Power and Purpose in the “Anglo-American” Corporation
[Christopher M. Bruner is an Associate Professor, Washington and Lee University School of Law]
First I want to thank Opinio Juris and the Virginia Journal of International Law (VJIL) for the opportunity to discuss my Article, “Power and Purpose in the ‘Anglo-American’ Corporation.” I’d also like to express my gratitude to Professor Brian Cheffins of the University of Cambridge for providing a response to the piece.
Public corporations in the United States and the United Kingdom are—from the global perspective—so very similar that it has become a commonplace in the comparative corporate literature to treat them as if they were practically identical. Notably, large American and British corporations tend to finance their operations through public offerings of stock to passive, dispersed investors, whereas their counterparts elsewhere tend to be financed and dominated by controlling families, banks, corporate groups, or the government. Likewise, the U.S. and U.K. corporate governance systems emphasize generating returns for public shareholders more than other systems do, reflecting a relatively shareholder-centric perspective fairly described as uniquely “Anglo-American.” I argue, however, that the U.S. and U.K. corporate governance systems exhibit substantial differences that have received insufficient attention in the comparative corporate literature. Simply put, shareholders in the United Kingdom are, in fact, far more powerful, and far more central to the aims of the corporation, than are shareholders in the United States.
In this Article, I describe this divergence, offer an explanation for it, and explore its practical and theoretical implications. First, I examine methodological challenges faced in comparative corporate governance, observing in particular the tendency of recent economically oriented comparative scholarship to depict corporate governance as a means for minimizing agency costs in the firm without sufficient recognition of culturally driven dimensions of the field relating to larger social goals within a particular country. I then provide an overview of corporate governance structures reflecting the substantial divergence in shareholder orientation between the U.S. and U.K. systems—notably the greater power of U.K. shareholders to remove directors and accept hostile takeovers, and the greater emphasis placed on their interests in the formulation of directors’ duties—and develop the argument that a complete explanation of this divergence requires addressing the range of regulatory structures affecting relationships among various stakeholders within the public corporation, including employees.
Through an examination of political, social, and cultural forces at work in each country during critical periods in the development of their corporate governance systems, I argue that stronger stakeholder-oriented social welfare policies and legal structures have permitted the U.K. corporate governance system to focus more intently on shareholders without giving rise to political backlash—and conversely that weaker stakeholder-oriented social welfare policies and legal structures have inhibited the U.S. corporate governance system from doing the same. A particularly vivid example explored in the Article is the divergence between the U.S. takeover regime, giving boards of directors substantial latitude to interfere with hostile bids, and the U.K. takeover regime, in which shareholders possess unfettered discretion to determine the outcome. Whereas concerns for the social welfare of employees losing their jobs in takeovers loomed large in the minds of judges and legislators fashioning the stakeholder-centric U.S. approach in the 1980s, the more shareholder-centric U.K. approach was able to take root and remain politically stable under the Labour government of Harold Wilson in the 1960s precisely because the government believed that external regulatory structures—notably the British welfare state—could mitigate costs borne by employees in the process of corporate consolidation.
In developing this argument, I distinguish my approach from other political theories of corporate governance, which I argue fail to account for the observed U.S.–U.K. divergence—largely due to the pursuit of a holistic global theory, requiring excessive sacrifice of nuance for parsimony. I argue that the role of politics in corporate governance changes fundamentally once a country moves from a concentrated ownership system to a dispersed ownership system—as the United States did in the early twentieth century, and the United Kingdom did somewhat later. Unlike in concentrated ownership systems, where the aim is to constrain the power of controlling shareholders for the protection of other stakeholders, in dispersed ownership systems the aim is to balance protection of minority shareholders with protection of other stakeholders. My Article demonstrates that the United States and the United Kingdom have sought to strike this balance in very different ways, reflecting two different forms of political equilibrium within the dispersed ownership structure.