Global Markets, Domestic Institutions

Global Markets, Domestic Institutions: Corporate Law and Governance in a New Era of Cross-Border Deals

Edited by Curtis J. Milhaupt
Copyright Date: 2003
Pages: 584
https://www.jstor.org/stable/10.7312/milh12712
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  • Book Info
    Global Markets, Domestic Institutions
    Book Description:

    Markets for capital, products, and managerial talent are expanding rapidly across national borders, yet domestic laws and practices have never had greater impact on corporate structures and cross-border deals. Investors pursuing high returns and diversification, entrepreneurs seeking capital, and managers endeavoring to restructure troubled enterprises now routinely face transaction counter-parties who operate within different legal and political systems, and who rank social priorities quite differently.

    This dynamic tension between global markets and domestic institutions fuels the debate on corporate governance reform now raging in virtually every region of the world. It also frames the intellectual agenda of the distinguished contributors to this volume, who examine such issues as the possible convergence of corporate governance practices around the world, national variations in the quality of corporate law, and the fiduciary responsibilities corporate managers around the world owe to their shareholders. Among the book's many insights is the contention that "globalization" and "global markets" are misleading terms, because they mask the local quality of much of the activity occurring within those rubrics. Case studies focus on France, Germany, Italy, Japan, Korea, Taiwan, and the transition economies of Eastern Europe.

    eISBN: 978-0-231-50176-7
    Subjects: Political Science, Law

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Contributors
    (pp. ix-xii)
  4. Preface
    (pp. xiii-xvi)
    Curtis J. Milhaupt
  5. Introduction: The Dynamic Tension in Corporate Governance
    (pp. 1-14)
    Curtis J. Milhaupt

    A dynamic tension has emerged in the field of corporate governance. Markets for capital, products, and managerial talent are expanding rapidly across national borders, yet domestic laws and practices have never had greater impact on corporate structures and cross-border deals. This dynamic tension between global markets and domestic institutions fuels the debate on corporate governance reform now raging in virtually every region of the world.¹ It also frames the intellectual agenda of the distinguished contributors to this volume.

    Indisputably, the pace and effects of globalization, particularly in the realm of corporate activity, have intensified dramatically at the turn of the...

  6. Part I Fiduciary Duties and Corporate Governance
    • 1 Controlling Corporate Self-Dealing: Convergence or Path-Dependency?
      (pp. 17-45)
      Zohar Goshen

      The problem of corporate self-dealing is a manifestation of the fundamental “agency problem” pervading corporate law (Jensen and Meckling 1976). The self-dealing problem may be found in a wide variety of corporate transactions such as those between a corporation and the party that controls it, a subsidiary, or a director or officer of the corporation.¹ Legal systems in different countries address the self-dealing problem in different ways. For instance, in Delaware, transactions involving a conflict of interest are subject to the “entire fairness” test,² while in the United Kingdom transactions involving conflict of interest require the approval of the disinterested...

    • 2 On the Export of U.S.- Style Corporate Fiduciary Duties to Other Cultures: Can a Transplant Take?
      (pp. 46-76)
      Lynn A. Stout

      The U.S. system of corporate governance is one of the most highly regarded in the world. In the typical large U.S. firm, equity ownership is separated from control of the corporate enterprise. Instead of being run by shareholders, the firm is governed by a board of directors that hires executives to manage the business on a day-to-day basis. This structure allows millions of passive investors to share in the profits that flow from large-scale enterprise, permits entrepreneurs to raise hundreds of billions of dollars in a thriving public securities market, and efficiently delegates control over trillions of dollars of corporate...

    • 3 Fiduciary Duty in Transitional Civil Law Jurisdictions: Lessons from the Incomplete Law Theory
      (pp. 77-106)
      Katharina Pistor and Chenggang Xu

      Fiduciary duty is a core concept in Anglo-American corporate law for delineating the rights and responsibilities of directors and managers, as well as dominant shareholders vis-à-vis minority shareholders. Yet its precise meaning is difficult to discern without reference to a large body of case law. Judge-made law has over time carved out a subset of specific obligations and standards of conduct derived from this principle. Most widely accepted are the duty of care and the duty of loyalty, where the duty of loyalty refers to situations in which conflict of interest is present. The meaning of each of these obligations...

