9.1 Introduction
Transnational law is a far-from-settled concept.Footnote 1 There is uncertainty as to what the term actually means,Footnote 2 and how it differs from other concepts,Footnote 3 such as national legal ordering or global law.Footnote 4 For early theorists in the field, the essence of transnational law was its role in regulating conduct or events that crossed national boundaries.Footnote 5 More recent scholarship, however, has focused not on what is being regulated,Footnote 6 but rather on how laws and norms are transmitted between supranational and local levels.Footnote 7 Nonetheless, a common theme underpinning most conceptions of transnational law is that it involves social problems and solutions that transcend any individual state,Footnote 8 and that, as a result, “[l]aw can no longer be viewed through a purely national lens.”Footnote 9
Corporate governance, with its array of public and private actors,Footnote 10 fits naturally within the concept of transnational law.Footnote 11 Financial markets today are global and interconnected,Footnote 12 and transnational law provides a valuable framework for examining a range of contemporary corporate governance issues. Although capital market structures across jurisdictions vary significantly,Footnote 13 globalization increases the risk of similar or shared problems, which can be exacerbated via contagion across financial markets.Footnote 14 In this environment, the corporation has taken on a greater societal role.Footnote 15 Indeed, according to The British Academy’s influential Future of the Corporation project, the main purpose of business today is “to solve the problems of people and planet profitably.”Footnote 16
A spate of corporate law scandals and crises in recent decades has highlighted the transnational nature of contemporary corporate governance. At the beginning of the twenty-first century, scandals, including Enron and WorldCom in the United States,Footnote 17 occurred around the world.Footnote 18 Although these scandals appeared in multiple jurisdictions, they were arguably isolated events with different origins and motivations.Footnote 19 The same cannot be said of the 2007–09 global financial crisis, which exemplified the risk of contagion across interconnected financial markets.Footnote 20 This risk is again apparent in the continuing economic fallout from the COVID-19 crisis.Footnote 21
Not only can corporate governance problems transcend national boundaries, so too can their solutions, which often involve regulatory efforts at both a national and transnational level.Footnote 22 Discerning the causes of these crises is rarely an easy feat, yet the framing of the underlying problems can be critical to the particular legal solutions adopted.Footnote 23
Corporate governance today is highly fragmented; it has been described as “a braided framework encompassing legal and non-legal elements.”Footnote 24 These elements operate to “constrain and enable” the behavior of key corporate players, which is an important aspect of transnational legal orders.Footnote 25 This chapter explores, from a transnational perspective, the transmission of laws and norms that constrain directors’ conduct and enhance corporate accountability,Footnote 26 focusing on two key examples of such accountability mechanisms – fiduciary duties and corporate codes. The chapter begins with a comparative and historical examination of directors’ fiduciary duties in the United States, the United Kingdom, and Australia. It analyzes whether the transfer of fiduciary law to these common law jurisdictions has resulted in a unified approach to directors’ duties, as is often assumed by studies such as the law matters hypothesis.Footnote 27 The chapter then moves on to discuss the modern phenomenon of national corporate codes, which originated in the United Kingdom in the early 1990s. The chapter considers the global transmission of these codes and their role as “norm creators.” It also assesses the transmission of these laws and norms against the backdrop of convergence and path dependence theories in corporate governance.
9.2 Transmission of Law through Legal Transplantation and Imitation: Uncommon Common Law Approaches to Directors’ Fiduciary Duties
Fiduciary duties constitute one of the most important legal mechanisms for constraining the conduct of company directors. The law of fiduciary duties was, from a historical perspective, a distinctly national affair.Footnote 28 The classification of company directors as “fiduciaries” represented a central pillar of early British law, developing by analogy to trustees and agents,Footnote 29 who were considered archetypal fiduciaries.Footnote 30 The famous 1742 UK decision, Charitable Corp v. Sutton (“Sutton’s case”),Footnote 31 laid the groundwork for modern directors’ duties, with Lord Hardwicke LC stating that directors were bound to execute their responsibilities with “fidelity and reasonable diligence.”Footnote 32
There are strong similarities in the approach to directors’ fiduciary duties across common law jurisdictions, such as the United Kingdom, the United States and Australia.Footnote 33 This is hardly surprising, given the United Kingdom’s colonial past.Footnote 34 The similarities are often clear historical examples of legal transplantationFootnote 35 of British law to other common law jurisdictions.Footnote 36 In Delaware, the most important US state for the purposes of corporate law,Footnote 37 directors’ duties of loyalty and care today are the direct descendants of Lord Hardwicke’s description of eighteenth-century British directors’ responsibilities.Footnote 38
Similarities between common law jurisdictions were an important aspect of La Porta et al.’s influential law matters hypothesis, promulgated over two decades ago.Footnote 39 This hypothesis had significant implications for the “settlement and unsettlement of legal norms”Footnote 40 within a transnational legal ordering framework. The hypothesis claimed that investor legal protection is directly linked to a jurisdiction’s financial development,Footnote 41 and predicted that jurisdictions with superior investor protection would develop deep dispersed capital market structures, such as those in the United States and the United Kingdom.Footnote 42 “Legal origins” played a central role in the hypothesis, since the study concluded that common law jurisdictions within the British “legal family”Footnote 43 provided stronger investor protection than civil law jurisdictions.Footnote 44 One feature of the common law system that the study viewed as particularly advantageous was the central role of independent judges, who rely on legal reasoning to decide cases.Footnote 45 Judicial reasoning is a central feature of the development of fiduciary law.
