Transnational Migration of Laws and Norms in Corporate Governance

doi:10.1017/9781009310321.011

9 - Transnational Migration of Laws and Norms in Corporate Governance

Fiduciary Duties and Corporate Codes

from Part II - The Recursive Development and Dynamic Consequences of Transnational Fiduciary Law

Published online by Cambridge University Press: 22 November 2023

Jennifer G. Hill

Edited by

Seth Davis ,

Thilo Kuntz and

Gregory Shaffer

Show author details

Seth Davis: Affiliation:
University of California, Berkeley School of Law
Thilo Kuntz: Affiliation:
Heinrich-Heine-Universität Düsseldorf
Gregory Shaffer: Affiliation:
Georgetown University Law Center, Washington DC

Book contents

Summary

This chapter explores the intersection of transnational law with contemporary corporate governance laws and principles. Corporate governance, with its complex array of public and private actors, fits naturally within the modern concept of transnational law as a species of law that "can no longer be viewed through a purely national lens." Financial markets today are global and interconnected and events, such as the 2007-2009 global financial crisis and the COVID-19 crisis, exemplify the risk of contagion across those markets. Not only can corporate governance problems transcend national boundaries, so too can their solutions, which often involve regulatory efforts that operate at a transnational level. The chapter explores, from a transnational perspective, the transmission of laws and norms that are designed to constrain directors’ conduct and enhance corporate accountability. It focuses on two key examples of such accountability mechanisms-fiduciary duties and corporate codes. The chapter examines, for example, the global transmission of corporate governance and shareholder stewardship codes. These codes, which are a relatively recent phenomenon, play an important role as “norm creators.” The chapter assesses the transmission of laws and norms against the backdrop of convergence and path dependence theories of corporate governance.

Keywords

transnational law fiduciary duties comparative law corporate governance codes stewardship codes norms shareholders stakeholders convergence path dependence

Information

Type: Chapter
Information: Transnational Fiduciary Law , pp. 216 - 236

DOI: https://doi.org/10.1017/9781009310321.011 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2024
Creative Commons: This content is Open Access and distributed under the terms of the Creative Commons Attribution licence CC-BY-NC-ND 4.0 https://creativecommons.org/cclicenses/

9 Transnational Migration of Laws and Norms in Corporate Governance Fiduciary Duties and Corporate Codes

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 th at 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.

Footnotes

^* Thanks go to all the participants in a symposium on Transnational Fiduciary Law at the University of California Irvine. I benefited immensely from everyone’s comments and contributions at this symposium. I would also like to thank Tim Bowley, Cally Jordan, and Iain MacNeil for helpful comments and Mitheran Selvendran and Alana Komesaroff for excellent research assistance. Finally, I am grateful to Monash University for providing funding for this research under a Networks of Excellence (NoE) Research Grant on “Enhancing Corporate Accountability.”

¹ See, e.g., Ralf Michaels, State Law as a Transnational Legal Order, 1 U.C. Irvine J. Int’l, Transnat’l & Comp. L. 141, 143 (2016) (describing transnational law as “vague” and outlining different possible meanings of transnational law). See also Peer Zumbansen, Can Transnational Law be Critical? Reflections on a Contested Idea, Field and Method, in Research Handbook on Critical Legal Theory 473, 478 (Emilios Christodoulidis et al. eds., 2019).

² See Gregory Shaffer, Theorizing Transnational Legal Ordering, 12 Ann. Rev. L. & Soc. Sci. 231, 232 (2016) (noting that references to transnational law or legal ordering are often vague, resulting in academic literature becoming “a jungle without a map”).

³ See generally Michaels, supra Footnote note 1; Terence C. Halliday & Gregory Shaffer, Transnational Legal Orders, in Transnational Legal Orders 3, 3–4, 11ff (Terence C. Halliday & Gregory Shaffer eds., 2015).

⁴ See, e.g., Benedict Kingsbury et al., The Emergence of Global Administrative Law, 68 Law. & Contemp. Probs. 15, 15 (2005).

⁵ Philip C. Jessup, Transnational Law 2 (1956).

⁶ See, e.g., Shaffer, supra Footnote note 2, at 232.

⁷ See, e.g., Halliday & Shaffer, supra Footnote note 3, at 3; Shaffer, supra Footnote note 2, at 237; Michaels, supra Footnote note 1, at 144–47.

⁸ However, according to Halliday and Shaffer, the nation-state remains a central feature of lawmaking, and therefore transnational law and state law are closely connected. See Halliday & Shaffer, supra Footnote note 3, at 13. See also Michaels, supra Footnote note 1, at 147. Major shifts can occur in the political balance between transnational and national legal orders. See, e.g., Zumbansen, supra Footnote note 1, at 473.

⁹ Halliday & Shaffer, supra Footnote note 3, at 63.

¹⁰ See generally Dionysia Katelouzou & Peer Zumbansen, The New Geographies of Corporate Governance, 42 U. Pa. J. Int’l L. 51 (2020).

¹¹ Footnote Id. at 69–70 (referring to the “distinctly transnational, hybrid formation processes of corporate governance in globalized financial markets”).

¹² See, e.g., World Economic Forum, The Financial Development Report 2009, xi (2010); Int’l Org. Sec. Comm’n (IOSCO), Remarks by David Wright, Secretary General of IOSCO, The Atlantic Council, Washington, DC, Dec. 10, 2012, 5, https://www.iosco.org/library/speeches/pdf/20121210-Wright-David.pdf (accessed June 14, 2022).

