6.5.

1 International horizontal hybridity (tracks 1 and 2)

In general, organizations that venture abroad have to adapt to several national governance
principles and practices as defined in the formal laws and cultural practices of host countries.
The horizontal hybridity challenge for these organizations then relates to managing the
‘portfolio’ of countries in which they operate. The prime governance challenge is mostly
rules-based and specifies, in particular, level 1 and level 2 considerations.

Three portfolio characteristics define the international hybridity challenge: (1) the number of
countries in which the organization operates; (2) the relative weight each of the countries
represents in the consolidated activities of the organization; and (3) the basic characteristics
of the sustainability/CSR regime each of these countries represents.

Three types of risks can be distinguished: (1) operational, (2) strategic and (3) sustainability
risks (Van Tulder, 2018a; Van Tulder and Roman, 2019).

DISTINCT SUSTAINABILITY/ CSR REGIMES

These ‘sustainability/CSR regimes’8 consist of both written and unwritten norms, rules and
expectations that reflect the national societal ‘selection environment’ in which strategies of
(foreign) organizations develop and are judged as legitimate and advantageous, or not. A
sustainability/CSR regime comprises more than the roles adopted by national governments. It
consists of all the actions, interactions and rules that influence the nature of the societal
interfaces.

A sustainability/CSR regime can be thought of as consisting of three main elements:

- Legal requirements
- government policy practices
- nature of interaction between business and civil society

6.5.2 Governance challenges under international treaties (track 3)

Beyond the national regime – across the border along the X-axis of track 3 (Figure 6.5) – lie
two types of governance spaces, regulated through treaties that include arbitrage or dispute
settlement procedures: (a) bilaterally governed spaces (through bilateral treaties in particular),
and (b) regionally governed spaces (through regional agreements). The leading principle
along the horizontal axis is the idea of a level playing field, which involves a conception of
‘fairness’. It means that each player does not necessarily have an equal chance to succeed, but
rather that all play by the same set of rules, that the playing field itself is not skewed in favour
of any of the parties, and that an independent arbiter will see to it that all abide by the rules of
the game.

BILATERAL TREATIES
Bilateral treaties are reciprocal, legally binding agreements concluded between two entities or
countries that provide both with more control over the execution of the arrangement. For the
organization of responsible governance of activities across borders, three types of treaties are
particularly relevant: Free-Trade Agreements (FTAs), Bilateral Investment Treaties (BITs),
and Double Taxation Treaties (DTTs).

REGIONAL TREATIES

Regional treaties help in coordinating responsible governance across borders by providing

policy credibility and more consistent criteria for investment, trade and operations. Regional
integration treaties arrange varying degrees of regional cooperation in matters of international
commerce, investment, private sector development, economic growth, infrastructure, strong
(public) institutions, peace and security, and the region’s interaction with other regions in the
world. More specialized regional treaties exist that cover specific areas of concern with
transboundary aspects.

6.5.3 Governance challenges under multilateral arrangements: the global governance gap
(track 4)

Arguably the most challenging environment that organizations can enter into is the global
space beyond national, bilateral or regional regulation. The global space is only partly
regulated by multilateral treaties; a largely unregulated global governance void exists around
‘global public goods’, which leaves many ‘collective action’ issues inconclusively addressed.
In this space – the global governance gap – principles prevail over rules. It is the space in
which multilateral organizations operate, generally with a limited mandate and limited
regulatory powers to formulate and enforce legally binding rules (‘hard law’). Voluntary,
nonlegally binding initiatives (‘soft law’) based on negotiated agreements and commonly
accepted principles, declarations and guidelines are then the prime mechanisms for filling
global governance voids.

MULTILATERAL INITIATIVES

International initiatives can be a stimulating force for institutional and regulatory

convergence on sustainability issues between countries. In the global space, governance can
rarely be based on enforceable supranational rules. Most international governance is
susceptible to negotiation and voluntary agreements that can still create level playing fields
and provide a positive stimulus for companies to embrace higher ambitions for sustainability.