Electronic copy available at: http://ssrn.com/abstract=1965353

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The Anglo-American Corporate Governance Model: A Research Gap

By Chrispas Nyombi

1. Introduction

At the beginning of the twentieth century, a period marked by the economic brilliance of

Thorstein Veblen,1 and the prominence of Salomon inspired Company Law principles,2 an

ultramodern text titled “the modern corporation and private property” by two contemporary

legal scholars, Adolf Berle and Gardner Means, blended the underlying principles of

multifarious academic fields against which the whole corpus of corporate governance

research literature and regulatory frameworks have been coined to this day.3 As befitting two

authors renowned for intellectual incandescence and edifying scholarship, this authoritatively

renowned and landscape-altering text formed a trellis of legal research powerhouse against

which our understanding of the bedrock principles of corporate governance have been

debated to this day. Berle and Means believed that ownership and control were separate in

America’s largest public companies. Thus, with an economic philosophy premised on equity

rather than debt, the nation’s wealth became distributed into various corporate entities.4

Driven by a dependency on technological innovations, the capital needs of large public

corporations were excessive that a handful of wealthy individuals were unable provide

sufficient financial backing.5 Circa 1930, when Berle and Means constructed their towering

exposition, publicly held corporations run by professional managers and owned by widely

dispersed shareholders were indispensable to the American economy.6 The increased

importance of management teams also culminated in the divorcement of many antecedents of

dominant shareholding, leading to the perverse dispersal of share ownership. In ensuing

decades, American public corporations were herald, among those in academia, as the

evolutionary winners.7 Unperturbed, in much of the last century, this fertile ground witnessed

Electronic copy available at: http://ssrn.com/abstract=1965353

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a plethora of legal and economics scholarship, from Henry Manne8 to contemporary scholars

such as Henry Hansmann and Reiner Kraakman,9 bent on unwinding some of the conceptual

and theoretical conundrums that beset modern corporations and clarifying some of the

underlying issues engulfing corporate governance.

From the onset, two broad dichotomous systems were used to divide the world; the

Blockholder10 and Anglo-American11systems. The latter was characterised by significant

securities markets and shareholders operating at arm’s length.12 The Anglo-American system

historically developed in the US and the UK, the two dominant world powers of the twentieth

century, and no other country has conclusively evolved along the same lines.13 However,

Canada and Australia are possible contenders, although the concentrated ownership structure

in their public companies historically served to distinguish them from their Anglo-American

Counterparts.14 Conversely, the Blockholder system was characterized by the acquisition of

significant financial resources from the state, families, corporations, employees and banks.15

This system evolved in continental Europe and in market oriented economies of Asia.16 In the

Blockholder system, ownership and control were not separate thus dominant shareholders had

more power to exercise control.17 For both systems, two dominant theories, the agency theory

and institutional model theory, emerged to explain the importance of shareholder protection

as a lever for establishing an efficient corporate governance regime.18 According to Jensen

and Meckling’s pioneering agency theory, the central problem of corporate governance was

how to minimize the harmful consequences emanating from the separation of ownership and

control within public companies through mediums such as competitive market pressures,

market based incentives and disciplinary mechanisms.19 In contrast to the institutional model

which inferred that corporate governance is concerned with exploiting rather than minimizing

the beneficial consequences emanating from the separation of ownership and control, in order

to promote a more efficient and dynamic system of governance.20 Evidently, the institutional

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model is more suited to the Blockholder system given the promotion of substantial protection

to block shareholders. However, Siems argued that the strong minority shareholder protection

largely found in the Anglo-American system, rather than majority shareholder protection

found in the Blockholder system, is the pretext for economic growth because it fosters

efficient security markets that attract a diverse range of investors who are not affected by

taking small shareholdings in public companies.21 Berle and Means believed that formal legal

constraints were the solutions to the agency problems. This was criticised by Alchian, who

warned that “ignoring or denying the forces of open competitive market capitalization is…a

fundamental error in the writing about ownership and control and about the modern corporate

economy”.22 As a result of the two dominant theories, corporate governance emerged as the

regulatory body to oversee the conduct of businesses in order to safeguard the rights and

interests of all constituencies, especially the shareholders.

Over the past three decades, globalisation has fuelled a Darwinian struggle between these two

generic systems with a complex history that makes compromise elusive. A question that has

polarised many scholars for decades is which system has won the evolutionary race. The

apparent success of the shareholder-focused Anglo-American regime during the 90s, having

endured severe competition from the Japanese and Germany economies in the 80s and 90s,

led commentators to predict global convergence around this model.23 Most prominently,

LLSV who observed through their law matters hypothesis that capital market structures are

inherently linked to a country’s corporate governance structure.24 Thus countries with strong

minority shareholder protection were more likely to develop dispersed ownership structures

like those found in common law jurisdictions like UK and US. Accordingly, this made civil

law legal jurisdictions inferior in this regard. The interrelationship between shareholders and

directors or ownership and control has been the coalescing point in defining corporate

governance. The Cadbury Committee in 1992 viewed corporate governance as a medium

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through which companies are directed and controlled by the board of directors and auditors

appointed through the boundaries of law and established corporate governance norms.25

Cadbury’s extrapolations and the law matters hypothesis reinvigorated the convergence

debate by assuming that jurisdictions with substandard rules would want the economic

efficiency espoused by their common law counterparts.26 A damning indictment came from

pro-convergence theorists Henry Hansmann and Reinier Kraakman, who controversially

asserted at the beginning of the twenty-first century that the ‘triumph of the shareholder-

oriented model of the corporation over its principal competitors is now assured’.27 With all

due deference and in the spirit that academic scholarship is a collaborative enterprise with

deep roots in constructive criticism, having traced the differences in corporate governance

structures around the world, taking into consideration historical, political and social factors,

Mark Roe through the path dependence theorem, vigorously opposed the law matters

hypothesis.28 Research from Jeffery Gordon29 and Lucian Bechuck30 also questioned the

convergence wisdom. Even a pro-convergence theorist, Ronald Gilson, believed that the

concept of convergence was ambiguous when distinguishing convergence in form or

function.31 On the same line, authors Reinhard Schmidt and Gerald Spindler warned that the

piecemeal transplantation of rules may result, not in efficiency gains, but rather in the

creation of an ‘inconsistent and dysfunctional’ governance regime.32 Unsurprisingly, a decade

later since Hansmann and Kraakman’s extrapolation, considerable diversity has been noted

within and across national systems.33

Despite the path dependence and legal transplantation obstacle, this has not halted the drive

towards the seemingly efficient Anglo-American structures and codes of corporate

governance such as Principles and Recommendations of the American Law Institute (1984),

Treadway Commission (1987) and the Cadbury Code (1992)34 that prompted countries such

as Canada to adopt versions of these codes.35 Hansmann and Kraakman observed that the

