish. It does so through an in-depth analysis of a form of private contracting with great regulatory potential: the loan guarantees and associated political risk insurance policies underwritten by the World Bank.Such policies are purchased by corporations to mitigate the risks associated with doing business in under-regulated jurisdictions. Because, on their face, the terms of these policies require socially responsible corporate behavior, they appear to be a promising form of private regulation, succeeding in imposing significant obligations on corporations that traditional public regulation has failed to mandate. But these formal terms reveal little about the true nature of the private regulatory relationships they create. Even though the policy terms themselves are unlikely ever to be formally enforced, the policyholders often have significant incentives to go above and beyond the contract requirements if requested to do so by the underwriter. But whether they are in fact being asked to do so, and whether they are in fact complying if they are being asked, is unclear.The World Bank provides considerable transparency surrounding the terms of its policies and the process for obtaining them. However, little information is available regarding its post-contracting interactions with policyholder corporations. Providing data about these interactions could be done relatively easily and without infringing upon the confidentiality interests that it, and its policyholders, may have. To the extent that entities like the World Bank are serious about their corporate social responsibility policies, it is imperative that information about the actual contracting relationship and not just the formal contract terms-be made available