"Nothing but wind"? The past and future of comparative corporate governance

American Journal of Comparative Law

Volumn 59, Issue 1, 2011, Pages 75-110

  Clarke, Donald C ^a  

^a GEORGE WASHINGTON UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 80855141965     PISSN: 0002919X     EISSN: None     Source Type: Journal    
DOI: 10.5131/AJCL.2010.0016     Document Type: Article

References (156)

1. Bayless Manning, The Shareholder's Appraisal Remedy: An Essay for Frank Coker, 72 YALE L.J. 223, 245 n. 37 (1962).
2. By "rationalization" I mean attempts to rid doctrine of irrationalities and inconsistencies; I do not mean providing apologetics for the status quo. A personal favorite in the critique-and-rationalization genre is Saikrishna Prakash, Our Dysfunctional Insider Trading Regime, 99 COLUM. L. REV. 1491 (1999).
3. See, e.g., DAVID A. WESTBROOK, AFTER THE CRISIS: RETHINKING OUR CAPITAL MARKETS (2009);
4. J.W. Verret, Treasury Inc.: How the Bailout Reshapes Corporate Theory and Practice (Aug. 24, 2009), available at http://ssrn.com/abstract=1461143 (examining the unforeseen consequences for corporate and securities law of widespread government ownership of large corporations).
5. Alan Greenspan famously recanted his belief that "the self-interest of lending institutions [would] protect shareholders' equity," see Edmund L. Andrews, Greenspan Concedes Error on Regulation, N.Y. TIMES, Oct. 23, 2008, available at http://tinyurl.com/5onusv,
6. and Richard Posner's apostasy is in print as RICHARD A. POSNER, A FAILURE OF CAPITALISM: THE CRISIS OF '08 AND THE DESCENT INTO DEPRESSION (2009).
7. On the turmoil in the Chicago School generally, see John Cassidy, Letter from Chicago, THE NEW YORKER, Jan. 11, 2010, at 28.
8. This is the suggestion of Paul Krugman in a recent column; see Paul Krugman, An Irish Mirror, N.Y. TIMES, Mar. 7, 2010, available at http://tinyurl.com/ybrklxj.
9. See Jim Manzi, A Post-American World?, THE AMERICAN SCENE, May 7, 2008, available at http://www.theamericanscene.com/2008/05/07/a-post-american-world.
10. This review of corporate governance definitions draws on my discussion in Donald C. Clarke, The Independent Director in Chinese Corporate Governance, 31 DEL. J. CORP. L. 125, 143-44.
11. Financial Reporting Council, London Stock Exchange, Report of the Committee on the Financial Aspects of Corporate Governance 2.5 (1992), available at http://www.ecgi.org/codes/code.php?code-id=132.
12. See MARGARET M. BLAIR, OWNERSHIP AND CONTROL: RETHINKING CORPORATE GOVERNANCE FOR THE TWENTY-FIRST CENTURY 3 (1996).
13. See generally OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALISM (1985).
14. See generally Michael Jensen & William Meckling, Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure, 3 J. FIN. ECON. 305 (1976).
15. Andrei Shleifer & Robert Vishny, A Survey of Corporate Governance, 52 J. FIN. 737, 740-41 (1997).
16. In Edward Rock's words, The question that has motivated many American corporate law scholars since Berle and Means, and certainly much recent scholarship, has been, at heart, the question of how we can make managers sufficiently accountable so that they will manage the corporation for the shareholders. Edward C. Rock America's Shifting Fascination with Comparative Corporate Governance, 74 WASH. U. L.Q. 367, 389 (1996).
17. See generally John Cioffi, State of the Art [Review Essay], 48 AM. J. COMP. L. 501, 507 (2000) (noting discussion of whose interests the corporation is supposed to serve);
18. Lawrence A. Cunningham, Comparative Corporate Governance and Pedagogy 34 GA. L. REV. 721, 723 (2000) (noting that comparison is typically on the basis of financing characteristics);
19. Arthur R. Pinto, Globalization and the Study of Comparative Corporate Governance, 23 WISE. INT'L L.J. 477, 477 (2005);
20. Gregory Jackson, Comparative Corporate Governance: Sociological Perspectives, in Tras POLITICAL ECONOMY OF THE COMPANY 265, 270 (John Parkinson, Andrew Gamble & Gavin Kelly eds., 2000) (criticizing focus on agency costs).
21. See, e.g., COMPARATIVE CORPORATE GOVERNANCE: THE STATE OF THE ART AND EMERGING RESEARCH V (Klaus Hopt et al. eds., 1998) ("[T]he ability to give welfare-enhancing recommendations is still poor and needs substantial improvement.").
