The Anglo-American Corporate Governance Model: A Research Gap By Chrispas Nyombi 1.

Introduction At the beginning of the twentieth century, a period marked by the economic brilliance of Thorstein Veblen,1 and the prominence of Salomon inspired Company Law principles,2 an ultramodern text titled the modern corporation and private property by two contemporary legal scholars, Adolf Berle and Gardner Means, blended the underlying principles of multifarious academic fields against which the whole corpus of corporate governance research literature and regulatory frameworks have been coined to this day.3 As befitting two authors renowned for intellectual incandescence and edifying scholarship, this authoritatively renowned and landscape-altering text formed a trellis of legal research powerhouse against which our understanding of the bedrock principles of corporate governance have been debated to this day. Berle and Means believed that ownership and control were separate in Americas largest public companies. Thus, with an economic philosophy premised on equity rather than debt, the nations wealth became distributed into various corporate entities.4 Driven by a dependency on technological innovations, the capital needs of large public corporations were excessive that a handful of wealthy individuals were unable provide sufficient financial backing.5 Circa 1930, when Berle and Means constructed their towering exposition, publicly held corporations run by professional managers and owned by widely dispersed shareholders were indispensable to the American economy.6 The increased importance of management teams also culminated in the divorcement of many antecedents of dominant shareholding, leading to the perverse dispersal of share ownership. In ensuing decades, American public corporations were herald, among those in academia, as the evolutionary winners.7 Unperturbed, in much of the last century, this fertile ground witnessed

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a plethora of legal and economics scholarship, from Henry Manne8 to contemporary scholars such as Henry Hansmann and Reiner Kraakman,9 bent on unwinding some of the conceptual and theoretical conundrums that beset modern corporations and clarifying some of the underlying issues engulfing corporate governance. From the onset, two broad dichotomous systems were used to divide the world; the Blockholder10 and Anglo-American11systems. The latter was characterised by significant securities markets and shareholders operating at arms length.12 The Anglo-American system historically developed in the US and the UK, the two dominant world powers of the twentieth century, and no other country has conclusively evolved along the same lines.13 However, Canada and Australia are possible contenders, although the concentrated ownership structure in their public companies historically served to distinguish them from their Anglo-American Counterparts.14 Conversely, the Blockholder system was characterized by the acquisition of significant financial resources from the state, families, corporations, employees and banks.15 This system evolved in continental Europe and in market oriented economies of Asia.16 In the Blockholder system, ownership and control were not separate thus dominant shareholders had more power to exercise control.17 For both systems, two dominant theories, the agency theory and institutional model theory, emerged to explain the importance of shareholder protection as a lever for establishing an efficient corporate governance regime.18 According to Jensen and Mecklings pioneering agency theory, the central problem of corporate governance was how to minimize the harmful consequences emanating from the separation of ownership and control within public companies through mediums such as competitive market pressures, market based incentives and disciplinary mechanisms.19 In contrast to the institutional model which inferred that corporate governance is concerned with exploiting rather than minimizing the beneficial consequences emanating from the separation of ownership and control, in order to promote a more efficient and dynamic system of governance.20 Evidently, the institutional
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Electronic copy available at: http://ssrn.com/abstract=1965353

model is more suited to the Blockholder system given the promotion of substantial protection to block shareholders. However, Siems argued that the strong minority shareholder protection largely found in the Anglo-American system, rather than majority shareholder protection found in the Blockholder system, is the pretext for economic growth because it fosters efficient security markets that attract a diverse range of investors who are not affected by taking small shareholdings in public companies.21 Berle and Means believed that formal legal constraints were the solutions to the agency problems. This was criticised by Alchian, who warned that ignoring or denying the forces of open competitive market capitalization isa fundamental error in the writing about ownership and control and about the modern corporate economy.22 As a result of the two dominant theories, corporate governance emerged as the regulatory body to oversee the conduct of businesses in order to