Corporate and securities law is very much the centre legal edifice of the capital market. Any capital market that fails to properly enforce the law is doomed.Footnote ¹ Corporate and securities law can be the most arcane department of law for laymen to understand, while the enforcement of the law can be quite visible for most market participants. The visibility and discussion on the efficiency of the enforcement of corporate and securities law are very much the linchpin of the reputational capital for any market. In the past century, much ink has been spilled over the construction of a better legal framework, in order to promote the liquidity of the market and reduce agency costs.Footnote ² Nevertheless, it is very difficult to claim that any jurisdiction’s existing corporate and securities law is perfect.Footnote ³ The law in books and the law in action have been widely accepted perspectives to examine the status quo of the rule of law. Given the fact that capital-market supervision per se demands high flexibility in order to keep up with the rapid change in the industry, it can be predicted that the gap is supposed to be considerably wide.

Despite the recognition of the gap, we only have a relatively clear picture of the existing corporate and securities law framework, namely the law in books. Indeed, the law in action is usually an unchartered area on many scholars’ research maps. The book, Enforcement of Corporate and Securities Law: China and the World, edited by Professors Robin Huang and Nicholas Howson, provides an insightful reference for legal academia on how corporate and securities law is enforced around the world. From there, we may have quite a clear contour of the interstices between law and enforcement. As the seminal work in corporate law, The Anatomy of Corporate Law showcases that there are many strategies available for mitigating agency costs.Footnote ⁴ However, due to the idiosyncratic environments of the jurisdictions in the world, there are even more permutations and combinations of the strategies from different countries to construct strong enforcement mechanisms to effectively reduce agency costs. Some such mechanisms are the creation of non-legislative authorities and entities to cope with market changes.Footnote ⁵

The book consists of three parts that discuss the enforcement of corporate and securities law, jurisdiction by jurisdiction, in addition to one theoretical-framework section. The framework section does not intend to argue for a comprehensive theoretical framework as a general research benchmark for further corporate and securities law study. Rather, it offers some important theoretical perspectives to enrich the framework, which is largely underdeveloped for the enforcement of corporate and securities law. It selects five articles that explore jurisdictional research focused on the extensions from theoretical perspectives. I believe that all of them can be relocated to the jurisdictional discussion in the latter parts of the book, as they all contain jurisdictional discussion. Nevertheless, the book sets aside a separate section for this, given the fact that the papers set up critical logical benchmarks for further study in the enforcement of law.

The first piece explains the insufficient sanctions on fraud in the capital market following the aftermath of the American financial crisis in 2009. Judge Jed Rakoff asks a critical question: “Why has no high-level executive been indicted after the major financial crisis?” Consequently, he reveals a deep and fundamental issue in finance law: the political economy is generally the right explanation for the securities-sanction phenomenon. However, having an explanation does not justify the non-persecution of fraudulent misconduct. Indeed, fraudulent misconduct should be addressed through securities sanctions. This article touches upon a basic issue in corporate and securities law enforcement: the impact of the political economy on the enforcement of law. Even if this topic could be further developed, it echoes Professor Jeffery McIntosh’s contributions that the political economy can sometimes dampen the efficacy of the rule of law. The second piece from Professor Mathias Reinmanne compares the private enforcement of corporate and securities law in the US and Europe, and offers a lesson for Asia’s further legal transplantation and reform. It not only links enforcement issues with the environment that the law operates in, but also implies that private enforcement might not be the prerequisite of economic success. Professor Carsten Gerner-Beuerle employs Chapter Three to display the relationship between law and market prosperity from the market-development-history perspective. While many believe that arbitration is a better way to solve traditional enforcement problems, Professor Michael Barr discusses the unintended problems of utilizing financial arbitration to protect the interests of financial consumers. The adverse effects of a pre-installed arbitration clause seem to chip away the benefits of the efficiency of financial arbitration in the US market. Furthermore, the last article, written by Professor Donald Clark, serves as the best piece in the section to conclude and usher in Part II, which explores the enforcement of corporate and securities law in China. Professor Clark’s article focuses on the bonding effect in cross-listed Chinese Companies in the US. It examines the core issue in the enforcement of legal research: whether simply looking into the law on books can conclude the effect of law on the capital market. However, Clark believes that the enforcement of law is a significant indicator in order to assess the effect of law on the liquidity of the market.