The law matters hypothesis contributed to a major debate in comparative corporate governance as to whether corporate law regimes would convergeFootnote 46 or whether, as path dependence theorists argued, legal differences around the world would persist.Footnote 47 The law matters hypothesis provided powerful support for convergence theory,Footnote 48 since it assumed that jurisdictions with substandard legal rules would follow the siren song of economic efficiency and adopt superior rules by means of voluntary imitation.Footnote 49
The law matters hypothesis proved to be extraordinarily influential in defining a set of problems and their solutions.Footnote 50 It also had real-world consequences in terms of changes to legal rules and norms. On the premise that good corporate governance can improve national economic performance, major international organizations, such as the Organisation for Economic Co-operation and Development (“OECD”), developed model corporate governance rules for ready international transplantation.Footnote 51 The World Bank also adopted the methodology of the law matters study, applying it to a number of working papers, including the bank’s Doing Business reports.Footnote 52 These supranational organizations sometimes required corporate governance reforms as a condition of financial assistance.Footnote 53
In spite of its influence, the law matters hypothesis attracted widespread academic criticism.Footnote 54 Much of the censure related to the study’s Manichean divide between common law and civil law systems.Footnote 55 Another, albeit less prominent, criticism was that the hypothesis overstated the similarities within the common law world.Footnote 56
Although it is often assumed that there is a unified common law approach to fiduciary duties, there are, in fact, significant granular differences at a national level, which, in accordance with transnational legal theory, is also reflected in actual legal practice at the local level. These differences across common law jurisdictions illustrate how supposedly shared laws and norms can diverge in their operation across jurisdictions and over time.Footnote 57
For example, although US corporate law descended from English company law, each legal system had a different organizational starting point.Footnote 58 These different starting points radically altered UK and US corporate law trajectories. Modern UK company law derives from the unincorporated joint-stock company, which was a quintessentially private body, with strong contractual elements.Footnote 59 US corporate law, on the other hand, developed from a very different type of organization, the British royal chartered corporation, which had strong quasi-public roots and strict mandatory rules limiting directors’ actions.Footnote 60 The effect of these different organizational starting points – and subsequent backlash against those starting points – affected the scope of directors’ discretion and the role of fiduciary duties.Footnote 61 Whereas, for instance, early American general incorporation law statutes tightly constrained directors’ conduct,Footnote 62 this changed in the late nineteenth-century era of competition for corporate charters.Footnote 63 It was during this period, that Delaware substituted the corporation, rather than the state, as primary “law-maker,”Footnote 64 resulting in a new vision of US corporate law as inherently “enabling.”Footnote 65
Another difference across common jurisdictions relates to the sources of modern directors’ duties. In Delaware, directors’ fiduciary duties, true to their historical roots, are purely equitable.Footnote 66 There has been a shift, however, under modern UK and Australian law toward statutory directors’ duties.Footnote 67 UK directors’ statutory duties, which were introduced in 2006,Footnote 68 eradicate and replace common law and equitable duties,Footnote 69 whereas Australia’s statutory dutiesFootnote 70 operate in addition to the general law.Footnote 71
The jurisdictions also adopt different approaches as to which directors’ duties should, and should not, be classified as “fiduciary.” US corporate law tends to regard all directors’ duties, including the duty of care, as fiduciary in nature; however, UK and Australian courts only characterize proscriptive duties (or duties requiring “self-denial”)Footnote 72 as fiduciary.Footnote 73 The jurisdictions differ too on the extent to which stakeholder interests are implicated in directors’ duties. Whereas Delaware and Australia have traditionally adopted a shareholder-centred approach to directors’ duties, the United Kingdom now applies an “enlightened shareholder value”Footnote 74 approach to corporate governance, which requires directors to consider the interests of a wide range of stakeholders when making business decisions.Footnote 75 India, another common law jurisdiction, goes even further in this regard, adopting a “pluralist approach” that recognizes the interests of both stakeholders and shareholders, “without necessarily indicating a preference to either.”Footnote 76