safeguard the rights and interests of all constituencies, especially the shareholders. Over the past three decades, globalisation has fuelled a Darwinian struggle between these two generic systems with a complex history that makes compromise elusive. A question that has polarised many scholars for decades is which system has won the evolutionary race. The apparent success of the shareholder-focused Anglo-American regime during the 90s, having endured severe competition from the Japanese and Germany economies in the 80s and 90s, led commentators to predict global convergence around this model.23 Most prominently, LLSV who observed through their law matters hypothesis that capital market structures are inherently linked to a countrys corporate governance structure.24 Thus countries with strong minority shareholder protection were more likely to develop dispersed ownership structures like those found in common law jurisdictions like UK and US. Accordingly, this made civil law legal jurisdictions inferior in this regard. The interrelationship between shareholders and directors or ownership and control has been the coalescing point in defining corporate governance. The Cadbury Committee in 1992 viewed corporate governance as a medium
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through which companies are directed and controlled by the board of directors and auditors appointed through the boundaries of law and established corporate governance norms.25 Cadburys extrapolations and the law matters hypothesis reinvigorated the convergence debate by assuming that jurisdictions with substandard rules would want the economic efficiency espoused by their common law counterparts.26 A damning indictment came from pro-convergence theorists Henry Hansmann and Reinier Kraakman, who controversially asserted at the beginning of the twenty-first century that the triumph of the shareholderoriented model of the corporation over its principal competitors is now assured.27 With all due deference and in the spirit that academic scholarship is a collaborative enterprise with deep roots in constructive criticism, having traced the differences in corporate governance structures around the world, taking into consideration historical, political and social factors, Mark Roe through the path dependence theorem, vigorously opposed the law matters hypothesis.28 Research from Jeffery Gordon29 and Lucian Bechuck30 also questioned the convergence wisdom. Even a pro-convergence theorist, Ronald Gilson, believed that the concept of convergence was ambiguous when distinguishing convergence in form or function.31 On the same line, authors Reinhard Schmidt and Gerald Spindler warned that the piecemeal transplantation of rules may result, not in efficiency gains, but rather in the creation of an inconsistent and dysfunctional governance regime.32 Unsurprisingly, a decade later since Hansmann and Kraakmans extrapolation, considerable diversity has been noted within and across national systems.33 Despite the path dependence and legal transplantation obstacle, this has not halted the drive towards the seemingly efficient Anglo-American structures and codes of corporate governance such as Principles and Recommendations of the American Law Institute (1984), Treadway Commission (1987) and the Cadbury Code (1992)34 that prompted countries such as Canada to adopt versions of these codes.35 Hansmann and Kraakman observed that the
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increased acceptance of shareholder centred rules by multinational firms, governments, will result in Corporate Law reforms in many jurisdictions.36 Today, the Anglo-American approach to regulating corporations has been traced in Asia and the EU with variants of the US Sarbanes Oxley Act such as CEO and CFO certification requirements being found in China, Canada, Australia, and India.37 The UK corporate governance codes38 have also been of influence in Australia and Canada.39 The adoption of the business judgement rule in Australia represents another regulatory take along US lines.40 However, it should be remembered that, the Organisation for Economic Developments (OECD) Principles of Corporate Governance, the Basel Committees guidelines relating to enhanced corporate governance of banks (issued in 1999 and enhanced in 2006) and the UK Financial Reporting Councils (FRC) Corporate Governance Code 2010, were found wanting in their ability to protect investors as result of the 2007-2009 financial crisis.41 Notably, Beck and Levine discuss the possibility that UK corporate law has influenced other countries laws, including the US.42 They argue that there has been notable, yet highly neglected, regulatory influences within the Anglo-American system. For example, the UK advocates majority independent boards, an outcome the US have recently achieved through the New York Stock Exchange (NYSE) listing rules.43 In both countries, the question of whether and how shareholders should be better protected has been intensely debated while looking into other systems of governance. For example, authors Dennis and McConnell provide mixed evidence on the relative merits of the two Anglo-American systems, but suggest that the UK system can possibly be as efficient as the US system.44 Since the US is premised on a hard law regulatory approach, while the UK follows a predominantly self regulation approach that enshrines the belief that corporate governance should promote accountability to shareholders and effective management guided by the Code of Corporate Governance, inquiries have intensified to determine which direction national reformers should take.45 The inquiries have deepened this