Part II starts the introduction and discussion on Chinese corporate and securities law enforcement. It consists of six insightful articles from leading Chinese law scholars. The first piece, from Professor Liming Wang, one of the most influential civil-law scholars in China, provides a great general perspective for readers to understand the achievements and challenges of Chinese corporate and securities law enforcement. Professor Wang is of the view that the best solution for the Chinese enforcement challenges is multiple modifications rather than an exhaustive overhaul of the existing law. Professor Xianchun Zhang is of a slightly different view and seems to endorse US legislation as a potential sample for further consideration in terms of reforming class actions in China. The third piece from Professor Robin Hui Huang is from a micro perspective of law enforcement. With a realistic view, it utilizes empirical methods to showcase whether private litigation is the first choice for private parties in China. Furthermore, it suggests several ways to improve existing institutions. Professor Junhai Liu, a Chinese corporate and securities law expert, analyzes the investor-protection edifice from institutional perspectives in a very detailed way. The article recognizes that corporate governance is important for shareholder protection, through direct or derivative litigation, to shape a better corporate-governance mechanism.

The fifth piece focuses on the implementation of fiduciary-duty enforcement in China. Professor Jiangyu Wang is of the opinion that Chinese fiduciary-duty enforcement is problematic because the duty is enforced based on torts theory. Furthermore, he believes that it is wrong that the enforcement of the duty of royalty does not pair with the fairness standard under the Chinese environment. The transplantation of law should not simply focus on formality. Instead, the first question that should be answered is whether the transplanting institution is compatible and workable with the local legal system and culture. The last piece from a practitioner, Xiaochuan Liu, introduces the corporate and securities law enforcement in China from a unique perspective. Qianhai Economic Zone innovatively designs various efficient ways to promote investor protection. The key method is so-called “Quaternity,” which means multiple agencies working together to form a web of dispute-resolution alternatives. It not only has advantages of improving independence and impartiality, but also results in professionalism and the protection of small and medium shareholders.

Part III centres on the experiences and lessons from common-law jurisdictions. Papers in this section provide informative, insightful, and recent legal research on the private enforcement of corporate and securities law. The first piece, from Professors James D. Cox and Randall S. Thomas, analyses the efficacy of private enforcement in the US. However, it seems that there are many barricades that chip away the efficacy of the remedy. Consequently, the number of private enforcement cases has kept on declining over the past 70 years. In order to fill the gap between the demand of investor protection and the cooling supply of private enforcement, many new forms of investor protection, such as the rising of hedge-funds activism, have developed, which thus maintains the equilibrium of the demand and supply of investor protection in the capital market. Professors John Armour, Bernard S. Black, Brian R. Cheffins, and Richard Nolan conduct an interesting empirical test on the UK and US private enforcement. It seems that the application of the enforcement in the UK is far less frequent than that in the US. If private enforcement is not critical for a robust securities market, what is the substitution in the UK? The authors believe that the UK system provides stronger ex ante protection, which reduces ex post litigation. The third paper, from Canadian scholar, Professor Jeffrey G. Macintosh, articulates the relationship between the rule of law and the demand for flexibility in securities-market regulation. Furthermore, it also offers some solutions to keep the flexibility not at the expense of sacrificing the rule of law.

The fourth piece in this section introduces class actions in Australia. Professor Michael Legg illustrates many unique aspects of Australian class-action regulation. The paper also provides responses to solve the pocket-shifting problem of class-action institution compensation, to make it more effective in reducing agency costs. Similarly to other developing countries, India is facing problems in the reinforcement of their private enforcement campaign. The first barricade is the incomplete supportive mechanisms, such as contingency fees and fiduciary duties to controllers of a firm. Considering the specifications of the Indian market, Professor Vikramaditya Khanna suggests an overhaul of section 245 of the Company Act 2013 in India. The last piece, from HK—a country recognized as the haven for free-marketism—highlights how HK’s securities law enforcement is very nimble and responsive, as demonstrated through various cases.

Part IV focuses on civil jurisdictions. German law, according to Dr Rainer Kulms’s observation, operates in a very different environment compared to Anglo-American law, which leads to a very jurisdiction-specific institutional setting. There are unique ways, such as having a broader application of the duty of royalty that is conducive to achieving the goal of investor protection. The chapter on Italian law discusses one aspect of private enforcement from a normative-analysis perspective and employs Parmalat-relevant cases to examine Italian institutions. In terms of misstatement liability, Italian law mainly relies on civil-law theories, torts, and contract theories to facilitate private enforcement. Nevertheless, it introduces uncertainty and the over-applying of issues; insider trading is an obvious example. Moreover, Professor Gen Goto discusses the recent modification of misrepresentation law in Japan, which is believed by some to be the reason for the boom in litigation. Although the recent change makes litigation easier and resembles its US counterpart, judging from the current specifications of Japanese litigation, it is too early to assert that Japanese law follows the US model.