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increased acceptance of shareholder centred rules by multinational firms, governments, will

result in Corporate Law reforms in many jurisdictions.36 Today, the Anglo-American

approach to regulating corporations has been traced in Asia and the EU with variants of the

US Sarbanes Oxley Act such as CEO and CFO certification requirements being found in

China, Canada, Australia, and India.37 The UK corporate governance codes38 have also been

of influence in Australia and Canada.39 The adoption of the business judgement rule in

Australia represents another regulatory take along US lines.40 However, it should be

remembered that, the Organisation for Economic Development’s (OECD) Principles of

Corporate Governance, the Basel Committee’s guidelines relating to enhanced corporate

governance of banks (issued in 1999 and enhanced in 2006) and the UK Financial Reporting

Council’s (FRC) Corporate Governance Code 2010, were found wanting in their ability to

protect investors as result of the 2007-2009 financial crisis.41 Notably, Beck and Levine

discuss the possibility that UK corporate law has influenced other countries laws, including

the US.42 They argue that there has been notable, yet highly neglected, regulatory influences

within the Anglo-American system. For example, the UK advocates majority independent

boards, an outcome the US have recently achieved through the New York Stock Exchange

(NYSE) listing rules.43 In both countries, the question of whether and how shareholders

should be better protected has been intensely debated while looking into other systems of

governance. For example, authors Dennis and McConnell provide mixed evidence on the

relative merits of the two Anglo-American systems, but suggest that the UK system can

possibly be as efficient as the US system.44 Since the US is premised on a hard law regulatory

approach, while the UK follows a predominantly self regulation approach that enshrines the

belief that corporate governance should promote accountability to shareholders and effective

management guided by the Code of Corporate Governance, inquiries have intensified to

determine which direction national reformers should take.45 The inquiries have deepened this

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decade, having witnessed the bursting of the dot-com bubble in 2001 and a number of high

profile scandals such as Enron, WorldCom and concluding the latest Sub-Prime Mortgage

crisis.46 Thus the lack of consensus regarding the optimal system of corporate governance,

given the scandalous history of the Anglo-American system, has many implications for

current law reforms around the world.47

2.0 Comparative Law in the Convergence Debate

The initiative to use ‘comparativism’ as a tool of law reform under the guise of legal

transplantation has great appeal in corporate governance.48 As long ago as 1987, Richard

Posner announced the decline of law as an autonomous discipline, having witnessed a

plethora of legal scholarship that transcended beyond the narrow confines of legalism into

other realms of finance and social studies.49 Convergence in law was at the heart of Posner’s

proposition, and methods of comparative law propelled by the ideals of globalisation gained

prominence in the twentieth century50 leading to the twenty-first century being paraded by

Orucu as an era of comparative law.51 However, it has been argued by Sir Markesinis that

politicians and judges pay little attention to comparative law since it is regarded as too

complicated and theoretical.52 He adds that comparative law is often about ideas and notions

that cannot be put to practical use, and are likely to satisfy only those who spend their time

devising them.53 Moreover, the influence of comparative law in the US and UK academia,

especially in fields like law and social sciences, has not waned. Comparative Law research

has influenced institutions within the international community including the OECD, the

World Bank and the International Monetary Fund (IMF) to draft legislative guides and

general principles in order to assist developing countries in reforming or drafting their law.54

It should be emphasized, however, that corporate governance is essentially international and

interdisciplinary, touching core Corporate Law issues especially the board of directors. The

long arms of corporate governance reach areas of securities regulation in US and areas of self

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regulation in UK, exemplified by the Takeover Code in UK.55 Thus comparative Company

Law is to a large extent part of comparative corporate governance.56

A common approach to comparative law is usually a teleological one. A teleological concept

implies that there is change or convergence towards a defined point. This is supported by

Bainbridge,57 Roe58 and Deakin59 who suggest convergence in corporate governance towards

shareholder value maximization or towards optimal efficient forms of corporate organization

or global best practice standards. However, according to Professor Green,60 such an approach

does not seem to be supported by the evidence. Instead, a framework for analysing legal

change and convergence should be based on evolutionary circumstances and conditions that

have caused variation in a system and favoured the selection of one variant over the other.

Comparative law is not about summarising every aspect that can be obtained about different

legal and extralegal systems, but it is about making an informed comparison. Convergence

critics argue that it is not realistic to conclude that the entirety of law in one country can ever

become identical to another.61 For instance, the European Directives on Company Law

provides minimum harmonisation, but leaves many gaps, and may be applied differently;

resulting in many differences among Member States.62 Thus convergence does not

necessarily mean a new identity since the laws of EU Member States are becoming more

similar in many areas but not identical.

However, there should be a shift away from the traditional approach to comparative law

premised on the accurate description of a particular foreign legal system and translation of

what authors have written about domestic law. According to Zweigert and Kotz, this serves

as an injustice to comparative law.63 A new simplistic approach which treats different legal

systems as mere compilations of information in a numerical way was advanced by LLSV has

gained continued support in comparative law research literature.64 For example, the EU

Commission’s impact assessment of the Directive on Shareholders’ Rights used LLSV’s

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numerical approach in order to justify their recent reform.65 However, Spamann argues that

the legal indices of LLSV do not provide an accurate numerical description of laws in

different countries given their erroneous coding.66 The author’s forensic examination of the

methodology and LLSV’s results provides that eight is a very limited number of variables

and can seldom provide a meaningful picture of the legal protection in a given country. Thus

the thesis did not only suffer from a US bias but it was also a poor proxy for shareholder

protection because the variables did not focus on the most significant aspects of the law. The

same methodology was employed by the World Bank’s doing business report and placed

countries like Saudi Arabia and Taiwan in categories where the context of their rules and

cultures were extremely different.67 Thus the analytical side of the traditional approach

should be employed by researchers while drawing from the qualitative approach akin to the

new simplistic approach.

2. The Anglo-American Corporate Governance Research Gap

Although the UK provides the US with a companion in the dispersed ownership category, it

evolved on similar grounds but on a different path.68 The once predicted dominance of the

Anglo-American model has faced many towering blocks in a bid to transplant best practices

across the world ranging from cultural to political hurdles. As aforementioned, there have

been a couple of recent regulatory transfers, but in all, the two countries remain inherently

similar but unique in their corporate governance structures. Even though the debate on

corporate governance structures exhibited in UK and US has generated an extensive body of

theoretical and empirical work, the conclusions remain opaque. There is yet no consensus as

to what system of corporate governance is most reliable and whether legal convergence

should be encouraged.69 However, as aforementioned, legal and economics academics

support the superiority of the shareholder-oriented corporate governance system like the one

exhibited in the UK, characterized by well developed capital markets, good investor

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protection and a market for corporate control. It is evident from research literature that in the

past decade, scholars relaxed their focus on minimizing or exploiting the harmful or

beneficial consequences of separation of ownership and control and became more occupied

with finding the optimal corporate governance regime.70 Consequently, it has become

common when describing the results of comparative corporate governance, to offer a

somewhat stylized and simplified story of the dominant models and an emphasis on major

differences at an abstract level, evidenced by Tom and Wright’s recent comparative

research.71 Thus there is a dearth of research literature that offers a wholesale assessment of

the corporate governance frameworks in these two countries. Future research should focus

areas of shareholder protection, takeover regulation, stock market regulation and legal

enforcement. Research that combines the four areas is likely to give a clearer picture on the

efficacy of the Anglo-American system.