decade, having witnessed the bursting of the dot-com bubble in 2001 and a number of high profile scandals such as Enron, WorldCom and concluding the latest Sub-Prime Mortgage crisis.46 Thus the lack of consensus regarding the optimal system of corporate governance, given the scandalous history of the Anglo-American system, has many implications for current law reforms around the world.47
2.0 Comparative Law in the Convergence Debate

The initiative to use comparativism as a tool of law reform under the guise of legal transplantation has great appeal in corporate governance.48 As long ago as 1987, Richard Posner announced the decline of law as an autonomous discipline, having witnessed a plethora of legal scholarship that transcended beyond the narrow confines of legalism into other realms of finance and social studies.49 Convergence in law was at the heart of Posners proposition, and methods of comparative law propelled by the ideals of globalisation gained prominence in the twentieth century50 leading to the twenty-first century being paraded by Orucu as an era of comparative law.51 However, it has been argued by Sir Markesinis that politicians and judges pay little attention to comparative law since it is regarded as too complicated and theoretical.52 He adds that comparative law is often about ideas and notions that cannot be put to practical use, and are likely to satisfy only those who spend their time devising them.53 Moreover, the influence of comparative law in the US and UK academia, especially in fields like law and social sciences, has not waned. Comparative Law research has influenced institutions within the international community including the OECD, the World Bank and the International Monetary Fund (IMF) to draft legislative guides and general principles in order to assist developing countries in reforming or drafting their law. 54 It should be emphasized, however, that corporate governance is essentially international and interdisciplinary, touching core Corporate Law issues especially the board of directors. The long arms of corporate governance reach areas of securities regulation in US and areas of self
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regulation in UK, exemplified by the Takeover Code in UK.55 Thus comparative Company Law is to a large extent part of comparative corporate governance.56 A common approach to comparative law is usually a teleological one. A teleological concept implies that there is change or convergence towards a defined point. This is supported by Bainbridge,57 Roe58 and Deakin59 who suggest convergence in corporate governance towards shareholder value maximization or towards optimal efficient forms of corporate organization or global best practice standards. However, according to Professor Green,60 such an approach does not seem to be supported by the evidence. Instead, a framework for analysing legal change and convergence should be based on evolutionary circumstances and conditions that have caused variation in a system and favoured the selection of one variant over the other. Comparative law is not about summarising every aspect that can be obtained about different legal and extralegal systems, but it is about making an informed comparison. Convergence critics argue that it is not realistic to conclude that the entirety of law in one country can ever become identical to another.61 For instance, the European Directives on Company Law provides minimum harmonisation, but leaves many gaps, and may be applied differently; resulting in many differences among Member States.62 Thus convergence does not necessarily mean a new identity since the laws of EU Member States are becoming more similar in many areas but not identical. However, there should be a shift away from the traditional approach to comparative law premised on the accurate description of a particular foreign legal system and translation of what authors have written about domestic law. According to Zweigert and Kotz, this serves as an injustice to comparative law.63 A new simplistic approach which treats different legal systems as mere compilations of information in a numerical way was advanced by LLSV has gained continued support in comparative law research literature.64 For example, the EU Commissions impact assessment of the Directive on Shareholders Rights used LLSVs