¹³ Capital market structure lies across a spectrum, from concentrated ownership to less concentrated ownership, with differing levels of institutional investment. See, e.g., OECD, OECD Corporate Governance Factbook 2021 24–26 (2021), https://www.oecd.org/corporate/Corporate-Governance-Factbook.pdf (accessed June 14, 2022); Dan W. Puchniak, The False Hope of Stewardship in the Context of Controlling Shareholders: Making Sense out of the Global Transplant of a Legal Misfit, Am. J. Comp. L. (forthcoming); OECD, Owners of the World’s Listed Companies Annex, Table A.4 (2019), https://www.oecd.org/corporate/ca/Owners-of-the-Worlds-Listed-Companies.pdf (accessed June 14, 2022).

¹⁴ See, e.g., supra Footnote note 12.

¹⁵ See, e.g., Jennifer G. Hill, Corporations, Directors’ Duties and the Public/Private Divide, in Fiduciary Obligations in Business 285 (Arthur B. Laby & Jacob Hale Russell eds., 2021); Katelouzou & Zumbansen, supra Footnote note 10.

¹⁶ See The British Acad., Policy & Practice for Purposeful Business: The Final Report of the Future of the Corporation Programme, 48 (2021) (UK).

¹⁷ See, e.g., Jeffrey N. Gordon, What Enron Means for the Management and Control of the Modern Business Corporation: Some Initial Reflections, 69 U. Chi. L. Rev. 1233 (2002); John C. Coffee, What Caused Enron?: A Capsule Social and Economic History of the 1990s, 89 Cornell L. Rev. 269 (2004).

¹⁸ See generally Jennifer G. Hill, Regulatory Responses to Global Corporate Scandals, 23 Wis. Int’l L.J. 367 (2005).

¹⁹ See John C. Coffee, A Theory of Corporate Scandals: Why the US and Europe Differ, 21 Ox. Rev. Econ. Pol. 198 (2005).

²⁰ See World Economic Forum, supra Footnote note 12.

²¹ See, e.g., Panel 1, Monash University: The Differential Health, Economic and Financial Effects of the COVID-19 Crisis, European Corporate Governance Institute (ECGI) and Global Corporate Governance Colloquia (GCGC), The COVID-19 Crisis and Its Aftermath: Corporate Governance Implications and Policy Challenges, 24 Hour Global Webinar (Apr. 16, 2020), https://ecgi.global/content/covid-19-crisis-and-its-aftermath-corporate-governance-implications-and-policy-challenges (accessed June 14, 2022) (comparing and contrasting the impact of the global financial crisis with the likely economic impact of the COVID-19 crisis).

²² See Luca Enriques, Regulators’ Response to the Current Crisis and the Upcoming Reregulation of Financial Markets: One Reluctant Regulator’s View, 30 U. PA. J. Int’l L. 1147 (2009). The quest for financial stability in the wake of the global financial crisis is a classic example of how the legalization of social orders increasingly occurs at a transnational level. Halliday & Shaffer, supra Footnote note 3, at 3.

²³ See Halliday & Shaffer, supra Footnote note 3, at 7–8. There were multiple possible explanations for the collapse of Enron and the global financial crisis, which resulted in different regulatory responses to these crises. See generally Coffee, supra Footnote note 17; Hill, supra Footnote note 18; Eilis Ferran et al., The Regulatory Aftermath of the Global Financial Crisis (2012).

²⁴ Ronald J. Gilson, From Corporate Law to Corporate Governance, in The Oxford Handbook of Corporate Law and Governance 3, 6 (Jeffrey N. Gordon & Wolf-Georg Ringe eds., 2018). See also Mariana Pargendler, The Rise of International Corporate Law, 98 Wash. U. L. Rev. 1765, 1818 (2021) (describing international corporate law as “not monolithic, but fragmented, diverse, highly networked, and dynamic”); Tim Bowley & Jennifer G. Hill, The Global ESG Stewardship Ecosystem (2022) (unpublished manuscript) (on file with the authors); Elizabeth Pollman, Corporate Social Responsibility, ESG, and Compliance, in Cambridge Handbook of Compliance 662 (D. Daniel Sokol & Benjamin van Rooij eds., 2021); Wolf-Georg Ringe, Investor-Led Sustainability in Corporate Governance (Working Paper, Nov. 2021).

²⁵ See Halliday & Shaffer, supra Footnote note 3, 5.

²⁶ See John Armour et al., Agency Problems and Legal Strategies, in The Anatomy of Corporate Law: A Comparative and Functional Approach 29 (Kraakman et al. eds., 3d ed. 2017).

²⁷ See generally Rafael La Porta et al., Law and Finance, 106 J. Pol. Econ. 1113 (1998); Rafael La Porta et al., Corporate Ownership Around the World, 54 J. Fin. 471 (1999).

²⁸ See generally Jennifer G. Hill & Matthew Conaglen, Directors’ Duties and Legal Safe Harbours: A Comparative Analysis, in Research Handbook on Fiduciary Law 305, 306–07 (D. Gordon Smith & Andrew S. Gold eds., 2018). See also Halliday & Shaffer, supra Footnote note 3, at 3.

²⁹ See Deborah A. DeMott, Fiduciary Principles in Agency Law, in Fiduciary Principles in Agency Law 23, 23–24 (Evan J. Criddle et al. eds., 2018).

³⁰ See Hosp. Prods Ltd v. US Surgical Corp. (1984) 156 CLR 41, 68 (Austl.).

³¹ Charitable Corporation v. Sutton (1742) 2 Atk. 400 (UK).

