In the United States, the impact of regulatory competition on the evolution of corporate law has generated an intense and long lasting debate opposing the “race to the bottom” and “race to the top” camps. Whatever one’s view is on this debate, it is undisputed that corporate law has been shaped by interjurisdictional competition. And in this competitive landscape, the state of Delaware has emerged as the clear winner.
Canadian corporate law has not traditionally been characterised by a high level of regulatory competition even though both federal and provincial legislators can enact corporate statutes which can be used by firms across the country. Harmonisation - if not uniformisation - has been the driving force of corporate law in Canada. Indeed, since the enactment of the Canada Business Corporations Act (CBCA) by the federal Parliament in 1975, most provinces have adopted statutes closely modelled on the CBCA.
Two main theories have sought to explain the convergence of Canadian corporate law. According to the competition hypothesis, corporate law depends not only on the demand for a “good” regime but also on an adequate supply-side response from the government. The convergence of corporation laws in Canada was the product of competitive pressures with provinces reacting to the innovative federal regime. Stated differently, intergovernmental competition was the driving force of the harmonisation of corporate law. In contrast, the uniformity hypothesis posits that provinces reformed their corporate statutes to align them with the CBCA rather than seek to differentiate them from the latter. Uniformity is attractive for a number of reasons, including that it involves higher predictability and legal certainty, as well as lower transaction costs across jurisdictions.
My recent paper, available here, argues that supply-side competition has finally arrived in Canada. Starting with the reform of the dated Québec Companies Act, governments across the country have started to take corporate law seriously and have shown an increasing awareness towards the competitiveness of their corporate statutes. Given that most of these initiatives are still unfolding, we have yet to see what will be the level of intensity of supply-side competition in Canada. It is also unclear whether these reforms will translate into a race to the bottom or to the top, though most proposals appear so far to be shareholder-friendly.
In any event, for now, these developments call for a fresh look on the barriers to competition previously identified by the uniformity hypothesis proponents. For instance, the paper argues that the cultural barriers are not as powerful as they were previously. We can clearly see signs of competitive consciousness, greater dialogue between lawmakers and the corporate bar, and sophisticated legal issues brought up by stakeholders and practitioners.
The weakening of the cultural barriers can be attributed to a number of factors that the paper explores. Still, institutional barriers remain strong. Thus, the paper envisions a scenario of “constrained supply-side competition” where lawmakers compete through discrete innovations made to their corporate statutes. While remaining true to the core regimes that are the hallmark of the CBCA reform to preserve the value of harmonisation, federal provincial statutes could thereby evolve to cater to segments of the market that better reflect the geographical and institutional settings.
Stéphane Rousseau is Professor and Chair in Business Law and Governance at the Université de Montréal.