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numerical approach in order to justify their recent reform.65 However, Spamann argues that the legal indices of LLSV do not provide an accurate numerical description of laws in different countries given their erroneous coding.66 The authors forensic examination of the methodology and LLSVs results provides that eight is a very limited number of variables and can seldom provide a meaningful picture of the legal protection in a given country. Thus the thesis did not only suffer from a US bias but it was also a poor proxy for shareholder protection because the variables did not focus on the most significant aspects of the law. The same methodology was employed by the World Banks doing business report and placed countries like Saudi Arabia and Taiwan in categories where the context of their rules and cultures were extremely different.67 Thus the analytical side of the traditional approach should be employed by researchers while drawing from the qualitative approach akin to the new simplistic approach. 2. The Anglo-American Corporate Governance Research Gap Although the UK provides the US with a companion in the dispersed ownership category, it evolved on similar grounds but on a different path.68 The once predicted dominance of the Anglo-American model has faced many towering blocks in a bid to transplant best practices across the world ranging from cultural to political hurdles. As aforementioned, there have been a couple of recent regulatory transfers, but in all, the two countries remain inherently similar but unique in their corporate governance structures. Even though the debate on corporate governance structures exhibited in UK and US has generated an extensive body of theoretical and empirical work, the conclusions remain opaque. There is yet no consensus as to what system of corporate governance is most reliable and whether legal convergence should be encouraged.69 However, as aforementioned, legal and economics academics support the superiority of the shareholder-oriented corporate governance system like the one exhibited in the UK, characterized by well developed capital markets, good investor
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protection and a market for corporate control. It is evident from research literature that in the past decade, scholars relaxed their focus on minimizing or exploiting the harmful or beneficial consequences of separation of ownership and control and became more occupied with finding the optimal corporate governance regime.70 Consequently, it has become common when describing the results of comparative corporate governance, to offer a somewhat stylized and simplified story of the dominant models and an emphasis on major differences at an abstract level, evidenced by Tom and Wrights recent comparative research.71 Thus there is a dearth of research literature that offers a wholesale assessment of the corporate governance frameworks in these two countries. Future research should focus areas of shareholder protection, takeover regulation, stock market regulation and legal enforcement. Research that combines the four areas is likely to give a clearer picture on the efficacy of the Anglo-American system. 2.1.Shareholder Protection First articulated by Oliver Williamson in the mid 80s, one of the burgeoning arguments in favour of shareholder value maximization in a world of incomplete contracts is that shareholders are relatively less protected than other constituencies.72 This argument is based on the assumption that workers or other participants are not locked into a firm specific contract and can quit at lower cost.73 Even creditors can get greater protection by taking collateral, but shareholders have an open ended contract without specific protection. In all, shareholders are excluded from the corporate technostructure.74 The lack of protection from contract law means that company law and corporate governance rules must be strong and robust enough to deter abuses.75 In relation to shareholder rights, the longstanding principle of US corporate law is that the power to manage the company is vested in the board of directors,76 as supported by the Delaware Code 200177 Model Business Corporation Act 2002,78 and the Business Corporation Law.79 Based on this principle, the powers of
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shareholders are limited to what corporate statutes specify. In contrast, UK law gives considerable power to the shareholders via the Companies Act 2006.80 In the case of listed companies, this is further enhanced through various provisions of the Listing Rules, the Code of Corporate Governance, and the Takeover Code. Together, these combine to permit shareholders to control many aspects of the managerial agency problem without the need for litigation. Both countries regulatory frameworks were aimed at reducing the ownership and managerial divide. As Sir David Walker opined in a 2009 government commissioned report on the corporate governance of British banks; a more productive and informed relationship between directors and shareholders should help directors in better management of the companys affairs.81 Since shareholders have imperfect information of each others actions, knowledge, and preferences,82 it is widely recognised that managerial activities can also be constrained by internal control mechanisms such as the board and external control mechanisms such as the market for corporate control. Unlike their non-controlling counterparts who generally rely on formal Company Law rules, institutional investors as equity owners also represent important external control mechanism.83 These influential gatekeepers can combat the agency problem directly through their substantial ownership rights and indirectly by trading their shares.
