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The Corporate Law Market

Erin A. O'Hara and Larry E. Ribstein

in The Law Market

This chapter shows that the corporate law market is simply a part of the broader market for law discussed in this book. The corporate choice-of-law rule known as the “internal affairs doctrine” (IAD) ... More

This chapter shows that the corporate law market is simply a part of the broader market for law discussed in this book. The corporate choice-of-law rule known as the “internal affairs doctrine” (IAD) did not spring from forces unique to corporations, but rather from the general law market forces described in this book. This chapter first discusses the demand for and supply of corporate law. It then contrasts enforcement of the IAD with enforcement of other party choices of law. The chapter continues with a demonstration that the corporate law market is more multifaceted than most scholars recognize, reaching into securities regulation and into closely held as well as public held firms, and is rapidly developing in the European Union. The chapter discusses how the corporate law market responds to supply and demand forces. The chapter concludes with an exploration of the legal implications of our analysis.Less

Explaining Western Securities Markets

Mark J. Roe

in Corporate Governance and Firm Organization: Microfoundations and Structural Forms

This chapter questions the power of law in solving CG problems and maintains that there are societal and political forces that are likely to shape governance structures irrespective of any ... More

This chapter questions the power of law in solving CG problems and maintains that there are societal and political forces that are likely to shape governance structures irrespective of any regulation. In particular, the most common configuration of those forces around the world tends to reinforce concentrated ownership no matter what laws are adopted to protect minority shareholders. The chapter presents a new regression analysis of a wide database on political indicators and ownership concentration in sixteen major countries, which supports the conjecture that political variables, in particular the degree of employment protection and trade union strength, are strong inverse correlates of ownership separation and the diffusion of public companies.Less

The Quality of Corporate Law and its Limits

Mark J. Joe

in Political Determinants of Corporate Governance: Political Context, Corporate Impact

This chapter demonstrates why the data indicates that the quality-of-corporate-law argument, although it explains transition economies nicely, is over-stated for several of the world's richest ... More

This chapter demonstrates why the data indicates that the quality-of-corporate-law argument, although it explains transition economies nicely, is over-stated for several of the world's richest nations. In too many of them, even with good shareholder protection, stock can be sold, but ownership does not separate from control. Based on the data, several nations have good corporate law, but not much diffusion and separation. These nations also have a high potential for managerial agency costs: relatively weaker product market competition and relatively stronger political pressures on managers to disfavour shareholders.Less

From Citizens to Plutocrats: Nineteenth-century Shareholder Voting Rights and Theories of the Corporation

Colleen A. Dunlavy

in Constructing Corporate America: History, Politics, Culture

Although historians have explored changes both in the way that American corporations were created in the 19th century and in theories of the corporation, very little is known about the history of ... More

Although historians have explored changes both in the way that American corporations were created in the 19th century and in theories of the corporation, very little is known about the history of corporate governance before the 20th century. Most historians assume that the power of individual shareholders has always been proportional to their investment (based on the one-vote-per-share voting rules so familiar in the 20th century), and therefore that large shareholders have always held the preponderance of power. This chapter suggests that this essentially timeless view of the distribution of power among American shareholders is simply wrong — that voting rules once routinely curbed the power of large shareholders — and that the failure to appreciate these (distinctively American) changes in the governance of corporations over the middle decades of the 19th century has, among other things, impoverished the understanding of late 19th-century debates about the nature of corporations.Less

The Neglected Benefits of the Corporate Form: Entity Status and the Separation of Asset Ownership from Control

Margaret M. Blair

in Corporate Governance and Firm Organization: Microfoundations and Structural Forms

This chapter criticizes current contractarian views of the firm in law and economics, reminding that the forgotten merit of the corporate form of enterprise is precisely the separation between ... More

