Publication Type

Journal Article

Version

publishedVersion

Publication Date

2-2020

Abstract

The World Bank’s influential Doing Business Report (DBR) has been a key platform for the American-driven dissemination of global norms of good corporate governance. A prominent part of the DBR is the related party transactions (RPT) index, which ranks 190 jurisdictions from around the world on the quality of their laws regulating RPTs. According to the RPT Index, the regulation of RPTs in Commonwealth Asia’s most important economies is stellar. In the 2018 RPT Index, Singapore ranked 1st, Hong Kong and Malaysia tied for 3rd, and India came in at 20th. However, despite the uniformly high RPT Index scores in all of Commonwealth Asia’s most important economies, empirical, case-study, and anecdotal evidence overwhelmingly suggests that there are in practice significant inter-jurisdictional and intra-jurisdictional differences in the actual function and regulation of RPTs in Commonwealth Asia. In this article, we assert that the conspicuous gap between what the RPT Index suggests should be occurring and what is actually occurring in Commonwealth Asia exists because it fails to capture the complexity of RPTs in three respects, which we term: (1) regulatory complexity; (2) shareholder complexity; and, (3) normative complexity. First, it appears that the RPT Index overly emphasizes the role played by a jurisdiction’s formal corporate and securities laws in determining the effectiveness of its RPT regulation, and it fails to pay due regard to its corporate culture and rule of law norms in determining the efficiency of its RPT regulation. Second, the RPT Index erroneously assumes that controlling shareholders are a homogeneous group driven by similar incentives. Third, the general assumption that RPTs per se are evidence of defective corporate governance and that stricter regulation of RPTs consequently equates to “good law” is erroneous. Demonstrating the frailties of the RPT Index is important in practice because jurisdictions – especially developing ones – commonly look to the DBR and its indices when reforming their laws. In addition, the RPT Index is built on some of the most influential research in the field of comparative corporate law, which makes our challenge to the validity of the RPT Index academically significant.

Keywords

Comparative corporate law and governance, Related party transactions, Commonwealth Asia, World bank Doing Business Report, Legal origins theory

Discipline

Business Organizations Law

Research Areas

Asian and Comparative Legal Systems

Publication

Berkeley Business Law Journal

Volume

17

Issue

1

ISSN

1548-7067

Identifier

10.15779/Z38JQ0SV9J

Publisher

University of California, Berkeley School of Law

Comments

 Selected as one of ten papers for presentation at the 2019 Global Corporate Governance Colloquia (http://gcgc.global), which is widely recognized as the world’s leading corporate governance conference  Reviewed and described as standing out as “the clarion critique” of one of the most important debates in comparative law and corporate governance: https://intl.jotwell.com/intransigent-indices-and-the-laments-of-comparative-law-why-legal-origins-wont-die/  Included as a required reading in Mariana Pargendler’s comparative corporate governance course at Yale Law School in AY2018-2019

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