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Losing a large shareholder could be detrimental to a companys capital and it may prompt other shareholders to review their holdings.85 Similarly, dispersed shareholders can use Company Law to detect and deter managerial abuse through mandatory information disclosures, and can voice dissatisfaction through voting.86 However, their passivity in leading up to the financial crisis and before led to a steady barrage of criticism. 87 The Enron saga is a canonical example of a case where prognosticative index hugging shareholders never asked questions, and when the share price plummeted, it was too late to get access to capital and save the company.88 Generally, exiting rather than voicing is the general
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practice.89 Of both countries, the US traditionally had broader institutional shareholder involvement, while institutional shareholders in UK have traditionally taken a hands off approach to corporate governance,90 as a financial journalist observed in 1899: in practice shareholders seldom assert their will. They are led and easily ledthe rule that shareholders do as they are bidden by their servants (the directors) have very few exceptions. 91 Over a century later, Lord Myners in his 2009 speech as Secretary of the Financial Services Treasury characterized them as absentee landlords.92 Thus, recent scandals have indicated that a century on since Berle and Means exposition, problems of ownership and control still persist unabated.93 2.2.Takeover Regulation Hostile takeovers play a major role in rendering managers accountable to dispersed shareholders in the Anglo-American system of corporate governance.94 It is widely recognised that takeover regulation is a significant element of corporate governance because they affect the level of investor protection by dictating ownership and control in acquired firms.95 According to Easterbrook and Fischel, conflict of interest can arise in the transfer of control where opportunistic managerial behaviours could emerge.96 It is beneficial for minority shareholders that hostile takeovers target a poorly performing firm and replace poorly performing management.97 Shareholders generally do not have the technical knowledge to evaluate complex business plans therefore they consider the bidder with the highest value for their shares.98 Theoretically, the threat of losing their jobs and perquisites pushes management and executives to serve shareholders interests. 99 Since anti-takeover devices found in US such as attempts to make the target companys stock less attractive to the bidder ( poison pills ) or the selling of valuable assets, are perceived as detrimental to shareholder interests in UK, management is forced to face the market for corporate control.100 Takeover regulations are designed to steps in and root out costs and inefficiencies
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linked to hostile takeovers, to enable the transfer of control to more productive and efficient managers and owners. Even though Company Law offers many ways to resolve conflicts between majority and minority shareholders, takeover regulation provides them with an exit route on fair terms through mediums such as the mandatory bid rule in UK.101 For decades, academics have debated the question of the optimal way to regulate the takeover market.102 Two American academics, Frank Easterbrook and Dan Fischel recently argued, in their shareholder oriented approach, that managers should be prohibited from frustrating takeovers due to their self interest agendas.103 Conversely, others have argued that managers should be given some scope to slow down a takeover bid in order to get the best possible price for the companys shareholders and hold back private equity buyouts that could harm the financial structure of the company.104 While the UK has opted for no managerial discretion, the shareholder oriented approach has been dismissed in countless Delaware takeover court decisions.105 What is astounding, however, is the limited attention paid to the two countries under the Anglo-American model, when both the mode and substance of the regulation is bearing startling differences and similarities. While the Takeover Panel106 governs its own resolutions, US takeovers are governed by Delaware courts. Although these courts are relatively flexible and quick, they remain barred by the ex post nature of court dispute resolution. In addition, the Takeover Code is strongly learning towards the protection of shareholders interests through the equal treatment and mandatory bid requirements that prevent acquirers from making coercive bids, whereas management in the US has greater flexibility to engage in defensive tactics within the ambit of their fiduciary duties. However, even though management in UK can be prevented from engaging in any defensive tactics designed to starve off an actual or anticipated bid, they can do so with the consent of shareholders.107 For the convergence debate, it is imperative to note that the adoption of the mandatory bid rule, equal treatment rule and squeeze-out rules is becoming widespread,
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especially in EU countries.108 The failure of the European Union Takeover Directive to require all Member States to implement a non-frustration approach was greeted with disquiet in some academic circles.109 There has also been a recurring wave of research carried out to determine whether Japan is moving towards the British or American takeover approach, but the conclusions remain opaque, even though the poison pill has become part of the Japanese legal system.110 However, adopting a unified code in a Blockholder system could serve to further concentrate ownership through increased mergers and acquisitions. 2.3.Stock Market Regulation There has been a wave of recent studies on the regulation of capital use through crossnational comparisons111 or regulatory changes in foreign countries.112 According to Braendle113 legal origins theory, common law countries provide stronger protection to minority shareholders than civil law countries through comprehensive securities laws and private enforcement, resulting in more develops markets and economies. The World Bank uses the theory to support its position that private rights of action for minority shareholders are important for developing strong equity markets.114According to the law matters hypothesis, minority shareholders feel comfortable in a protective environment where opportunistic behaviours are regulated vigorously by the legal system. 115 As a result of this confidence, investors would be more willing to pay full value for shares made available for sale; this reduces the cost of capital for the organisation that opts to sell equity in financial markets. However, such conditions are suited to a system of dispersed ownership because a strong legal system leaves controlling shareholders unable to exploit their positions if they choose to unwind their holdings. This indicates that public companies are unlikely to become dominant in countries that do not offer significant legal protection to outside investors.