³² Footnote Id. at 406. See also Joseph W. Bishop Jr., Sitting Ducks and Decoy Ducks: New Trends in the Indemnification of Corporate Directors and Officers, 77 Yale L.J. 1078, 1096–97 (1968).

³³ These similarities also extend to a number of common law jurisdictions in Asia, such as Singapore, Hong Kong, Malaysia, and India.

³⁴ See, e.g., Umakanth Varottil, The Evolution of Corporate Law in Post-Colonial India: From Transplant to Autochthony, 31 Am. U. Int’l L. Rev. 253, 258 (2016) (noting Indian corporate law’s colonial roots).

³⁵ See generally David Cabrelli & Matthias Siems, Convergence, Legal Origins, and Transplants in Comparative Corporate Law: A Case-Based and Quantitative Analysis, 63 Am. J. Comp. L. 109 (2015).

³⁶ See Rafael La Porta et al., The Economic Consequences of Legal Origins, 46 J. Econ. Lit. 285, 286 (2008) (arguing that, historically, legal traditions were spread around the globe primarily by conquest and colonization).

³⁷ See generally Michal Barzuza, Market Segmentation: The Rise of Nevada as a Liability-Free Jurisdiction, 98 Va. L. Rev. 935, 939 (2012).

³⁸ See generally Randy J. Holland, Delaware Directors’ Fiduciary Duties: The Focus on Loyalty, 11 U. Pa. J. Bus. L. 675, 680–81 (2009). Australia also took its lead from the United Kingdom with regard to corporate law, including directors’ duties. See, e.g., Rosemary Teele Langford et al., The Origins of Company Directors’ Statutory Duty of Care, 37 Syd. L. Rev. 489, 507–08 (2015).

³⁹ See supra Footnote note 27.

⁴⁰ Halliday & Shaffer, supra Footnote note 3, at 5.

⁴¹ La Porta et al., supra Footnote note 36.

⁴² See, e.g., OECD, OECD Corporate Governance Factbook, supra Footnote note 13.

⁴³ La Porta et al., supra Footnote note 27, at 1119.

⁴⁴ See David A. Skeel, Jr., Corporate Anatomy Lessons, 113 Yale L.J. 1519, 1544–45 (2004).

⁴⁵ See generally Cabrelli & Siems, supra Footnote note 35, at 118–20.

⁴⁶ See, e.g., Henry Hansmann & Reinier Kraakman, The End of History for Corporate Law, 89 Geo. L.J. 439, 468 (2001) (famously stating “[t]he triumph of the shareholder-oriented model of the corporation over its principal competitors is now assured”).

⁴⁷ See generally Convergence and Persistence in Corporate Governance (Jeffrey N. Gordon & Mark J. Roe eds., 2004).

⁴⁸ For an overview of convergence theory and the convergence-divergence debate, see generally id.; Jeffrey N. Gordon, Convergence and Persistence in Corporate Law and Governance, in The Oxford Handbook of Corporate Law and Governance 28 (Jeffrey N. Gordon & Wolf-Georg Ringe eds., 2018).

⁴⁹ See Jennifer G. Hill, The Persistent Debate About Convergence in Comparative Corporate Governance, 27 Syd. L. Rev. 743, 744 (2005).

⁵⁰ See Stijn Claessens & Burcin Yurtoglu, Corporate Governance and Development – An Update, 10 Global Corporate Governance Forum Focus 1, 11 (2012); Cally Jordan, The Conundrum of Corporate Governance, 30 Brook. J. Int’l L. 983 (2005); Steve Kaplan & Luigi Zingales, How “Law and Finance” Transformed Scholarship, Debate, Chi. Booth Rev. (Mar. 5, 2014), https://review.chicagobooth.edu/magazine/spring-2014/how-law-and-finance-transformed-scholarship-debate (accessed June 14, 2022).

⁵¹ See, e.g., Org. for Econ. Co-operation and Dev., G20/OECD Principles of Corporate Governance 3 (2015); Jordan, supra Footnote note 50, at 986, n. 5. Cf. Amir N. Licht, Legal Plug-Ins: Cultural Distance, Cross-Listing, and Corporate Governance Reform, 22 Berkeley J. Int’l L. 195, 196 (2004) (arguing that, in the “long and checkered” history of legal transplantation, “direct transplantation efforts were largely futile in generating Western-like economic growth”).

⁵² See Cabrelli & Siems, supra Footnote note 35, at 120.

⁵³ See Gilson, supra Footnote note 24, at 5; Timothy Lane et al., IMF-Supported Programs in Indonesia, Korea, and Thailand, 178 Int’l Monetary Fund Occasional Paper 1, 72–73 (1999); John M. Broder, Asia Pacific Talks Vow Tough Action on Economic Crisis, N.Y. Times, Nov. 26, 1997, at A1.

⁵⁴ See Claessens & Yurtoglu, supra Footnote note 50, at 12. This included criticism of the study’s methodology. See, e.g., Holger Spamann, The “Antidirector Rights Index” Revisited, 23 Fin. Stud. 467 (2010). La Porta et al. responded to methodological criticism of their original study in several later papers. See Cabrelli & Siems, supra Footnote note 35, at 123.

