July 30, 2007
Comparative Corporate Governance
Posted by Gordon Smith

Last week at the Law & Society Annual Meeting in Berlin, I attended/participated in three panels on comparative corporate governance, which I had organized with John Ohnesorge (Wisconsin) and Andreas Engert (Munich). Our goal was to showcase some of the new generation of European and Asian corporate governance scholars, and the results were impressive.

One paper that had everyone buzzing was a new study by John Armour, Simon Deakin, Priya Lele, and Mathias Siems with the unsexy title, "How Legal Rules Evolve: Evidence from Panel Data." If you are interested in the LLSV literature, you will want to keep an eye out for this paper, which is not available on the internet, yet. Here is the abstract:

Much attention has been devoted in recent literature to the claim that a country’s ‘legal origin’ may make a difference to its pattern of financial development and more generally to its economic growth path. Proponents of this view assert that the ‘family’ within which a country’s legal system originated—be it common law, or one of the varieties of civil law—has a significant impact upon the quality of its legal protection of shareholders, which in turn impacts upon economic growth, through the channel of firms’ access to external finance. Complementary studies of creditors' rights and labour regulation have buttressed the core claim that different legal families have different dynamic properties. Specifically, common law systems are thought to be better able to respond to the changing needs of a market economy than are civilian systems. This literature has, however, largely been based upon cross-sectional studies of the quality of corporate, insolvency and labour law at particular points in the late 1990s. In this paper, we report preliminary findings based on newly constructed indices which track legal change over time in the areas of shareholder, creditor and worker protection. The indices cover five systems for the period 1970-2005: three 'parent' systems, the UK, France and Germany; the world’s most developed economy, the US; and its largest democracy, India. The results cast doubt on the legal origin hypothesis in so far as they show that civil law systems have seen substantial increases in shareholder protection over the period in question, and cannot be accurately characterised as less shareholder-friendly than common law ones. The results also show that the pattern of change differs depending on the area which is being examined, with creditor rights and labour rights, for example, demonstrating much more divergence and heterogeneity than shareholder rights. The results for labour rights are more consistent with the legal origin claim than in the other two cases, but this overall result conceals significant diversity within the two ‘legal families’, with different countries relying on different institutional mechanisms to regulate labour. Finally, we found that until the late 1980s the law of the five countries was diverging but that in the last 10-15 years there has been some convergence in the legal protection of shareholders, creditors and employees.

By highlighting this paper, I don't want to cheat the others that were presented. They were many and varied, and I immensely enjoyed them. My motives for helping to organize these sessions were entirely selfish: I wanted to meet the participants and learn from them. Since 1990 or so, comparative corporate governance scholarship has been on the rise in the US. We are familiar with the work of American scholars like Mark Roe, Ron Gilson, and Bernie Black, as well as some prominent scholars from outside the US (Theodor Baums, Katherina Pistor, Klaus Hopt, Hideki Kanda, Paul Davies, etc.), but my sense is that comparative corporate governance has really been gaining some steam over the past few years.

Attendance at these sessions was unusually strong for LSA. In the first session, the room was packed -- not a single empty seat. (36 chairs ... I counted.) And many people turned away at the door. The later sessions were also well attended, in part because the participants in the panels viewed the sessions as a "conference within a conference," but also because many other people were interested. I am eager to dig deeper into comparative corporate governance over the coming years, and I appreciate all those who taught me something over the past few days.

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