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Shareholder protection is important during securities issuance given the risk that corporate issuers may sell bad securities to the poorly informed public. Security issuance primarily occurs through an Initial Public Offering (IPO) where a firm sells stock to the public for the first time. An IPO is a primary offering, differing from a secondary offering which is the public sale of previously issued securities. IPOs compared to already listed firms suffer from shorter history, less public historical information, no secondary trading, and a few large owners, causing higher information asymmetry in the process. IPO listings prospectuses are derived from informal informational contracting between Blockholder groups, agents (management and executives), and shareholder (principals). The IPO prospectus is basically a written document that provides material information such as financial statements and general information about the firm such as the annual report required for a listed firm. The formulation of the prospectus is dependent on a number of distinct groups, including accountancy professionals, investment banks, underwriters, corporate law firms and legal professionals.116 Actors, including investors and analyst use the prospectus information to value the firm and make investment decisions on whether to pay the offer price for the securities, mainly on primary markets, therefore low disclosure leads to higher uncertainty when valuing the company. The secondary market also allows continuing disclosure of information that may affect stock prices, enabling the stock prices to theoretically reflect the value of the stock, and thus achieving an efficient capital market.117 The levels of informational contracting are largely defined by institutions, although securities laws are largely involved mainly for enforcement purposes. 118 Disclosure can be regulated or unregulated, where the unregulated information is optional and disclosed on a voluntary basis.119 With regard to stock market regulation in both jurisdictions, the weight is placed on hard law. For instance, in the making Initial Public Offerings (IPO), either on the London Stock Exchange (LSE) or the New York Stock Exchange (NYSE), the law places mandatory
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disclosure requirements on companies. In UK, the Market in Financial Instruments Directive, 2007 and Prospectus Directive 2003, supported by a collage of other regulatory instruments, mainly administered by the Financial Services Authority (FSA), put forward these requirements.120 In US, mainly the Regulation Fair Disclosure and the Sarbanes-Oxley Act provide stringent rules overseeing the stock markets. While each jurisdictions requirements may differ in detail, they share the common purpose of ensuring that investors are given information adequate to permit them to make informed investment decisions and markets are genuinely fair.121 Given the importance of stock market disclosure, in the US, much of the reform of the past few years has been a reaction to market place scandals that led to the passage of the Sarbanes-Oxley Act of 2002122 and ensuing rulemaking by 123SEC. In Europe, the driving force for reform has been the desire to harmonize disclosure policy and to create a European wide capital raising mechanism.124 In the US, Congress intended the mandatory securities laws to substitute a philosophy of full disclosure for the philosophy of caveat
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emptor. For example, for potential issuers to the NYSE, registration statement must be

filed with SEC,126 containing detailed disclosures127 and providing an array of important information.128 A disciplinary measure can be found in the Securities Act 1933 which sanction against behaviour that perpetuates fraud on the market.129 Despite the strengths in mandating disclosure, there has been a healthy debate about the efficacy of mandatory disclosure for decades. The vast majority of research literature, namely Campa and Fernandes,130, Ferraira and Ferraira,131, Fritsche and Kuzin,132 have focused on convergence in the European Union. Notably, Caporale et al. took a more economic than legal approach, although the findings are persuasive in nature and point towards potential convergence.133 No research has yet conducted a comprehensive comparison of stock market regulations, especially prospectus disclosure requirements in both jurisdictions. Numerous scholars have argued that market forces will produce optimal levels of disclosure in a regime