⁵⁵ See, e.g., Skeel, supra Footnote note 44, at 1546; Katharina Pistor et al., The Evolution of Corporate Law: A Cross-Country Comparison, 23 U. Pa. J. Int’l Econ. L. 791, 799 n.27 (2002); Cabrelli & Siems, supra Footnote note 35, at 117–18; Jordan, supra Footnote note 50, at 1005, nn. 66–68. See also Martin Gelter & Geneviève Helleringer, Fiduciary Principles in European Civil Law Jurisdictions, in The Oxford Handbook of Fiduciary Law 583 (Evan J. Criddle et al. eds., 2019). In the East Asian civil law context, see Zenichi Shishido, Japanese Corporate Governance: The Hidden Problems of Corporate Law and Their Solutions, 25 Del. J. Corp. L. 189 (2000).

⁵⁶ See, e.g., Ruth V. Aguilera et al., Corporate Governance and Social Responsibility: A Comparative Analysis of the U.K. and U.S., 14 Corp. Governance: An Int’l Rev. 147, 147–48 (2006); Steven Toms & Mike Wright, Divergence and Convergence within Anglo-American Corporate Governance Systems: Evidence from the US and UK, 1950–2000, 47 Bus. Hist. 267, 267–68 (2005).

⁵⁷ Jennifer G. Hill, Subverting Shareholder Rights: Lessons from News Corp.’s Migration to Delaware, 63 Vand. L. Rev. 1, 8–9 (2010).

⁵⁸ See generally Jennifer G. Hill, The Trajectory of American Corporate Governance: Shareholder Empowerment and Private Ordering Combat, U. Ill. L. Rev. 507, 541–47 (2019).

⁵⁹ See id. at 544–47; John Morley, The Common Law Corporation: The Power of the Trust in Anglo-American Business History, 116 Colum. L. Rev. 2145, 2157–66 (2016).

⁶⁰ See generally Hill, supra Footnote note 58, at 541–44; L. C. B. Gower, Some Contrasts between British and American Corporation Law, 69 Harv. L. Rev. 1369, 1370–72 (1956). British royal chartered companies reflected the theory that the corporate form was a body, approved by the state to act in “the national interest.” See C. A. Cooke, Corporation, Trust and Company: An Essay in Legal History 78 (1950).

⁶¹ See generally Hill, supra Footnote note 58, at 541–61.

⁶² See Morley, supra Footnote note 59, at 2163.

⁶³ See generally Charles M. Yablon, The Historical Race – Competition for Corporate Charters and the Rise and Decline of New Jersey: 1880–1910, 32 J. Corp. L. 323 (2007).

⁶⁴ Joel Seligman, A Brief History of Delaware’s General Corporation Law of 1899, 1 Del. J. Corp. L. 249, 258, 273 (1976).

⁶⁵ Hill, supra Footnote note 58, at 549–53.

⁶⁶ See generally Holland, supra Footnote note 38, at 678.

⁶⁷ See generally Hill & Conaglen, supra Footnote note 28, at 309–12.

⁶⁸ See Companies Act, 2006 c. 46, pt. 10 c. 2 (UK).

⁶⁹ See Companies Act, 2006 c. 46, § 170(4) (UK).

⁷⁰ See Corporations Act, 2001, §§ 180–84 (Austl.).

⁷¹ See G. F. K. Santow, Codification of Directors’ Duties, 73 Austl. L.J. 336 (1999).

⁷² Gelter & Helleringer, supra Footnote note 55, at 583.

⁷³ See generally Hill & Conaglen, supra Footnote note 28, at 307–08.

⁷⁴ See Companies Act, 2006 c. 46, § 172 (UK).

⁷⁵ In spite of this apparently “public” focus in § 172(1), the duty remains firmly shareholder-oriented in practice, because the UK statutory directors’ duties are owed to the company, and enforceable only by the company, or its shareholders in derivative suit. See Companies Act, 2006 c. 46, § 170(1) (UK); Virginia Harper Ho, Enlightened Shareholder Value: Corporate Governance Beyond the Shareholder–Stakeholder Divide, 36 J. Corp. L. 59, 79 (2010).

⁷⁶ See Companies Act, 2013, § 166(2) (India); Varottil, supra Footnote note 34, at 315.

⁷⁷ See generally Hill & Conaglen, supra Footnote note 28.

⁷⁸ See, e.g., Julian Velasco, The Role of Aspiration in Corporate Fiduciary Duties, 54 Wm. & Mary L. Rev. 519 (2012).

⁷⁹ See, e.g., Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984); Gagliardi v. Trifoods International, Inc., 683 A.2d 1049, 1052–53 (Del. Ch. 1996).

⁸⁰ See, e.g., Malpiede v. Townson, 780 A.2d 1075 (Del. 2001).

⁸¹ The breadth of protection for breach of the duty of care has attracted criticism in recent times. See, e.g., John Armour & Jeffrey N. Gordon, Systemic Harms and Shareholder Value, 6 J. Legal Analysis 35 (2014); Holger Spamann, Monetary Liability for Breach of the Duty of Care?, 8 J. Legal Analysis 337, 339 (2016).

⁸² See Holland, supra Footnote note 38, at 687.

⁸³ See Del. Code tit. 8, § 122(17); Gabriel Rauterberg & Eric Talley, Contracting Out of the Fiduciary Duty of Loyalty: An Empirical Analysis of Corporate Opportunity Waivers, 117 Colum. L. Rev. 1075 (2017).

⁸⁴ See Hill & Conaglen, supra Footnote note 28, at 326–29.

⁸⁵ The United Kingdom does, however, include some aspects of public enforcement. See John Armour et al., Private Enforcement of Corporate Law: An Empirical Comparison of the United Kingdom and the United States, 6 J. Empirical Legal Stud. 687, 716–17 (2009). The United Kingdom is a considerably less hospitable jurisdiction for private corporate litigation than Delaware as a result of a number of key procedural differences between the two jurisdictions. See id. at 692–96.