2.1.Shareholder Protection

First articulated by Oliver Williamson in the mid 80s, one of the burgeoning arguments in

favour of shareholder value maximization in a world of incomplete contracts is that

shareholders are relatively less protected than other constituencies.72 This argument is based

on the assumption that workers or other participants are not locked into a firm specific

contract and can quit at lower cost.73 Even creditors can get greater protection by taking

collateral, but shareholders have an open ended contract without specific protection. In all,

shareholders are excluded from the corporate ‘technostructure’.74 The lack of protection from

contract law means that company law and corporate governance rules must be strong and

robust enough to deter abuses.75 In relation to shareholder rights, the longstanding principle

of US corporate law is that the power to manage the company is vested in the board of

directors,76 as supported by the Delaware Code 200177 Model Business Corporation Act

2002,78 and the Business Corporation Law.79 Based on this principle, the powers of

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shareholders are limited to what corporate statutes specify. In contrast, UK law gives

considerable power to the shareholders via the Companies Act 2006.80 In the case of listed

companies, this is further enhanced through various provisions of the Listing Rules, the Code

of Corporate Governance, and the Takeover Code. Together, these combine to permit

shareholders to control many aspects of the managerial agency problem without the need for

litigation. Both countries regulatory frameworks were aimed at reducing the ownership and

managerial divide. As Sir David Walker opined in a 2009 government commissioned report

on the corporate governance of British banks; ‘a more productive and informed relationship

between directors and shareholders should help directors in better management of the

company’s affairs.’81

Since shareholders have imperfect information of each others’ actions, knowledge, and

preferences,82 it is widely recognised that managerial activities can also be constrained by

internal control mechanisms such as the board and external control mechanisms such as the

market for corporate control. Unlike their non-controlling counterparts who generally rely on

formal Company Law rules, institutional investors as equity owners also represent important

external control mechanism.83 These influential gatekeepers can combat the agency problem

directly through their substantial ownership rights and indirectly by trading their shares. 84

Losing a large shareholder could be detrimental to a company’s capital and it may prompt

other shareholders to review their holdings.85 Similarly, dispersed shareholders can use

Company Law to detect and deter managerial abuse through mandatory information

disclosures, and can voice dissatisfaction through voting.86 However, their passivity in

leading up to the financial crisis and before led to a steady barrage of criticism.87 The Enron

saga is a canonical example of a case where prognosticative index hugging shareholders

never asked questions, and when the share price plummeted, it was too late to get access to

capital and save the company.88 Generally, exiting rather than voicing is the general

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practice.89 Of both countries, the US traditionally had broader institutional shareholder

involvement, while institutional shareholders in UK have traditionally taken a ‘hands off’

approach to corporate governance,90 as a financial journalist observed in 1899: ‘in practice

shareholders seldom assert their will. They are led and easily led…the rule that shareholders

do as they are bidden by their servants (the directors) have very few exceptions.’91 Over a

century later, Lord Myners in his 2009 speech as Secretary of the Financial Services Treasury

characterized them as ‘absentee landlords’.92 Thus, recent scandals have indicated that a

century on since Berle and Means exposition, problems of ownership and control still persist

unabated.93

2.2.Takeover Regulation

Hostile takeovers play a major role in rendering managers accountable to dispersed

shareholders in the Anglo-American system of corporate governance.94 It is widely

recognised that takeover regulation is a significant element of corporate governance because

they affect the level of investor protection by dictating ownership and control in acquired

firms.95 According to Easterbrook and Fischel, conflict of interest can arise in the transfer of

control where opportunistic managerial behaviours could emerge.96 It is beneficial for

minority shareholders that hostile takeovers target a poorly performing firm and replace

poorly performing management.97 Shareholders generally do not have the technical

knowledge to evaluate complex business plans therefore they consider the bidder with the

highest value for their shares.98 Theoretically, the threat of losing their jobs and perquisites

pushes management and executives to serve shareholders interests.99 Since anti-takeover

devices found in US such as attempts to make the target company’s stock less attractive to the

bidder (ᦣ poison pillsᦤ ) or the selling of valuable assets, are perceived as detrimental to

shareholder interests in UK, management is forced to face the market for corporate

control.100 Takeover regulations are designed to steps in and root out costs and inefficiencies

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linked to hostile takeovers, to enable the transfer of control to more productive and efficient

managers and owners. Even though Company Law offers many ways to resolve conflicts

between majority and minority shareholders, takeover regulation provides them with an exit

route on fair terms through mediums such as the mandatory bid rule in UK.101

For decades, academics have debated the question of the optimal way to regulate the takeover

market.102 Two American academics, Frank Easterbrook and Dan Fischel recently argued, in

their shareholder oriented approach, that managers should be prohibited from frustrating

takeovers due to their self interest agendas.103 Conversely, others have argued that managers

should be given some scope to slow down a takeover bid in order to get the best possible

price for the company’s shareholders and hold back private equity buyouts that could harm

the financial structure of the company.104 While the UK has opted for no managerial

discretion, the shareholder oriented approach has been dismissed in countless Delaware

takeover court decisions.105 What is astounding, however, is the limited attention paid to the

two countries under the Anglo-American model, when both the mode and substance of the

regulation is bearing startling differences and similarities. While the Takeover Panel106

governs its own resolutions, US takeovers are governed by Delaware courts. Although these

courts are relatively flexible and quick, they remain barred by the ex post nature of court

dispute resolution. In addition, the Takeover Code is strongly learning towards the protection

of shareholders interests through the equal treatment and mandatory bid requirements that

prevent acquirers from making coercive bids, whereas management in the US has greater

flexibility to engage in defensive tactics within the ambit of their fiduciary duties. However,

even though management in UK can be prevented from engaging in any defensive tactics

designed to starve off an actual or anticipated bid, they can do so with the consent of

shareholders.107 For the convergence debate, it is imperative to note that the adoption of the

mandatory bid rule, equal treatment rule and squeeze-out rules is becoming widespread,

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especially in EU countries.108 The failure of the European Union Takeover Directive to

require all Member States to implement a non-frustration approach was greeted with disquiet

in some academic circles.109 There has also been a recurring wave of research carried out to

determine whether Japan is moving towards the British or American takeover approach, but

the conclusions remain opaque, even though the poison pill has become part of the Japanese

legal system.110 However, adopting a unified code in a Blockholder system could serve to

further concentrate ownership through increased mergers and acquisitions.

