Abstract

Corporate governance, i.e. the system by which companies are directed and controlled, has become a key topic for legislators, practitioners, and academics in all modern industrial states. The recent financial crisis has highlighted the problems. Yet one goes astray if one does not understand how the unique combination of economic, legal, and social determinants of corporate governance functions in each country. This functional comparative analysis based on reports from thirty-three countries and with references to economic literature deals with the concepts, instruments (including soft law), and sources of corporate governance, and analyzes the regulation and practice of the various actors in corporate governance: mainly the board and the shareholders, but also labor, gatekeepers (in particular the auditors), the supervisors, and the courts. In the end, a great deal of convergence emerges, though many path-dependent differences remain.

Introduction

Corporate governance is a greatly discussed topic, particularly in the aftermath of the recent financial crisis. In less than one year, it has led to three Green Papers by the European Commission; and in individual European countries and elsewhere in the world, it has attracted increased attention from legislators, courts, corporate governance commissions, members of academia, and the general public alike. Corporate governance as a concept and as a problem area was first discussed in the US; later, the European debate started in the UK. From there the issue of corporate governance began its pervasive course through all the modern industrial states, including Australia, China, and Japan. Contributions and research projects on the topic abound all over the world.

The business corporation is one of the greatest organizational inventions, but it creates risks both for shareholders and for third parties. To mitigate these risks, legislators, judges, and corporate lawyers have at all times tried to learn from foreign experiences and adapt their regulatory regimes to them. Corporate law is therefore a prime exemplar for the comparative law approach: US corporation law has evolved from European precedents, the German states copied many provisions from the French Code de Commerce, and Japan adopted rules from Germany. These are just a few prominent examples. In the last three decades, the comparative approach has grown into an interdisciplinary and international movement that led to a stream of law reforms, client memoranda, law review articles, and international conferences unseen before. Corporate governance, the system by which companies are directed and controlled, is today one of the key topics for legislation, practice, and academia around the world.

The origins of the present volume on Comparative Corporate Governance lie in the XVIIIth International Congress of Comparative Law/Le XVIIIe Congrès International de droit comparé of the International Academy of Comparative Law/L’Académie Internationale de droit comparé in Washington, DC from July 25, 2010 to August 1, 2010. The Congress devoted one section to “Commercial law/Droit commercial,” and within this section one group of international lawyers focused on “Corporate Governance/Le gouvernement d’entreprise.” Klaus J. Hopt, the General Reporter nominated by the International Academy, prepared a questionnaire (reprinted in this volume on pp. 1093–1102), to which corporate lawyers from all over the world (principally chosen by the Academy) responded with thirty-one country reports. These reports gave detailed accounts of the corporate governance regimes of Argentina, Australia, Austria, Belgium, Brazil, China, Croatia, Denmark, Finland, France, Georgia, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, Serbia, South Korea, Spain, Sweden, Switzerland, Taiwan, Turkey, the UK, and the US.

Definition of corporate governance

The term “corporate governance” is relatively new; in most jurisdictions it is not a legal term and its definition is ambiguous. For the purposes of this comparative work, the definition of the Cadbury Commission of 1992 is preferable: corporate governance is “the system by which companies are directed and controlled.” Both direction and control is relevant for a corporate governance system. More specifically, shareholder or stakeholder orientation characterizes the system. So does the prevailing shareholder constituency of a country (public companies with dispersed shareholdings as in the US, or many blockholdings, family corporations, and groups of companies as in many continental European countries). Accordingly, the prevailing principal–agent conflicts differ: between the shareholders and the board or between the controlling shareholder and the minority shareholders. A third principal–agent conflict exists between the shareholders and other stakeholders.

Internal and external corporate governance

Corporate governance is not just a question of the internal balance of powers within a corporation, but that is the focus. The main questions here concern the board (unitary board or two-tier board), the shareholders, possibly labor, and of course the audit system. The audit system consists of the audit committee of the board and the auditors of the company (in some countries internal auditors, in most countries external auditors). External auditors are in a hybrid situation between internal and external corporate governance because they are involved in the company's financial reporting, but must be independent.

Nonprofit organizations and corporate governance: an introduction from a European perspective

The state of the discussion in Europe

The preface to Volume 1 of the Non Profit Law Yearbook 2001 starts as follows:

As far as can be seen, this diagnosis is true for many other European countries as well. Even less developed is the scientific dialogue on the regulatory problems of nonprofit organizations between the different disciplines, as shown, for example, by a conference at the Max Planck Institute for Private Law in Hamburg in 2003. This conference brought together academics and practitioners from law, economics, sociology, political science, history and psychology and was a kind of primer for the lawyers as well as others. For the comparative corporate governance discussion, the lacuna is even greater; this is hardly surprising since this discussion is relatively new for corporate law as well.