⁸⁶ See ASIC v. Cassimatis [No 8] [2016] FCA 1023, [455], [461], [503] (Austl.); Cassimatis v. ASIC [2020] FCAFC 52, [27], [240] (Austl.). See generally Hill, supra Footnote note 15, at 297; Michelle Welsh, Realising the Public Potential of Corporate Law: Twenty Years of Civil Penalty Enforcement in Australia, 42 Fed. L. Rev. 217, 223–28 (2014).

⁸⁷ See OECD, OECD Corporate Governance Factbook, supra Footnote note 13 (classifying only six countries – namely, the United States, the United Kingdom, Australia, Canada, Finland, and Iceland – as having a “least concentrated” ownership structure for listed companies). See also Puchniak, supra Footnote note 13.

⁸⁸ See generally Gordon & Roe, supra Footnote note 47; Gordon, supra Footnote note 48.

⁸⁹ Footnote Id.

⁹⁰ See, e.g., David A. Skeel, Jr., Governance in the Ruins, 122 Harv. L. Rev. 696, 697 (2008); Curtis J. Milhaupt & Katharina Pistor, Law and Capitalism: What Corporate Crises Reveal about Legal Systems and Economic Development Around the World (2008). For instance, statutory authorization of exculpation clauses in Delaware introduced in response to business community backlash and political pressure, following the decision in Smith v. Van Gorkom, Del.Supr., 488 A.2d. 858 (1985) (US).

⁹¹ See generally Hill, supra Footnote note 18; Ferran et al., supra Footnote note 23.

⁹² See Halliday & Shaffer, supra Footnote note 3, at 7–8.

⁹³ See Matthew Harding, Fiduciary Law and Social Norms, in Fiduciary Principles in Agency Law, 797, 797 (Evan J. Criddle et al. eds., 2018) (describing social norms as “norms that guide conduct with reference to social expectations”).

⁹⁴ See generally John C. Coffee Jr., Do Norms Matter? A Cross-Country Evaluation, 149 U. Pa. L. Rev. 2151, 2154ff (2001).

⁹⁵ See, e.g., Dionysia Katelouzou & Alice Klettner, Sustainable Finance and Stewardship: Unlocking Stewardship’s Sustainability Potential, in Global Shareholder Stewardship 549 (Dionysia Katelouzou & Dan W. Puchniak eds., 2022). Yet, in some respects it seems that stewardship codes may, in fact, be playing catch up with “on the ground” developments in shareholder activism. See Tim Bowley & Jennifer G. Hill, Stewardship Codes, ESG Activism and Transnational Ordering, in Research Handbook on Environmental, Social, and Corporate Governance (Thilo Kuntz ed., 2023).

⁹⁶ Katelouzou & Zumbansen, supra Footnote note 10.

⁹⁷ Id.

⁹⁸ See Harding, supra Footnote note 93, at 797; Katelouzou & Zumbansen, supra Footnote note 10, at 73–74 (noting that “[a]s codes formulate new modes of accountability, transparency and compliance, doctrinal assessments of corporate and directors’ liability … change”).

⁹⁹ See Iain MacNeil & Irene-Marie Esser, The Emergence of “Comply or Explain” as a Global Model for Corporate Governance Codes, 33 Eur. Bus. L. Rev. 1 (2022).

¹⁰⁰ Gilson, supra Footnote note 24, at 5.

¹⁰¹ See Coffee, supra Footnote note 94.

¹⁰² See § 301 (3A) Sarbanes-Oxley Act of 2002, Pub. L. No. 107–204, 116 Stat. 745 (2002); N.Y. Stock Exchange, Listed Company Manual, § 303A (2003).

¹⁰³ See, e.g., Hill, supra Footnote note 57 (discussing how News Corporation’s move from Australia to Delaware in 2004 resulted in reduced governance rights for shareholders).

¹⁰⁴ The idea that US corporate law (specifically Delaware law) is “enabling” became an important feature of the nexus of contracts theory of the corporation. See generally Lucian Arye Bebchuk, Foreword: The Debate on Contractual Freedom in Corporate Law, 89 Colum. L. Rev. 1395 (1989). See also Elizabeth Pollman, Constitutionalizing Corporate Law, 69 Vand. L. Rev. 639, 651 (2016).

¹⁰⁵ Cf. Robert B. Thompson, Why New Corporate Law Arises: Implications for the 21st Century, in The Corporate Contract in Changing Times: Is Law Keeping Up? 3, 9–11 (Steven Davidoff Solomon & Randall Stuart Thomas eds., 2019) (noting that, after the shift to permissive state laws, US federal law assumed the “mantle of regulation”).

¹⁰⁶ See Michal Barzuza, Inefficient Tailoring: The Private Ordering Paradox in Corporate Law, 8 Harv. Bus. L. Rev. 131 (2018) (critiquing the widely held view that private ordering necessarily promotes efficiency).

¹⁰⁷ This private ordering is typically effected by shareholder proposals and bylaw amendment. See generally Hill, supra Footnote note 58, at 524–29 (2019).

¹⁰⁸ Footnote Id. at 523–24.

¹⁰⁹ Footnote Id. at 541.

¹¹⁰ See Zumbansen, supra Footnote note 1, at 473.

¹¹¹ This power struggle has resulted in each group seeking to control the content of corporate law rules via “private ordering combat.” See Hill, supra Footnote note 58, at 524–36.

