A Response to Christopher Bruner by Brian Cheffins

[Professor Brian Cheffins is the S.J. Berwin Professor of Corporate Law at the University of Cambridge Faculty of Law]

As Prof. Bruner points out in his insightful Article, in the literature on comparative corporate governance, there is a tendency to treat the United States and the United Kingdom as being very similar across key dimensions. He shows convincingly that in fact there are key differences between corporate governance in the two countries, focusing in particular on greater “shareholder-centrism” in British public companies in comparison to their U.S. counterparts. He then seeks to account for the discrepancy in terms of political economy, arguing that shareholders loom larger in the corporate law context in the United Kingdom than they do in the United States because in Britain other constituencies affiliated with corporations (“stakeholders”) have greater extra-corporate protection.

Prof. Bruner’s Article makes a series of valuable and intriguing points. However, from a comparative perspective, one is nevertheless left with a nagging question: Is the United Kingdom really markedly more shareholder-friendly than the United States? There in fact is reason to doubt this is the case.

It no doubt is true that U.K. shareholders have greater shareholder governance rights—powers enjoyed by shareholders over key decisions in the firm. However, as I have pointed out in an Article co-written with John Armour, Bernard Black and Richard Nolan (Private Enforcement of Corporate Law: An Empirical Comparison of the UK and US, 6 Journal of Empirical Legal Studies, 687 (2009)), civil procedure rules and substantive corporate law are considerably more “plaintiff friendly” in the United States than the United Kingdom. The greater ability of U.S. shareholders to sue to protect their rights arguably largely compensates for inferior protection along other dimensions.

Prof. Bruner briefly acknowledges in his paper that the greater capacity of shareholders to sue in the United States may narrow the gap in shareholder orientation between Britain and the U.S. (at p. 609). The Article I have written with Armour, Black and Nolan provides empirical data that indicates the point merits greater attention. For instance, while it is reasonably common for directors of U.S. public companies to be sued for damages under corporate law, we found, based on a search of cases filed in the United Kingdom, only one instance in three years where a case was filed against directors of a publicly traded company under corporate law claiming damages. Moreover, while our U.S. search uncovered 355 cases over a seven year period launched in state or federal courts against directors of a publicly traded company involving a claim for damages for breach of duty that resulted in a published opinion, one has to go back to the early 1980s to find a reported U.K. case where a director of a public company was a defendant in a derivative suit.

As Prof. Bruner points out (at p. 609), the extent to which litigation has deterrent value in the corporate context is unknown. Nevertheless, with the private enforcement gap between the United Kingdom and the United States being as large as we have found, the extent to which the United Kingdom is more “shareholder friendly” than the United States remains at best unclear.