    • 4 What Corporate Law Cannot Do
      (pp. 107-152)
      Mark J. Roe

      How important is corporate law—and its capacity to protect minority stockholders from insider machinations—in building securities markets and separating ownership from corporate control? Quite important, according to most recent analyses; maybe central. Without such corporate law protections, securities markets, it is said, will not arise. And if corporate law is good enough in technologically advanced nations, ownership will diffuse away from concentrated ownership into dispersed stock markets.

      This new perspective greatly contributes to understanding the fragility of capital markets in transition and third-world economies. But it has been used, and I’ll argue here overused, to primarily explain the...

  7. Part II Convergence and Reform, Europe and Asia
    • 5 Regulation and the Globalization (Americanization) of Executive Pay
      (pp. 155-182)
      Brian R. Cheffins and Randall S. Thomas

      A “global compensation imperative” is allegedly at work (Davis 2000) that can be alternatively dubbed “the Americanization of international pay practices” (Leander 1998a: 12). “As markets become truly global, you’ll see the differences in compensation shrink,” the managing director of an executive search firm has predicted (quoted in Flynn 2000). Or, as Kevin Murphy, a leading U.S. expert on managerial remuneration, has been quoted in the press as saying, “the rest of the world is moving to our pay model” (Johnston 1998).

      This essay deals with the possible convergence trend on the executive pay front. The focus is on the...

    • 6 Corporate Governance, Employees, and the Focus on Core Competencies in France and Germany
      (pp. 183-213)
      Michel Goyer

      I investigate in this essay the responses of large French and German companies to the demands of Anglo-Saxon institutional investors for a clear strategic focus in their business strategy. The empirical evidence presented points to nationally specific patterns of change. Large French and German firms underwent a substantial institutional transformation in recent years in response to the demands of foreign investors, but they changed in different ways and without any strategic process of convergence. I compare the three leading theories of comparative corporate governance on the issue of refocusing: national institutionalist perspective, functional convergence, and the quality of law and...

    • 7 Convergence on Shareholder Capitalism: An Internationalist Perspective
      (pp. 214-256)
      Jeffrey N. Gordon

      This essay tries to move the corporate governance convergence debate away from the familiar arguments over efficiency and politics toward what I will call the international relations perspective: that the pace of convergence in corporate governance will depend crucially on a country’s or, perhaps more importantly, on a group of countries’ commitment to a project of international economic and political integration. Two examples drawn from the evolution of German shareholder capitalism over the 1990s will illustrate the argument.

      The convergence debate is usually presented in terms of competing efficiency and political claims. Convergence optimists assert that an economic logic will...

    • 8 Off the Books, but on the Record: Evidence from Italy on the Relevance of Judges to the Quality of Corporate Law
      (pp. 257-294)
      Luca Enriques

      Participants in the debate on law and finance¹ unanimously agree on at least two points. First, law does matter, as a necessary condition or, at the very least, a useful tool for the development of financial markets. Even Roe (this volume), who questions the idea that law is a precondition to the separation of ownership and control, admits that “[g]ood corporate law lowers the cost of operating a large firm [since it impedes insider machinations]; it is good for a nation to have it.” Second, the relevant factor is not “law on the books” as much as the combination of...

    • 9 Institutional Change and M&A in Japan: Diversity Through Deals
      (pp. 295-338)
      Curtis J. Milhaupt and Mark D. West

      The potential effects of globalization have emerged as a central focus of the corporate law and governance debate. Some scholars argue that national corporate governance systems are converging toward a homogeneous corporate law and governance model (Hansmann and Kraakman 2001). Others claim that despite the pressures of global markets, local institutions will block the emergence of a uniform corporate governance system (Bebchuk and Roe 1999). While the debate has yielded interesting theoretical ideas, ultimately the extent to which national systems are converging is an empirical question that can be resolved only with the appearance of data over time.

      In this...