This chapter criticizes current contractarian views of the firm in law and economics, reminding that the forgotten merit of the corporate form of enterprise is precisely the separation between individual investors/claimants and the firm as a juridical person and separate entity, that is not ‘owned’ by either investors, nor managers, nor any other participant in the enterprise. Furthermore, it is argued — and corroborated with historical evidence on the emergence of corporate law in the US and on the case of Singer — that shareholders themselves ‘are better off because they have, in the corporation, a mechanism for committing capital to an enterprise and yielding control rights to directors almost irrevocably’. In other terms, the separation of ownership and control, rather than being ‘a problem’ and in spite of entailing some costs, is the very virtue of the corporate form. The chapter concludes with a review of implications for devising effective institutions, especially in transition economies.Less

Using Corporate Law to Compete for Investments

Ehud Kamar

in Investor Protection in Europe: Corporate Law Making, The MiFID and Beyond

This chapter documents and analyzes a powerful form of regulatory competition — competition for investments — that has transformed national corporate laws in the European Union (EU) in recent years. ... More

This chapter documents and analyzes a powerful form of regulatory competition — competition for investments — that has transformed national corporate laws in the European Union (EU) in recent years. Unlike competition for incorporations, competition for investments shapes corporate law when firms cannot easily incorporate outside the jurisdiction in which they operate. These dynamics also characterized state lawmaking in the United States in the early 19th century, and may well characterize lawmaking outside the EU today. The high political payoffs that await successful participants in the competition for investments enable them to overcome opposition that could stifle competition for incorporations. Together with the fact that no single jurisdiction can monopolize the market for investments, these payoffs drive multiple jurisdictions, including large ones, to compete. Allowing firms to incorporate abroad, as recent European Court of Justice rulings require, may or may not breed competition for incorporations. Judging from the reforms that the competition for investments has produced so far, it will be positive.Less

The Turnaround of 1997: Changes in Japanese Corporate Law and Governance

Zenichi Shishido

in Corporate Governance in Japan: Institutional Change and Organizational Diversity

This chapter examines the impact on the scope of behaviour of top management of legal reforms in Japan since 1997. Demand-pull measures were promoted by business associations to facilitate the ... More

This chapter examines the impact on the scope of behaviour of top management of legal reforms in Japan since 1997. Demand-pull measures were promoted by business associations to facilitate the introduction of new market-oriented business practices, including removing prohibitions of share buybacks, introducing stock options, and share swaps and spin-offs to support corporate reorganization through M&A. Policy-push reforms were also initiated by the government in order to push change in existing corporate governance practices, such as changes to accounting rules. The epoch making 2002 amendment to the Company Law introduced an American-style board of directors, termed ‘board with committees’ as a second option alongside the traditional Japanese-style board with statutory auditors. By facilitating these new practices, Japanese corporate law has undergone a formal convergence with the US model. However, the diversity of actual choices among firms is argued to reflect continued functional divergence due to differences in the incentive patterns among corporate stakeholders. Thus, legal reform holds an ambiguous potential.Less

Its Limits: Theory

Mark J. Joe

in Political Determinants of Corporate Governance: Political Context, Corporate Impact

This chapter explores the limits of the theory of corporate law. It holds that the quality-of-corporate-law theory needs to be refined or replaced. Ownership cannot readily separate from control if ... More

This chapter explores the limits of the theory of corporate law. It holds that the quality-of-corporate-law theory needs to be refined or replaced. Ownership cannot readily separate from control if managerial agency costs are very high for shareholders, and law does not directly affect all managerial agency costs. Elaborate legal doctrine prohibits judicial inquiry into managers' basic business decisions. Other primarily non-legal institutions control the size of managerial agency costs, and these carry in effectiveness from firm-to-firm and nation-to-nation. Thus, corporate law can only be one-half of the central story in the understanding of why ownership does or does not separate.Less

The Foundations of Managerial Control in the United States

Mary O'Sullivan

in Contests for Corporate Control: Corporate Governance and Economic Performance in the United States and Germany

In historical perspective, market control over the allocation of US corporate resources stands out as a recent phenomenon, since for most of the twentieth century, salaried managers have exercised ... More