22. A good example of this type of approach is John C. Coffee, Jr., A Theory of Corporate Scandals: Why the United States and Europe Differ, in CORPORATE GOVERNANCE POST-ENRON: COMPARATIVE AND INTERNATIONAL PERSPECTIVES 3 (Joseph J. Norton, Jonathan Rickford & Jan Kleineman eds., 2006).
23. See, e.g., COMPARATIVE CORPORATE GOVERNANCE, supra note 14, at v ("Comparative corporate governance research may bring forth new insights that research conducted only within one system may fail to produce."). Two good examples of this type of approach-trying to explain what we see, without aiming for specific policy recommendations-are Mark J. Roe, Path Dependence, Political Options, and Governance Systems, in COMPARATIVE CORPORATE GOVERNANCE: ESSAYS AND MATERIALS 165, 165 (Klaus J. Hopt & Eddy Wymeersch eds., 1997),
24. and PETER GOUREVITCH & JAMES SHINN, POLITICAL POWER AND CORPORATE CONTROL: THE NEW GLOBAL POLITICS OF CORPORATE GOVERNANCE (2005).
25. See, e.g., Tony Shea, Regulation of Takeovers in the United Kingdom, 16 BROOK. J. INT'L L. 89 (1990).
26. See, e.g., Mark D. West, Why Shareholders Sue: The Evidence from Japan, 30 J. LEGAL STUD. 351 (2001).
27. See, e.g., Nicholas C. Howson, The Doctrine that Dared Not Speak Its Name: Anglo-American Fiduciary Duties in China's 2005 Company Law and Case Law Intimations of Prior Convergence, in TRANSFORMING CORPORATE GOVERNANCE IN EAST ASIA 193 (Hideki Kanda, Kon-Sik Kim & Curtis J. Milhaupt eds., 2008).
28. See John Armour et al., Private Enforcement of Corporate Law: An Empirical Comparison of the UK and US, 6 J. EMPIRICAL LEGAL STUD. 687 (2009).
29. "LLSV literature" refers to a series of studies by the economists Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny. Representative early works are Andrei Shleifer & Robert Vishny, A Survey of Corporate Governance, 52 J. FIN. 737 (1997);
30. Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer & Robert Vishny, Legal Determinants of External Finance, 52 J. FIN. 1131 (1997);
31. Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer & Robert Vishny, Law and Finance, 106 J. POLIT. ECON. 1113 (1998) (hereinafter Law and Finance);
32. 2nd Rafael La Porta, Florencio Lopez-de-Silanes & Andrei Shleifer, Corporate Ownership Around the World, 54 J. FIN. 71 (1999) (hereinafter Corporate Ownership).
33. Three of the group summarize their work in Rafael La Porta, Florencio Lopez-de-Silanes & Andrei Shleifer, The Economic Consequences of Legal Origins, 46 J. ECON. LIT. 285 (2008) (hereinafter Economic Consequences).
34. John C. Coffee, Jr., The Rise of Dispersed Ownership: The Roles of Law and the State in the Separation of Ownership and Control, 111 YALE L.J. 1 (2001).
35. See Stuart Banner, What Causes New Securities Regulation?: 300 Years of Evidence, 75 WASH. U. L.Q. 849, 850 (1997).
36. ADOLPH A. BERLE & GARDINER C. MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY (1933).
37. See, e.g., André Tunc, A French Lawyer Looks at American Corporation Law and Securities Regulation, 130 U. PENN. L. REV. 757 (1982);
38. ALFRED F. CONARD, CORPORATIONS IN PERSPECTIVE 75-93 (1976); see generally Pinto, supra note 13, at 477, 482.
39. Ronald J. Gilson, Globalizing Corporate Governance: Convergence of Form or Function, in CONVERGENCE AND PERSISTENCE IN CORPORATE GOVERNANCE 128, 128 (Jeffrey N. Gordon & Mark J. Roe eds., 2004).
40. Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. FIN. ECON. 305 (1976).
41. See MARK J. ROE, STRONG MANAGERS, WEAK OWNERS: THE POLITICAL ROOTS OF AMERICAN CORPORATE FINANCE (1994).
42. Professor Roe's work is not unchallenged. John Coffee has argued that [t]he most convincing explanation for this sharp disparity [between the importance of equity markets in the U.S. and in France, Germany and Italy] is that only those legal systems that provide significant protections for minority investors can develop active equity markets ⋯. But once this explanation is accepted, it amounts to a rejection of the "political theory" offered by Professor Roe and others. John C. Coffee, Jr., The Future as History; The Prospects for Global Convergence in Corporate Governance and Its Implications, 93 Nw. U.L. REV. 641, 644 (1999).
