Zumbansen Legal Evolution Comment

Zumbansen Legal Evolution Comment

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Peer Zumbansen Canada Research Chair in the Transnational and Comparative Law of Corporate Governance Osgoode Hall Law School of York University Toronto, Canada PZumbansen@osgoode.yorku.ca Legal Evolution and European Harmonization of Company Law: How many variables are allowed? Comment on Thomas Bachner, Harvard Law School, 12 November 2004, 3:00-4:30 PM, Lewis 202 “Law is a scavenger. It grows by feeding on ideas from outside, not by inventing new ones of its own.” E.D. Elliott, 85 Colum. L. R. 38 (1985) “The most important general legal questions, it seems to me, both in theory and in practice, concern, first, the nature of the relationship between a society and the legal rules that operate within it, and, second, the forces that cause law to change.” A. Watson, 131 U. Pa. L. Rev. 1121 (1982) “The law is full of phraseology drawn from morals, and by the mere force of language continually invites us to pass from one to the other without perceiving it, as we are sure to do unless we have the boundary constantly before our minds.” O.W. Holmes Jr., 10 Harv. L. Rev. 457, 459-460 (1897) I. Introduction In my comments on Dr Bachner’s paper, I would like to do two things. One will be to highlight the background and the originality of his research project with regard to an almost over-researched and yet, as he tells us, still ill-conceived and insufficiently conceptualized study of current trends in European company law formation. ...

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Peer Zumbansen
Canada Research Chair in the Transnational
and Comparative Law of Corporate Governance
Osgoode Hall Law School of York University
Toronto, Canada
PZumbansen@osgoode.yorku.ca
Legal Evolution and European Harmonization of Company Law:
How many variables are allowed?
Comment on Thomas Bachner,
Harvard Law School, 12 November 2004,
3:00-4:30 PM, Lewis 202
“Law is a scavenger. It grows by feeding on ideas from outside, not by inventing new ones of its own.”
E.D. Elliott, 85 Colum. L. R. 38 (1985)
“The most important general legal questions, it seems to me, both in theory and in practice, concern, first, the nature of the
relationship between a society and the legal rules that operate within it, and, second, the forces that cause law to change.”
A. Watson, 131 U. Pa. L. Rev. 1121 (1982)
“The law is full of phraseology drawn from morals, and by the mere force of language continually invites us to pass from
one to the other without perceiving it, as we are sure to do unless we have the boundary constantly before our minds.”
O.W. Holmes Jr., 10 Harv. L. Rev. 457, 459-460 (1897)
I. Introduction
In my comments on Dr Bachner’s paper, I would like to do two things. One will be to highlight the
background and the originality of his research project with regard to an almost over-researched and yet,
as he tells us, still ill-conceived and insufficiently conceptualized study of current trends in European
company law formation. In the remainder of my time, then, I would like to both build on Dr Bachner’s
conception in sketching the future challenge in European company law research and to place his
research project and other contemporary research agendas into a wider framework.
II. European Company Law (ECL) harmonization as Case in Point for an Inquiry into System
competition and into the nature of legal evolution
1) ECL harmonization is a valuable and rich research field for the following reasons:
-
it reflects a long and complex regulatory process involving a growing member of member states
and their respective company law systems
-
this process has never so far been fusing towards a pure form of either of the two generally
opposed alternatives in system evolution: harmonization or competition
2
-
instead, the persisting dynamic of European company law development mostly results from the
strong tensions among the different systems and the legal framework constraining either of the
two poles in their ideal-type form
-
being a veritable collision of systems, there is much merit in research agendas that aim at a
better understanding of these forces of resistance and, at the same time, of distinct trends to
convergence
-
with regard to company law, then, the European project stands out as one of the most complex,
intricate and tedious political processes that we can observe in the overall integration of
European legal systems.
Against this background, there are in particular the following elements in Dr Bachner’s research
agenda that merit special attention:
a)
His concern with the post-transformation fate of European law in the various
member states opens up an important field of research. Indeed, from a
harmonization perspective, much of European law in its development and its
adoption is closely monitored and analyzed during the time of its inception.
