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System and Evolution in Corporate Governance

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  • Simon Deakin
  • Fabio Carvalho

Abstract

We explore the relevance of systems theory for an understanding of legal evolution, with specific reference to the law and practice of corporate governance. The legal system can be understood as a cognitive resource which, by stabilising normative expectations, reduces transaction costs and enhances contractual cooperation. However, the cognitive capacity of the legal system is not simply a function of its adaptability to external economic conditions. Because of the need to ensure legal continuity and certainty, there is a trade-off between innovation and stabilisation in the production of legal rules. Legal change is discontinuous, asynchronic, and imperfectly matched with developments in the economy. We discuss the relevance of this model for understanding and evaluating corporate governance default rules.

Suggested Citation

  • Simon Deakin & Fabio Carvalho, 2009. "System and Evolution in Corporate Governance," Working Papers wp391, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp391
    Note: PRO-2
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    File URL: https://www.jbs.cam.ac.uk/cbrwp391/
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    References listed on IDEAS

    as
    1. Simon Deakin & Alan Hughes, 1999. "Economic Efficiency and the Proceduralisation of Company Law," Working Papers wp133, Centre for Business Research, University of Cambridge.
    2. Henry Hansmann & Reinier Kraakman, 2000. "The End Of History For Corporate Law," Yale School of Management Working Papers ysm136, Yale School of Management, revised 01 Feb 2001.
    3. Cheffins, Brian R., 1997. "Company Law: Theory, Structure and Operation," OUP Catalogue, Oxford University Press, number 9780198764694.
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    Cited by:

    1. Lourenço, A., 2010. "Autopoetic Social Systems Theory: The Co-evolution of Law and the Economy," Working Papers wp409, Centre for Business Research, University of Cambridge.

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    More about this item

    Keywords

    corporate governance; legal evolution; systems theory; autopoeisis; memetics; default rules; fiduciary duties.;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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