The stringency of fiduciary duties is affected by the scope of certain safe harbors available to directors.Footnote 77 A disparity across jurisdictions in this regard is particularly evident in the context of the duty of care.Footnote 78 In Delaware, for example, directors receive a high level of protection against monetary liability for breach of the duty of care as a result of the generous US business judgment rule.Footnote 79 Even gross negligence will not generally attract liability,Footnote 80 given the operation of Del GCL § 102(b)(7), which expressly authorizes the inclusion of exculpation clauses in corporate charters.Footnote 81 It also seems that the bedrock of Delaware fiduciary law,Footnote 82 the duty of loyalty, can itself now be waived in some circumstances.Footnote 83 The same is certainly not true of the UK and Australian legal regimes, which offer far less protection to directors for breach of their duties.Footnote 84
Enforcement of directors’ duties is another important way in which these jurisdictions differ from one another. Although private enforcement is the norm in the United States and the United Kingdom,Footnote 85 Australian corporate law relies predominantly on a public enforcement regime, whereby the business regulator, the Australian Securities and Investments Commission (“ASIC”), is responsible for enforcing statutory directors’ duties. It appears that this mode of enforcement has also affected the substance of directors’ duties in Australia, shifting them from the realm of private duties to public duties.Footnote 86
These differences relating to fiduciary duties in jurisdictions that share a common law heritage sit uneasily with the law matters hypothesis. Furthermore, the kind of global convergence in corporate law rules, and the accompanying shift in capital market structure, which was predicted by the law matters hypothesis, has not eventuated. Concentrated share ownership has, in fact, increased and continues to be a far more common capital market structure around the world than dispersed ownership.Footnote 87
These fiduciary duty differences are more consistent with a path dependence theory of legal development.Footnote 88 Path dependence stresses the importance of historical, political, and social factors in the settling of laws and norms.Footnote 89 Each of these factors is important in explaining fiduciary duty differences across common law jurisdictions. Legal change in this area has also often occurred as a result of commercial backlash and strategic responses of regulated parties themselves.Footnote 90
Finally, corporate scandals and crises are prime drivers of legal change. They often result in jurisdictionally tailored regulatory responses,Footnote 91 which can differ depending upon the framing of the underlying problem that needs to be addressed.Footnote 92 Transmission of law by means of transplantation or voluntary imitation is, therefore, by no means the end of the story. The transmitted law will remain dynamic and continually evolving in local context. This is inevitable, given the possibility of different interpretations of the law at a local level, different priorities concerning policy and enforcement, and the way in which commercial pushback can actually alter the contours of the law.
9.3 The Transnational Impact of Corporate Codes as Norm Creators
The behavior of corporate actors is not only shaped by enforceable national laws. It is also shaped by social normsFootnote 93 and governance practices, which may indeed be more important than formal legal rules in affecting the behavior of certain corporate actors, including directors.Footnote 94
Corporate codes can be influential sources of norms that affect directors’ behavior.Footnote 95 These codes, which provide a sharp contrast with state-made law,Footnote 96 have become an important feature of modern corporate governance, and the norms they create are in a state of continuous development.Footnote 97 Two types of code are particularly significant in this respect – corporate governance codes (“governance codes”) and shareholder stewardship codes (“stewardship codes”).
In establishing norms associated with governance procedures and practices, these codes operate in a parallel universe to corporate law. However, they can also interact in complex ways with mandatory corporate law rules, such as fiduciary duties,Footnote 98 to drive greater international convergence or divergence. Whereas fiduciary law constitutes an ex post species of regulation, governance codes operate as a form of ex ante self-regulation, which can determine and transmit societal expectations of corporate actors.Footnote 99 Such codes can affect the scope of directors’ discretion; the balance of power within the corporation; the nature of the directors’ obligations; and enforcement mechanisms.