Sometimes, this time will span over several years or, even, decades, as was the
case for the statute and Directive of the European Company or, still more recently,
the Takeover Directive. As Dr Bachner rightly alludes to, it is the time and the
norms’ fate after the adoption of the European instrument that often escape our
attention. It is in fact very worthy of a deeper and more serious inquiry how
exactly this transformation unfolds in different member states.
b) Secondly, his concentration on an evolutionary theory of legal development and of
company law in particular allows for two things: first, this approach – as has
already been argued on several occasions e.g. by Mark Roe or Simon Deakin –
refutes any idea of a linear, one-directional allegedly efficiency- or coherence
driven development of legal norms. Instead, this approach considers historical and
political constellations and decisions that shaped particular developments. As these
environments have been and continue to be in flux, there will always be a
considerable element of unpredictability as regards legal development. Secondly,
an evolutionary approach can illuminate the very intricate forms in which norm
collisions, norm reforms and even revolutions take place. They may have been
driven by new insights, in some cases by a veritable paradigm change or by the
importation of outside, foreign rules and principles – something that corporate
governance scholars have increasingly started to look at in the context of legal and
economic reform projects in young or emerging democracies and transformation
markets. But, even in less dramatic circumstances, the transformation and
translation of European law to the member state level often produces a myriad of
effects within the national legal order. These effects are described by Dr Bachner
by resorting to system theory and to a vision of co-evolution of different social
systems. From that perspective one may observe the introduction of a certain rule
or standard, or as in the example of the very optional Co-determination law of the
newly created European Company (
societas europaea
), even of a flexible option
as having possibly severe repercussions in the receiving legal culture. Now, the
idea of co-evolution suggests that there will not only be unpredictable effects or
even serious irritations in the specific disciplinary or doctrinal area to which a new
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rule is introduced. No, in addition, co-evolution suggests that the adaptation of the
legal system to a particular rule will not only affect a specific area in law, but the
legal system’s adaptation will likely have effects on the development of
embedding, neighboring systems. Among these, we may count employment law,
tort law, the system of industrial relations or of securities regulation. This wider
perspective on the irritating, chaotic and non-linear effects of harmonization again
sheds light not only on the continuing pressure of contemporary aspirations for a
European company law. It also underscores the intricate dynamics that
characterize legal development in a certain field.
c) Thus, the approach suggested by Dr Bachner, promises to produce very valuable
insights into the dynamics of harmonizing legal cultures and into the problems
resulting from national differences but also from the chaotic effects that any rule
introduction is likely to have within a member state’s legal culture. In rejecting the
idea that law might be – when exposed to and implicated in a process of system
competition – spontaneously gravitating towards uniform solutions, alternatives to
the bifurcation between harmonization and competition emerge. Instead of
operating with an almost quantitative measure by which harmonization successes
and failures are counted, this approach invites a closer analysis of the multilevel
and poly-contextual evolutionary processes set off by legal initiatives, policy
instruments or court decisions.
In the following, I want to briefly build on this foundation to indicate additional perspectives we
might want to take. My starting point is to understand the larger process of European integration
as background against which Dr Bachner’s and also any other research project on European
company law is and can only be conceived. This means, that we can only understand the
development in a certain field of law if we assess it in light of the wider political, economical,
social and cultural framework in which it is unfolding. Dr Bachner has drawn our attention to the
collision of discourses in which different legal cultures, different legal terminology or different
associations with certain terms of art results in continued misunderstanding. This
misunderstanding is increased by the fact that many scholars remain confined to information,
scholarship and commentary within their own legal and linguistic culture. What some see as an
emerging European legal science, is bogged down in many places by budget cuts of law libraries
where foreign materials are often the first to be discontinued.
2) The Embeddedness of European company law harmonization in varieties of capitalism
The company law process in Europe has a significance that transcends company law as such and
goes beyond it in two decisive ways:
a)
researching the genesis and fate of various Community Directives in the field of
company law has wide repercussions on our general understanding of different
legal systems in Europe. In addition, our understanding of these legal systems,
and of company law systems in particular, is prompted to being increasingly
informed by a
richer
understanding of what legal systems and the rules and
standards, the institutions and principles in a specific field are made of. From a
perspective that also includes the historical trajectories, the political constellations
4
at different times of the system’s particular development and the wider socio-
economic embeddedness of a specific legal system, we recognize that, indeed, our
focus on company law
tout court et tout près
must be widened in order to better
understand the forces that drive this development. This development is, for the
time being, only partly and, it seems, inadequately depicted by notions of
convergence or divergence, harmonization, unification or competition.
