PREDICTING FIRM SUSTAINABILITY THROUGH GOVERNANCE: THE RELATIONAL CORPORATE GOVERNANCE APPROACH The relational corporate governance approach presented in this thesis is a tool which complements and enhances the explanatory power of the existing principal ‘law and economics’ theories and models of the firm. It maps the effectiveness of corporate Governance Variables in use in corporate Governance Codes and laws around the world and assesses reform proposals in the field. The approach can be used by regulators, policy- makers, law reformers and corporate actors as a diagnostic tool to analyse the governance health of individual companies and the governance actions required to remedy sub-optimal governance and management arrangements. The principal aim of the relational approach is to describe and evaluate the interrelationships between the most significant fields of corporate governance study and practice and the Governance Variables to which these fields give rise. In this way, the relational approach can be used to make predictions in relation to the relative importance of Governance Variables inter se in reducing (or increasing) agency costs and enhancing (or reducing) the long-term efficiency and survival of the for-profit firm. The relational approach is built from an artificial environment that simulates the real world sphere of corporate governance and is comprised of the four Key Fields drawn from the Social Science Research Network database: (1) application of the principal theories of the firm to the relational approach; (2) ‘autopsies’ of the Enron and Hastie corporate collapses; (3) comparative corporate Governance Codes; and (4) empirical studies of the effectiveness of Governance Variables. From these Key Fields a ‘Weighing Mechanism’ is constructed comprising four theoretical components. First, the thesis introduces a new definition of relational corporate governance known as the Three Relational Axes of Good Governance. These Three Relational Axes act like a set of scales to theoretically ‘weigh’ the competing interests of those ‘inside’ the corporation and those ‘outside’. Second, the thesis establishes a set of eight Governance Factors which are the principal or central themes underlying the four Key Fields. These eight Governance Factors are the eight most common themes in the thesis’ simulated representation of real world corporate governance. The theoretical ‘weighing’ of the Governance Factors in the Three Relational Axes of Good Governance is already completed and presented for the reader. Thus the interrelationships between the eight Governance Factors are presented in two diagrams called Interrelationship Schemes, one for the shareholder (primacy) model and the other representing the stakeholder model. From these Interrelationship Schemes the thesis constructs – for each of 39 Governance Variables – a relational effect path that seeks to explain which Governance Factors are affected by each Governance Variable and the direction of the effect. The interrelationships depicted in a relational effect path for each Governance Variable are then summarised in operational tables. The greater the number of Governance Factors affected by a Governance Variable in either direction, then the greater is the relative importance of that Variable in affecting agency costs and the long-term efficiency and survival/sustainability of the for-profit corporation.

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Predicting firm sustainability through governance: the relational corporate governance approach.

This article examines lawyers' responses to the Companies Act 2006, section 172, which controversially introduces the concept of enlightened shareholder value into the law of the UK, together with a non-exhaustive list of factors that directors must take into account when making decisions. It argues that, in the absence of judicial precedent on the meaning of section 172, uncertainty regarding its requirements and fears of derivative litigation, advisers' interpretations of section 172's requirements are likely to be influential in shaping directors' and shareholders' responses to the law. The article considers the impact lawyers' advice may have on the decision making of boards and the willingness of shareholders to bring derivative actions for breach of the section, and assesses the corporate governance implications of these findings. It concludes that, while shareholders' lawyers are likely to discourage derivative litigation, lawyers' advice may well result in more boards adopting an enlightened share...

Legal Practitioners, Enlightened Shareholder Value and the Shaping of Corporate Governance

This paper aims to address whether deploying compliance and ethics programs will assist US organizations in implementing the internal mechanisms necessary to achieve a competitive advantage from the law. My focus will be on the US legal system, as the corporate compliance and ethics programs examined are based on mitigation provisions contained in the US Federal Sentencing Guidelines. In particular, I propose that organizations can attain a sustainable competitive advantage from the law by considering the following questions: Do compliance and ethics programs assist organizations in achieving a better understanding of the law? Are compliance and ethics programs a cost-effective approach for coping with an organization’s legal issues? Can compliance and ethics programs aid organizations by preventing these legal issues from occurring in the future? Will compliance and ethics programs support organizations in reframing legal issues as business opportunities?