Corporate codes epitomize the movement away from “legal rules standing alone to legal rules interacting with non-legal corporate processes and institutions,”Footnote 100 which characterizes modern corporate governance. Furthermore, the lines between formal legal rules and norms can sometimes be blurred and hard to define,Footnote 101 and there can be movement in either direction between hard law, comprising enforceable legal rules, and soft law, encompassing norms. For example, the appointment of independent directors on US listed public company boards was a prevalent business norm well before it became mandated under the 2002 reforms following Enron’s collapse.Footnote 102
Interesting tensions between hard law and soft law are also apparent at an international level. Many common law jurisdictions – though not the United States – protect certain fundamental shareholder rights by mandatory rules in their corporations legislation.Footnote 103 The vision of Delaware corporations law as inherently “enabling”Footnote 104 has restricted the level of mandatory rules under US state corporations law.Footnote 105 As a result, much of US corporate law is made, not by the state but rather by private ordering by corporate actors.Footnote 106 In recent times, institutional investors have sought to use private ordering to transplant numerous mandatory shareholder protection rules, embedded by statute in other common law jurisdictions, into the United States on a company-by-company basis.Footnote 107 This US trend demonstrates the use of private ordering by shareholders as a self-help mechanism. It suggests that, in an era of globalized investment, institutional investors have become increasingly aware of comparative legal rights across jurisdictions,Footnote 108 and it has effectively rendered the United States an importer, rather than exporter, of corporate law.Footnote 109 The trend also represents a challenge to transnational law assumptions about the meaning of “globalized business interests,”Footnote 110 since it highlights the fact that there is a power struggle in this regard between formidable global institutional investors and US boards of directors.Footnote 111
Corporate codes have been responsible for the global transplantation of norms over the last few decades. Governance codes can be traced back to the influential 1992 UK Cadbury Committee Report.Footnote 112 Although the concept of “corporate governance” had entered the US lexicon during the 1970s,Footnote 113 it was not embraced in other common law jurisdictions, such as the United Kingdom and Australia, until the beginning of the 1990s.Footnote 114 The Cadbury Committee Report was a major catalyst in its uptake.Footnote 115
The Cadbury Committee’s Final Report was accompanied by a Code of Best Practice.Footnote 116 The famous “comply or explain”Footnote 117 aspect of many governance codes was bolstered shortly afterward by an amendment to the London Stock Exchange Listing Rules, requiring all listed companies to include a statement in their annual reports as to whether they fully adhered to the Code of Best Practice.Footnote 118 Although adherence to the code was not mandatory, any divergence required an explanation. The current version of this code is the 2018 UK Corporate Governance Code.Footnote 119
Since the Cadbury Committee laid down the blueprint for governance codes, their transmission around the world has been remarkable. In 1999, only twenty-four countries were reported to have a national governance code.Footnote 120 This number rose to sixty-four by 2008 and to ninety-three by 2015.Footnote 121 Almost all of the forty-nine jurisdictions evaluated in a 2019 OECD surveyFootnote 122 had a national governance code or principles,Footnote 123 with 83 percent of those operating on a “comply or explain” basis.Footnote 124 Yet, the exceptions in the OECD survey were notable. Neither the United States nor India had adopted a national governance code.Footnote 125 China was also an outlier,Footnote 126 though for different reasons. China has a national governance code in place, but, unlike most other countries’ codes, which operate on a voluntary, “comply or explain” basis, the Chinese provisions are mandatory.Footnote 127
What accounts for the success of governance codes as a regulatory technique and their rapid transmission? One important factor was timing. The 1990s, which have been described as “the decade of corporate governance,”Footnote 128 witnessed a decline in capital market segmentation, accompanied by the rise of globalized capital markets and investment strategies.Footnote 129 This proved to be a ripe environment for reception of norms relating to improved governance practices and procedures.