2.3.Stock Market Regulation

There has been a wave of recent studies on the regulation of capital use through cross-

national comparisons111 or regulatory changes in foreign countries.112 According to

Braendle113 legal origins theory, common law countries provide stronger protection to

minority shareholders than civil law countries through comprehensive securities laws and

private enforcement, resulting in more develops markets and economies. The World Bank

uses the theory to support its position that “private rights of action for minority shareholders

are important for developing strong equity markets.”114According to the law matters

hypothesis, minority shareholders feel comfortable in a protective environment where

opportunistic behaviours are regulated vigorously by the legal system.115 As a result of this

confidence, investors would be more willing to pay full value for shares made available for

sale; this reduces the cost of capital for the organisation that opts to sell equity in financial

markets. However, such conditions are suited to a system of dispersed ownership because a

strong legal system leaves controlling shareholders unable to exploit their positions if they

choose to unwind their holdings. This indicates that public companies are unlikely to become

dominant in countries that do not offer significant legal protection to outside investors.

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Shareholder protection is important during securities issuance given the risk that corporate

issuers may sell bad securities to the poorly informed public. Security issuance primarily

occurs through an Initial Public Offering (IPO) where a firm sells stock to the public for the

first time. An IPO is a primary offering, differing from a secondary offering which is the

public sale of previously issued securities. IPOs compared to already listed firms suffer from

shorter history, less public historical information, no secondary trading, and a few large

owners, causing higher information asymmetry in the process. IPO listings prospectuses are

derived from informal informational contracting between Blockholder groups, agents

(management and executives), and shareholder (principals). The IPO prospectus is basically a

written document that provides material information such as financial statements and general

information about the firm such as the annual report required for a listed firm. The

formulation of the prospectus is dependent on a number of distinct groups, including

accountancy professionals, investment banks, underwriters, corporate law firms and legal

professionals.116 Actors, including investors and analyst use the prospectus information to

value the firm and make investment decisions on whether to pay the offer price for the

securities, mainly on primary markets, therefore low disclosure leads to higher uncertainty

when valuing the company. The secondary market also allows continuing disclosure of

information that may affect stock prices, enabling the stock prices to theoretically reflect the

value of the stock, and thus achieving an efficient capital market.117

The levels of informational contracting are largely defined by institutions, although securities

laws are largely involved mainly for enforcement purposes.118 Disclosure can be regulated or

unregulated, where the unregulated information is optional and disclosed on a voluntary

basis.119 With regard to stock market regulation in both jurisdictions, the weight is placed on

hard law. For instance, in the making Initial Public Offerings (IPO), either on the London

Stock Exchange (LSE) or the New York Stock Exchange (NYSE), the law places mandatory

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disclosure requirements on companies. In UK, the Market in Financial Instruments Directive,

2007 and Prospectus Directive 2003, supported by a collage of other regulatory instruments,

mainly administered by the Financial Services Authority (FSA), put forward these

requirements.120 In US, mainly the Regulation Fair Disclosure and the Sarbanes-Oxley Act

provide stringent rules overseeing the stock markets. While each jurisdiction’s requirements

may differ in detail, they share the common purpose of ensuring that investors are given

information adequate to permit them to make informed investment decisions and markets are

genuinely fair.121 Given the importance of stock market disclosure, in the US, much of the

reform of the past few years has been a reaction to market place scandals that led to the

passage of the Sarbanes-Oxley Act of 2002122 and ensuing rulemaking by 123SEC. In Europe,

the driving force for reform has been the desire to harmonize disclosure policy and to create a

European wide capital raising mechanism.124 In the US, Congress intended the mandatory

securities laws to “substitute a philosophy of full disclosure for the philosophy of caveat

125emptor”. For example, for potential issuers to the NYSE, registration statement must be

filed with SEC,126 containing detailed disclosures127 and providing an array of important

information.128 A disciplinary measure can be found in the Securities Act 1933 which

sanction against behaviour that perpetuates fraud on the market.129

Despite the strengths in mandating disclosure, there has been a healthy debate about the

efficacy of mandatory disclosure for decades. The vast majority of research literature, namely

Campa and Fernandes,130, Ferraira and Ferraira,131, Fritsche and Kuzin,132 have focused on

convergence in the European Union. Notably, Caporale et al. took a more economic than

legal approach, although the findings are persuasive in nature and point towards potential

convergence.133 No research has yet conducted a comprehensive comparison of stock market

regulations, especially prospectus disclosure requirements in both jurisdictions. Numerous

scholars have argued that market forces will produce optimal levels of disclosure in a regime

16

of voluntary disclosure,134 while others argue that various market failures call for a

mandatory disclosure system.135 However, Campbell argues that SEC’s relentless refusal to

permit small businesses to solicit external capital through their restrictive regulatory

frameworks needs addressing.136 Thus, Campbell firmly believes that some firms should be

allowed to list without fulfilling the full initial public offering (IPO) disclosure process.137

This view is shared with Amihud, Mendelson & Pedersen138 and Botosan139 who argue that

even without hard law; firms have strong incentives to provide information and other

assurances about the firm value to investors in order to remain competitive. Given the

aforementioned, scholars such as Coffee140 and Gilson141 point to the potential convergence

of stock market regulation because both UK and US adhere to practically similar principles of

stock market regulation and enforce mainly hard law as a result. However, even if the

disclosure requirements for public companies in the UK and US were to converge, markedly

different enforcement mechanisms for such legal requirements would likely lead to different

disclosure documents.142

2.4.Legal enforcement

Ever since Roscoe Pound emphatically drew attention to the separation between law in books

and law in action over a century ago, there has been a heated debate on the subject.143 Most

notably LLSV who concluded in their empirical studies that corporate and securities laws

which protect minority shareholders are connected with deep and liquid securities markets.144

However, their research was victim to Pound’s divide since it merely focused on law in books

thus neglecting the crucial area of enforcement whether by public agencies or private

individuals and whether through formal lawsuits or informal channels.145 By contrast, in civil

law countries, mandatory law and ex ante control are said to play a bigger part.146 The

overriding purpose of regulating financial markets is to expose and discipline misconduct by

company agents.147 In both UK and US, directors owe duties to their companies to act with

17

care, in the best interests of the company and to avoid conflicts of interest. The countries also

permit derivative actions that allow shareholders to sue on behalf of the company.148

Directors also have potential liability to investors for misstatements in documentation

distributed in an IPO.149 However they contrast when it comes to enforcing these rules. The

UK is traditionally less litigious, perhaps providing a competitive advantage by encouraging

cross listing.150 In contrast, active enforcement is viewed by many as the core strength of US

markets.151 Unsurprisingly, many commentators stand against excessive litigation guided by a

belief that the competitiveness of the US market and US firms could be harmed.152

However, there has been some empirical work on shareholder suits under corporate law in

US focused on cases filed in Delaware courts by Armour et al.153 Lawsuits in US against

directors are extremely common given the nature of their enforcement, a contrast from UK

where private enforcement is extremely rare and public enforcement faces a scarcity. 154 The

enforcement of the law in Armour et al. research was for claims filed in UK during 2004-

2006 and US during 2000-2007 involving allegations of breach of duty by directors. They

found varying contrasts between private and public enforcement in both countries.