In historical perspective, market control over the allocation of US corporate resources stands out as a recent phenomenon, since for most of the twentieth century, salaried managers have exercised control over resource allocation by US corporate enterprises. In this chapter, the lengthy and complex historical process through which the institutional foundations of managerial control emerged in the US corporate economy is discussed. The focusing, in particular, is on the role of the integration of managers as members of business organizations, the diffusion of share ownership, the changing interaction between the stock market and the public corporation, and the transformation of corporate law in facilitating the separation of beneficial ownership of corporate stock from strategic control over the allocation of corporate resources. The main sections of the chapter are: 3.2, The historical foundations of managerial control; 3.3, Managerial control and the Great Depression; 3.4, and New deals, old deals––which discusses changes in corporate governance, workers’ rights and unionism, and defence of the corporate manager's right to manage.Less

Corporate Law as the Foundation for Securities Markets: The Theory

Mark J. Joe

in Political Determinants of Corporate Governance: Political Context, Corporate Impact

This chapter outlines the quality of corporate law and its importance. The important precondition to developing modern securities markets, and the industrial, technological wealth that goes with deep ... More

This chapter outlines the quality of corporate law and its importance. The important precondition to developing modern securities markets, and the industrial, technological wealth that goes with deep and vibrant securities markets is a foundation of highly developed corporate and securities law that protect minority stockholders from the rampages of dominant majority stockholders. If corporate law is good enough in technologically-advanced nations, ownership will diffuse away from concentrated ownership into dispersed stock markets.Less

When Shareholders Were Members: The Business Corporation as Voluntary Association

Kevin Butterfield

in The Making of Tocqueville'S America: Law and Association in the Early United States

Tensions between individual members’ rights and the will of the majority were common and were fraught with tension, for the challenge was to create effective associations that accorded with ... More

Tensions between individual members’ rights and the will of the majority were common and were fraught with tension, for the challenge was to create effective associations that accorded with post-Revolutionary ideas of fairness, accountability, and rule by consent. This chapter will look at organizations that in a very real sense were almost entirely focused on money, exploring some of the ways that controversies over the meanings of membership in mutual fire insurance cooperatives and stock-issuing business corporations echoed challenges faced elsewhere in America’s now-burgeoning civil society. This chapter will look at how the rights and expectations of corporate shareholders evolved between 1800 and 1840.Less

Spencer, Grace & Robbins

Lazega Emmanuel

in The Collegial Phenomenon: The Social Mechanisms of Cooperation Among Peers in a Corporate Law Partnership

This chapter presents the firm used as a case study, a north-eastern US corporate law partnership, in which fieldwork was conducted to examine the generic social mechanisms that help coordinate ... More

This chapter presents the firm used as a case study, a north-eastern US corporate law partnership, in which fieldwork was conducted to examine the generic social mechanisms that help coordinate activities of interdependent entrepreneurs. In this firm, formal organizational structure such as the partnership agreement (according to which partners are personally liable for the actions of others) and the committee system are not sufficient by themselves to account for collective action. Therefore the firm, a successful one in spite of economic difficulties in the north-east at the time of research, offers a good setting for this examination.Less

Political Yardstick Competition and Corporate Governance in the European Union

Pierre Salmon

in Investor Protection in Europe: Corporate Law Making, The MiFID and Beyond

The question whether regulatory competition in the area of company law could take place in the European Union (EU) in a way similar to that in the United States (the Delaware phenomenon) ignores the ... More

The question whether regulatory competition in the area of company law could take place in the European Union (EU) in a way similar to that in the United States (the Delaware phenomenon) ignores the importance of voters and tends to view competition among governments as if it was exclusively based on the mobility of firms across jurisdictions. But intergovernmental competition can also take the form of yardstick, or relative performance, competition. This chapter begins by spelling out some characteristics of the mechanism. The second part stresses some aspects of the path followed by European integration. The third and fourth parts are devoted to corporate governance and law making in the EU context. Yardstick competition between the EU and other parts of the world is likely to start a dynamic process that could lead to the centralization of a large part of company lawmaking at the EU level and the emergence of a distinctive legal environment for firms doing business in Europe.Less

The Evolution of Corporate Criminal Law

in Corporate Bodies and Guilty Minds: The Failure of Corporate Criminal Liability

This chapter focuses on the evolution of corporate criminal law in America. The historical phases of the substantive corporate criminal law discussed in the chapter share the tension accompanying the ... More

