Corporate Governance in the United States as Seen from Europe

Abstract

The aim of this article is to offer a European perspective on the need for new or additional law and economics research in U.S. corporate governance. First, to a European, the existence of protective devices against foreign legal competition provides support to the proposition that the rules applicable to U.S. corporate governance are not as robust as might be expected from the leading market economy. Surprisingly, there is no truly convincing explanation as to why market failures continue to justify such a system. Second, the role of middle management, the impact of "new" management trends and the role of individuals in a more distribution-oriented economy are topics that should be recognized as of critical importance to the modern firm. However, although the United States pioneered the combination of legal, economic and behavioral analysis, there seems to be a natural reluctance by U.S. law and economics analysts to address those internal management issues. This is not to imply that these issues are new or necessarily relevant from a corporate governance point of view. On the other hand, this is another area that certainly deserves more attention than has been given up until now. Finally, there are two more specific issues of corporate governance that have been given less attention than they seem to deserve. First, auditors and "indirect" monitors, in particular mutual fund investors, are important players in corporate governance. Nevertheless, the behavior and influence of auditors within the corporation and the governance of mutual funds are issues that have not been focused upon to date. Second, it is difficult for an outsider to understand why U.S. fiduciary duties differ from the duties of boards under non-U.S. systems. This is often proclaimed, but the substantive and enforcement arguments made are not convincing.

JEL Classification: G34