Spamann,155 however, questions whether the measures of enforcement employed in their

analysis are meaningful since they provide limited comparison. In US, prior studies that

examined the enforcement of US securities laws against foreign firms concentrated primarily

on public enforcement actions initiated by the SEC. Given the importance of understanding

enforcement, especially for the convergence theorists, it is surprising that little empirical

evidence is available, especially within the Anglo-American system.

Even with the recent research into public and private enforcement, no consensus has been

reached on how best to measure its efficiency. LLSV in 2006 used statutory powers available

to regulators as regards penalties and compensation orders to measure enforcement.156 They

reached a conclusion that private enforcement or class action lawsuits are correlated with

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deep and liquid securities markets than is public enforcement. However, the inability to

examine differences in the use of enforcement powers marred their results. Jackson and Roe

in 2009 focused on the resources available to securities regulators: that is, their annual

staffing and budget, to measure enforcement.157 They argued that variations in stock market

liquidity can be measured better using this approach as compared to LLSV’s approach. This

approach can be criticised on the basis that it fails to take into consideration the differences in

resources allocated to enforcers. To measure how intense enforcement is, John coffee in 2007

argued that its best to focus on outputs rather than inputs; in other words, how many dollars

of fines are paid, or years of jail time served divided by the number of those regulated.158

According to Coffee, this provides a much clearer picture of the incentive effects of legal

rules on rational parties’ behaviours. On that basis, if enforcement intensity is measured by

financial penalties imposed, then the US has won. According to Armour et al.159 this can be

countered on the basis that measuring such penalties will be misleading if announcements of

enforcement activity carries with it additional reputational losses for malefactors. However, it

may be that regulators rely more heavily on reputational than financial penalties. Given the

abovementioned approaches, it seems that looking at regulators’ legal powers or budgets fails

to take into consideration differing institutional efficiency amongst enforcers, and looking at

the size of financial penalties imposed leaves out any deterrent effects of reputational

penalties.

3. Conclusion

This paper has highlighted that most research focuses on individual governance areas which

makes it difficult to reach solid conclusions regarding which country’s corporate governance

approach is superior.160 Areas such as takeover regulation and shareholders rights have

generally received more attention compared to legal enforcement and stock market

regulation. A broad research focus would only expose even deeper governance problems in

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the Anglo-American system. Even though all four areas are affected by agency problems,

there is no research that offers a comprehensive account of the areas in terms of function and

development in UK and US. It is also difficult to argue for convergence or divergence

between UK if governance abuse triggering areas have not been comprehensively studied.

Research literature has ignored this strand of information and proceeded on with a rallying

call for convergence to a model that is ill-defined and potentially flawed given its failings

during the recent financial crisis. Thus it would be pointless to join the convergence

bandwagon only to reach occasional conclusions like my predecessors, that there is little or

no convergence between the Anglo-American and Blockholder systems.161

Faculty of Law, University of Essex, email:cnyomb@essex.ac.uk; LLM- University College

London, PhD Candidate- University of Essex

1 T. Veblen, The Theory of Business Enterprise : Scribner's: New York, 1932

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8 H. Manne (1965) ‘Mergers and the Market for Corporate Control’ 73 Journal of Political Economy 110 at 113.

9 H Hansmann and R Kraakman (2001) ‘The End of History for Corporate Law’ 89 Geo L J 439–68

10 Also known as the “Continental model”, “bank-oriented”, “civil law”, “stakeholder centred”, or “coordinated model”

11 Also known as the “Outsider”, “market oriented”, “shareholder-centred”, “common law” or “liberal model”, “Arms-Length” system. The latter signifies the received wisdom that investors in the US and Britain are rarely poised to intervene and take a hand in running a business.

12 A. Francis (1980) 'Families, Firms and Finance Capital; the Development of UK Industrial Firms with Particular Reference to their Ownership and Control' 14 Sociology

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20

17 M. Bennedsen and D. Wolfenzon (2000) “The balance of power in closely held corporations” 58 Journal of Financial Economics 113 at p.114.

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20 Moore M T & A. Rebérioux (2009) “From Minimization to Exploitation: Re-Conceptualizing the Corporate Governance Problem. Reflexive Governance in the Public Interest”.(REFGOV) Working Paper No. REFGOV-CG-32

21 Siems, M. M (2008)”Shareholder Protection Around the World (Leximetric II)” 33 DEL. J. CORP. L. 111

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23 H. Hansmann & R Kraakman (2001), ‘The End of History for Corporate Law’ 89 Geo LJ 439 at 468

24 R. La Porta. F. L.-Silanes. A. Shleifer & R.Vishny (1999) ‘Corporate Ownership Around the World’ 54 J Fin 471

25 Cadbury Committee, Financial Aspects of Corporate Governance (1992) para.2.5. Now Financial Reporting Council, The UK Corporate Governance Code (2010) FRC para.2

26 C. Jordan (2005) ‘The Conundrum of Corporate Governance’ 30 Brooklyn J Int’l L 983 at 985–990.

27 The authors originally made this statement in Henry Hansmann & Reinier Kraakman, ‘The End of History for Corporate Law’ (2001) 89 Geo LJ 439 at 468.

28 M. Roe, ‘Path Dependence, Political Options, and Governance Systems’, in Klaus Hopt & Eddy Wymeersch (eds), Comparative Corporate Governance: Essays and Materials (1997) 165; H. Kohl (1999), ‘Path Dependence and German Corporate Law: Some Skeptical Remarks from the Sidelines’ (Third Frankfurt-Columbia Symposium on Comparative Law’ 5 Colum J Eur L 189.

29 J. Gordon and M .Roe (2004), “Convergence and Persistence in Corporate Governance” (CUP, Cambridge)

30 L.Bebchuk and M. Roe (1999) ‘A Theory of Path Dependence in Corporate Ownership and Governance’ 52 STAN. L. REV. 127, 132

31 R. J Gilson. (2001) “Globalizing Corporate Governance: Convergence of Form or Function” 49 AM. J. COMP. L. 329

32 Schmidt, RH & Spindler, G 2004, ‘Path Dependence and Complementarity in Corporate Governance’, in JN Gordon and MJ Roe (eds), Convergence and Persistence in Corporate Governance, Cambridge University Press, New York

33 J. McCahery, P. Moerland, T. Raaijmakers and L. Renneboog (2002 “Corporate Governance Regimes: Convergence and Diversity” Oxford: Oxford University Press

34 A. Cadbury(1992) “The Financial Aspects of Corporate Governance – A Report of the Committee on Corporate Governance”. London: Gee and Co.

