Book Review: Corporate Governance in the Common-Law World: The Political Foundations of Shareholder

Updated: Mar 31, 2018

First published in Business Ethics Quarterly .

By: Anita Anand and William Muir

Theories of corporate governance often attempt to describe the relative importance of corporate stakeholders—shareholders, the board of directors, and management—and the balance of power among them. The theories help to inform countries’ respective corporate governance laws by focusing on whom the law seeks, and should seek, to serve. Whereas common-law countries gen­erally protect shareholders’ rights, civil-law countries often provide constraints on the power of controlling shareholders, and offer stakeholders such as labor interests a direct voice in corporate decision making. Considering the relative absence of labor interests in corporate governance in common-law countries, questions arise: Do theories of corporate governance in these countries sufficiently account for the role of labor? If so, what role does labor play, and how have governance regimes evolved in response? In Bruner’s Corporate Governance in the Common-Law World: The Political Foundations of Shareholder Power, Bruner examines these questions and offers a unique and welcomed approach to the study of comparative corporate governance.

Bruner seeks to address two key issues in the study of comparative corpo­rate governance: are there significant differences among corporate governance regimes in common-law countries that existing theories fail to explain, and what is the role that labor interests play in these governance regimes? In addressing these issues, Bruner examines how four major common-law jurisdictions—the United States, the United Kingdom, Australia, and Canada—differ in their orientation to shareholders and management. He contends that the differences among these countries can be largely explained by the power of labor interests in

the corporation and the broader economy. Bruner’s central claim is that “greater regard for the interests of employees in other regulatory domains has tended to insulate certain corporate governance systems from political pressure to show regard for employees.. .permitting more exclusive focus on shareholders without precipitating backlash” (p. 22). The more severe the possible consequences to labor in a particular country, the more interested labor becomes in changing corporate governance rules to its benefit.

Bruner begins by situating his account between two paradigms that, in his view, sit at opposing ends of a corporate governance spectrum. At one end is functional­ism, which is a governance structure that drives the evolution of institutions, such as corporations, to an efficient outcome. At the other end is contextualism, which postulates that the evolution of an institution depends primarily on the historical circumstances that determine its prospective path. Bruner stakes out an account of corporate governance that sits between the poles of functionalism and contextualism. His approach is not, strictly speaking, a middle ground or a compromise. Rather, it is an account that is often omitted in both the functionalist and contextualist doctrines: How can we move from a path-dependent corporate governance regime to arrive at a more efficient one?

Under Bruner’s approach, labor interests hold the balance of power, providing the political support that can shift governance regimes from shareholders to manage­ment, or vice versa. His approach is therefore not inconsistent with functionalism or contextualism because it provides a link explaining how a governance regime that begins through contextualist happenstance eventually converges to the efficient one that functionalism would predict. In the remarks below, we examine the func­tionalist versus contexualist divide, and then examine the role of labor interests in comparative corporate governance.

Functionalism assumes that corporate governance regimes are “functional­ly equivalent” in that regimes in all jurisdictions attempt to achieve the same objectives. Functionalism postulates that as governance regimes mature, inefficient regimes will converge to those that have the least transactions costs. Func­tionalism is not a comprehensive theory, however, as it cannot explain why governance regimes fail to become efficient or why they may even regress from what is believed to be optimal. By contrast, contextualism suggests that corpo­rate governance is path-dependent. The resulting corporate governance regime

evolves from a confluence of the competing political interests in the prevailing political trend at the time of the regime’s enactment. But contextualism cannot succeed by merely poking holes in functionalism; as Bruner suggests, “it takes a theory to beat a theory” (p. 17). He argues that if there is some discernible relationship between different jurisdictions’ corporate governance regimes, then contextualism must offer more than historical chance explaining why patterns emerge to credibly describe the origin of a corporate governance regime. Bruner not only establishes a useful theoretical framework for thinking about corporate governance regimes across countries in this regard but also allows us to examine

them from a critical perspective.

He then analyzes in detail the corporate governance regimes in four common-law countries according to whether they are more “shareholder friendly” or “board friendly.” He argues that the United Kingdom provides shareholders with extra­ordinary powers in terms of electing and removing boards, whereas the United States supports strong boards and exhibits a distinct ambivalence toward shareholder power (p. 37). Bruner places Australia and Canada between the United States and the United Kingdom, with Australia toward the United Kingdom, and Canada not far away.

His analysis of common-law countries’ legal regimes illustrates the interpre­tive challenges that plague analyses of corporate governance laws. For example, UK statutory law suggests that the duty of a UK board is not solely to maxi­mize shareholder value. While the UK’s Companies Act sets out that directors’ fiduciary duty is to run the corporation “for the benefit” of the members “as a whole,” the Act further stipulates that in doing so, they must have regard to the environment, among other interests.1 In other words, there is ambiguity as to whom UK corporate governance law serves. It is shareholder friendly,

no doubt, but it appears also to be friendly to other stakeholders. Much would depend on the case at hand and one’s interpretation of a broad-based law in that instance.