Compliance and ethics programs: competitive advantage through the law

In economic geography and cognate disciplines, a good deal of attention has been paid to the roles of investors, lenders, analysts, advisors, actuaries, and other skilled financial professionals in forming and reproducing financial and other markets. Relatively neglected, by contrast, is the work of lawyers, judges, and other legal agents. This article redresses this imbalance by making two contributions. First, we highlight the role of legal labor in financial market formation in Malaysia, specifically the role of Shariah jurists and translators in institutionalizing the (re)production of Islamic values in market life. Second, drawing on cases of financial litigation and interviews with Shariah scholars, we argue that Malaysia's strategy to develop its Islamic financial governance institutions, to bolster its international stature, and to extend the regional, national, and international reach and mobility of its Islamic values is intrinsically geographical in nature. The strategy involves a rescaling and...

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Resetting Neoliberal Values: Lawmaking in Malaysia's Islamic Finance

This legal study identifies through a case-study of Zimbabwe the range of essential legal reforms an emerging market should implement to establish financial infrastructure that enables the structuring of securitization transactions and the prevention and management of risks – such as those highlighted by the 2007 global financial crisis – that can arise from securitization transactions.
The study analyses: (i) laws regulating or relating to prudentially regulated firms that typically use securitization to refinance; (ii) corporate and trust laws to identify legal structures which can be utilised as securitization special purpose vehicles; (iii) the Roman-Dutch law of sale to determine whether it permits the true-sale of financial assets; (iv) various legal risks, including substantive-consolidation, veil-piercing, foreclosure, insolvency and tax risks; (v) the dispute resolution framework; and (vi) the structured finance risk mitigation properties of Zimbabwe‘s financial market regulatory framework.
The study concludes that Zimbabwe‘s legal system permits most of the contractual arrangements that constitute a basic securitization transaction. However, its financial services regulatory and gatekeeping framework - which must be reformed - is rudimentary and ill-suited to preventing and managing systemic risks that can arise from securitization.
This is the first comprehensive academic study which investigates the extent to which the Roman-Dutch legal system enables the various contractual arrangements that constitute a securitization transaction. It also presents an analytical model for reviewing the securitization-enabling characteristics of emerging markets‘ legal systems and the securitization risk mitigation properties of their financial infrastructures.

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Developing securitization-enabling financial infrastructure in emerging markets: a case-study of Zimbabwe

Following the collapse of Enron Corporation, the ethical obligations of corporate attorneys have received increased scrutiny. The Sarbanes-Oxley Act of 2002, enacted in response to calls for corporate reform, specifically requires the Securities and Exchange Commission to address the lawyer's role by requiring covered attorneys to report up evidence of corporate wrongdoing to key corporate officers, and, in some circumstances, to the board of directors. Failure to report up subjects a lawyer to liability under federal law. This article argues that the reporting up requirement reflects a second-best approach to corporate governance reform. Rather than focusing on the actors that traditionally control a corporation's activities, the statute attempts to solve governance problems indirectly by assigning to the lawyer the role of corporate gatekeeper and information intermediary. We demonstrate that the reporting up requirement fails to address the incentives that motivate corporate attorneys, directors, and managers. At the same time, the provision threatens to undermine the flow of information between lawyers and corporate actors. As a consequence, we suggest that the requirement is unlikely to achieve its objective of providing key corporate decisionmakers with early information about potential misconduct. Moreover, attorney and manager responses to the reporting up requirement are likely to reduce the quality of legal services provided to the corporation. Based on this cost-benefit analysis, we conclude that the Sarbanes-Oxley approach to corporate governance reform is flawed. Instead, we argue that a demand side approach is most likely to realign corporate attorney incentives and to reinvigorate the business lawyer's important role in promoting good corporate governance. Toward that end, we identify specific reforms tailored to increasing the incentives for corporate officers and directors to demand and obtain better legal advice.