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of voluntary disclosure,134 while others argue that various market failures call for a mandatory disclosure system.135 However, Campbell argues that SECs relentless refusal to permit small businesses to solicit external capital through their restrictive regulatory frameworks needs addressing.136 Thus, Campbell firmly believes that some firms should be allowed to list without fulfilling the full initial public offering (IPO) disclosure process. 137 This view is shared with Amihud, Mendelson & Pedersen138 and Botosan139 who argue that even without hard law; firms have strong incentives to provide information and other assurances about the firm value to investors in order to remain competitive. Given the aforementioned, scholars such as Coffee140 and Gilson141 point to the potential convergence of stock market regulation because both UK and US adhere to practically similar principles of stock market regulation and enforce mainly hard law as a result. However, even if the disclosure requirements for public companies in the UK and US were to converge, markedly different enforcement mechanisms for such legal requirements would likely lead to different disclosure documents.142 2.4.Legal enforcement Ever since Roscoe Pound emphatically drew attention to the separation between law in books and law in action over a century ago, there has been a heated debate on the subject. 143 Most notably LLSV who concluded in their empirical studies that corporate and securities laws which protect minority shareholders are connected with deep and liquid securities markets.144 However, their research was victim to Pounds divide since it merely focused on law in books thus neglecting the crucial area of enforcement whether by public agencies or private individuals and whether through formal lawsuits or informal channels.145 By contrast, in civil law countries, mandatory law and ex ante control are said to play a bigger part. 146 The overriding purpose of regulating financial markets is to expose and discipline misconduct by company agents.147 In both UK and US, directors owe duties to their companies to act with
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care, in the best interests of the company and to avoid conflicts of interest. The countries also permit derivative actions that allow shareholders to sue on behalf of the company.148 Directors also have potential liability to investors for misstatements in documentation distributed in an IPO.149 However they contrast when it comes to enforcing these rules. The UK is traditionally less litigious, perhaps providing a competitive advantage by encouraging cross listing.150 In contrast, active enforcement is viewed by many as the core strength of US markets.151 Unsurprisingly, many commentators stand against excessive litigation guided by a belief that the competitiveness of the US market and US firms could be harmed.152 However, there has been some empirical work on shareholder suits under corporate law in US focused on cases filed in Delaware courts by Armour et al.153 Lawsuits in US against directors are extremely common given the nature of their enforcement, a contrast from UK where private enforcement is extremely rare and public enforcement faces a scarcity. 154 The enforcement of the law in Armour et al. research was for claims filed in UK during 20042006 and US during 2000-2007 involving allegations of breach of duty by directors. They found varying contrasts between private and public enforcement in both countries. Spamann,155 however, questions whether the measures of enforcement employed in their analysis are meaningful since they provide limited comparison. In US, prior studies that examined the enforcement of US securities laws against foreign firms concentrated primarily on public enforcement actions initiated by the SEC. Given the importance of understanding enforcement, especially for the convergence theorists, it is surprising that little empirical evidence is available, especially within the Anglo-American system. Even with the recent research into public and private enforcement, no consensus has been reached on how best to measure its efficiency. LLSV in 2006 used statutory powers available to regulators as regards penalties and compensation orders to measure enforcement.156 They reached a conclusion that private enforcement or class action lawsuits are correlated with