¹¹² See Sir Adrian Cadbury, Report of the Committee on the Financial Aspects of Corporate Governance (Dec. 1992). For background to the establishment of the Cadbury Committee, see generally Brian R. Cheffins, The Rise of Corporate Governance in the UK: When and Why, 68 Current Legal Probs. 387, 406–08 (2015). See, however, MacNeil & Esser, supra Footnote note 99 (noting that the “comply or explain” principle from the Cadbury Code is predated by a longer tradition of self-regulation in UK corporate governance).

¹¹³ Cheffins, supra Footnote note 112, at 389–91.

¹¹⁴ See Brian R. Cheffins, The History of Corporate Governance, in The Oxford Handbook of Corporate Governance 46, 57 (Douglas Michael Wright et al. eds., 2013); Henry Bosch, The Changing Face of Corporate Governance, 25 U.N.S.W. L.J. 270 (2002).

¹¹⁵ See Cheffins, supra Footnote note 112, at 388. In the Australian context, see Bosch, supra Footnote note 114, at 274; Working Group of the Australian Institute of Company Directors, Corporate Practices and Conduct (1991).

¹¹⁶ Sir Adrian Cadbury, supra Footnote note 112.

¹¹⁷ Interestingly, the Cadbury Committee did not actually use the now-familiar term “comply or explain.” See Donald Norberg and Terry McNulty, Creating Better Boards Through Codification: Possibilities and Limitations in UK Corporate Governance, 1992–2010, 55 Bus. Hist. 348, 362 (2013). For discussion of the concept of “comply or explain” regulation and what is expected in terms of an explanation for divergence from the Principles in the governance code, see Fin. Reporting Council, The U.K. Corporate Governance Code 2 (July 2018).

¹¹⁸ See Cheffins, supra Footnote note 112, at 407; Bosch, supra Footnote note 114, at 274.

¹¹⁹ See Fin. Reporting Council, supra Footnote note 117. See also Brian R. Cheffins & Bobby V. Reddy, Thirty Years and Done – Time to Abolish the UK Corporate Governance Code (Working Paper, June 2022) (arguing that the UK Corporate Governance Code has now outlived its usefulness).

¹²⁰ See Alice Klettner, Corporate Governance Codes and Gender Diversity: Management-Based Regulation in Action, 39 U.N.S.W. L.J. 715, 715 (2016).

¹²¹ Footnote Id.

¹²² See Org. for Econ. Co-operation and Dev. (OECD), Corporate Governance Factbook 9, 41ff (2019).

¹²³ Footnote Id. at 29. A list of current international codes is available on the European Corporate Governance Institute (ECGI) website at https://ecgi.global/content/codes (accessed June 14, 2022).

¹²⁴ Org. for Econ. Co-operation and Dev. (OECD), supra Footnote note 122, at 29. See also Footnote id. at 30.

¹²⁵ According to the OECD, the United States and India rely instead on “laws, regulations and listing rules as their legal corporate governance framework.” Footnote Id. at 29.

¹²⁶ Footnote Id.

¹²⁷ China Securities Regulatory Commission (CSRC), Code of Corporate Governance for Listed Companies (2018) (China).

¹²⁸ Moira Conoley, Moves to Halt Another Decade of Excess, Fin. Times, Aug. 5, 1999, 10 (cited in Cheffins, supra Footnote note 114).

¹²⁹ MacNeil & Esser, supra Footnote note 99.

¹³⁰ Klettner, supra Footnote note 120, at 715.

¹³¹ Org. for Econ. Co-operation and Dev. (OECD), Principles of Corporate Governance (1999). The current version of these Principles is Org. for Econ. Co-operation and Dev., supra Footnote note 51 (though note that, in June 2023, revised Principles were adopted by OECD Ministers for possible approval).

¹³² Jordan, supra Footnote note 50, at 990.

¹³³ Footnote Id. at 990–91.

¹³⁴ MacNeil & Esser, supra Footnote note 99.

¹³⁵ Other prominent networks of financial regulators during the global financial crisis included the Financial Stability Board (FSB), the Basel Committee on Banking Supervision, and IOSCO. These networks operated vertically during the crisis, by promulgating informal, nonbinding soft law standards, which were subsequently transformed into hard law at a national level. See, e.g., Eric Helleiner, Regulating the Regulators: The Emergence and Limits of the Transnational Financial Legal Order, in Halliday & Shaffer, at 244–49; Jennifer G. Hill, Regulatory Cooperation in Securities Market Regulation: The Australian Experience, 17 Eur. Co. Fin. L. Rev. 11, 13–17 (2020).

¹³⁶ See generally Helleiner, supra Footnote note 135; Hill, supra Footnote note 135.

¹³⁷ Halliday & Shaffer, supra Footnote note 3, at 5.

¹³⁸ See generally Cheffins, supra Footnote note 112, at 409–11. See also Stephen Bates, How Polly Peck Went from Hero to Villain in the City, The Guardian, Aug. 27, 2010; Roger Cohen, Maxwell’s Empire: How It Grew, How It Fell – A Special Report; Charming the Big Bankers out of Billions, N.Y. Times, Dec. 20, 1991, at A1.

¹³⁹ See Fin. Reporting Council, The UK Stewardship Code (July 2010).