The spread of governance codes was also aided by a development involving the vertical transmission of norms. In 1999, when only twenty-four countries had adopted a UK-style governance code,Footnote 130 the OECD released the first version of its supranational Principles of Corporate Governance.Footnote 131 As one scholar has noted, the OECD principles were not plucked “from thin air.”Footnote 132 Rather, they relied on national governance codes, predominantly from common law jurisdictions like the United Kingdom.Footnote 133 As the OECD principles received increased attention at the supranational level, the rate of horizontal transmission of governance codes accelerated. This two-directional dynamic effectively transformed the Cadbury Committee’s original governance code into an international standard.Footnote 134 Top-down vertical transmission of norms by transnational networks, such as the OECD,Footnote 135 became increasingly visible during the 2007–09 global financial crisis.Footnote 136 These developments in contemporary corporate regulation epitomize the fact that transnational legal ordering occurs “multi-directionally and recursively up from and down to the national and local levels.”Footnote 137
Corporate scandals and crises have had a central role in the development of corporate codes. In the case of governance codes, for example, the Cadbury Committee’s relevance was heightened by a wave of British business scandals that occurred during the committee’s deliberations.Footnote 138 The United Kingdom also became the first jurisdiction to adopt a national stewardship code,Footnote 139 which was a direct response to the global financial crisis.Footnote 140 The original UK Stewardship Code was adopted in 2010,Footnote 141 with revised versions issued in 2012Footnote 142 and 2020.Footnote 143
Stewardship codes highlight the important link between problem framing and regulatory outcomes.Footnote 144 For example, a common view in the United States in the aftermath of the global financial crisis was that shareholders contributed to the crisis, by exerting pressure on corporate managers to engage in excessive risk-taking to increase profitability.Footnote 145 Yet, a very different interpretation of the crisis existed in the United Kingdom. The prevalent UK view was that the real problem had been the failure by institutional investors to participate actively in corporate governance and to provide an effective counterweight to excessive managerial risk-taking.Footnote 146 The 2010 UK Stewardship Code was designed to address this problem.Footnote 147
The horizontal transmission of stewardship codes has, like governance codes, been rapid and widespread. Since 2010, more than twenty countries have followed the United Kingdom’s lead in adopting stewardship codes, and that number is growing.Footnote 148 Like the original UK Code, most stewardship codes around the world operate on a “comply or explain” basis, and signing up to such codes is also usually voluntary.Footnote 149
Asian jurisdictions, in particular, have been eager to embrace stewardship codes.Footnote 150 This is in spite of the fact that the structure of Asian capital markets is fundamentally different from the UK capital market structure. Unlike UK listed companies, where the vast majority of shares are held by institutional investors,Footnote 151 Asian listed companies typically have concentrated ownership structures, with family members or the state as controlling blockholders.Footnote 152 This underlying difference can skew the operation of these codes, so that any similarity to the original UK model is superficial only.Footnote 153 For example, it has been argued that Singapore’s “near carbon-copy” of the UK Stewardship Code in fact upends the UK model’s goal of enhancing institutional investor participation.Footnote 154 Instead, Singapore’s version can operate to bolster the existing power of majority shareholders in state-controlled and family-controlled companies, thereby potentially reducing the incentives of institutional investors to participate in corporate governance.Footnote 155
Although the United Kingdom has been the progenitor of governance codes and stewardship codes around the world, the adopted codes are by no means uniform. There is considerable divergence in the substance of these codes,Footnote 156 which is attributable to a range of factors, including the issue of “who writes the rules.”Footnote 157 Divergence is particularly noticeable in terms of the emphasis given to environmental, social and governance (ESG) in modern codes.Footnote 158
A range of different organizations have responsibility for the authorship of corporate codes. They include government agencies, stock exchanges, and business organizations.Footnote 159 These diverse origins can result in major differences concerning the stringency and enforceability of codes.Footnote 160 They can also affect the content of the codes, including whether the codes emphasize shareholder or stakeholder interests.Footnote 161 For example, the United States does not have a national governance code. However, in 2017, the Investor Stewardship Group (“ISG”)Footnote 162 issued the US Corporate Governance Principles,Footnote 163 which are a set of purely voluntary, self-regulatory norms concerning governance. ISG is a collective of some of the largest US-based and international asset owners and managers,Footnote 164 including several activist hedge funds.Footnote 165 Given the identity of the actors behind the US governance principles, it is hardly surprising that the norms they contain reflect a strongly private, shareholder-focused conception of corporate governance and directors’ duties.Footnote 166
