Lost in Translation? Corporate Legal Transplants in China

Abstract

This essay examines an old question - why it is often so difficult for transplanted legal norms and institutions to take - with the hope of shedding a bit of new light on it through a specific focus on institutions for corporate governance in China. Foreign norms and institutions are borrowed because they seem to the borrowers to serve some need. Very often they are borrowed in a time of rapid social change in which the home culture, so to speak, is lagging behind. But the problem of fit is real and severe.

First, although the borrowers may imagine their needs to be the same as those of the society that produced the institution to be borrowed, this is rarely so. They may misread the needs of the source society, or may misunderstand the needs of their own society.

Second, the borrowed institution in fact does not perfectly serve any particular need in the source society. Institutions develop not in response to particular objectively defined social needs, but as a result of a complex interplay of social forces with different agendas. A given institution might be a field of contestation for different groups with radically differing goals without being the natural servant of any of them. As a result, it is virtually impossible for a borrowed institution to survive the transition into the borrowing society intact, if by "intact" we mean that it performs exactly the same function. Indeed, if it could, that would imply that the borrowing society was indistinguishable from the source society, and it is precisely the difference that prompted the borrowing in the first place.

In this essay, I look at a number of borrowings: the concept of the industrial trust, independent directors, the board of supervisors, and fiduciary duties (which might be more aptly deemed an aborted borrowing). I conclude that none of the above borrowings has taken because they were marked by a failure to understand the history and supporting institutions of the borrowed institution or concept in its home jurisdiction. I end with a speculation that it is particularly difficult for the Chinese legal system to borrow from Western jurisdictions because the Chinese system, as a result of its history both traditional and recent, is concerned more with the balancing of interests than with the vindication of rights.

JEL Classification: K22, K40, L20