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deep and liquid securities markets than is public enforcement. However, the inability to examine differences in the use of enforcement powers marred their results. Jackson and Roe in 2009 focused on the resources available to securities regulators: that is, their annual staffing and budget, to measure enforcement.157 They argued that variations in stock market liquidity can be measured better using this approach as compared to LLSVs approach. This approach can be criticised on the basis that it fails to take into consideration the differences in resources allocated to enforcers. To measure how intense enforcement is, John coffee in 2007 argued that its best to focus on outputs rather than inputs; in other words, how many dollars of fines are paid, or years of jail time served divided by the number of those regulated.158 According to Coffee, this provides a much clearer picture of the incentive effects of legal rules on rational parties behaviours. On that basis, if enforcement intensity is measured by financial penalties imposed, then the US has won. According to Armour et al.159 this can be countered on the basis that measuring such penalties will be misleading if announcements of enforcement activity carries with it additional reputational losses for malefactors. However, it may be that regulators rely more heavily on reputational than financial penalties. Given the abovementioned approaches, it seems that looking at regulators legal powers or budgets fails to take into consideration differing institutional efficiency amongst enforcers, and looking at the size of financial penalties imposed leaves out any deterrent effects of reputational penalties. 3. Conclusion This paper has highlighted that most research focuses on individual governance areas which makes it difficult to reach solid conclusions regarding which countrys corporate governance approach is superior.160 Areas such as takeover regulation and shareholders rights have generally received more attention compared to legal enforcement and stock market regulation. A broad research focus would only expose even deeper governance problems in
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the Anglo-American system. Even though all four areas are affected by agency problems, there is no research that offers a comprehensive account of the areas in terms of function and development in UK and US. It is also difficult to argue for convergence or divergence between UK if governance abuse triggering areas have not been comprehensively studied. Research literature has ignored this strand of information and proceeded on with a rallying call for convergence to a model that is ill-defined and potentially flawed given its failings during the recent financial crisis. Thus it would be pointless to join the convergence bandwagon only to reach occasional conclusions like my predecessors, that there is little or no convergence between the Anglo-American and Blockholder systems.161
Faculty of Law, University of Essex, email:cnyomb@essex.ac.uk; LLM- University College London, PhD Candidate- University of Essex

1 T. Veblen, The Theory of Business Enterprise : Scribner's: New York, 1932 2 Salomon v Salomon Co Ltd [1897] A.C. 22; Davies, P (2003) Gower and Davies' Principles of Modern Company Law, 7th edn (London: Sweet & Maxwell Ltd. 3 A. A. Berle, and Means, G. C. (1932) The Modern Corporation and Private Property. New York: Commerce Clearing House. 4 M. De Vroey, (1975) The Separation of Ownership from Control in Large Corporations 2 Review of Radical Political Economics 1. 5 R. Coase (1937) The Nature of the Firm 4 Economica 386405. M. Dodd, For Whom are Managers Trustees? 45 HLR 1145. 6 A. Chandler (1962) Strategy and Structure: Chapters in the History of the American Industrial Enterprise (Cambridge: MA, MIT Press, 1962) 7 M. Jensen (1989) Eclipse of the Public Corporation 67 Harvard Business Review 61 8 H. Manne (1965) Mergers and the Market for Corporate Control 73 Journal of Political Economy 110 at 113. 9 H Hansmann and R Kraakman (2001) The End of History for Corporate Law 89 Geo L J 43968 10 Also known as the Continental model, bank-oriented, civil law, stakeholder centred, or coordinated model 11 Also known as the Outsider, market oriented, shareholder-centred, common law or liberal model, Arms-Length system. The latter signifies the received wisdom that investors in the US and Britain are rarely poised to intervene and take a hand in running a business. 12 A. Francis (1980) 'Families, Firms and Finance Capital; the Development of UK Industrial Firms with Particular Reference to their Ownership and Control' 14 Sociology 13 R.K. Morck, D. Stangeland & B Yeung (1998)Inherited Wealth, Corporate Control, and Economic Growth, Working Paper 209 14 B.R. Cheffins (1999), Current Trends in Corporate Governance: Going from London to Milan via Toronto, Duke Journal of Comparative and International Law, Vol.10 15 T. Hoshi (1998), Japanese Corporate Governance as a System in K Hopt and others (eds), Comparative Corporate Governance: The State of the Art and Emerging Research (OUP, Oxford) 847875; J. Franks and C. Mayer (2001), Ownership and Control of German Corporations 14 The Review of Financial Studies 943 16 R. Aguilera and G. Jackson (2003) The Cross-National Diversity of Corporate Governance: Dimensions and Determinants 28(3) Academy of Management Review 447

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