¹⁴⁰ See Walker Review, A Review of Corporate Governance in U.K. Banks and Other Financial Industry Entities: Final Recommendations, Nov. 26, 2009, Recommendations 16–18. The 2010 UK Stewardship Code was based on an earlier Statement of Principles on the Responsibilities of Institutional Investors, which was prepared by the UK Institutional Shareholders’ Committee (ISC) in June 2007 and subsequently transformed into a code in November 2009. See Walker Review, supra Footnote note 140, at ¶ 5.13, Annex 8.

¹⁴¹ See Fin. Reporting Council, supra Footnote note 139.

¹⁴² Fin. Reporting Council, The UK Stewardship Code (Sept. 2012).

¹⁴³ Fin. Reporting Council, The UK Stewardship Code (2020).

¹⁴⁴ See generally Jennifer G. Hill, Good Activist/Bad Activist: The Rise of International Stewardship Codes, 41 Seattle U. L. Rev. 497 (2018); Tim Bowley & Jennifer G. Hill, Stewardship and Collective Action: The Australian Experience, in Global Shareholder Stewardship 417 (Dionysia Katelouzou & Dan W. Puchniak eds., 2022).

¹⁴⁵ See, e.g., John C. Coffee, Jr., Systemic Risk after Dodd-Frank: Contingent Capital and the Need for Regulatory Strategies beyond Oversight, 111 Colum. L. Rev. 795, 799 (2011).

¹⁴⁶ See, e.g., John Plender, Shut Out, Fin. Times, Oct. 18, 2008 (asking “where were the shareholders?”); Walker Review, supra Footnote note 140, at ¶ 5.11 (stating that “[w]ith hindsight it seems clear that the board and director shortcomings … would have been tackled more effectively had there been more vigorous scrutiny and engagement by major investors acting as owners”); Andrew G. Haldane, Chief Economist, Bank of England, Who Owns A Company?, speech given at University of Edinburgh Corporate Finance Conference, 8, 11 (May 22, 2015), https://www.bis.org/review/r150811a.pdf (accessed June 14, 2022) (stating that “companies tend to have higher valuations when institutional investors are a large share of cashflow, perhaps reflecting their stewardship role in protecting the firm from excessive risk-taking”).

¹⁴⁷ A later version of the code made large claims, stating that “[e]ffective stewardship benefits companies, investors and the economy as a whole.” See Fin. Reporting Council, supra Footnote note 142, at 1.

¹⁴⁸ For a list of jurisdictions that have to date adopted stewardship code or analogous initiatives, see Alice Klettner, Stewardship Codes and Shareholder Participation in Governance, 70 Governance Directions 227, 228–29, Table 1 (2018). See also Dionysia Katelouzou and Mathias Siems, The Global Diffusion of Stewardship Codes, in Global Shareholder Stewardship 631 (Dionysia Katelouzou & Dan W. Puchniak eds., 2022).

¹⁴⁹ Katelouzou & Klettner, supra Footnote note 95.

¹⁵⁰ Jurisdictions in Asia that have adopted a form of stewardship code to date include Japan, Malaysia, Hong Kong, Taiwan, Singapore, South Korea, and Thailand. Id.

¹⁵¹ See, e.g., Paul Davies, Shareholders in the United Kingdom, in Research Handbook on Shareholder Power 355, 356 (Jennifer G. Hill & Randall S. Thomas eds., 2015); House of Commons Business, Energy and Industrial Strategy Committee, Corporate Governance: Fourth Report of Session 2016–17, Mar. 30 2017 at §§ 13–16.

¹⁵² See Puchniak, supra Footnote note 13; OECD, Owners of the World’s Listed Companies, supra Footnote note 13 (Average ownership by category of investor, end-2017). In a controlling blockholder context, increasing shareholder rights or responsibilities may be irrelevant, or indeed counterproductive, as an accountability device. See Luh Luh Lan & Umakanth Varottil, Shareholder Empowerment in Controlled Companies: The Case of Singapore, in Hill & Thomas, supra Footnote note 151, at 572; Kon Sik Kim, Dynamics of Shareholder Power in Korea in Hill & Thomas, supra Footnote note 151, at 535.

¹⁵³ See Puchniak, supra Footnote note 13; Gen Goto et al., Diversity of Shareholder Stewardship in Asia: Faux Convergence, 53 Vand. J. Transnat’l L. 829 (2020).

¹⁵⁴ Dan W. Puchniak & Samantha S. Tang, Singapore’s Puzzling Embrace of Shareholder Stewardship: A Successful Secret, 53 Vand. J. Transnat’l L. 989 (2020).

¹⁵⁵ Footnote Id.; Ernest Lim, Sustainability and Corporate Mechanisms in Asia 188–96 (2020).

¹⁵⁶ See generally MacNeil & Esser, supra Footnote note 99.

¹⁵⁷ For discussion of the significance of authorship of rules in the M&A context, see John Armour & David A. Skeel, Jr., Who Writes the Rules for Hostile Takeovers and Why? The Peculiar Divergence of U.S. and U.K. Takeover Regulation, 95 Geo. L.J. 1727 (2007). See generally Hill, supra Footnote note 144, at 507–13.

¹⁵⁸ See Katelouzou & Klettner, supra Footnote note 95; Bowley & Hill, supra Footnote note 95.

¹⁵⁹ See generally Klaus J. Hopt, Comparative Corporate Governance: The State of the Art and International Regulation, 59 Am. J. Comp. L. 1, 8 (2011).

¹⁶⁰ Footnote Id. at 8–10.

¹⁶¹ See MacNeil & Esser, supra Footnote note 99.

¹⁶² See ISG, About the Investor Stewardship Group and the Framework for US Stewardship and Corporate Governance, https://isgframework.org/ (accessed June 14, 2022).