35 J. Allen and L. Gale, “Corporate Governance and Competition” in X. Vives (2000) CORPORATE GOVERNANCE: THEORETICAL AND EMPIRICAL PERSPECTIVES 84, 84-85

36 Ibid 23

37 Hill, J. (2005) Regulatory Responses to Global Corporate Scandals, Wisconsin International Law Journal, 23, 367: G. Thornton (2010) corporate governance in India and UK: A comparative analysis: International and Emerging Markets Blog; Jairus Banaji and Gautam Mody (2001) Corporate Governance and the Indian Private Sector. QEH Working Paper Series –Number 73

38 Financial Reporting Council, The UK Corporate Governance Code (2010) FRC para.2 of Governance and the Code

39 ECGI (2011) Index of Codes: European Corporate Governance Institute. http://www.ecgi.org/codes/all_codes.php. Accessed 15/09/2011

40 The statutory business judgment rule was implanted into the Corporations Act in 1999 by the instigation of the ‘CLERP’ reform

41 D. Erkens, M. Hung and P. Matos (2009), Corporate Governance in the 2007-2008 Financial Crisis: Evidence from Financial Institutions Worldwide, ECGI--Finance Working Paper No.249/2009; Report on the Subprime Crisis--Final Report, Report of the Technical Committee of IOSCO (IOSCO, 2008); OECD (2009)., Corporate Governance and the Financial Crisis--Key Findings and Main Messages.

42 T .Beck & R. Levine (2005) Legal Institutions and Financial Development, in HANDBOOK OF NEW INSTITUTIONAL ECONOMICS 251, 254-60 (Claude Menard & Mary M. Shirley)

21

43 Section 303: A Listed Company Manual: Aguilera, R., Jackson, G. (2010) “Comparative and International Corporate Governance. Annals of the Academy of Management”, 18: 485-556

44 D.K Denis and J.J. McConnell (2003), “International corporate governance”, Journal of Financial and Quantitative Analysis, 38(1)

45 C. W. Calomiris (2009),, ‘The Subprime Turmoil: What's Old, What's New and What's Next’, Journal of Structured Finance 6 (Spring) at 12-16

46MM-H Lim (2008) “Old Wine in New Bottles: Subprime Mortgage Crisis--Causes and Consequences” 3(1)The Journal of Applied Research in Accounting and Finance 3

47 M. Hilb (2010) “Redesigning Corporate Governance: Lessons Learnt from the Global Financial Crisis” Journal of Management and Governance

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49 R.A. Posner (1987) ‘The Decline of Law as an Autonomous Discipline: 1962-1987’ (100) Harvard Law Review 761

50 R. Sacco (2000) ‘One Hundred Years of Comparative Law’ (75) Tulane Law Review

51 E. Örücü (2004) The Enigma of Comparative Law Martinus Nijhoff at 216

52 Markesinis, Sir B (2003) Comparative Law in the Courtroom and Classroom Hart at 39, 61-2;

53 Markesinis, Sir B (1990) ‘Comparative Law – A Subject in Search of an Audience’ (53) Modern Law Review 1; Markesinis, Sir B (1997) Foreign Law and Comparative Methodology Hart at 3

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58 M. Roe (2001) “The Shareholder Wealth Maximization Norm and Industrial Organization” U. Pa. L. Rev. 2063;

59 S. Deakin (2005) “The Coming Transformation of Shareholder Value”. 13 Corporate Governance 11 at p.16

60 Ibid 57

61 Coffee, J. C. (2005) A Theory of Corporate Scandals: Why the USA and Europe Differ, Oxford Review of Economic Policy, 21, 198–211.

62 Enriques, L (2006) ‘EC Company Law Directives and Regulations: How Trivial Are They?’ (27) University of Pennsylvania Journal of International Economic Law 1

63 Zweigert, K and Kötz, H (1998) “An Introduction to Comparative Law” Oxford University Press at 323-708

64 Similar Twining, W (2006) ‘Diffusion of Law: A Global Perspective’ (1) Journal of Comparative Law 237 at 259. Maxwell, J. A. (1996) Qualitative Research Design. Thousand Oaks, CA: Sage.

65 SEC(2006) Impact assessment on the proposal for a directive on the exercise of shareholders’ voting rights, 181, at pp. 7, 53

66 Spamann, H (2006) ‘On the Insignificance and/or Endogeneity of La Porta et al’s “Anti-Director Rights Index” under Consistent Coding’ available at http://ssrn.com/abstract=894301; Cools, S (2005) Braendle, UC (2006) ‘Shareholder Protection in the USA and Germany – “Law and Finance” Revisited’ (7) German Law Journal 257.

67 Lele, P.P and Siems, M.M (2007) ‘Shareholder Protection: A Leximetric Approach’ (7) Journal of Corporate Law Studies 17

68 Armour, J., S. Deakin, P. Lele, and M. Siems (2009) How Legal Rules Evolve: Evidence from a Cross-Country Comparison of Shareholder, Creditor and Worker Protection,ԡ The American Journal of Comparative Law, 57, 579–630.

69 A. Chander and Randall. C (2010)., ‘Clearing Credit Default Swaps: A Case Study in Global Legal Convergence’, 10 Chicago Journal of International Law 639

70 Lele, P.and M. Siems (2007) “Shareholder Protection: A Leximetric Approach”. The Journal of Corporate Law Studies, 7, 17–50.

22

71 S. Toms and M. Wright (2005), “Divergence and Convergence within Anglo-American Corporate Governance Systems: Evidence from the US and UK, 1950-2000” 47(2) Business History 267, 267.

72 Williamson, O.E. (1985). The economic institutions of capitalism: Firms, markets, relational contracting (New York: Free Press); Rose, C. (2004) Stakeholder orientation vs. shareholder value--a matter of contractual failures. European Journal of Law and Eonomics, 18, 77-97.

73 Blair, M.M.and Stout, L.A. (1999) A team production theory of corporate law: Virginia Law Review, 85(2), 247-328.

74 Galbraith, J.K. (1973) “Economics and the public purpose” (London: Deutsch).

75 P. Ireland (1996) “Capitalism without the capitalist: The joint stock company share and the emergence of the modern doctrine of separate corporate personality” 17 Legal History 40; S. Worthington (2001) “ Shares and shareholders: property, power and entitlement” (Part 1) 22 Co. Law. 258 and Part 2 (2001) 22 Co. Law. 307

76 A.A. Berle (1932) ‘For Whom Corporate Managers Are Trustees: A Note’ 45 HLR 1365 at 1367.

77 tit. 8, s.141(a)

78 s.8.01(b)

79 s.70.