b)
This leads us to the second way in which our research into the contemporary
trends in European company law making reaches beyond the confines of the
discipline: the just described, wider focus on company law, that also tries to
capture developments and influences in and from employment law, industrial
relations, or tax law is only the beginning of understanding company law in its
wider systemic framework. The next step must be to include a
jurisgenerative
perspective. Widening our research agenda to an in-depth analysis of
contemporary changes in law-making procedures might allow us to still better
understand the specific problems of any process in norm production and legal
development. This approach might achieve several objectives at the same time.
Identifying the
actors
involved in law-making on different levels, be that on the
European and International Level, on the domestic level or in between these
traditional zones, meaning rule-making by transnational, non-governmental actors
within and without nation states and their traditionally understood law-making
venues, opens our eyes for the reality of a multi-polar and multi-level process of
norm-generation. While this is of particular importance for our assessment of
increasingly decentralized law making processes, our commitment to identifying
the new actors as norm-producers has wide repercussions on our approach to legal
harmonization among mature, progressive regulatory states as well as to legal
reform in young states with unstable political or seriously captured governmental
structures. A
jurisgenerative
approach to legal reform in developing countries and
transformation states, then, allows us to identify the challenges to effective law
making, legal enforcement as well as to the building of the rule of law as such.
Certainly, there is an entire set of ideological appropriations implicated in this use
of terms such as law making or the rule of law. However, one way of avoiding
such appropriations might be to make the assertions of good government,
legitimate use of powers, effective separation of powers and the attribution to law
making powers to different branches of government as well as to civil society
actors transparent. It is in this transparency, that one’s own historically shaped
understanding and bias will become apparent, at least to a certain degree. It can
then be critically assessed whether and if, how far, traditional understandings of
government and the rule of law are adequate to describe the law making processes
at work in legal harmonization processes just as in legal reform movements. From
this perspective, the critique of legal harmonization and regulatory competition
meets “law and development”.
This perspective, then, presents us with another set of challenges that go to the
heart not only of our assessment of the European company law process and, even,
the adventure of European Integration as such. A
jurisgenerative
perspective will
ultimately allow for an assessment of law-making itself. In differentiating various
instances and forms of law-making e.g. by national legislatures, the European
Union, the OECD, the World Bank, the Monetary Fund or the International Labor
5
Organization, but also by various private actors such as non-financial corporations
or banks, think tanks and advisory councils, we are prompted to draw a very
detailed and yet constantly changing map for these norm-authors and the different
types of rules issued by them. This leads us, however, to reflect on the nature of
legal
norms and of
other
norms. We are then asked to identify the measure by
which we recognize and differentiate between legal rules and other norms. In light
of the increasing proliferation of norm-producing actors on many different levels,
we need to learn how to possibly differentiate different types of norms. While our
traditional view might include norms set by the legislature or norms and
regulations issued by regulatory agencies, we also find treaty obligations,
conventions and mostly unenforceable rules issued by international actors such as
the OECD or the United Nations Subcommittee. In addition, we need to include a
whole other set of norms into our picture that continues to profoundly challenge
the traditional visions of so-called official law.
The recommendations and best practice guides, the corporate governance codes
and labor codes issued by academic or business organizations, other private
business actors or by semi-public, semi-private expert commissions, contain in
many cases very explicit behavioral commands – but their dignifying by calling
them “law” and their categorization as legal norms lag far behind. It is our task,
inevitably, to engage in a discussion of whether they should at all be considered
“law”. Yet, our differentiating, as can sometimes be found, between hard and soft
law, between official and unofficial law, between enforceable law set by
government actors and codes of conduct issued by private actors, might in fact be
a lost cause from the beginning.
Maybe, the talk of law or non-law matters less on a definition level but, rather, in
two different ways:
i)
One way is that the differentiation between law and non-law matters in a
functional
perspective. Analyzing different norms with regard to their
creation, application and enforceability allows us to better assess the
nature of governance and the emergence of alternative forms of societal
governance. This, indeed, seems to bear similarities with the functional
approach put forward by Kötz and Zweigert, severely criticized by
Thomas Bachner as being “circular” in nature. I shall stay with this point
for just one minute. Certainly, there are problems with the functional
method in comparative law, and they have repeatedly been underscored.