43. Ronald Gilson briefly summarizes his view of the merits of the two positions in Gilson, supra note 28, at 134-35 n. 21. Brian Cheffins has also challenged the Roe thesis, pointing out that Britain, despite its very different politics, has developed a capital market and ownership structure very similar to that of the United States. See Brian R. Cheffins, Putting Britain on the Roe Map: The Emergence of the Berle-Means Corporation in the United Kingdom, in CORPORATE GOVERNANCE REGIMES-CONVERGENCE AND DIVERSITY 147 (Joseph McCahery, Piet Moerland, Theo Raaijmakers & Luke Renneboog eds., 2001). The most extended and sophisticated approach to political explanations of corporate governance patterns of which I am aware is GOUREVITCH & SHINN, supra note 15.
44. See Ronald J. Gilson & Mark J. Roe, Lifetime Employment: Labor Peace and the Evolution of Japanese Corporate Governance, 99 COL. L. REV. 508 (1999); Gilson, supra note 28, at 129.
45. See, e.g., Masahiko Aoki, Toward an Economic Model of the Japanese Firm, 27 J. ECON. LIT. 1 (1990);
46. Masahiko Aoki, The Japanese Firm as a System of Attributes: A Survey and Research Agenda, in THE JAPANESE FIRM: THE SOURCES OF COMPETITIVE STRENGTH 11 (Masahiko Aoki & Ronald Dore eds., 1994);
47. THE JAPANESE MAIN BANK SYSTEM (Masahiko Aoki & Hugh Patrick eds., 1994).
48. Ronald J. Gilson & Mark J. Roe, Understanding the Japanese Keiretsu: Overlaps Between Corporate Governance and Industrial Organization, 102 YALE L.J. 271 (1993);
49. Eric Berglof & Enrico Peroti, The Governance Structure of the Japanese Financial Keiretsu, 36 J. FIN. ECON. 259 (1994).
50. Mark Ramseyer and Yoshiro Miwa deny the existence of both the main bank system and the keiretsu structure in a series of articles collected in YOSHIRO MIWA & J. MARK RAMSEYER, URBAN LEGENDS OF THE JAPANESE ECONOMY (2006).
51. The relevant articles are Yoshiro Miwa & Mark J. Ramseyer, The Myth of the Main Bank: Japan and Comparative Corporate Governance, 27 LAW & Soc. INQUIRY 401 (2002)
52. and Yoshiro Miwa & Mark J. Ramseyer, The Fable of the Keiretsu 11 J. ECON. & MANAGEMENT STRATEGY 169 (2002).
53. Curtis Milhaupt challenges the challengers in Curtis J. Milhaupt, On the (Fleeting) Existence of the Main Bank System and Other Japanese Economic Institutions, 27 LAW & SOCIAL INQUIRY 425 (2002),
54. as do three other Japanese law scholars in Luke Nottage, Leon Wolff & Kent Anderson, Japan's Gradual Transformation in Corporate Governance, in CORPORATE GOVERNANCE IN THE 21ST CENTURY: JAPAN'S GRADUAL TRANSFORMATION 1, 2 (Luke Nottage, Leon Wolff & Kent Anderson eds., 2009) (calling the Ramseyer-Miwa account "iconoclastic and idiosyncratic").
55. See also Luke Nottage, Perspectives and Approaches: A Framework for Comparing Japanese Corporate Governance, in CORPORATE GOVERNANCE IN THE 21ST CENTURY: JAPAN'S GRADUAL TRANSFORMATION 21, supra (citing studies rebutting the Ramseyer-Miwa account).
56. See, e.g., Michael Porter, Capital Disadvantage: America's Failing Capital Investment System, HARV BUS. REV., Sept.-Oct. 1992, at 65;
57. Joseph Grundfest, Subordination of American Capital, 27 J. FIN. ECON. 89 (1990).
58. See, e.g., Jonathan Macey & Geoffrey Miller, Corporate Governance and Commercial Banking: A Comparative Examination of Germany, Japan, and the United States, 48 STAN. L. REV. 73 (1995);
59. Curtis Milhaupt, The Market for Innovation in the United States and Japan: Venture Capital and the Comparative Corporate Governance Debate, 91 Nw. UNIV. L. REV. 865 (1997).
60. See generally the history recounted in William W. Bratton & Joseph A. McCahery, Comparative Corporate Governance and the Theory of the Firm: The Case Against Global Cross-Reference, 38 COLUM. J. TRANSNAT'L L. 213, 235 et seq. (1999).
61. Henry Hansmann & Reinier Kraakman, The End of History for Corporate Law, 89 GEORGETOWN L.J. 439 (2001).
62. See Mary O'Sullivan, The Political Economy of Comparative Corporate Governance, 10 REV. POLIT. ECON. 23 (2003), and sources rated in the bibliography; GOUREVITCH & SHINN, supra note 15.