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Is There a Role for Lawyers in Preventing Future Enrons

Following the collapse of the Enron Corporation, the ethical obligations of corporate attorneys have received increased scrutiny. The Sarbanes-Oxley Act of 2002, enacted in response to calls for corporate reform, specifically requires the Securities and Exchange Commission to address the lawyer’s role by requiring covered attorneys to “report up” evidence of corporate wrongdoing to key corporate officers, and, in some circumstances, to the board of directors. Failure to “report up” subjects a lawyer to liability under federal law. This Article argues that the reporting up requirement reflects a second-best approach to corporate governance reform. Rather than focusing on the actors that traditionally control a corporation’s activities, the statute attempts to solve governance problems indirectly by assigning to the lawyer the role of corporate gatekeeper and information intermediary. We demonstrate that the reporting up requirement fails to address the incentives that motivate corporate attorneys, directors and managers. At the same time, the provision threatens to undermine the flow of information between lawyers and corporate actors. As a consequence, we suggest that the requirement is unlikely to achieve its objective of providing key corporate decisionmakers with early information about potential misconduct. Moreover, attorney and manager responses to the reporting up requirement are likely to reduce the quality of legal services provided to the corporation. Based on this cost-benefit analysis, we conclude that the Sarbanes-Oxley approach to corporate governance reform is flawed. Instead, we argue that a demand side approach is more likely to realign corporate attorney incentives and to reinvigorate the business lawyer’s important role in promoting good corpo* Professor and Director, Center for Corporate, Securities and Financial Law, Fordham Law School. The authors would like to thank Robert Marel for research assistance. ** Assistant Professor, The University of Alabama School of Law. Professor Rosen previously served as Fellow, Center for Corporate, Securities and Financial Law, Fordham Law School.

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With average Americans perturbed about executive pay, government officials are taking action. Officials appear to be racing against each other to battle corporate excess. The U.S. Securities and Exchange Commission (SEC) engaged in major rulemaking related to the disclosure of executive compensation, and Congress quickly considered executive compensation legislation. More reform, however, is not always better. Concurrent reform by multiple regulators presents perils. This Article adds to the dialogue about scandal-driven reform. While much discussion exists about the advisability of particular reforms, the focus here is on the process of reform. The Article conducts a comparative analysis of the SEC and House of Representatives' reform processes, which reveals that different policy-making processes may be more or less likely to yield positive reforms. The Article argues that promoting distinct, more delineated roles for certain public actors could improve synergies between regulatory reform efforts. Part I explores how the SEC's response to the public notice and comment process for its compensation disclosure rulemaking shows how administrative agencies properly can tailor regulation in a deliberative fashion. Part II then provides the contrasting story of the House's passage of H.R. 1257 that illustrates the pitfalls of scandal-driven reform. Unfortunately, the House's actions followed disturbing trends in mandating content for SEC regulation and in failing to account adequately for synergies between concurrent regulatory efforts. Part III concludes by suggesting a framework identifying when congressional action on business regulation seems most appropriate given concurrent regulatory efforts. The Article identifies Congress's important potential role in settling authority issues, providing oversight to administrative agency reforms, and being prepared to intervene when agencies are recalcitrant about enacting necessary rule changes. In offering this framework, the Article moves beyond executive compensation issues to see how Congress might deal with other crises of confidence in business regulation. Areas for potential application of the framework include the regulation of hedge funds, imported toys and other consumer products, proxy voting, and subprime lending.

Who Killed Katie Couric? And Other Tales from the World of Executive Compensation Reform

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" Who Killed Katie Couric?" and Other Tales from the World of Executive Compensation Reform

Public Law and Private Power: Corporate Governance Reform in the Age of Finance Capitalism. By John W. Cioffi. Ithaca and London: Cornell University Press, 2010. 287 pp. $39.95 cloth.

Kenneth M. Rosen

Papers

Is There a Role for Lawyers in Preventing Future Enrons

Is There a Role for Lawyers in Preventing Future Enrons

Who Killed Katie Couric? And Other Tales from the World of Executive Compensation Reform

" Who Killed Katie Couric?" and Other Tales from the World of Executive Compensation Reform

Public Law and Private Power: Corporate Governance Reform in the Age of Finance Capitalism. By John W. Cioffi. Ithaca and London: Cornell University Press, 2010. 287 pp. $39.95 cloth.