The initial motivation for this book was to provide a critical analysis of corporate governance law in the US and UK, in light of the systemic legal issues which were exposed by the financial crisis, particularly in relation to the proper role of the state in the private realm of the economy. While it is clear that the experience of the crisis remains relevant to the context of the book, this ends up being a book which more generally introduces the reader to the core components of Anglo-American corporate governance law and theory.
With this background in mind, the commendable objective of this book is to both understand and challenge the underlying assumptions that are commonly employed in studies of corporate governance law, particularly regarding the private nature of the subject, which is typically viewed as being beyond the appropriate involvement of the state. Indeed, Moore sets out to examine whether “Anglo-American” corporate governance is more aptly characterised as an area of private law, or rather as an element of public law.
Further, this book poses both an intellectual and empirical challenge to the dominant contractarian understanding of the subject, by defining corporate governance as a matter of securing the legitimacy of the allocation and utilisation of power within large economic organisations. The emphasis is on formal accountability norms which can legitimate the use of managerial power within organisations, and this, in turn, is used to demonstrate the necessary and integral role of public regulation in corporate governance. With the foregoing in mind, ultimately this book aims to answer the following question: “what is the fundamental nature of the laws relating to the governance of public corporations in the US and UK?”. This question is subsequently explored in an engaging manner throughout the remainder of the book.
The book is divided into eight chapters, with each chapter consisting of a number of supporting sections. Chapter 1 usefully introduces the core ideas of the author and the fundamental elements of corporate governance law, as distinctively defined by Moore. This chapter additionally sets out some of the ideological challenges to existing corporate governance theory, as well as the normative implications of the ideas presented in the following chapters.
In Chapter 2, the theoretical framework of the book crystallises, with Moore submitting that corporate governance essentially comprises three irreducible elements, namely, power, accountability and legitimacy. Moore seeks to define power in terms of a concept he calls discretionary administrative power (DAP), which describes the power utilised by senior executives in the accumulation of economic resources from investors, and their subsequent allocation further to managerially determined organisational goals. The idea of executive power legitimacy is explicated in terms of the general public “rightness” of management's ongoing possession and exercise of power, which is predicated on the accountability of its senior executives. This legitimacy is, in turn, said to be practically reflected in the cost of capital, which represents the willingness of investors to purchase a firm's securities relative to alternative investment options. This is followed by a discussion of the concept of accountability, which relates to existence of formal checks on managerial discretion. The central argument is that effective forms of managerial accountability are a required precondition to securing the legitimacy of management's ongoing possession and utilisation of DAP. However, it is equally important to strike a balance which avoids “excessive” accountability, whereby the costs of formal account-giving outweigh the corresponding benefits to the firm. Lastly, this chapter aims to explore whether shareholders should be viewed as the exclusive direct beneficiaries of managerial accountability norms, or whether there are other corporate constituencies equally affected by the internal power dynamics of organisations. Here, Moore seeks to establish that a similar power imbalance exists in the management–employee relationship, thus questioning why employees are not equally recognised as rightful beneficiaries of managerial accountability norms within the Anglo-American legal environment.
Chapter 3 usefully examines the key features of the contractarian paradigm of corporate governance, and of corporate law generally. Moore's analysis in this area focuses on the contractarian rationalisation of corporate law as a self-determinative facet of private law, outside of the appropriate reach of public policy determination. Further to this understanding, the overarching purpose of actors such as courts or rule-making bodies is that of ensuring the relevant rules function from a commercial perspective, as opposed to attempting to facilitate particular distributional goals or moral–political aims. Consequently, the central structural elements of Anglo-American corporate governance, such as shareholder exclusivity, board primacy, and majority–independent boards are viewed as endogenous features, driven by market forces and decision making by rational actors, such as investors and managers, instead of being viewed as the outcomes of regulatory state design. That is, private ordering, rather than public policy, should be the principal determinant of prevailing managerial accountability norms, as well as the main impetus for future institutional reforms to corporate governance systems generally.
Chapters 4 and 5 provide a broad overview of the US and UK systems of corporate governance law. Chapter 4 initiates the comparative dimension of the book, with Moore providing an assessment of how the defining practical features of US law accord with contractarianism. The purpose of this analysis is to highlight the means by which US corporate governance laws are designed to support the private contracting preferences of individual corporate actors. That is, Moore presents evidence that US corporate laws can largely be adapted to meet the needs of corporate actors such as shareholders and managers. For example, deference is broadly given to corporate contractors in “opting out” of statutory rules that may not suit the circumstances of the company. This quasi-commodity characteristic of US law is additionally evinced by the existence of competitive federalism, which permits the individual firm choice of corporate law jurisdiction.
