How it Matters Who Makes Corporate Rules

Abstract

Corporate rules are often analysed without attending to the strengths and limitations of the body making, monitoring, or implementing those rules. However, corporate rule-making and implementation bodies (RMIBs) over which policymakers have the most influence—legislatures and public regulatory agencies, stock exchanges, and private/professional bodies with a degree of self-regulatory autonomy—have an important bearing on the effectiveness of rules. This Article advances a framework to understand how RMIBs influence the effectiveness of corporate rules by critically examining five core features of RMIBs: (a) their incentives for making and implementing the rules; (b) the nature and extent of regulatory competition; (c) available and relative resources; (d) rule-making speed and the certainty of those decisions; and (e) their legitimacy in the eyes of the regulated parties and relevant stakeholders. To illustrate the framework concretely, this Article conducts case studies exploring how it matters who makes the rules on climate-related risks disclosure and in the UK’s recently enacted Financial Services and Markets Act 2023.

Keywords: corporate governance, corporate law, regulation, self-regulation, stock exchanges, incentives, regulatory competition, legitimacy, FSMA 2023, climate disclosure

JEL Classification: G18, G30, G38, K20, K22