A Cautionary Note on Drawing Lessons from Comparative Corporate Law
Romano, Roberta, The Yale Law Journal
Mark Roe's article comparing German, Japanese, and U.S. corporate governance extends his important research concerning the effect of political constraints on the organization of U.S. corporations.(1) In this latest publication, Roe painstakingly compares governance arrangements, highlighting the variability in business organization that exists across nations, to obtain guidance for reforming U.S. institutions. This is valuable comparative institutional research, but the lesson to be drawn from the mutability of the corporate form is opaque. As Roe suggests, the legal and institutional differences across the three nations make it difficult to ascertain whether one approach to corporate governance is superior to another and whether a superior organizational form could be successfully transplanted into another setting. Yet without a means to make comparative judgments, the likelihood that helpful lessons can be drawn from other nations' experiences for reforming our own institutions is diminished, and the rationale for making the comparisons in the first place becomes problematic.
Roe does suggest that German and Japanese firms have been subject to less debilitating political constraints on their organization than U.S. firms (because banks were permitted to exercise control over industrial corporations), although he indicates that this may be changing as recent political trends in Germany and Japan seem to resemble U.S. politics. But he does not make clear, at least to my satisfaction, why he reaches this comparative political judgment. Why should we view the corporate organizational form produced by a political process that empowers banks as preferable to a process that does not without evidence of the superiority of the former organizational form?
One implication of Roe's thesis that U.S. politics, because it limits the activities of large banks, produces undesirable corporate ownership patterns-patterns that are more politically than economically inspired--compared to that of other nations is that foreign firms' corporate governance arrangements are preferable, and that the United States ought to adjust its laws shaping corporate governance to match those of other nations. Roe expresses considerable ambivalence concerning this implication of his thesis, but he offers two grounds for permitting U.S. firms to adopt non-U.S. institutions: the organization of German and Japanese firms improves decisionmaking and organizational performance, and more choice is better than less.(2) The implication of the former contention is that German and Japanese firms are more competitive than their U.S. counterparts--how else would we be able to make a comparative assessment of their performance or decisionmaking? Given the data on international competitiveness detailed in this Comment, Roe does not embrace this implication, although he does not draw back on the hypothesized organizational benefits. This creates a muddle, as it is exceedingly difficult to get a fix on the analysis, much less to draw any lessons for corporate law reform. The implication of the latter contention is that U.S. firms would choose to adopt this alternative organizational form were it available. While this implication is also a contestable claim, the core notion that investors ought to be permitted the choice, is, at least in my opinion, less so.
My Comment has one principal, quite simple, point: the central lesson to be drawn from Roe's research in comparative corporate governance is that there is no compelling evidence to support a preference for German or Japanese organizational forms and hence for their adaptation to U.S. firms. First, I review the extensive data indicating that the widely held background assumption of the superior competitiveness of German and Japanese firms over U.S. firms is mistaken. Such an assumption is key for drawing particular lessons from comparative corporate law, such as preferring particular institutions; if German and Japanese firms are not more productive and are in fact less productive than U. …