Dr Bachner cites to the importance of differences between rules and
norms as resulting from different legal ‘cultures’ or ‘traditions’; yet, he
finds such approaches to be straying too far from that method which
alone allegedly can guarantee an adequate understanding of a certain
norm within a certain legal system. In this regard, he underlines the
relevance and importance of taking the foreign law seriously, of not
resorting to superficial comparisons, but instead, of attempting to identify
functional comparisons from within a given legal culture and its doctrinal
acquis
. Undoing the abandonment of doctrine and legal culture
considerations by which the functional approach regularly disembeds
rules from both their cultural framework and their doctrinal system, Dr
6
Bachner hopes to replace the functional method’s “external” perspective
by an “internal” one. He writes: “We must pl p6(f.6(s ul to)-3.5( theie4pere)0.31(w[(e-
7
improve the information basis on the structure and texture of
legal systems in the midst of powerful harmonization projects
or developments of regulatory competition. A deeper
understanding of the forces at work within the legal cultures
of different member states can serve as a healing medicine
against too much euphoria (or frustration) over harmonization
projects. Focusing on developments in doctrinal scholarship,
legislation or, more importantly, case law in different legal
systems under the pressure of harmonization or competition,
appears to be not only promising, but necessary to achieve the
intended level of inside-understanding of the developmental
agenda and potential of a legal system.
ii)
Allow me to return to my proposal to introduce to the discussion about the
differences between law and non-law a
jurisgenerative
perspective in a
reconstructive manner and direction: what I wish to refer to as reconstructive
relates to the assessment of the origin of a norm. A reconstructive view on a
norm’s development provides us with the opportunity to reconstruct the general
political process, but also the much more concrete hybrid, public-private,
societal process which accompanied and led to the creation of the rule. This
reconstruction, then, may very well show the possibly drastic differences
between this norm-generating process and other, more traditional norm setting
procedures. Reconstructing the process of norm-generation, identifying the
actors involved and the rules followed in this process, provides a basis on which
legitimacy questions can be asked. With a proliferation of actors, public and
private on the international, domestic and the transnational level, former
concerns with coherent procedures and a unity of legal norms have increasingly
been replaced by concerns with accountability and transparency. Reconstructing
the various forms of norm-generation will thus allow us to make qualified
judgments about certain political outcomes, negotiation deadlocks, power
struggles and political compromise.
3) ECL, Market Integration and Law Making
European Company law and a closer look at the dynamics and tensions continuously unfolding in
this field, becomes thus a part and a starting point into a wider research into contemporary forms
of governance through law. We explore these emerging forms and types of governance against
the background of market integration, international competition and a dramatically borderless
worldwide societal activity. Any assessment of the fate and prospects of legal harmonization or
system competition will have to take into account the various starting points and larger historical,
political and socio-economic particularities of the different countries involved. Against this
background, then, will we arrive at a richer and more complex picture of harmonization and
competition. At the same time, however, we will also better assess the contemporary forms of
lawmaking, ultimately allowing us to again ask the question of how regulation through law is at
all possible.
8
III. Legal Evolution, Governance through Law, and Does Law Matter?
The value of evolutionary approach to understanding European company law developments lies
in the following:
1) The Evolution of Law and Legal Governance
In rejecting the sometimes assumed linearity of legal development towards greater
i) efficiency,
ii) legitimacy,
iii) coherence,
and in focusing on the eruptive nature of legal development. Bachner’s approach is to focus less
on the direction but, instead, on the “mechanisms of development” and it is influenced by
evolutionary theory brought – again – (after earlier, groundbreaking work in the 19
th
and 20
th
Century) into legal theory recently e.g. by Gunther Teubner and Niklas Luhmann, and elaborated
further by Simon Deakin and Marc Amstutz.
This evolutionary approach serves to illuminate a number of fundamental issues arising with the
processes of
legal harmonization
and
system competition
.