63. See e.g. Neil Fligstein & Jennifer Choo, Law and Corporate Governance (Mar. 2005);
64. Neil Fligstein & Robert Freeland, Theoretical and Comparative Perspectives on Corporate Organization, 21 ANN. REV. SOCIOLOGY 21 (1995); Jackson, supra note 13.
65. See, e.g PETRI MANTYSAARI, COMPARATIVE CORPORATE GOVERNANCE: SHAREHOLDERS AS A RULE-MAKER 12 (2005) ("The functional method ⋯ means the comparison of how a social need has been dealt with by legal norms.).
66. The classic statement of functionalism in sociology is TALCOTT PARSONS, THE SOCIAL SYSTEM (1951).
67. See, for example, LAW IN RADICALLY DIFFERENT CULTURES (John Barton et al. eds., 1983) (examining the treatment of "inheritance," "embezzlement," and "contract" in various jurisdictions).
68. See Donald C. Clarke, Corporate Governance in China: An Overview, 14 CHINA ECON. REV. 494, 497-98 (2003).
69. MAX GLUCKMAN, THE JUDICIAL PROCESS AMONG THE BAROTSE OF NORTHERN RHODESIA (ZAMBIA) 315 (1955).
70. See Paul Bohannon's critique of what he calls "backward translation" in Paul Bohannon, Ethnology and Comparison in Legal Anthropology, in LAW IN CULTURE AND SOCIETY 401, 410-11 (Laura Nader ed., 1969).
71. Teemu Ruskola, Legal Orientalism, 101 MICH. L. REV. 179, 203-34 (2002).
72. Roberto Romano, for example, posits that institutional blockholding in Germany and Japan exists not to minimize agency costs in that particular institutional environment, but to prevent hostile takeovers or to allow the blockholders "to safeguard or favor their non-shareholder positions at the public shareholders expense. See Roberta Romano, A Cautionary Note on Drawing Lessons from Comparative Corporate Law, 102 YALE L.J. 2021, 2033 (1993).
73. Michael Bradley, Cindy A. Schipani, Anant K. Sundaram & James P. Walsh, The Purposes and Accountability of the Corporation in Contemporary Society: Corporate Governance at a Crossroads, 62 L. & CONTEMP. PROBS. 9, 12 (1999).
74. Katharina Pistor, Yoram Keinan, Jan Kleinheisterkamp & Mark West, The Evolution of Corporate Law: A Cross-Country Comparison, 23 U. PA. J. INT'L ECON. L. 791 (2002).
75. Mark West, The Puzzling Divergence of Corporate Law: Evidence and Explanations from Japan and the United States, 150 U. PA. L. REV. 527 (2001).
76. See, for example, the parlous state of enforcement in Indonesia described in Andrew Rosser, Coalitions, Convergence and Corporate Governance Reform in Indonesia, 24 THIRD WORLD Q. 319, 329 (2003);
77. see generally John C. Coffee, Jr., Law and the Market: The Impact of Enforcement, 156 U. PA. L. REV. 229, 244, 250-51 (2007).
78. See Sofie Cools, The Real Difference in Corporate Law Between the United states and Continental Europe: Distribution of Powers, 30 DEL. J. CORP. L. 697 (2005);
79. Udo C. Braendle, Shareholder Protection in the USA and Germany-On the Fallacy of LLSV (Univ. of Manchester Sch. of Law, Working Paper, 2005), available at http://ssrn.com/abstract=728403;
80. Robert Schmidbauer, On the Fallacy of LLSV Revisited-further Evidence About Shareholder Protection in Austria and the United Kingdom (Univ. of Manchester Sch. of Law, Working Paper, 2006), available at http://ssrn.com/ abstract=913968;
81. Holger Spamann, On the Insignificance and /or Endogeneity of La Porta et al.'s "Anti-Director Rights Index" Under Consistent Coding 68 (Harvard Law Sch. John M. Olin Ctr. for Law, Econ. & Bus., Fellows' Discussion Paper Series, Discussion Paper No. 7, 2006), available at http://www.law.harvard.edu/ programs/olin-center/feIlows-papers/pdi'Spamann-7.pdf.
82. See John C. Coffee, Jr., The Rise of Dispersed Ownership: The Roles of Law Qnd the State in the Separation of Ownership and Control, 111 YALE L.J. 1, 4 n. 6 (2001).
83. See Jeffrey N. Gordon, Institutions as Relational Investors: A New Look at Cumulative Voting, 94 COLUM. L. REV. 124, 142-60 (1994).
