Yale Law School - Visiting, NYU School of Law
Harvard Law School
The End of History for Corporate Law
Despite the apparent divergence in institutions of governance, share ownership, capital markets, and business culture across developed economies, the basic law of the corporate form has already achieved a high degree of uniformity, and continued convergence is likely. A principal reason for convergence is a widespread normative consensus that corporate managers should act exclusively in the economic interests of shareholders, including noncontrolling shareholders. This consensus on a shareholderoriented model of the corporation results in part from the failure of alternative models of the corporation, including the manager-oriented model that evolved in the U.S. in the 1950's and 60's, the labor-oriented model that reached its apogee in German co-determination, and the state-oriented model that until recently was dominant in France and much of Asia. Other reasons for the new consensus include the competitive success of contemporary British and American firms, the growing influence worldwide of the academic disciplines of economics and finance, the diffusion of share ownership in developed countries, and the emergence of active shareholder representatives and interest groups in major jurisdictions.
Since the dominant corporate ideology of shareholder primacy is unlikely to be undone, its success represents the “end of history” for corporate law. The ideology of shareholder primacy is likely to press all major jurisdictions toward similar rules of corporate law and practice. Although some differences may persist as a result of institutional or historical contingencies, the bulk of legal development worldwide will be toward a standard legal model of the corporation. For the most part, this development will enhance the efficiency of corporate laws and practices. In some cases, however, jurisdictions may converge on inefficient rules, as when the universal rule of limited shareholder liability permits shareholders to externalize the costs of corporate torts.
Recent scholarship has emphasized institutional differences in governance, share ownership, capital markets, and business culture among European, American, and Japanese companies. Despite this apparent divergence, however, the basic law of corporate governance -- indeed, most of corporate law -- has achieved a high degree of uniformity across these jurisdictions, and continuing convergence toward a single standard model is likely. The core legal features of the corporate form were already well established in advanced jurisdictions 100 years ago, at the turn of the twentieth century. Although there remained considerable room for variation in governance practices and in the fine structure of corporate law throughout the twentieth century, the pressures for further convergence are now rapidly growing. Chief among these pressures is the recent dominance of a shareholder-centered ideology of corporate law among the business, government, and legal elites in key commercial jurisdictions. There is no longer any serious competitor to the view that corporate law should principally strive to increase longterm shareholder value. This emergent consensus has already profoundly affected corporate governance practices throughout the world. It is only a matter of time before its influence is felt in the reform of corporate law as well.