The Reflexive Properties of Corporate Governance Codes: The Reception of the ‘Comply‐or‐explain’ Approach in Slovenia
| Author | Nina K. Cankar,Marko Simoneti,Simon Deakin |
| Published date | 01 September 2010 |
| Date | 01 September 2010 |
| DOI | http://doi.org/10.1111/j.1467-6478.2010.00516.x |
JOURNAL OF LAW AND SOCIETY
VOLUME 37, NUMBER 3, SEPTEMBER 2010
ISSN: 0263-323X, pp. 501±25
The Reflexive Properties of Corporate Governance Codes:
The Reception of the `Comply-or-explain' Approach in
Slovenia
Nina K. Cankar,* Simon Deakin,* and Marko Simoneti**
The Slovenian Corporate Governance Code for Public Joint-Stock
Companies was adopted in March 2004. We examine how far the
implementation of the Code has resulted in the `reflexive' learning
processes which the `comply-or-explain' approach to cor porate
governance aims to bring about. We find that compliance strategies
are strikingly uniform across firms in terms of the content of deviations
as well as in types of disclosure and explanations for deviations.
Moreover, the quality of corporate reporting is low, with effective
explanations representing only a small minority of disclosures. Thus
there is little evidence that the Code has stimulated organizational
learning. We consider the implications of our findi ngs for the
development of corporate governance in transition systems and for
the comply-or-explain approach more generally.
INTRODUCTION
Corporate governance codes are generally viewed as a mechanism for
fostering the development of capital markets by increasing the transparency
of business and the level of shareholder protection. In the countries of central
and eastern Europe (`CCE states') and the former Soviet Union, one of the
501
ß2010 The Author. Journal of Law and Society ß2010 Cardiff University Law School. Published by Blackwell Publishing
Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
*Centre for Business Research, University of Cambridge, Judge Business
School Building, Trumpington Street, Cambridge CB2 1AG, England
nina.cankar@cantab.net s.deakin@cbr.cam.ac.uk
** Faculty of Law, University of Ljubljana, Poljanski nasip 2, SI-1000
Ljubljana, Slovenia
marko.simoneti@pf.uni-lj.si
We would like to thank Mathias Siems for comments on an earlier draft. We are also
grateful to the European Uni on's Sixth Research and De velopment Framework
Programme (Integrated Project, `Reflexive Governance in the Public Interest') and the
ESRC World Economy and Finance research programme for financial support.
main forms of adjustment to the institutional needs of a market economy
since the early 1990s has been extensive privatization coupled with far-
reaching legal and regulatory r eforms. In terms of the formal law,
shareholder and creditor rights quite quickly reached a level which some
commentators regarded as comparable (if not superior) to those in countries
with a more continuous history of market-based economic development.
1
However, the adoption of these laws seems to have had a tenuous relation-
ship with the growth of stock markets. Research carried out for the European
Bank for Reconstruction and Development in the early 2000s suggested that
corporate governance in transition systems was still characterized by over-
strong incumbent managers, weak outside investors, a lack of external
finance for firms, and a continuing heavy influence of the state, expressed
through taxation policy, the retention of golden shares, and the use of
regulatory favours. The formal provisions of company and commercial law
were less significant as determinants of the use by firms of external finance
than the general perception of the state of legality (or the `rule of law') and
the effectiveness of legal enforcement in a given country. The authors of this
study concluded that `it is unlikely that in the foreseeable future the
development of the law will be matched by the development of financial
markets', at least until such time as a `more important constraint on financial
market development', the fragility of legal institutions, had been addressed.
2
For some commentators, the apparent lack of success of legal reform
strategies in transition systems should not be seen to detract from a more
fundamental long-run process of realignment with market-based legal
orders; `normality' will eventually be achieved as a consequence of the
expected convergence of systems on the core features of the Anglo-
American model. Thus, dilution of minority shareholder interests is a `nearly
universal practice' in `middle income and developing countries', which legal
reforms will eventually alleviate once economic development reaches a
certain level.
3
An alternative view sees the experience of transition in terms
of a wider difficulty in transplanting legal mechanisms and concepts across
national systems. Legal transplants, it is argued, work best in contexts where
the host state already has a developed legal order, and where foreign laws are
adapted to suit local conditions; where these conditions are not present,
transplants can actively undermine the effectiveness of legal institutions,
while making little or no contribution to economic development in their own
right.
4
On this basis, path dependence and cross-national diversity pose
502
1K.Pistor, `Patterns of Legal Change: Shareholder and Creditor Rights in Transition
Economies' (2000) 1 European Business Organization Rev. 59.
2K.Pistor, M. Raiser, and S. Gelfer, `Law and Finance in Transition Economies',
EBRD Working Paper no. 49 (2000) 13.
3A.Shleifer and D. Treisman, `A Normal Country', Harvard Institute of Economic
Research, Discussion Paper no. 2019 (2003).
4D.Berkowitz, K. Pistor, and J.-F. Richard, `Economic Development, Legality, and
the Transplant Effect' (2003) 47 European Economic Rev. 165.
ß2010 The Author. Journal of Law and Society ß2010 Cardiff University Law School
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