Academic journal article Journal of Corporation Law

Convergence in Corporate Governance: A Leximetric Approach

Academic journal article Journal of Corporation Law

Convergence in Corporate Governance: A Leximetric Approach

Article excerpt

 I. Introduction
 II. Methodology.
III. Difference Analysis of Individual Countries
     A. Differences Between French and German Law
         1. Observations
         2. Explanations
     B. Differences Between U.K., U.S., and Indian Law
         1. Observations
         2. Explanations
 IV. General Analysis on Legal Origins and Convergence
  V. Conclusion

I. Introduction

Has there been convergence of corporate governance systems? The current debate started with Hansmann and Kraakman. They expect "substantial convergence in the practices of corporate governance as well as in corporate law" because the Anglo American model of corporate governance has won the day. (1) Others object that historical and cultural differences between countries are likely to persist, reflecting different types of market economies. (2) This debate will re-emerge in the context of the financial crisis of 2007 to 2009. Assuming that corporate governance failures have contributed to the financial crisis, (3) commentators are likely to use the slogan that we need global solutions to this global problem to justify (further) convergence in corporate governance. (4)

This Article examines whether national laws on corporate governance have become more similar. This focus on legal rules provides a link to the literature on the convergence of legal systems. Here too, some contend that in the modern world, legal differences, in particular the distinction between civil law and common law legal origins, have become less marked, (5) whereas others object that different legal mentalities still play an important role. (6) Modified positions are also possible. For instance, it could be said that today legal systems do not primarily differ because of different legal origins but due to their belonging to the EU, or due to the question of whether a country is developed or developing. (7) Another modification is that there is only a "weak legal origin" effect, which means that the effect of belonging to a particular legal origin varies over time, depending on the strength of pressures for convergence and for the "endogenization" of law to local conditions. (8)

A crucial element of corporate governance is how well shareholders, creditors and workers are protected. This Article uses a new quantitative methodology ("leximetrics") (9) in order to answer the question of whether there has been convergence, divergence, or persistence of the rules on shareholder, creditor, and worker protection. In particular, this Article will analyze whether there are deep differences between the Anglo-Saxon countries (common law countries) and Continental Europe (civil law countries). The bases for this Article are three comprehensive indices for shareholder, creditor, and worker protection, which code the legal development of France, Germany, India, the United Kingdom, and the United States from 1970 to 2005. Part II describes these datasets and explains how they can be used to measure convergence or divergence of the law. Part III examines the differences and similarities between the five countries in detail. This will be supplemented by Part IV, which provides a more general analysis on convergence and legal origins. Part V concludes.

Two caveats must be made. First, this Article is mainly interested in the legal rules that determine national differences of corporate governance. This focus on legal rules does not deny that their enforcement may differ between jurisdictions, or that non-legal considerations also determine corporate governance at the firm level. Secondly, this Article does not try to answer the "causality problem," namely whether legal convergence (or divergence) is mainly the result of factual changes (the "law follows" thesis), or whether law is predominately a source of factual changes itself (the "law matters" thesis). This point is well discussed in previous literature. (10) This Article will, however, analyze why particular legal changes have taken place. …

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