¹⁶³ ISG, Corporate Governance Principles for U.S. Listed Companies (Jan. 2017), https://www.isgframework.org/corporate-governance-principles/ (accessed June 14, 2022).

¹⁶⁴ Signatories to the principles include, for example, BlackRock, Vanguard, and State Street Global Advisers. For the full list of signatories to the ISG Corporate Governance Principles and Stewardship Principles, see https://isgframework.org/signatories-and-endorsers/ (accessed June 14, 2022).

¹⁶⁵ Activist hedge fund signatories include Value Act Capital and Trian Partners. Id.

¹⁶⁶ See, e.g., ISG, supra Footnote note 163, Principles 1, 2 and 3.

¹⁶⁷ See Fin. Reporting Council, About the FRC, https://www.frc.org.uk/about-the-frc, https://www.isgframework.org/corporate-governance-principles/ (accessed June 14, 2022).

¹⁶⁸ ASX Corp. Governance Council, Australian Securities Exchange (ASX) Corporate Governance Council, Corporate Governance Principles and Recommendations, 4th ed. (Feb. 2019), https://www.asx.com.au/documents/regulation/cgc-principles-and-recommendations-fourth-edn.pdf (accessed June 14, 2022). The ASX Corporate Governance Council comprises a group of industry stakeholders. See About the Council, Footnote id. at 1.

¹⁶⁹ See generally Hill, supra Footnote note 15, at 289 (discussing the ongoing tension between public and private conceptions of the corporation).

¹⁷⁰ Fin. Reporting Council, supra Footnote note 117, at 4, Principle A.

¹⁷¹ See generally Jennifer G. Hill, Shifting Contours of Directors’ Fiduciary Duties and Norms in Comparative Corporate Governance, 5 U.C. Irvine J. Int’l Transnat’l & Comp. L. 163, 178–80 (2020). See also Cheffins & Reddy, supra Footnote note 119 (arguing that a “comply or explain” approach is ill-suited to the increased focus on stakeholder interests in the most recent iteration of the UK governance code).

¹⁷² See, e.g., Katelouzou & Zumbansen, supra Footnote note 10; Bowley & Hill, supra Footnote note 24; Ringe, supra Footnote note 24; Pollman, supra Footnote note 24, at 668–70.

¹⁷³ See generally Hill, supra Footnote note 144, at 507–08.

¹⁷⁴ Footnote Id. at 508–09.

¹⁷⁵ Footnote Id. at 509–13.

¹⁷⁶ See generally Bowley & Hill, supra Footnote note 144. See also Gaia Balp & Giovanni Strampelli, Institutional Investor Collective Engagements: Non-Activist Cooperation vs Activist Wolf Packs, 14 Ohio St. Bus. L.J. 135 (2020).

¹⁷⁷ See Ben McLannahan, Japanese Reformists Face Challenge over Shake-Up of Corporate Governance Laws, Fin. Times, May 25, 2014.

¹⁷⁸ See Gen Goto, The Japanese Stewardship Code: Its Resemblance and Non-resemblance to the UK Code, in Global Shareholder Stewardship 222 (Dionysia Katelouzou & Dan W. Puchniak eds., 2022); Gen Goto, The Logic and Limits of Stewardship Codes: The Case of Japan, 15 Berkeley Bus. L.J. 365 (2019).

¹⁷⁹ See generally Hill, supra Footnote note 144, at 513–24.

¹⁸⁰ See supra Footnote note 178.

¹⁸¹ See Lim, supra Footnote note 155, at 174.

¹⁸² John Kingman, Independent Review of the Financial Reporting Council (“Kingman Review”) (2018).

¹⁸³ According to the Kingman Review, the 2012 UK Stewardship Code, which it considered in its review, “whilst a major and well-intentioned intervention, is not effective in practice.” Footnote Id. at 8.

¹⁸⁴ See Fin. Reporting Council, supra Footnote note 143. See also Fin. Reporting Council, Revised and Strengthened UK Stewardship Code Sets New World-Leading Benchmark (Oct. 24, 2019), https://www.frc.org.uk/news/october-2019/revised-and-strengthened-uk-stewardship-code-sets (accessed June 14, 2022).

¹⁸⁵ See Fin. Reporting Council, supra Footnote note 143, at 11, 13. The 2020 UK Stewardship Code followed the recommendations of the Kingman Review in this regard. See Kingman, supra Footnote note 182, at 10.

¹⁸⁶ See Fin. Reporting Council, supra Footnote note 143, at 15, 27; Paul Davies, The UK Stewardship Code 2010–2020: From Saving the Company to Saving the Planet?, in Global Shareholder Stewardship 44 (Dionysia Katelouzou & Dan W. Puchniak eds., 2022). ESG has become an increasingly important issue in many stewardship codes in recent times. See Katelouzou & Klettner, supra Footnote note 95 (discussing the interplay between hard law and soft law, in the form of stewardship codes, in relation to ESG and sustainability issues).

¹⁸⁷ See generally Hill & Conaglen, supra Footnote note 28.

¹⁸⁸ See Hill, supra Footnote note 15, at 290–91; Davies, supra Footnote note 186 (highlighting the enlarged objectives of the revised UK Code); Bobby V. Reddy, The Emperor’s New Code? Time to Re-Evaluate the Nature of Stewardship Engagement under the UK’s Stewardship Code 84 Mod. L. Rev. 842, 849 (2021); Katelouzou & Klettner, supra Footnote note 95.

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