Academic journal article Texas Law Review

Corporate Governance and Social Welfare in the Common-Law World

Academic journal article Texas Law Review

Corporate Governance and Social Welfare in the Common-Law World

Article excerpt

Corporate Governance and Social Welfare in the Common-Law World

CORPORATE GOVERNANCE IN THE COMMON-LAW WORLD: THE POLITICAL FOUNDATIONS OF SHAREHOLDER POWER. By Christopher M. Bruner. New York, New York: Cambridge University Press, 2013. 309 pages. $110.00.

Introduction

Sometime around 1990, American corporate governance scholars discovered that corporate law and corporate governance do not work the same way everywhere in the world. This was not the first time American corporate governance scholars had made such a discovery. Comparative corporate governance scholarship flourished for a few years in the 1970s, and earlier generations had done their own comparative spadework.1 But the new wave of scholarship is not shaped in discernible ways by its predecessors and has brought new tools and perspectives to bear.

Many of the articles at the beginning of this wave used the comparisons primarily to shed light on American corporate governance, often to demonstrate that features of American governance are not inevitable. Perhaps most prominently, Mark Roe contrasted governance patterns in Germany and Japan in connection with his political theory of American corporate governance.2 In Roe's account, the separation between ownership and control in America's "Berle-Means" corporations was not simply caused by economic imperatives, as corporate law scholars often tended to assume.3 Politics also played a starring role, with populist pressures first forcing the fragmentation of American financial channels in the nineteenth century and then forcing the fragmentation of American corporate ownership at key junctures when institutions had begun to acquire major stakes in American corporations.4 But were outcomes other than the American one possible? Germany and Japan offered a startling contrast. In each country, banks held or controlled major stakes in the nation's largest corporations and exerted much more direct influence over corporate governance.5

A few years later, additional theories of comparative corporate governance began to emerge, some challenging Roe's political theory, or at least providing additional explanations for the American outcome. In a series of much-criticized and highly influential empirical articles, economists Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny identified a variety of factors which, they argued, shape the quality of a nation's corporate governance.6 Among other things, countries that protect minority shareholders are likely to see more diffuse ownership than those that do not7 and countries with common law origins fare better than their civil law counterparts.8 Turning his sight more fully to Europe, Roe offered an alternative account of corporate governance differences, one not tied to legal origin. In Roe's account, corporations in countries with social democracies tend to have more stakeholder-oriented corporate governance, with greater solicitude for employees, whereas countries that lack long-term social democratic control are more shareholder oriented.9 Operationally, when labor was able to make strong claims on large firms' cash flow, as he said was common in the post-World War II decades, concentrated ownership with blockholders and controlling shareholders was more likely to preserve value for shareholders than diffuse ownership and managerial-centered firms.10 In a similar vein, more recent work on varieties of capitalism contrasts liberal market economies, on the one hand, with coordinated markets on the other.11

These comprehensive theories tend to draw a sharp distinction between corporate governance in the United States and United Kingdom as compared to governance elsewhere in Europe and Japan.12 The distinction is sensible, given that U.S. and U.K. corporations do not seem to have controlling shareholders,13 governance in the two countries is more shareholder oriented than governance elsewhere in the world,14 and the nations share a common history. …

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