The nature and extent of the state's involvement in economic activity has always been a sensitive and contentious issue and this book can be read as part of this academic exchange, as it seeks to assess the extent and legitimacy of state involvement in the making of UK and US ‘corporate governance law’ as defined therein (see below). The academic debate between those opposing state involvement in corporate governance (‘contractarians’) and those recognizing the law in this area should serve at least some public policy concerns is long-standing. In this regard, the author observes that determining the ‘private/facilitative’ or ‘public’ nature of corporate governance law ‘affects our normative perspective’. So the value of this book lies, first, in that for various reasons most of this debate concerns US legal doctrine, since the UK case is rarely, if at all, systematically discussed in the literature, and second, in the revisionist stance it often adopts given the long-standing dominance of contractarianism.
As noted in the introductory chapter, these influences can be traced both in doctrine and in academic perceptions of it as a facilitative tool for private enterprise rather than as a coercive system of regulations designed to serve social purposes. The author pronounces the normative importance of this ‘characterization’ of corporate governance law claiming it determines how the ‘essential form or qualities’ of regulation in this area should develop by affecting the desired objectives of rule-making. Thus, if rule-making in this area is a private ordering function, any societal goals ought to be just incidental consequences of it, as opposed to conscious choices of the regulatory process. However, it is difficult to avoid noting here that whether rule-making remains outside the control of the state or not is itself the outcome of political choice and not a natural position imposed on the state, and therefore it is difficult to sustain this interaction between the is and the ought to be in the manner described by the author. This raises some analytical issues in some parts of the book and the overall argument developed in it.
For instance, in the second chapter the author sets and justifies the boundaries of corporate governance (law) as the subject of study in the book. The starting point is the extensive autonomy management enjoys and how this can be legitimized by the imposition of accountability mechanisms. These should essentially refer to the relationship between shareholders and management, while accountability to other major stakeholders, such as employees, is and ought to be outside the governance process. In an admittedly elegant argument this is explained as the outcome of an (Anglo-American) employee preference for arm's length adversarialism via collective bargaining at macro-level over micro-level accountability methods. Nonetheless, this position may be contested as this ‘preference’ may in fact be the outcome of a government choice historically imposed on employees, leaving adversarial industrial relations as the only available route for labour to safeguard its interests. The author admits that whether the employment relationship should be part of corporate governance remains a contested issue, but the justification of its exclusion from the book's scope seems a bit thin.
The third chapter provides a comprehensive review and synthesis of the main theoretical premises of contractarianism in corporate governance, based on which legal doctrine is to be evaluated. Having as a starting point that managerial power is legitimate provided shareholders enjoy appropriate accountability rights, the author explains how managerial autonomy can be accommodated by contractarianism without displacing the latter's basic premise, shareholder exclusivity. A largely implicit arrangement governing the equity relationship in this way can be traced in a ‘micro-level private ordering’ based on shareholder determined governance norms without the need of state intervention, but with an efficient stock market playing a crucial role in rule selection. The state is limited to a ‘market mimicking’ role by simply providing off-the-shelf regulatory solutions private parties can choose to adopt or modify, thus rendering corporate governance law a ‘private’ and facilitative type of regulation as opposed to a public one seeking to achieve social objectives and superimposed on the parties involved.
Against this background the fourth, fifth and sixth chapters move to the core discussion of the book by evaluating whether fundamental principles of Anglo-American corporate governance are contractually derived. As already noted, this latter exercise is particularly valuable for those interested in UK corporate governance due to the scarcity of similar studies and the comprehensive and systematic manner in which this book treats legal doctrine. The book's contribution is of even greater significance, as it adopts a revisionist stance against many aspects of conctactarianism. More specifically, the author finds that both UK and US laws contain certain institutional elements of the equity relationship—eg boards' composition and functions, contents of constitutional documents, minimal judicial interference—that can indeed be traced in privately agreed arrangements, even if the methods used in each jurisdiction differ significantly. However, the author finds this is not the end of the story, as ‘the foundational building blocks' of corporate governance—eg directors’ fiduciary duties and dismissal rules, shareholders' anti-dilution rights, corporate disclosure—without which private ordering would be impossible, are essentially and increasingly ‘public’ and mandatory.
The nature of mandatory rules has always been very difficult to theorize in contractarian terms and in the seventh chapter the author persuasively argues ‘market mimicking’ cannot rationalize this type of rules without logical contradictions. Quite surprisingly, while this finding of the book should be a decisive blow on conctactarianism, the author eventually diverges from this revisionist stance. He asserts mandatory rules are the outcome of a macro-level ‘contract’ between regulatees and the state, whereby the latter undertakes to safeguard private ordering by correcting market failure at macro-level and the former voluntarily submit to the state's authority. However, it is submitted this is a highly complex political process—with competing and conflicted interests—which is very different from a contract, even a hypothetical one, based on an implicit unanimous consent of regulatees; unfortunately this process is treated as a black box in the discussion. As a result, the chapter does not seem to have a good fit in the book's discussion.
Nonetheless, the criticisms articulated here should not undermine the value added by this book's sophisticated arguments and analytical rigour in all but the last chapter. The author's ultimate goal after all is to ‘inspire future academic enquiry and debate’ and he should achieve this, as this book will be a stimulating read on Anglo-American corporate governance for academics and postgraduate students.