These processes that in themselves are in constant competition, be it institutionally, economically,
politically or symbolically, are prompted by more general processes of world wide market
integration and the growing internationalization of social action fields, among them the reach of
corporate action.
The contemporary forms of world wide market integration, however, cannot account for the
current
status quo
of a possibly emerging global law of corporate governance. This
status quo
is
characterized by a continuing tension between different national systems of company law. This
persisting tension, resulting from a simultaneous movement towards convergence in some fields
on the one hand, and towards continued divergence in other fields on the other, has been very
adequately described by Thomas Bachner. Indeed, this tension of dynamic company law systems
has been on the research and policy agenda for many years now. It has also informed and inspired
a continuously growing amount of scholarship.
The research project presented by Dr Bachner promises to reach beyond many of the conceptual
confines in the contemporary discussion in a very fruitful way. This is due to the fact that the
project aims at taking an internal perspective. As sketched above, such an internal perspective
might very well allow for a wider recognition of currently ongoing transformations of law making
and, connected with that, of societal governance and of the role played by law in this process.
The merits of the projects, furthermore, lie in the particular take of evolutionary theory and its
application to legal theory and development. The tracing of a legal concept’s journey through
time, courts, legislatures and scholarship, determined by ‘inheritance’, ‘variation’, and ‘selection’,
promises to produce a far richer account of the actual functioning of a concept and, derived from
it, a rule, within different historical periods.
9
In his approach, Dr Bachner is building on work on legal evolution that has recently particularly
been elaborated by Simon Deakin. Deakin has been putting forward a particular theory of legal
progress that largely builds on evolutionary theory. Central to Deakin’s theory is the
understanding that information is stored and transmitted in legal concepts as ‘memes’,
transporting “information about social adaptations”, and thereby creating and contributing to
complex social arrangements. It is here, where we finally begin to see the true merit of the
internal view taken by Bachner. Instead of being a view
internal
to law and legal conceptualizing,
the internal view focuses on the development and unfolding of legal doctrine against the
background of consideration of surrounding political, socio-economic and cultural features.
The focus on concepts allows for a tracing of this complex co-evolutionary development of rules
that are being consolidated, affirmed, abridged, changed by continuously referring to an allegedly
unchanging legal concept (Deakin refers to “contract” or “employee”). Instead, it is only through
a careful reconstruction of the political economy, political disputes and greater socio-economic
development as well as of the cultural, very importantly, the linguistic quality of a problem’s
description, that we can understand the complex nature of legal institutions. This perspective is
more than law talking with and of itself. Indeed, as Deakin points out, the described look at law’s
reality in its greater embeddedness might offer a more adequate understanding of the ways in
which “law and society interrelate.” If it is true that legal concepts are more durable than legal
rules and as such (as memes) constitute elements of continuity in the legal system, then our
internal view will have to take concepts into close consideration. This means we need to closely
follow the evolution of concepts and institutions by taking a contextual view on the surrounding
political economy and cultural framework that shaped this development.
The permanence and continuing weight of
concepts
in ongoing legal discourses in member states
(and elsewhere) leads to the already mentioned translation-problems in legal harmonization.
While there is much research on different conceptions of the “firm”, the “business association”,
the “corporation”, the “enterprise”, there is still much need for such a comparative evolutionary
exploration of the lasting impact of the (differently made up) concepts as they interplay, e.g., in
the contemporary European company law debate. Some one and a half decades after Michel
Albert’s
Capitalisme contre Capitalisme
, we have heard much about universal trends of
convergence, even the proclamation of the ‘end of history in corporate law’. And we have heard
much on persisting differences, hence on the continuing divergences in company law. Alone, a
further comparative research agenda on the political economy of comparative corporate
governance in the here sketched way still remains a promise.
The weight of semantics and meanings on any legal reform has been felt everywhere as the
ideological struggles over privatization and its re-appropriation by constitutional law, state-
intervention or other forms of constitutional monitoring have started to come to the fore, shortly
after the going-to-market euphoria of the immediate post-cold war years tired out. To take up our
earlier example of transformation states: here, the
permanence
of legal concepts, of
remembrances of regulatory experiences
etc, will continue to shape the adaptation to the new
concepts and rules. In this context, it is one of the big challenges in the process of legal import not
to silence past experiences. Only by exposing, by extrapolating and revisiting regulatory
experience with all of its aspirations, achievements and frustrations is there a chance to more
adequately understand the dynamics and the prospects of legal development.