The second core theme presented in Chapter 4 is the subjugation of US corporate governance law to the internal contractual autonomy of the firm. The closely related concept of judicial non-interference extends even to management decisions regarding threatened changes of control, due to the existence of the business judgment rule (BJR) which protects management decisions made honestly, absent a conflict of interest, and on an informed basis. The resultant normative implication of this perspective is that corporate laws should be independent of social–distributional concerns extraneous to the contracting preferences of shareholders and managers. However, this contractarian background merely sets up Moore's challenge to this commonly accepted theoretical framework, through his subsequent discussion in Chapter 6 of the large body of mandatory corporate laws which exist in Anglo-American corporate governance law today.
Chapter 5 contrasts the US corporate law model with the UK system, which operates within the framework of a federal company law statute that applies on a mandatory basis, with the objective of protecting UK shareholders who would otherwise be subject to the caprice of firms to simply “opt out” of undesirable legal requirements. Nonetheless, the discussion in this chapter aims to equally establish the existence of contractarian principles within UK corporate law, with the characteristics of flexibility and reversibility of laws being specifically evinced in the ensuing discussion. For example, section 33 of the Companies Act provides quasi-contractual status to a company's constitution, which is able to be altered by shareholders. Further, the UK internal management doctrine, which posits that the internal governance matters of a company are a private matter, and are therefore not subject to judicial interference, has equally enabled courts to adopt a deferential attitude regarding an increasingly wider range of corporate activities in the UK context. Thus, from a comparative perspective, competitive-federalism and “opt-out” provisions permit significant scope for firm self-determination within the US law context. However, in the UK, flexibility is alternatively derived from government actions involving the entrustment of rule-making responsibility to non-state actors, such as to a company's shareholders via the corporate constitution, or to regulatory agencies such as the Takeover Panel.
In Chapter 6, Moore aims to establish that many of the central Anglo-American corporate governance features are in fact governed by mandatory rules, the characteristics of which are regulatory versus contractual in their nature, hence resulting in systemic evidence which is more consistent with a public rule-making function. Further, many of the contractual aspects of Anglo-American corporate governance law are ultimately dependent upon the mandatory laws and institutions which underlie their existence. For example, foundational concepts such as the division of power within companies and the equitable fiduciary principle are fundamentally mandatory, and hence lie beyond the scope of private ordering. Thus, the evidence presented poses an analytical and empirical test to the existing contractarian conception of the subject.
Chapter 7 provides a detailed explication of the extensive presence of mandatory public laws within the Anglo-American corporate governance system, and the challenge that this resultantly presents to the contractarian understanding of both the nature and development of corporate governance. Indeed, the presence of mandatory rules is perceived by contractarian theorists as undermining firm contractual autonomy, and preventing private parties from formulating utility-enhancing agreements, through the stricture prescribed by publicly determined rules. Moore nonetheless explores in some detail the leading contractarian rationalisations of the presence of such mandatory rules, and then presents further interesting challenges to this existing theoretical framework. However, in making such insights Moore does not seek to criticise the trend of general academic opinion in this area, but rather the aim is to highlight a number of previously unidentified complexities that are present within the existing legal framework, for the purpose of further academic discussion and empirical research. Indeed, the motivating objective of this discussion, and of the book in totality, is to better understand the central components of corporate governance law as it stands. On this basis, it will be possible for an informed, evidence-based analysis to logically support the future revision of the law.
The concluding remarks are presented in Chapter 8, with Moore aiming, above all else, to have cultivated in his readers “a more tolerant and progressive attitude towards regulatory state action”. Indeed, there can be little doubt that Moore makes a valuable contribution by reconceptualising “regulation” from a term with largely negative connotations to a phenomenon which can alternatively be viewed as in fact able to contribute to the obtainment of private contractual preferences, while counteracting existing power imbalances.
It is ultimately Moore's hope to leave readers inspired to engage in future academic debate and further empirical investigation regarding these largely unexplored issues, which conceptually lie at the intersection between corporate law, finance and political economy. Moore convincingly argues that corporate governance law is “ultimately unsusceptible to being understood properly through any one single theoretical prism” and looks forward to the constructive academic evolution that will no doubt follow this important work.