80 s.170; courts have long held that they occupy a fiduciary position under equity, common law Percival v Wright (1902) 2 Ch 421.

81 Sir D.Walker (2009) A Review of Corporate Governance in UK Banks and Other Financial Industry Entities: Final Recommendations (hereinafter Walker Report)

82 A. Berle and G. Means (1967), The Modern Corporatation and Private Property, revised edn (New York: Harcourt, Brace and World) p.75.

83 Meyer, J. W. and Rowan, B. (1977) Institutionalized Organizations: Formal Structure as Mith and Ceremony, American Journal of Sociology, 83, 340–363.

84 Mallin, C. (2002) Institutional Investors: The Growth of Global Influences, Corporate Governance: An International Review, 10, 67–68.

85 Cheffins, B.R. & Armour, J. (2007). The eclipse of private equity. ECGI – Law working paper, no. 082/2007, from http://ssrn.com/abstract=982114

86 J. Holland (1998) “ Influence and Intervention by Financial Institutions in their Investee Companies” 6 Corporate Governance 249 at

87 B. Black (1990), “ Shareholder Passivity Re-examined 89 Mich. L. Rev. 520

88 B. Cheffins (1997) Company Law: Theory, Structure and Operation (Oxford: Clarendon Press,), p.617. Perhaps Enron is the most infamous case in recent times. J. Emshwiller and R. Smith, “Enron Jolt: Investments, Assets Generate Big Losses” (2001) Wall Street Journal C1.

89 J. Matheson and B. Olson (1992) “Corporate Law and the Longterm Shareholder Model of Corporate Governance” 76 Minnesota Law Review 1313 at p.1328.

90 MacNeil, I. and X. Li (2006) Comply or Explain': market discipline and noncompliance with the Combined Code; Corporate Governance: An International Review 14(5): 486-496

91 S.F. Van Oss (1899) ‘In Hooley Land’ Journal of Finance, January, 1, 11

92 Lord Myners (2009) ‘Association of Investment Companies’ (speech by the Financial Services Secretary) (21 April)

93 R. Monks and N. Minnow (1995), Watching the Watchers: Corporate Governance for the Twenty-first Century (Malden, Mass: Blackwell Publishing)

94 W. Allen, J. Jacobs and L. Strine (2002) “ The Great Takeover Debate: A Mediation on Bridging the Conceptual Divide” 69 U. Chi. L. Rev. 1067 at p.1075.

95 M. J. Roe (1993) Some Differences in Corporate Structure in Germany, Japan, and the United States, 102 Yale L.J. 1927, 1932

96 F. Easterbrook and D. Fischel (1981), “Takeover Bids, Defensive Tactics, and Shareholders' Welfare” 36 The Business Lawyer 1733, 1733.

97 R. J. Gilson (1981) A Structural Approach to Corporations: The Case Against Defensive Tactics in Tender Offers, 33 Stan. L. Rev. 819, 839- 44

23

98 Sundaramurthy, C. (2000) “Antitakeover provisions and shareholder value implications: A review and a contingency framework”, Journal of Management 26 1005-1030. Anti takeover laws prevent uninformed and uninformable shareholders from selling their shares for less than they are worth. Unitrin, Inc. v. American General Corp., 651 A.2d 1361 (Del. 1995)

99 J. Franks and C.Mayer (1996) “Hostile takeovers in the UK and the correction of managerial failure” 40 Journal of Financial Economics 163.

100 J. Franks, C. Mayer and L. Renneboog “ Managerial Disciplining and the Market for (Partial) Corporate Control in the UK” in J. McCahery, P. Moerland, T. Raaijmakers and L. Renneboog (2002) , Corporate Governance Regimes: Convergence and Diversity (Oxford: Oxford University Press,)

101 General Principle 3 provides that .the board of an offeree company must act in the interests of the company as a whole and must not deny the holders of securities the opportunity to decide on the merits of the bid. Takeover Code (2006), B1

102 Shleifer, A. and Vishny, R. W. (1991) Takeovers in the '60s and the '80s: Evidence and implications. Strategic Management Journal, 12: 51–59

103 Easterbrook, F. H., & Fischel, D. R (1998) The economic structure of corporate law; Harvard College: Harvard University Press.

104 Bruining J., Boselie P., Bacon N., and Wright M. ( 2005) Business ownership change and effects on the employment relationship: An exploratory study of buyouts in the UK and the Netherlands . The International Journal of Human Resource Management , 2005, 16, 345-63

105 Unocol v. Mesa Petroleum Co., 493 A.2d 946 (Del 1985)

106 The Panel on Takeovers and Mergers, which administers the City Code, is a self-regulatory organization, with a chair chosen by the Bank of England and members representing institutional investors, public companies, and the London Stock Exchange. Panel rulings can be enforced by a number of sanctions, including delisting from the London Stock Exchange

107 Armour, .J and Skeel, .D (2005) “There is more than one way to regulate a takeover”, Financial Times 22 (overview of research on UK/US takeovers).

108 Armour, J and Skeel, D. A (2005) “The Divergence of U.S. and UK Takeover Regulation” Regulation, Vol. 30, No. 3,

109 C.Beuerle, D.Kershaw, M.A.Solinas (2011), Is the Board Neutrality Rule Trivial? Amnesia About Corporate Law in European Takeover Regulation; LSE Law, Society and Economy Working Papers 3/ London School of Economics and Political Science Law Department

110 Buchanan, J. (2007) 'Japanese corporate governance and the principle of "internalism"' Corporate Governance: An International Review, 15: 27-35.; Buchanan, J. and Deakin, S. (2008) 'Japan's paradoxical response to the new "global standard" in corporate governance' Zeitschrift für Japanisches Recht, 13: 59-84.

111 La Porta, R. Florencio. L, Silanes, and A. Shleifer (2006), “What Works in Securities Laws,” Journal of Finance, vol. 61, 1-32.

112 Black, B. H. Jang and W. Kim (2006), Predicting Firms' Corporate Governance Choices: Evidence from Korea, Journal of Corporate Finance, vol. 12, pp. 660-691.

113 C. Braendle (2006) Shareholder Protection in the USA and Germany - On the Fallacy of LLSV, 7 GERMAN L.J. 257, 260

114 THE WORLD BANK, DOING BUSINESS 2011, at 35

115 Z. Goshen and G. Parchomovsky (2006) “The Essential Role of Securities Regulation” 55 Duke Law Journal 711

116 Healy, P. M., and K. Palepu, (2001) Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature, Journal of Accounting and Economics 31, 405–440.

117 The efficient capital markets hypothesis (ECMH) in finance theory. Fama, E. (1970). Efficient capital markets: a review of theory and empirical work, Journal of Finance, 25(2), 383–417; Stout, L.A. (2003) The Mechanisms of market inefficiency, Journal of Corporation Law, 28, 635-669.

