Methods of Comparative Corporate Governance

Methodology has not received sufficient attention in the field of comparative law. All too often, comparative legal scholars proceed on the assumption that placing regulatory structures from multiple jurisdictions in a box and then shaking up the contents will somehow generate useful knowledge. This shortcoming is perhaps more significant in the specific field of comparative corporate governance, where the general comparative legal literature that does exist on the subject tends to be ignored. While there is assuredly no single, optimal comparative method, it remains critically important for scholars to evaluate whether the approach undertaken is fit for purpose. In a chapter forthcoming in a new Research Handbook on Comparative Corporate Governance (Afra Afsharipour & Martin Gelter eds, Edward Elgar Publishing), I discuss some significant methodological choices and challenges in this field.  

In evaluating methodological alternatives, an important threshold consideration involves how the framing of the question itself might predispose one toward finding similarity or difference. This is, in essence, the distinction between functionalism and contextualism. Functionalism generally assumes that various societies respond to universal problems in broadly similar ways, permitting straightforward comparison—but at the cost of avoiding engagement with historical, cultural, social, and political dynamics that may drive divergences and complicate normative evaluation of resulting law. Contextualism, for its part, responds by placing greater emphasis upon such idiosyncrasies, promoting recognition of difference. Taken to its logical extreme, however, this approach undercuts any coherent basis for pursuing particular comparisons at all.  

This debate regarding the merits of functionalism and how to structure a viable alternative raises important considerations for comparative law generally, but these issues have become particularly significant for comparative corporate scholars due to the ascendance of the law and economics (L&E) movement. The L&E approach lends itself to functionalist comparative analysis because it posits a single, universal problem and then compares various systems through that lens; building on the work of financial economists, the common problem is often said to be agency costs in widely held public companies—notably due to misalignment of incentives between shareholders and managers, conceptualized in principal-agent terms. This prompts evaluation of various jurisdictions’ corporate laws by reference to their efficacy in managing such agency costs, and has led many to predict substantial convergence upon strong-form minority shareholder protections in response to regulatory competition.  

The shift over recent decades from ‘corporate law’ to ‘corporate governance’ as the predominant frame of reference for thinking about the nature and forms of power in major corporate enterprises can, at least partially, be understood in terms of perceived shortcomings associated with L&E-inspired functionalism. Notably, corporate governance framing has permitted greater emphasis to be placed upon power dynamics as such, while at the same time facilitating greater contextual nuance through study of broader systems spanning legal and regulatory fields. In this manner, corporate governance framing has facilitated comparison of strikingly different systems that do not address various issues through the same areas of law, do not involve the same core constituencies, and/or look to the corporate form to address different types of social and economic problems. Such dynamics produce a complex interplay of forces, reflecting the tension between functional emphasis of similarity and contextual emphasis of difference. This suggests that nuanced comparative corporate governance analyses must be prepared to embrace both perspectives to some degree, and to grapple with both sets of dynamics.  

At the same time, research design raises other important considerations, perhaps the most significant being reliance on quantitative versus qualitative analysis.  Along with the L&E movement has come increasing comfort with quantitative analyses positing a single problem at a high level of abstraction—say, minority shareholder protection—and then coding discrete sets of legal features according to the degree to which they serve the purported function, and looking for illuminating correlations. This form of comparative analysis has proven controversial and faces substantial challenges, including the difficulty of identifying meaningful proxies (eg factors that accurately and comprehensively assess the strength of minority shareholder protections); the difficulty of assessing how meaningful the identified factors might be in practice (eg the degree to which those shareholder protections are enforced); and the significance of contextual features that can affect the operation of such regulatory structures.  

Qualitative case studies, meanwhile, pursue a very different approach with distinctive strengths and weaknesses.  Such a method may prove attractive where the nature of the research question itself sharply limits the universe of potential jurisdictions—say, those with substantially dispersed stock ownership—and/or relates specifically to contextual features of the sort that require depth and nuance, rendering them more difficult to address in a compelling way through a quantitative approach. At the same time, however, this method can prove difficult to scale and, in focusing on a small number of jurisdictions, may leave one correlatively more likely to fall prey to the problem of selection upon the dependent variable.  

The challenges and trade-offs discussed in this chapter suggest that, where possible, there might be benefits to combining methodologies. In some circumstances, quantitative and qualitative methods might be usefully combined as checks upon one another and/or to accentuate different aspects of a subject. More fundamentally, creative research design might bridge functionalist and contextualist perspectives. For example, the significance of cultural context might be explored through a functional lens, to the degree that cultural features can be characterized in functional terms (if only at high levels of abstraction). 

Alternatively, a scholar aiming to understand how similarities and/or differences between corporate governance systems arise might begin with a functionalist working hypothesis to prompt comparison, but expressly test it as the analysis proceeds to identify where context looms particularly large as a driver of difference.  

Ultimately, I argue that there are no silver-bullet solutions, and that the aim must accordingly be to produce work that is methodologically self-aware. This requires grappling transparently with the limits of one’s method, defending its use by reference to a coherent account of its strengths and weaknesses, and—perhaps most significantly of all—calibrating one’s claims accordingly.  

Christopher M. Bruner is the Stembler Family Distinguished Professor in Business Law at the University of Georgia School of Law.