    • 10 Financial Malaise and the Myth of the Misgoverned Bank
      (pp. 339-372)
      Yoshiro Miwa and J. Mark Ramseyer

      As the century opens, we blame the international financial malaise on lax banking regulation. With the nearly global ideology of democracy what it is, we blame the government when we have half a chance.¹ Banks handle nothing if not finance, and they do seem to be in trouble. In the U.S., bad regulatory design arguably drove the savings and loan fiasco. Within Japan, maybe the same thing ruined the banks.

      We blame it on rich managers. With the global rhetoric of populism what it is, we blame the rich even without half a chance. The rich are different from us,...

    • 11 Revamping Fiduciary Duties in Korea: Does Law Matter to Corporate Governance?
      (pp. 373-399)
      Kon-Sik Kim and Joongi Kim

      A provocative debate in comparative corporate governance discourse concerns the question, which factors—law, social norms, market pressure, or others—matter more in corporate governance reform? Korea offers an interesting example for that debate. A general consensus has emerged among policymakers and scholars that Korean corporate governance needs to make the transition to a more capital market-oriented system ( Johnson, et. al. 2000; KFSC and KFSS 2000). The question remains, however, what role should law play in achieving this transformation?

      Several conflicting views exist on this subject. Economists Raphael La Porta et al. have indicated empirically that deep capital markets...

    • 12 Global Markets and Parochial Institutions: The Transformation of Taiwan’s Corporate Law System
      (pp. 400-434)
      Lawrence S. Liu

      Taiwan offers an interesting case for a discussion of global markets and domestic institutions. Taiwan began to develop its economy in the early 1960s, after a reasonably successful land reform program by the Nationalist Kuomintang (KMT) government in the 1950s. The KMT-controlled Republic of China (ROC) government had retreated to Taiwan in 1949 after losing the civil war to China.¹ Despite its impressive economic achievements in the fifty years since the KMT government went to Taiwan, a curious dichotomy persists: While Taiwan has its eyes on global markets, its corporate law system and financial markets remain parochial. Taiwanese businesspeople are...

  8. Part III Globalization and the Capital Markets
    • 13 The Impact of Cross-Listings and Stock Market Competition on International Corporate Governance
      (pp. 437-475)
      John C. Coffee Jr.

      Today, there are an estimated 150 securities exchanges trading stocks around the world (see Vision Test 2001). Soon, this number is likely to shrink radically. Indeed, this was the U.S. experience at the beginning of the twentieth century when over 100 securities exchanges in the United States operated, until they were compelled to consolidate or simply shut down, as improved communications and transportation systems lowered the informational cost barriers that had sustained them. Today, the two great forces reshaping the contemporary world—globalization and technology—appear to be forcing a similar consolidation. Because globalization has lowered the barriers to cross-border...

    • 14 Coming to America?: Venture Capital, Corporate Identity, and U.S. Securities Law
      (pp. 476-506)
      Edward B. Rock

      Venture capital is all the rage. The success of Silicon Valley across all the relevant dimensions has provided a vision of gold at the end of the rainbow. A region with no significant natural resources other than nice weather and a nontrivial risk of earthquakes became the richest borough in the land.

      Success breeds imitation. Now, in addition to Silicon Valley, we have Silicon Alley (NY), Silicon Bog (Ireland), Silicon Wadi (Israel), Silicon Fen (Cambridge, England), Silicon Glen (Edinburgh to Glasgow, Scotland), Silicon Alps (Carinthia, Austria), among others (Silicon Wannabes 1999). Social planners everywhere ask how they can establish a...

    • 15 Engineering a Venture Capital Market: Replicating the U.S. Template
      (pp. 507-542)
      Ronald J. Gilson

      The venture capital market and firms whose creation and early stages were financed by venture capital are among the crown jewels of the American economy. It is hardly surprising, then, that other countries have sought to emulate American success in developing an effective venture capital market. In this essay I seek to identify the core of the U.S. venture capital contracting model, and then assess the extent to which this model provides guidance in fashioning such markets in other countries.

      The analysis starts with what should be a noncontroversial premise—that the particular U.S. historical experience in developing a venture...

  9. Index
    (pp. 543-562)