84. See Mark D. West, Legal Determinants of World Cup Success (Univ. of Mich. Law Sch. John M. Olin Ctr. for Law & Econ., Paper No. 02-009, 2002), available at http://ssrn.com/abstract=318940 (correlating legal origins with World Cup success).
85. Bebchuk and Roe demonstrate this point mathematically in Lucien Arye Bebchuk & Mark Roe, A Theory of Path Dependence in Corporate Ownership and Governance, 52 STAN. L. REV. 127 (1999).
86. Jonathan R. Macey, Institutional Investors and Corporate Monitoring: A Demand-Side Perspective in a Comparative View, in COMPARATIVE CORPORATE GOVERNANCE, supra note 14, at 903, 908.
87. This is, of course, the lemons problem famously analyzed in George A. Akerlof, The Market for "Lemons": Quality Uncertainty and the Market Mechanism, 84 Q. J. EcON. 488 (1970).
88. See generally Stilpon Nestor & John K. Thompson, Corporate Governance Patterns in OECD Economies: Is Convergence Under Way?, in ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT, CORPORATE GOVERNANCE IN ASIA: A COMPARATIVE PERSPECTIVE 19 (2001).
89. Doremus et al., for example, write: [S]triking differences in firm behavior persist. These differences correlate most obviously with corporate nationality, not with sectoral characteristics or investment maturity ⋯. Those differences ⋯ are systematic. Across firms, sectors, and in the aggregate, only one set of behavioral variations shines through: national ones. PAUL N. DOREMUS, WILLAM W. KELLER, LOUIS W. PAULY & SIMON REICH, THE MYTH OF THE GLOBAL CORPORATION 139 (1999).
90. See, e.g., Frank Easterbrook, International Corporate Differences: Markets or Law?, 9 J. APPLIED CORP. FIN. 23 (1997). But see Romano, supra note 60, at 2037 ("[P]rivate parties are persistent in devising institutions that circumvent, or minimize the effect of, political constraints on economic activity.").
91. Mark J. Roe, Some Differences in Corporate Structure in Germany, Japan, and the United States, 102 YALE L.J. 1927, 1936 (1993).
92. See Amir N. Licht, Legal Plug-Ins, Cultural Distance, Cross-Listing, and Corporate Governance Reform, 22 BERKELEY INT'L L.J. 195 (2004);
93. Amir N. Licht, The Mother of All Path Dependencies Toward a Cross-Cultural Theory of Corporate Governance Systems, 26 DEL. J. CORP. L. 147 (2001).
94. See Bernard S. Black, Is Corporate Law Trivial?: A Political and Economic Analysis, 84 Nw. U. L. REV. 542 (1990). Black does not actually assert that all corporate law is trivial in the sense that unwanted rules can be avoided at low cost. He argues that where such rules cannot be avoided, political pressures will be brought to bear to change them.
95. I have tried to do this myself in Donald C. Clarke, Law Without Order in Chinese Corporate Governance Institutions, 30 Nw. J. INT'L L. & Bus. 131 (2010).
96. See, e.g., Mark D. West, The Pricing of Shareholder Derivative Actions in Japan and the United States, 88 Nw. U. L. REV. 1436 (1994);
97. Kristoffel Grechenig & Michael Sekyra, No Derivative Shareholder Suits in Europe-A Model of Percentage Limits. Collusion and Residual Owners (Columbia Univ. School of Law, Center for Law and Economic Studies, Working Paper No. 312, 2007);
98. ALESSANDRO DE NICOLA, SHAREHOLDER SUITS: THE ROLES AND MOTIVATIONS OF MINORITY SHAREHOLDERS AND DIRECTORS IN DERIVATIVE SUITS (2007);
99. Scott H. Mollett, Derivative Suits Outside Their Cultural Context: The Divergent Examples of Italy and Japan, 43 U.S.F. L. REV. 635 (2008-09). Professor Daniel Puchniak of the National University of Singapore's Facuity of Law is editing a forthcoming symposium volume tentatively entitled Derivative Actions in Major Asian Economies: Legislative Design and Legal Practice.
100. Martin Gelter, The Dark Side of Shareholder Influence: Managerial Autonomy and Stakeholder Orientation in Comparative Corporate Governance, 50 HARV. INT'L L.J. 129, 186 (2009).