The fourth piece in this section provides some information from South Korea—a traditional East Asian civil-law jurisdiction. As a typical ownership-concentrated capital market, the Korean market usually suffers from the problem of minority-shareholder protection. The protection is far from adequate due to their incomplete derivative litigation system, although, according to Professor Hwa-Jin Kim’s observation, many legal reforms are needed to alleviate the existing issues. Furthermore, the paper that focuses on Taiwan examines shareholder protection from a new perspective. The leading Taiwanese corporate and securities law scholar, Professor Wenyu Wang, analyses the Investor Protection Center (IPC) in Taiwan, which mitigates agency costs incurred by the lawyer-led mode and provides a fee-shifting mechanism, which saves litigation costs for plaintiffs. Nevertheless, Wenyu believes that the IPC has its issues that dilute its deterrence function. The last piece is from Brazil, a Portuguese-law jurisdiction, and reviews the issues of law enforcement. First, it mentions the specifications of Brazilian law-enforcement realities, whereby low judicial efficiency and uncertainty can be seen as the major obstacles. It employs the “institutional-layering” theory from a political economy perspective to evaluate and explain four recent legal reforms. They can be a reference point for other developing countries that are not suitable for a comprehensive overhaul of corporate and securities law.

The significance of the book is self-explanatory. Corporate and securities law research might be one of the most practice-oriented department laws in legal study. Indeed, every ten years, a corporate law book is published that sets the terms of discussion in corporate law scholarship for years to follow.Footnote ⁶ However, research on the law in actions has been surprisingly meagre. It might be an exaggeration to claim that the book has sliced a Gordian Knot, although, it is indeed an innovative work that completes the research map of corporate and securities law. The essay offers some suggestions that may further answer questions in the law in actions of the corporate and securities law arena.

First, it would be more interesting to further discuss the impact of the political economy on the practice of corporate and securities law. In many articles of the book, the authors recognize the significance of the political economy in understanding the law in actions.Footnote ⁷ It is not an exaggeration that the political economy can conceivably be the linchpin in explaining the issues of law enforcement.Footnote ⁸ For instance, China is widely recognized as an authoritarian country and its administrative power is generally very expansionary. How does law enforcement, when faced with the pressure of multiple values from the government sector, react to the political economy? Are there any institutional apparatuses or rules that are specially established for soothing the conflict of values? Is there any variation in the ways in which the political economy affects the enforcement of corporate and securities law across different jurisdictions? Just as Judge Rakoff mentioned, corporate and securities law cannot operate in a vacuum. Thus, the political economy very often interferes with and explains the enforcement of corporate and securities law.

Second, legal professionals are critical in shaping a clearer picture of the enforcement of corporate and securities law. The book offers several pieces of what legal professionals have done in their respective jurisdictions.Footnote ⁹ Notably, it is very interesting to know that Japanese lawyers are more risk-averse than we previously thought.Footnote ¹⁰ Readers may be quite concerned about how other jurisdictions are faring, from the lens of their legal professionals. We believe that Delaware corporate law is efficient not only because of its legislation, but also because of its high professional bar.Footnote ¹¹ Therefore, before we criticize, for instance, Chinese enforcement of corporate and securities law, would it be more convincing to introduce more detailed information of Chinese corporate and securities legal professionals?

Third, the role of the state-owned economy in the whole picture of corporate and securities law enforcement is an important topic. This is even more so due to the bailout measures taken after the Global Financial Crisis. Many countries stopped the haemorrhage of the financial industry by injecting state equities into private sectors, which led to higher levels of the state’s stake in its economy.Footnote ¹² As previously mentioned, due to the rapidly changing practice and landscape of the financial industry, the enforcement of corporate securities law calls for more flexibility when enforcing the law.Footnote ¹³ Furthermore, the flexibility is usually created through generic legislation, which leaves some space for administrative discretionary power during enforcement. Inevitably, in certain situations, administrative agencies occasionally need to choose between protecting the interests of investors or the interests of the state. Especially in an authoritarian country, judiciary and supervisory agencies are usually more susceptible to the intervention of administrative power. What is happening in practice? I believe that this could be an intriguing theme to further complete the picture of law enforcement. Nonetheless, this is an extremely critical topic in the enforcement of corporate and securities law in China.

The fourth point is not a comment, but rather an observation. One of the reasons why the enforcement of corporate and securities law is under-researched is due to the fact that it is very difficult to grasp the essence of enforcement reality in a jurisdiction without many years of comprehensive practice, experience, and observation. Evidently, after the increase in the degree of popularity of empirical research in law, it is possible for legal scholars to reach conclusions on the enforcement of law issues through properly processed and carefully collected data. Of course, empirical research is not the solution for all enforcement-relevant research. Nevertheless, it provides a comprehensive and scientific method for researchers to detect potential problems in practice.

In summary, the book is very informative and groundbreaking in corporate and securities law research. It increases our knowledge of the enforcement of law across many important jurisdictions in the world. Furthermore, it illustrates that the gap between law in books and law in actions is bigger than we previously thought. However, the beauty of the book’s contribution is not limited to the contents of its information, but it also incentivizes further research and discussion in the corporate and securities law arena.