Comparative corporate governance has become a broad research field during the past decades. With the increasing internationalization of law and legal scholarship, the subject has seen a burgeoning volume of research from a practical, theoretical, and empirical perspective. Practically speaking, both internationally and within individual countries, most corporate governance research deals with the interaction between board members, officers, and shareholders, primarily in large, publicly traded corporations. Much of the literature is preoccupied with reducing conflicts of interest between shareholders and management, and consequently minimizing agency cost, thus vindicating the narrow finance perspective. Given the predominance of controlling shareholders around the globe, the literature increasingly focuses acutely on conflicts between controlling and minority shareholders. In a comparative or international context, research also often takes a broader perspective in that it includes all groups whose interests are affected by corporate activities and who have some degree of influence on corporations, such as creditors and employees.
Our introductory chapter to the forthcoming Research Handbook on Comparative Corporate Governance (2021) frames the contributions of the book within a broad perspective on corporate governance and surveys its 22 individual chapters. The book deals with interactions between boards and shareholders, as well as minority and controlling shareholders. We cover legal duties and their enforcement, as well as the balance of powers generated by the institutional setup. Nevertheless, the interests of other ‘stakeholders’ are very much present. Thus, the book explores corporate purpose, including short-termism, corporate social responsibility (CSR) and environmental, social and governance (ESG) issues. Labor representation is discussed in the context of the board. Several of the chapters in the book deal with corporate governance in times of transition, namely mergers and acquisitions. In terms of subject, the chapters address corporate law techniques such as the regulation of self-dealing, but also disclosure duties (eg in the context of executive compensation and financial accounting). In discussing these important issues, the book aims for a broad coverage of different parts of the world, both across the book and within its subjects.
The introductory chapter begins by tackling key debates in the field, including the significance of legal origins for the development of corporate law, convergence in corporate governance, and the appropriate choice of research methods in comparative corporate governance scholarship. During the past three decades, the volume of comparative law scholarship has grown in general, and the methods have shifted from the traditional functionalism represented by venerable treatises toward greater methodological variation. In corporate law, an economic perspective dominates, and the field was further invigorated by a broader law and finance perspective, with finance scholars following the footsteps of La Porta, Lopez-de-Silanes, Shleifer and Vishny (or, ‘LLSV’) in incorporating legal issues into their models. Not surprisingly, comparative scholarship also often takes an economic view and emphasizes the incentives set by law, as well as the interest groups whose economic interests have shaped the law across jurisdictions. Accordingly, contributions in the book address the difficult question of methodology.
In recent years, the debate about the proper role of the corporation in law and society has often been described as being about ‘corporate purpose’ or as the ‘shareholder-stakeholder’ debate, but its ancient roots go back over a century. Writing in 1917, German industrialist and politician Walther Rathenau expressed deep concern about the role of short-term shareholders who expected firms to produce returns at the expense of long-term development and the public interest. The Berle-Dodd debate of 1931 in the US prefigured many of the arguments of subsequent decades, and serves as a template for recurring corporate purpose debates to this day. The ‘corporate purpose’ debate has again gained traction in recent years, as the Business Roundtable in the US in 2019 abandoned a shareholder primacy conception of the corporation in favor of a stakeholder conception. Thus, two of the chapters in the handbook tackle the debate about corporate purpose.
The book then turns to substantive topics in corporate governance, starting with the central players in internal corporate governance in most jurisdictions: the board of directors. National legislation provides important differences in the structure of the board, with the US one-tier model and the German two-tier structure often seen as exemplars. Despite practical differences, what is clear in most jurisdictions is that for publicly traded corporations, the ultimate management power is embedded in the board of directors, increasingly dominated by independent directors. Not only do boards have ultimate managerial power, but the board of the modern public company is vested with a monitoring or oversight role. Several chapters in the book not only examine the structure and composition of the board of directors, but also address issues that go to the heart of board responsibilities, including the exercise of fiduciary duties and the board’s monitoring and oversight roles, particularly in risk management, executive compensation and disclosure. In addition, the book covers directors’ duties in times of change, specifically in the context of mergers and acquisitions (M&A).
Much of corporate governance concerns itself with balancing conflicts and power between shareholders and managers, as well as among shareholders, namely controlling and non-controlling shareholders. Shareholders are not a monolithic group, ranging from the state, hedge funds, and institutional investors to family groups and individuals. Furthermore, the past two decades have experienced significant changes in capital market structures around the world, resulting in a reassessment of shareholder power and participation in corporate governance, and debates about the degree to which the law can and should provide shareholders with a voice and facilitate greater shareholder protection. Thus, several chapters explore the makeup and power of contemporary shareholders, seeking to address both the increasing significance of institutional investors and transformations in shareholder power, rights and duties. Furthermore, given the prevalence of concentrated shareholding around the globe, some of the chapters address the rights, powers and duties of both controlling and minority shareholders.
Directors’ and shareholders’ duties would be irrelevant in practice if they were not enforceable. Not surprisingly, there are big international differences in this regard. The US is often thought to be the country where corporate law (as well as securities laws) are most vigorously enforced. This is in part due to the existence of an entrepreneurial plaintiff bar, which exists thanks to various institutional circumstances, not least the American rule in civil procedure (where each party pays their own cost) and the possibility of contingency fees, which induces plaintiff attorneys to bring class actions as well as derivative suits. There are other jurisdictions where litigation has become fairly common, for example Japan in the area of derivative litigation, as well as Canada, Australia and Israel in securities law. In all cases, cost rules have become favorable to lawsuits. The other aspect of enforcement is the public side, ie enforcement by securities regulators, which relies largely on financial endowment and qualified staff. The chapters tackle enforcement from two perspectives—public regulation and private litigation.
Overall, the chapters in the book demonstrate that comparative corporate governance scholarship continues to flourish. The scholarly debates continue to grapple not only with the governance changes occurring in the traditionally-studied jurisdictions of the US, UK, Europe and Japan, but over the past decade this scholarship has come to address more extensively other economically significant countries, such as Brazil, China and India. The literature shows that the comparative picture remains more complex than the one painted by the original ‘law and finance’ debate. This is particularly true given growing concerns around the globe with issues of sustainability and corporate purpose. The continuing evolution of corporate governance debates means that for scholars, a comparative approach to corporate governance will long prove to be insightful in understanding and analyzing corporate law generally.
Afra Afsharipour is Professor of Law and Senior Associate Dean for Academic Affairs at UC Davis School of Law.
Martin Gelter is Professor of Law at Fordham University School of Law.