101. See Nestor & Thompson, supra note 80, at 35. An interesting field of research within this approach is the degree to which there is a necessary correlation between production technology and organizational technology. Ronald Gilson writes: [I]t was thought that Japanese lean production, supported both by employees rendered cooperative and inventive by lifetime employment, and by close, long-term ties to suppliers, could not be matched without dramatic changes in US governance institutions. In fact, American manufacturers adopted lean production, but adapted lean production to fit their governance institutions, rather than adapting their institutions to lean production. Gilson, supra note 28, at 131-32. For more on the relationship between governance and production systems in the United States and Japan, see Charles Sabel, Ungoverned Production: An American View of the Novel Universalism of Japanese Production Methods and Their Awkward Fit with Current Forms of Corporate Governance, in CONVERGENCE AND PERSISTENCE IN CORPORATE GOVERNANCE, supra note 28, at 310.
102. See LARRY CATÁ BACKER, COMPARATIVE CORPORATE LAW 20 (2002).
103. Id. at 27 (internal references omitted). Further literature in this vein includes MASAHIKO AOKI, TOWARDS A COMPARATIVE INSTITUTIONAL ANALYSIS (2001);
104. RONALD DORE, BRITISH FACTORY, JAPANESE FACTORY: THE ORIGINS OF NATIONAL DIVERSITY IN INDUSTRIAL RELATIONS (1973);
105. VARIETIES OF CAPITALISM: INSTITUTIONAL FOUNDATIONS OF COMPARATIVE ADVANTAGE (Peter A. Hall & David Soskice eds., 2001);
106. David Soskice, The Institutional Infrastructure for International Competitiveness: A Comparative Analysis of the UK and Germany, in THE ECONOMICS OF THE NEW EUROPE (Anthony B. Atkinson & Renato Brunetta eds., 1991);
107. Richard Whitley, Internationalization and Varieties of Capitalism: The Limited Effects of Cross-National Coordination of Economic Activities on the Nature of Business Systems, 5 REV. INT'L POLIT. ECON. 445 (1998);
108. RICHARD WHITLEY, DIVERGENT CAPITALISMS: THE SOCIAL STRUCTURING OF CHANGE IN BUSINESS SYSTEMS (2000).
109. See Randall Morck et al., The Information Content of Stock Market: Why Do Emerging Markets Have Synchronous Stock Price Movement?, 58 J. FIN. ECON. 215 (2000);
110. see also Art Durnev et al., Capital Markets and Capital Allocation: Implications for Economies in Transition, 12 ECON. OF TKANSITION 593 (2004);
111. Merritt Fox et al. Law, Share Price Accuracy, and Economic Performance: The New Evidence, 102 MICH. L. REV. 331 (2003).
112. See Bernard Black et al., Russian Privatization and Corporate Governance: What Went Wrong?, 52 STAN. L. REV. 1731, passim (2000). It is of course very plausible to suppose that foreign investment in Russia would be higher if it had better corporate governance. The point is that it would also be higher if many other things were true-for example, if oil prices were higher or if taxes were lower-and it may be that investors are willing to overlook a lot of poor corporate governance if an investment has other attractive features.
113. Miwa and Ramseyer, for example, while sometimes acknowledging that competitive pressures "drive firms toward" a firm-specific optimum number of outside directors, elsewhere go much further and assert in effect that all firms are always already there. See Yoshiro Miwa & J. Mark Ramseyer, Who Appoints Them, What Do They Do?: Evidence on Outside Directors from Japan 6 (Harvard Law Sch. John M. Olin Ctr. for Law, Econ. & Bus., Discussion Paper No. 374, 2002), available at http://Papers.ssrn.com/abstract-id=326460 (analogizing a sub-optimal number of outside directors to $20 bills lying on the sidewalk in order to conclude that all firms in their survey must already have the optimal number).
114. This vastly overestimates the flexibility of human institutions. See also RATIONAL CHOICE 26 (Jon Elster ed., 1986) (questioning the applicability of the biological analogy to economic activity on the grounds that the economic environment changes rapidly relative to the speed with which inefficient firms are eliminated from competition, and that therefore at any given time we are likely to observe efficient and inefficient firms coexisting);
115. Mark wanovetter, Economic Action and Social Structure: The Problem of Embeddedness, 91 AM. J. SOCIOLOGY 481, 503 (1985) (The operation of alleged selection pressures is ⋯ neither an object of study nor even a falsifiable proposition but rather an article of faith."). This footnote is taken from Clarke, supra note 94, at 150, n. 64.
116. The demonstration of this result must be left to the economics textbooks. See, for example, PAUL R. KRUGMAN & MAURICE OBSTFELD, INTERNATIONAL ECONOMICS: THEORY AND POLICY 11-37 (3d ed. 1994). Needless to say, the result depends on various simplifying assumptions. But the basic insight remains valid. An experienced mechanic might be able to do six oil changes in an hour, as opposed to his apprentice, who can do only three. But the mechanic will still leave oil changes to the apprentice and focus on higher-value transmission repair work, since his income from using his time in that way more than makes up for the lost income stemming from less efficient oil change operations.
