Commentary on “Contractual Governance in the Absence of Law” (Burkart, Miglietta and Ostergaard)

1. Commentary on “Contractual Governance in the Absence of Law” (Burkart, Miglietta and Ostergaard) GCGC 5 June 2015 ROSS PARSONS CENTRE Professor of Corporate Law, Sydney Law School Jennifer Hill

2. Introduction • Broad themes in paper:- • Allocation of power between shareholders and the board of directors • ‘Law matters’ hypothesis/ minority shareholder protection • Role of the board. • Assessment re power allocation “outside the shadow of the law” (cf egUK and US). • Paper is ostensibly about “the absence of law”, but also reflects important international corporate law developments in the early 20th century. • Contextualisation - historical and contemporary perspectives.

3. Snapshot of Norway’s Corporate Governance Environment circa 1900 • Governed by ‘unwritten corporate law’/corporate norms – law is playing catch-up (cf La Porta et al, 1998). • ‘Free contracting’ environment – allocation of authority via bylaws. • Authority can be allocated eg to board of directors (BoD), general meeting (GM), board of representatives (BoR) or superintendent. • Key findings in the paper:- • Relative homogeneity re bylaw structure. • Cf considerable bylaw heterogeneity re allocation of power and shareholder rights (for both daily operations and ‘strategic’ or ‘asset-related’ decisions).

4. Presence versus Absence of Corporate Law • Norwegian ‘free contracting” environment contrasted with jurisdictions where corporate law already in place (eg UK and US). • But, not all corporate law ‘imposes severe limitations on firms’ internal governance structures’. • Different origins of UK Company Law (‘articles of association’) and US Corporate Law (‘bylaws’). • Implications for power allocation – US less flexibility and more mandatory rules (eg Benitendi v Kenton Hotel, Inc (NY, 1945)). • Cf UK – BoD’s powers could be ‘as broad or as narrow…as desired’ (Pennington, 1967). Articles of association = contract, which was freely alterable by shareholders.

5. Evolving Relationship Between the General Meeting and the Board of Directors • Cf Bylaws of La Compania de Maderas (specific powers allocated to the BoD) with bylaws of Christiania Handle & Lock Factory (BoD holds any authority that it not reserved to the GM). • Dichotomy reflects major UK paradigm shift:- • C19th paradigm – Isle of Wight Ry v Tahourdin (1883) Ch.D.320 – GM = ‘the company’; directors = agents. • Cf 20thparadigm – Automatic Self-Cleansing Filter Syndicate Co v Cuninghame [1906] 2 Ch. 34 – GM and BoD are equal organs of the corporation. • La Compania de Maderas bylawsconsistent with C19th paradigm cf Christiania Handle & Lock Factory bylaws are distinctly modern.

6. Contemporary Resonance • Role of norms and codes in modern corporate governance (eg UK style ‘comply or explain’ codes). • US Shareholder Empowerment Debate. • Norway vs US re director nomination (Morgenson, ‘At US companies, time to coax directors into talking’, NYT, 28 March 2015”). • US exclusive forum and fee shifting bylaws (eg Boilermakers Local 154 Retirement Fund v Chevron Corp (Del. Ch. 2013). • ‘Whose law is it?’ (Cox, 2015).

7. A Few Specific Suggestions • References in support of proposition that modern bylaws exhibit little variation somewhat outdated, given recent US bylaw developments. • More specificity re how bylaws are altered. • Possible problem of bylaw ‘apples and oranges’ (eg UK articles of association vs US bylaws). • BoR as power allocation wildcard – how does its historic role in Norwegian corporations compare with contemporary two tier board? • Etymology of the term ‘bylaw’ – old Norse for ‘town law’?