The Legal Framework Governing Business Firms and its Implications for Manufacturing Scale and Performance: The UK Experience in International Perspective

61 Pages Posted: 14 Feb 2014

See all articles by Simon Deakin

Simon Deakin

University of Cambridge - Centre for Business Research (CBR); European Corporate Governance Institute (ECGI); University of Cambridge - Faculty of Law

Date Written: December 2, 2013

Abstract

This paper review empirical studies examining the economic effects of laws governing the formation, financing and organisation of business firms with the aim of putting the UK experience in a comparative perspective. The literature identifies two models of legal support for manufacturing which imply different directions for policy: on the one hand, the Silicon Valley model of venture capital funded growth which depends on liquid capital markets and flexible labour markets, and the northern European and Japanese model which is based on long-term innovation, stable ownership, and institutionalised worker-management cooperation. The UK has some of the legal features of the Silicon Valley model, but important parts are missing: for example, the Californian rule under which post-employment restraints (‘restrictive covenants’) are void on the grounds of their anti-competitive effects has no equivalent in the UK. Conversely, although the UK has certain elements of the northern European or east Asian model of institutionalised corporate governance, it is unlikely to be able to replicate the ‘productive coalition’ approach of these countries as long as the legal framework prioritises shareholder rights and the market for corporate control, and provides limited encouragement for job security. The Silicon Valley and ‘productive coalition’ models are ideal types which can distract from the fact that most countries, the UK included, are hybrid systems with some of the characteristics of each model. Rather than designing laws and policies exclusively with one model or the other in mind, it may be preferable to consider specific laws and policies on their own merits, while bearing in mind that a given legal rule or policy does not operate in isolation from others and that there may be some ‘network effects’ in operation due to the way that particular rules interact.

Keywords: Corporate Governance, UK, Labour Law

JEL Classification: G34, J48, J58, J88, K22, K31

Suggested Citation

Deakin, Simon F., The Legal Framework Governing Business Firms and its Implications for Manufacturing Scale and Performance: The UK Experience in International Perspective (December 2, 2013). University of Cambridge Faculty of Law Research Paper No. 15/2014. Available at SSRN: https://ssrn.com/abstract=2394724 or http://dx.doi.org/10.2139/ssrn.2394724

Simon F. Deakin (Contact Author)

University of Cambridge - Centre for Business Research (CBR) ( email )

Top Floor, Judge Business School Building
Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+ 44 1223 335243 (Phone)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom

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