Chapter 5: The efficiency of corporate governance codes
Originally, codes were voluntary and based on self-proclamation. Codes’ enforcement was based on response as a substitute to law. However, as early as the publication of the first versions of codes, issuers promoted them as efficient self-regulatory mechanisms. In the United Kingdom, the Cadbury Report was successful in promoting the adoption of a corporate governance code and thus avoiding another corporate law reform. This was accomplished by demonstrating the ineffectiveness of laws in comparison:
We believe that our approach, based on compliance with a voluntary code coupled with disclosure, will prove more effective than a statutory code. (Cadbury Committee 1992: para. 1.10)
Following the UK liberal approach, other states decided to adopt these self-regulatory tools. Corporate governance codes, however, are not ‘codes’ in the legislative sense with enactment and implementation governed by the democratic process. They have no normative force and are not prescriptive (Thibierge et al. 2009). Does this nevertheless mean that codes lack all normative force? Are they devoid of all legally binding effect?
The complex interaction of several factors has contributed to giving a certain binding dimension to codes. Three main factors characterize their normative scope: (1) their ‘legal’ effect; (2) the manner, especially in Europe, in which the ‘comply or explain’ principle is applied, addressing its efficiency; and finally (3) the controls exercised by stakeholders and judicial review of codes. The comparative analysis of these several factors reveals how diversely codes are implemented in different governance...
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