Bachner also resorts to the idea of ‘alienating justice’ to show that doctrine in a given legal
system can be particularly complex in its development and operation. At the same time, this is a
10
distinct starting point to look at the effects of harmonization efforts. And with regard to a growing
pressure to corporate governance reform both for developed and developing countries, the
analysis of ‘transplantation effect’ has to work both ways: as recently elaborated by Paredes, one
of the guiding questions could be to look both for the success of a transplanted legal regime in
achieving the goals that were attained in its origin system and, on the other hand, for the effects
that a transplant has for the receiving system. The cases in point, chosen by Dr Bachner, for large-
scale transplantation projects are Austria and Poland. They are of particular interest, as here,
much began by way of legal reform, adaptation, mimicry, inspiration or selective borrowing
before
the collapse of communism. With a strong awareness of the changing nature of any given
legal system, its consolidation and ‘reform-in-permanence’, scholars and practitioners in both
countries, closely watch the legal development in Germany, even if this happens to various
degrees in intensity, due to a host of reasons.
Interestingly, Bachner’s harmonization perspective includes the testing of Germany’s legal
development’s influence on the legal cultures in Austria and Poland. In fact, recent developments
in German corporate law are also evolving in response to European law, and thus, the perspective
on Germany, Austria and Poland must be a comparative and a dynamic one as regards the
implementation of European law into the respective domestic legal culture. Certainly, this is a
very valuable perspective. The wider approach of both an internal, heavily doctrine-based
perspective as suggested by Bachner, and a political economy perspective as is my proposal,
promises to provide us with a much better understanding of the various dynamics of European
company law development than has so far been the case.
2) Does Law Matter?
Yet, I want to raise two reservations in closing. One concerns the idea that seems to inform the
project as a whole. The project suggests that one of the outcomes will be an understanding of
ways of how to achieve a more effective harmonization of national laws. My question starts with
the term “effective harmonization”. It still does not seem clear what the yardstick for an effective
harmonization could be. As described, many of the problems in legal harmonization in the EU
stem from the fact that political and other differences water down EU instruments already at the
time of their inception. So, in fact, the problem of ineffective harmonization does not start with
the implementation and translation problems so well highlighted by Dr Bachner. Rather, their
often problematic inception is part of their overall character. The differences between regulations
that become binding law in the member states at a specific date which could be the date of
inception, and directives, that must be transposed and translated into the member states’ legal
systems, already underline this troubled character of EU law making and harmonization.
This leads me to my second concern: Does the idea of effective harmonization not touch upon a
much wider issue? Can it really be that we discuss the effectiveness of harmonization, but no
longer the idea of harmonization as such? Might not the persisting problems in EU law making –
well before the adaptation and transposition problems that lie at the center of Dr Bachner’s
research project – be telling of the continuing problematic nature of European integration overall?
Without a final assessment of the EU, its political and socio-economic, let alone its wider, holistic
legal nature, there cannot be, it seems to me, a final and satisfactory assessment of the
effectiveness or ineffectiveness of harmonization. Accordingly, Dr Bachner’s research project
concludes by focusing on the value of continued monitoring and indeed, a co-evolution of
conventional adoption of directives and an ongoing monitoring of post-implementation efforts in
11
the member states. The value of monitoring and mutual learning has been underscored by many
scholars in the last years with regard to ever growing frustrations with the obstacles with which
harmonization programs and aspirations often meet.
My admittedly somewhat and possibly too skeptical impression is the following: the rise of
mutual learning approaches in legal harmonization agendas or the emergence of e.g. the Open
Method of Coordination from the Lisbon Summit in 2000 to an almost ubiquitous inspiration for
ailing harmonization efforts appear to embody more resignation than hope. But, there is nothing
wrong in my view with that form of resignation. There continues to be a strong problem regarding
the legal and political nature of the EU as a whole, and this identity problem must have an effect
on questions of harmonizing law of the member states. Where methods are thought up to
overcome obstacles to harmonization, these seem to say at least as much about the overall process
of legal harmonization as they do about the persisting differences in a particular field of law as
such.