118 Fogarty, T.J., Rogers, R.K. (2005) Financial analysts' reports: an extended institutional theory evaluation, Accounting, Organizations & Society, Vol.30 No.4 ...

119 L. G. Telser (1980) A Theory of Self- Enforcing Agreements, 53 J. Bus. 27, 27-28

120 Manning, G.W (2003) “The Harmonisation of European Securities Laws” (Spring) 37 International Lawyer 211.

121 Rock, E., (2002) Securities Regulation as Lobster Trap: A Credible Commitment Theory of Mandatory Disclosure. 23 Cardozo Law Review 23, 675-704

122 Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (2002) (codified in sections of 11, 15, 18, 28 and 29 U.S.C.)

123 J. T. Bostelman (2005) THE SARBANES-OXLEY DESKBOOK chs. 1, 2, App. A

24

124 Thomas M. T, (2010) Sources of law in European securities regulation - effective regulation, soft law and legal taxonomy from Lamfalussy to de Larosiere. European Business Organization Law Review See generally Roger T. Goebel, Joining the European Union: The Accession Procedure for the Central European and Mediterranean States, 1 INT’L L. REV. 15 (2003-04).

125 SEC v. Capital Gains Research Bureau, Inc., 375 U. S. 180, 186 (1963).

126 Europe & Overseas Commodity Traders, S.A. v. Banque Paribas London, 147 F.3d 118, 126 (2d Cir. 1998) (“Through mandatory disclosure, Congress sought to promote informed investing and to deter the kind of fraudulent salesmanship that was believed to have led to the market collapse of 1929.”).

127 Securities Exchange Act of 1933 §§ 5-7, 15 U.S.C. §§ 77e-77g.

128 Id. §§ 5, 10, 15 U.S.C. §§ 77e, 77j.

129 Section r.10b(5)

130 Campa, J. M., Fernandes N. (2006), Sources of Gains from International Portfolio Diversification, Journal of Empirical Finance, vol. 13(4-5)

131 Ferreira M. A., Ferreira M. A. (2006), The Importance of Industry and Country Effects in the EMU Equity Markets, European Financial Management, vol. 12(3)

132 Fritsche, U., Kuzin V. (2008) Analysing Convergence in Europe Using a Nonlinear Single Factor Model, Macroeconomics and Finance Series, 200802, Hamburg University, Department Wirtschaft und Politik

133 Caporale, G. M, Erdogan B, Kuzin V (2009) Testing for convergence in Stock Markets: A Non- Linear Factor Approach, Working paper- 2845

134 Blundell, J. and Robinson, C. (2000), Regulation without the State . . . The Debate Continues, Readings 52, London: Institute of Economic Affairs.

135 H. Regnery (1973) Law, Legislation and Liberty, Vol. 1: Rules and Order. Chicago: University of Chicago Press

136 R.B Campbell (2009) Pernicious Economic Rules: The SEC's Inglorious Role in Limiting Small Business's Access to Capital. Working Paper Series p.1

137 Bradbury, R. and Ross, D.R. (1991), Regulation and Deregulation in Industrial Countries: Some Lessons for LDCs, Washington, DC: World Ban

138 Amihud, Y., H. Mendelson, and L. Pedersen, (2005). Liquidity and Asset Pricing; Foundation and Trends in Finance 1,

139 Botosan, C., (2006) Disclosure and Cost of Equity Capital: What Do We Know? Accounting and Business Research: International Accounting Policy Forum.

140 Coffee, J., (1999) The Future as History: The Prospects for Global Convergence in Corporate Governance and Its Implications. Northwestern University Law Review, 641-708.

141 Gilson R. J. (2001), Globalizing Corporate Governance: Convergence of Form or Function, 49 AM. J. COMP. L. 329

142 Gerald F. D and C. Marquis, ‘The Globalization of Stock Markets and the Convergence in Corporate Governance’, in R. Swedborg and V. Nee (2005) The Economic Sociology of Capitalism (Princeton: Princeton University Press,) 352-90, at 352

143 R. Pound (1910) Law in Books and Law in Action, 44 AMER. L. REV. 12

144 R. La Porta, F. López-de-Silanes, A. Shleifer & R. Vishny, Corporate Ownership Around the World, 54 J. FIN. 471, 491-97 (1999)

145 H. Spammann (2006) On the Insignificance and/or Endogeneity of La Porta et al.’s ‘Anti-Director Rights Index’ Under Consistent Coding (working paper),(finding only a 0.41 correlation between original LLSV index and his own recoding). This criticism does not extend to their later effort to code securities laws.

146 B. Großfeld, “Management and Control of Marketable Share Companies”, in Alfred Conard (1973), International Encyclopedia of Comparative Law, vol. XIII – Business and Private. Organizations , chapter 4

147 Bhagat, S., Bizjak, J., & Coles, J. L. (1998). The shareholder wealth implications of corporate lawsuits; Financial Management, 27, 5-27

148 Foss v Harbottle (1843) 67 ER 189; Dodge v Woolsey 59 US 331, 341 (1855)

149 P. Davies (2007) Davies Review of Issuer Liability: Final Report; Treasury (opposing significant expansion in private liability of UK issuers for securities disclosure).

150 C. Brummer (2011) ‘How International Financial Law Works (and How it Doesn't)’, Georgetown Law Journal (forthcoming, January) R.Karmel (2009), ‘The Hardening of Soft Law in Securities Regulation’, 34 Brooklyn Journal of International Law 883

25

151 J. R. Hay & A. Shleifer (1998) Private Enforcement of Public Laws: A Theory of Legal Reform, 88 Am. Econ. Rev. 398 (advocating use of private enforcement in transition economies);

152 Michael R. Bloomberg and Charles E. Schumer (2007) Sustaining New York’s and the US’ Global Financial Services Leadership: US Senate.

153 J. Armour J, Black B, Cheffins BR, and Nolan RC (2008), ‘Private Enforcement of Corporate Law An Empirical Comparison of the US

154 J. Armour (2008)‘Enforcement Strategies in UK Corporate Governance: A Roadmap and Empirical Assessment’, European Corporate Governance Institute Working Paper No 106/208

155 R. Spamann (2009) “Antidirector Rights Index” Revisited, REV FIN. STUDIES

156 supra 125

157 H. Jackson and M. J. Roe (2009) Public and Private Enforcement of Securities Laws: Resource-Based Evidence, 93 Journal of Financial Economics 207

158 J. Coffee (2007) Law and the market: the impact of enforcement. ESRC/GOVNET Workshop The Dynamics of Capital Market Governance

159 supra 153

160 J. Hill (2007)Evolving rules of the game in corporate governance reform. Working Paper Series: ESRC/GOVNET Workshop

161 J.C. Coffee (1984), ‘Regulating the market for Corporate Control: A Critical Assessment of the Tender's Offer's Role in Corporate Governance’ 84 CLR 1145.