These US norms provide a striking contrast with the trajectory of contemporary UK and Australian governance codes. The UK governance code is administered by an independent government-backed regulator, the Financial Reporting Council (“FRC”),Footnote 167 and the Australian version is overseen by a governance committee of the Australian Securities Exchange (“ASX”).Footnote 168 Recent amendments to the UK and Australian governance codes represent a far more public conception of the corporation and of directors’ responsibilities than the US Corporate Governance Principles.Footnote 169 The 2018 UK Corporate Governance Code notes, for example, that the role of a successful company is not only to create value for shareholders but also to contribute to “wider society.”Footnote 170 Both the UK and the Australian governance codes also pay heightened attention to the interests of stakeholders, particularly employees.Footnote 171 They exemplify how, in contrast to traditional corporate law, governance norms today cover a pluralistic range of concerns, which are promoted by state and private actors alike.Footnote 172
The issue of “who writes the rules” is also highly relevant to stewardship codes. In some jurisdictions, such as the United Kingdom and Japan, stewardship codes are issued by government regulators or quasi-regulators.Footnote 173 In others, such as South Korea and South Africa, they are promulgated by industry players.Footnote 174 Finally, in some countries, including Australia, Canada, and the United States, stewardship codes have been initiated by investors themselves.Footnote 175 This divergence concerning “who writes the rules” can influence the content and effectiveness of particular stewardship codes, and can also affect the extent to which shareholder activism, including collective activism, is tolerated and encouraged.Footnote 176
The regulatory goals underpinning the introduction of stewardship codes also vary across jurisdictions. The aim of the original UK Stewardship Code was to provide a check on excessive risk-taking in the aftermath of the global financial crisis. Yet, in Japan, one of the earliest jurisdictions to transplant a UK-style stewardship code, the policy rationale was quite different. Japan’s code was designed to reverse declining profitability and increase investor returns, by creating a “warmer climate” for foreign investors and shareholder activists.Footnote 177 Japan’s adoption of a stewardship code also demonstrates how localized political friction can affect the content of such codes. Japan’s stewardship code adopted a relatively gentle approach concerning shareholder activismFootnote 178 compared to the UK prototype.Footnote 179 It seems that this was a compromise to appease Japanese critics, who resisted the shift effected by the code from a stakeholder-oriented approach to a stronger shareholder-oriented focus.Footnote 180 It has been argued that other Asian jurisdictions, such as Singapore, Hong Kong, and Malaysia, have adopted stewardship codes in order to signal their commitment to good corporate governance, thereby attracting foreign investment in global capital markets.Footnote 181
Another factor undermining international convergence of corporate codes is that the underlying UK model has itself undergone fundamental changes over time, creating further disjunction across jurisdictions. For example, in 2018, a British regulatory reviewFootnote 182 branded the much-vaunted and imitated UK Stewardship Code a failure.Footnote 183 The FRC responded to this damning assessment by adopting a “substantial and ambitious” revised version of the code, the 2020 UK Stewardship Code.Footnote 184 This new UK Code emphasizes shareholder stewardship activities and outcomes over aspirational policies.Footnote 185 It also includes far broader aims than earlier versions, with a marked shift from stewardship involving protection of shareholder interests toward stewardship that encompasses ESG issues, including climate change.Footnote 186
9.4 Conclusion
Fiduciary duties and corporate codes, which are designed to constrain directors’ conduct and enhance corporate accountability, are key aspects of corporate governance. This chapter discusses some of the complex processes by which these laws and norms have been transmitted nationally and transnationally, and the extent to which this transmission has contributed to a uniform regulatory approach.
It is often assumed that there is a cohesive approach to the law of fiduciary duties across common law jurisdictions. The chapter provides a comparative and historical analysis of three common law jurisdictions – the United States, the United Kingdom, and Australia – and shows that, in spite of their common legal heritage, there are sufficiently important granular differences at a national level, in terms of both law and local legal practice, to challenge the existence of any homogeneous law regarding directors’ fiduciary duties in these jurisdictions.Footnote 187
The chapter also discusses an important transnational regulatory development, which has occurred in recent decades across both common law and civil jurisdictions. This is the rise of corporate codes, such as governance codes and stewardship codes. These codes also embody important norms, and could, in theory, contribute to greater corporate governance convergence around the world. However, a critical issue in relation to corporate codes is “who writes the rules.” In fact, a range of different bodies issue and administer these codes, and this can affect the focus of the codes and the norms they contain.
Codes are also constantly evolving and can operate differently depending on the underlying capital market structure of the jurisdictions in which they operate. Not only can these codes differ across jurisdictions, they can also transmute over time, particularly in responding to corporate scandals and crises. For example, some recent codes, such as the 2020 UK Stewardship Code, reflect an image of the corporation as having a far greater societal role.Footnote 188 The evolution of both fiduciary duties and corporate codes discussed in this chapter is more consistent with path dependence, rather than convergence, theory in corporate governance.
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