This chapter focuses on the evolution of corporate criminal law in America. The historical phases of the substantive corporate criminal law discussed in the chapter share the tension accompanying the social control of business enterprises, whether this tension appears as concerns with the metaphysics of personhood (phase one), the rise and obscure fall of vicarious liability (phase two), the routine risk-shifting between agents and principals (phase three), the successful and failed attempts at model state and federal codes (phase four), the reactions to a “new” regulatory state (phase five), the gaming of regulators by the “good citizen” corporation (phase six), or the reactive prosecution and regulation following a period of scandals marked by widespread accounting fraud and governance and compliance failures (phase seven). These seven phases overlap significantly and are far from discrete. They do, however, provide one account of some of the more important trends and milestones of the corporate criminal law. Notably, all phases reflect the powerful influence of the public and segments of the business community in lobbying for or inhibiting legislative reform. These influences remain once legislation is passed, and they often dictate the extent to which laws are largely ignored or rigorously enforced.Less

Afterword: Toward New Renderings

Kenneth Lipartito and David B. Sicilia

in Constructing Corporate America: History, Politics, Culture

This chapter summarizes the major findings of the book's chapters and their revisionist implications. Rather than seeing the corporation as the dominant economic form simply because it was more ... More

This chapter summarizes the major findings of the book's chapters and their revisionist implications. Rather than seeing the corporation as the dominant economic form simply because it was more efficient, rational, and professional than competing forms — a view argued by neoclassical economists, Alfred Chandler, and other scholars — this book's authors collectively challenge this master narrative in three key ways. First, they offer an alternative periodization that highlights distinctive corporate forms and purposes in the different eras of the 19th and 20th centuries rather than a Whiggish narrative of the rise and triumph of an ideal type. Second, they argue that the boundaries between corporations and their social, political, legal, and ideological contexts were much more permeable than much traditional scholarship suggestions. Third, they emphasize the contested, rhetorical, and exclusionary nature of corporations as they have served as sites of identity construction.Less

What is Happening to Corporations and What of Their Future?

Grahame Thompson

in Capitalisms and Capitalism in the Twenty-First Century

The chapter analyzes the mergent ways companies are becoming overtly political actors and pursues the consequences of this for the future of the corporation. The discussion begins by analyzing the ... More

The chapter analyzes the mergent ways companies are becoming overtly political actors and pursues the consequences of this for the future of the corporation. The discussion begins by analyzing the relationships between owners and shareholders in the context of the legal constitution of corporations. The chapter moves on to take up ‘the debate’ about the divorce of ownership from control in the light of this thorough examination of the legal status of the corporation, in so doing revisiting the terms of that debate in the 1930s and 1940s that arose in the light of the Berle and Means’ book, The Modern Corporation and Private Property(1932). Subsequent to this it moves on to think about the possible future of the corporation and the potential for the reform of corporate governance in this light of current circumstances and trends in a post-crisis world.Less

Regulating Corporate Governance

Angus Corbett and Stephen Bottomley

in Regulating Law

This chapter defines regulation as an activity that is aimed at ‘influencing the flow of events’. It analyses changes in the understanding of corporate law that are wrought by the high level of ... More

This chapter defines regulation as an activity that is aimed at ‘influencing the flow of events’. It analyses changes in the understanding of corporate law that are wrought by the high level of interest in regulation. It argues that regulation is transforming the understanding of the content of corporate law. Furthermore, it holds that the category of law known as ‘corporate law’ is being transformed into a broader category of rules called corporate governance. It claims that it is useful to think of corporate governance as a body or category of law as well as a body of governance practices, processes, and structures.Less

Alternative Formulations: Data

Mark J. Joe

in Political Determinants of Corporate Governance: Political Context, Corporate Impact

This chapter presents data showing the relationships between product market competition and securities markets among the world's richest nations. It also shows the relative strength of the political ... More

This chapter presents data showing the relationships between product market competition and securities markets among the world's richest nations. It also shows the relative strength of the political indicators in predicting ownership concentration. Corporate law quality, product market strength, and politics all predict the degree of ownership concentration. When politics is conducive to ownership separation, the supporting institutions may prosper.Less