117. MATHIAS M. SIEMS, CONVERGENCE IN SHAREHOLDER LAW 358 (2008).
118. See R. Daniel Keleman & Eric C. Sibbitt, The Americanization of Japanese Law, 23 U. PA. J. INT'L ECON. L. 269, 303-15 (2002) (discussing corporate and securities law reforms).
119. John O. Haley, Heisei Renewal or Heisei Transformation: Are Legal Reforms Really Changing Japan?, 19 J. JAPANESE L. 5, 13 (2005) (concluding that although "the 1990s brought more separate corporate law revisions than any other period of Japanese history ⋯[,] the fundamentals of Japanese corporate governance have not changed."). For a thoughtful discussion of the debate over the extent of change,
120. see Bruce E. Aronson, Changes in the Role of Lawyers and Corporate Governance in Japan-How Do We Measure Whether Legal Reform Leads to Real Change?, 8 WASH. U. GLOBAL STUD. L. REV. 223 (2009).
121. For an analysis of revisions, see Nils Krause & Chuan Qin, An Overview of China's New Company Law, 28 COMPANY LAW. 316 (2007);
122. Steven M. Dickinson, Introduction to the New Company Law of the People's Republic of China, 16 PAC. RIM L. & POL'Y J. 1 (2007);
123. Baoshu Wang & Hui Huang, China's New Company Law and securities Law: An Overview and Assessment, 19 AUSTL. J. CORP. L. 229 (2006);
124. on the original Securities Law, see Roman Tomasic & Jian Fu, The Securities Law of the People's Republic of China: An Overview, 10 AUSTL. J. CORP. L. 268 (1999);
125. Xian Chu Zhang, The Old Problems, the New Law, and the Developing Market-A Preliminary Examination of the First Securities Law of the People's Republic of China, 33 INT'L LAW. 983 (1999);
126. Minkang Gu & Robert C. Art, Securitization of State Ownership: Chinese Securities Law, 18 MICH. J. INT'L L. 115 (1996);
127. on the original Company Law, see Robert C. Art & Minkang Gu, China Incorporated: The First Corporation Law of the People's Republic of China, 20 YALE J. INT'L L. 273 (1995);
128. Sunny Huo, The Company Law of the People's Republic of China, 13 UCLA PAC. BASIN L.J. 373 (1995).
129. There is, of course, a "race to the bottom" theory of jurisdictional competition in corporate law that sees choice as a bad thing. See, e.g., William L. Cary, Federalism and Corporate Law: Reflections Upon Delaware, 83 YALE L.J. 663 (1974) (discussing the United States);
130. Laura Jankolovits, No Borders. No Boundaries. No Limits. An Analysis of Corporate Law in the European Union After the Centros Decision, 11 CARDOZO J. INT'L & COMP. L. 973 (2004) (discussing Europe).
131. Case C-212/97, Centros Ltd. v. Erhvervs-og Selskabsstyrelsen, 1999 E.C.R. 11459. In that case, two Danish citizens and residents with no connections to the United Kingdom established Centros Ltd. under English law. The company then attempted to register a branch in Denmark in order to do business there. (It was assumed for the sake of the decision that the shareholders followed this procedure to avoid Danish minimum capitalization requirements.) The Danish government refused registration, but the refusal was overturned by the European Court of Justice. For a sample of commentary on the case, see Jankolovits, supra note 126; Wolf-Georg Ringe, Sparking Regulatory Competition in European Company Law-The Impact of the Centros Line of Case-Law and its Concept of "Abuse of Law," in PROHIBITION OF ABUSE LAW-A NEW GENERAL PRINCIPLE OF EU LAW (R. de la Feria & S. Vogenauer eds., forthcoming 2010).
132. See Brett H. McDonnell, Convergence in Corporate Governance-Possible, But Not Desirable, 47 VILL. L. REV. 341, 382-83 (2002). The metaphor is a little strained; a biological species, once gone, is gone for good, at least until Jurassic Park-like technology is invented. A species of organization, by contrast, can exist in the minds of human beings even if there are no examples of it on earth, and thus can be resurrected any time someone thinks it might be useful.
133. See Tamar Frankel, The Delaware Business Trust Act Failure as the New Corporate Law, 23 CARDOZO L. REV. 325, 326 (2002) (the Delaware Business Trust Act contains highly permissive provisions, allowing promoters of business trust a staggering degree of freedom to design their relationships with beneficiaries-investors.").