Canada’s place on Bruner’s spectrum is more difficult to discern. Bruner identifies Canada’s core governance rules as strongly militating in favor of shareholders, but rightly suggests that the interplay between conflicting corporate law and secu­rities regulation ultimately determines Canada’s place on the shareholder-board divide. Laws regarding takeover bids in Canada are especially problematic because recent Supreme Court jurisprudence interprets directors’ duties as allowing boards to consider the interests of multiple stakeholders, including shareholders.2 By contrast, securities legislation stipulates that, in the context of a takeover bid, target boards must ensure that their decisions are made in the bona fide interests of target shareholders alone.3 Bruner’s analysis raises a useful question of appropriate jurisdiction where corporate law and securities regulation both purport to govern

the duties of the board. Directors of corporations may “satisfy the requirements of corporate law, or they satisfy the requirements of securities law. [But] they cannot do both.”4

Once Bruner has situated the common law countries on the shareholder-board divide, Bruner makes the case for the central role of labor interests in his analysis. In Chapter 5, “Shareholders, Stakeholders, and Social Welfare Policy,” he canvasses the UK and US political climates over the history of their corporate governance laws and explains how labor interests have been pivotal in their evolution. He rea­sons that shocks to labor welfare have led labor interests to pressure their respective countries to change their corporate governance regimes. Bruner argues that the existence of a robust social safety net would mitigate the severity of corporate takeovers on employees, providing flexibility for corporate governance regimes to evolve that are less favorable to labor and friendlier to shareholders. In countries without a social safety net, labor interests may side with management, stopping

the takeover and thereby preventing any ensuing layoffs that might otherwise occur. The end result is a corporate governance regime that allows significant management entrenchment.

Labor shocks of this sort could function as a type of natural experiment of Bruner’s approach. In Canada, the Province of Quebec is now undertaking a review to implement more board-friendly takeover bid provisions, including the ability for boards to “just say no” to takeover bids.5 Commentators have noted that Quebec is threatened with the loss of corporate headquarters locating to more English- and business-friendly jurisdictions.6 The increased power of boards of directors to oppose takeovers would have the effect of reducing job attrition to other jurisdictions and would likely appease labor groups. Indeed, if Quebec reformed its takeover bid rules to allow boards to “just say no” to

takeover bids, the result would run counter to the idea that more robust employ­ee protections would lead to more shareholder-friendly governance regimes. Whether the outcome of Quebec’s corporate governance review will support or undermine labor interests will therefore provide a real-world test of Bruner’s analysis. Whatever the outcome, Bruner’s approach adds a novel angle to core corporate governance questions.

Christopher Bruner is to be commended for his thorough survey of corporate governance theories and the wealth of historical information about the socio­political circumstances surrounding the formation of each of the four common-law countries’ governance regimes. Bruner’s explanation and historical analysis of the pivotal position of labor is an original lens through which to examine corporate governance in common-law countries. The possibility of a natural experiment testing Bruner’s approach to the two issues of corporate law—that common-law countries exist on a spectrum of shareholder and management

orientations and that labor is central in determining where on the spectrum a country exists—gives Bruner’s Corporate Governance in the Common-Law World added relevance.

The idea that labor interests hold the balance of power in determining how common-law corporate governance regimes switch development paths seems to call for empirical analysis to avoid confirmation bias or the effects of a limited sample. Bruner’s work is effective as a deep exploration of its thesis though not a full-fledged test of its persuasive powers. Without doubt, Corporate Governance in the Common-Law World is a highly commendable work and provides an excellent counterpart for further empirical investigation.


1. UK Companies Act 2006,c. 46, s. 172(1).

2. See BCE Inc. v. 1976 Debentureholders, [2008] 3 SCR 560 at para. 39 (affirming the broad corpo­rate purpose recognized in Peoples Dept. Stores Inc. v. Wise [2004] 3 SCR 461 at paras. 41-43). See Edward Iacoboucci, “Indeterminacy and the Canadian Supreme Court’s Approach to Corporate Fiduciary Duties” (2009) 48 Can Bus LJ 232.

3. National Policy 62-202 Take-Over Bids-Defensive Tactics, OSC NP 62-202, s. 1.1(2).

4. Jeffrey Macintosh, “BCE and the Peoples’ Corporate Law: Learning to Live on Quicksand” (2009) 48 Can Bus LJ 255, at 270-271. See also Iacobucci, supra note 14 at 248.

5. See Minister of Finance and the Economy Nicolas Marceau, “2014-2015 Budget Speech” (speech delivered at the National Assembly of Quebec, February 20, 2014),

6. Frederic Tomesco, “Quebec Aims to Save Head Office Jobs by Blocking Bids,”

Bloomberg News (February 21, 2014),

© 2018 Anita Anand