134. See, e.g., HENRY HANSMANN, THE OWNERSHIP OF ENTERPRISE (1996);
135. LARRY RIBSTEIN, THE RISE OF THE INCORPORATION (2010).
136. In the United States, for example, small businesses (not the same thing as NPCBOs, but close enough for present purposes) have generated sixty to eighty percent of net new employment since the mid-1990s. See SMALL BUSINESS ADMINISTRATION, THE SMALL BUSINESS ECONOMY 2009, at 9 (2009).
137. See Frederick Nixson & Paul Cook, Small and Medium Sized Enterprises in Developing Countries, in FINANCE AND DEVELOPMENT: SURVEYS OF THEORY, EVIDENCE AND POLICY 333, 333 (Christopher J. Green, Colin H. Kirkpatrick & Victor Murinde eds., 2005) ("There is general agreement that small and medium sized enterprises ⋯ have played a crucial role in the process of economic development.");
138. see also Christopher J. Green, Colin H. Kirkpatrick & Victor Murinde, Finance for Small Enterprise Growth and Poverty Reduction in Developing Countries, 18 J. INT'L DEVELOPMENT 1017 (2006);
139. John Weeks, Small Manufacturing Establishments in Developing Countries: An Empirical Analysis, 17 INT'L REV. APPLIED ECON. 339 (2003);
140. Paul Cook & Frederick Nixson, Finance and Small and Medium-Sized Enterprise Development (University of Manchester School of Economic Studies, Finance and Development Research Programme Working Paper Series, Paper No. 14, Apr. 2000), available at http://tinyurl.com/yb8oezn;
141. Moha Asri Abdullah, Small and Medium Enterprises (SMEs): Some Pertinent Issues, in SMALL AND MEDIUM ENTERPRISES IN ASIAN PACIFIC COUNTRIES 3 (Moha Asri Abdullah & Mohd. Isa Bin Baker eds., 2000);
142. CARL LIEDHOLM & DONALD C. MEAD, SMALL ENTERPRISES AND ECONOMIC DEVELOPMENT (1999);
143. Dennis Anderson, Small Industry in Developing Countries: A Discussion of Issues, 10 WORLD DEVELOPMENT 913 (1982).
144. William A. Klein, The Modern Business Organization: Bargaining Under Constraints, 91 YALE L.J. 1521, 1523 (1982) (internal footnotes omitted).
145. Stephen N.S. Cheung, The Contractual Nature of the Firm, 26 J. L. & ECON. 1, 18 (1983).
146. Ronald H. Coase, The Nature of the Firm, 4 ECONOMICA 386, 391 (1937).
147. ALFRED D. CHANDLER, JR., THE VISIBLE HAND: THE MANAGERIAL REVOLUTION IN AMERICAN BUSINESS (1977).
148. See, e.g., Yoshiro Miwa & J. Mark Ramseyer, Rethinking Relationship-Specific Investments: Subcontracting in the Japanese Automobile Industry, 98 MICH, L. REV. 2636, 2649 and passim (2000) (noting extensive use of subcontracting in the Japanese automobile industry and describing the automobile manufacturers as "assemblers").
149. Consider, for example, mutual funds, which outsource virtually all their activities, see Schools Brief: Moneyed Men in Institutions, ECONOMIST, Nov. 6, 1999, at 83, 83;
150. the technology industry in Silicon Valley, see ANNALEE SAXENIAN, REGIONAL ADVANTAGE: CULTURE AND COMPETITION IN SILICON VALLEY AND ROUTE 128 (1994);
151. and the construction industry, see William A. Klein & Mitu Gulati, Economic Organization in the Construction Industry: A Case Study of Collaborative Production Under High Uncertainty, 1 BERKELEY BUS. L.J. 137 (2004).
152. See Remo Häcki & Julian Light, The Future of the Networked Company, 3 MCKINSEY Q. 26 (2001);
153. Anne E. Conaway Stilson, The Agile Virtual Corporation, 22 DEL. J. CORP. L. 497 (1997).
154. See Jeremy Page, Delhi Judges Face 466 Years' Hard Labour, THE TIMES, Feb. 17, 2009, available at http://tinyurl.com/c98qsp (even working at its current rate of less than five minutes per case and assuming the rate of new filings does not increase, it will take the Delhi High Court 466 years to clear its current backlog of cases).
155. See Adam Winkler, Corporate Law or the Law of Business?: Stakeholders and Corporate Governance at tne End of History, 67 LAW & CONTEMP. PROBS. 109-33
156. See, for example, the discussion of how Chinese corporate governance discourse looks at the separation of ownership and control, text accompanying supra notes 54-56; see generally Ralf Michaels, The Functional Method of Comparative Law, in THE OXFORD HANDBOOK OF COMPARATIVE LAW 339 (Mathias Reimann & Reinhard Zimmermann eds., 2006).