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Part II - The Recursive Development and Dynamic Consequences of Transnational Fiduciary Law

Published online by Cambridge University Press:  22 November 2023

Seth Davis
Affiliation:
University of California, Berkeley School of Law
Thilo Kuntz
Affiliation:
Heinrich-Heine-Universität Düsseldorf
Gregory Shaffer
Affiliation:
Georgetown University Law Center, Washington DC

Summary

Type
Chapter
Information
Publisher: Cambridge University Press
Print publication year: 2024
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7 Transnational Legal Ordering of Modern Trust Law

Rebecca Lee
Footnote *
7.1 Introduction

Law is conventionally associated with the law of the nation-state. Halliday and Shaffer’s seminal work on transnational legal ordering shows, however, that legal ordering occurs transnationally along multiple dimensions. The legal norms that order the understanding and practice of law transcend and permeate the boundaries of nation-states, which can give rise to transnational legal orders (TLOs) that reflect, penetrate, and harness national law and legal institutions.Footnote 1

This chapter demonstrates that transnational legal ordering is particularly evident in the law of trusts. The concept of local or national trust law does not adequately capture the global and transnational flow of ideas and institutions that shape the making of modern trust law, as it exhibits variations in legal ordering beyond nation-states. Instead, modern trust law exemplifies the dynamics of TLOs, because modern trust norms are themselves transnational: They often vary in their geographic and substantive legal scope, producing multiplicities of legal orders that invariably transcend, span, and permeate nation-states, including both offshore and onshore jurisdictions, as well as both common law and civil law jurisdictions.

This chapter focuses on the processes through which modern trust norms develop and flow across borders to become a substantive body of transnational and comparative trust law. It discusses how the making of modern trust law at the transnational, national, and local levels develops dynamically over time, by reference to two recent phenomena that illustrate the interplay of trust norms across national boundaries. The first phenomenon pertains to the rise of global wealth, which is driving offshore trust jurisdictions to adapt and embrace innovations and transformations in trust law in order to remain competitive in the holding and management of that wealth. This has prompted some onshore jurisdictions to adopt certain offshore modifications, a practice Lionel Smith calls the “onshoring of the offshore.”Footnote 2 Second, the interplay of trust norms across national boundaries is evident in the rise of the civil law trust in East Asia, which has led both civil and common law jurisdictions to rethink the core elements of the trust. These phenomena have prompted scholars to explore how transnational trust law has developed through horizontal interactions among onshore and offshore jurisdictions and civil law and common law jurisdictions. This chapter concludes that examining the trust law terrain would make a significant contribution to TLO theory, because such an examination would go far beyond the traditional categorization of laws as civil versus common, or Asian versus Anglo-American, and demonstrate that transnational legal ordering processes apply in the making of modern trust law.

Although this chapter focuses on the horizontal dimensions of transnational legal ordering, it is worth noting that, in addition to horizontal dimensions, there are also vertical dimensions of transnational legal ordering in the context of modern trust law. Vertical ordering of trust law occurs whenever non-state actors purport to provide benchmarks for the creation of trust norms on the national level within multiple national states. A notable example is the Hague Convention on the Law Applicable to Trusts and on their Recognition (“Hague Trusts Convention”).Footnote 3 The Hague Trusts Convention was developed by the Hague Conference on Private International Law, an international organization with ninety-one members, with another sixty-five nonmember states being parties to conventions that it has developed. As the trust institution was developed by courts of equity in common law jurisdictions, civil law jurisdictions – which do not have the concept of a trust (or equitable proprietary interest) as part of their domestic law – could not give effect to a trust by simple analogy to existing civil law institutions. Aiming to address this problem and providing guidance on choice of law rules in cross-border trusts disputes, the Hague Trusts Convention purports to “establish common provisions on the law applicable to trusts and to deal with the most important issues concerning the recognition of trusts.”Footnote 4 Notably, it proposed a harmonized definition of the trust:

The term “trust” refers to the legal relationships created – inter vivos or on death – by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose.Footnote 5

Insofar as the Hague Trusts Convention provides benchmarks for the creation of trust norms on the national level in multiple states, it is a basis for transnational legal ordering of the modern trust law. Vertical ordering takes place to the extent that trust norms created by the Hague Trusts Convention trickle down into national legal systems and gain normative force comparable to national law. Because, however, this sort of vertical ordering has played a comparatively minor role,Footnote 6 this chapter focuses upon horizontal interactions that have shaped trust law as a transnational body of law.

7.2 Trust Law as a Transnational Body of Law: Offshore Innovations and Onshore Modifications
7.2.1 The Rise of Transnational Trusts

The interplay of trust norms at the transnational, national, and local levels to become a substantive body of transnational trust law is evident in the rise of transnational trusts.Footnote 7 Who are the key actors driving the processes of transnational legal ordering in this context? And what innovations and modifications of the trust have been brought about as a result?

In the 1960s and 1970s, offshore financial centers began to emerge. Financial institutions in offshore financial centers engaged primarily in business with nonresidents, and their services typically featured low taxation, light financial regulation, and banking secrecy. Over time, offshore financial centers were also used to provide asset management and protection services through offshore trusts to enable clients to minimize their tax liability, ring-fence their assets from onshore lawsuits, and avoid forced inheritance provisions in their home jurisdictions.Footnote 8

Countries with small domestic financial sectors soon found the development of offshore financial and trusts businesses attractive, as they generated employment for the host economy and revenue for the government. Indeed, offshore trust jurisdictions such as the Cayman Islands and the Channel Islands became heavily reliant on offshore trust business as a major source of both government revenues and economic activity. As more capital aiming to shield or hide assets by way of the offshore trust rushed in, jurisdictional competition for trust business intensified. A process of transnational legal ordering was underway, and this brought about further innovations of the trust. Examples include trust protectors, legislative enshrinement of settlor reserved powers, abolition of the rule against perpetuities, and legalization of noncharitable purpose trusts. The lucrative business opportunities drove other offshore jurisdictions, followed by onshore jurisdictions, to emulate these initiatives. In addition to the demand for innovation from clients and the supply of trust services by governments, trust law professionals (including lawyers and asset managers) were key actors in the horizontal competition between onshore and offshore jurisdictions. They often drove innovation through lobbying or otherwise advocating for legal changes in their jurisdictions. They would ascertain the needs of the potential clients, which might range from protecting assets from creditors, disgruntled beneficiaries or divorcing spouses, to maximizing control and management of the trust assets. They then worked with their local legislatures to introduce client-friendly trust or trust-like structures.Footnote 9

In recent decades, the explosion of global tech entrepreneurship has increased demand for trust and wealth management services from a modern, younger clientele, who are more reluctant than previous generations to relinquish control over trust assets, which often comprise business empires that they are still actively managing or using as an investment vehicle. In order to compete for trust business, many offshore jurisdictions, alongside onshore wealth management centers such as Singapore and Hong Kong that provide sophisticated offshore trust services, have been eager to pioneer innovative developments to accommodate the desires of this new clientele. Among them are the pervasive use of objects and duty modification clauses in modern trusts.Footnote 10 These two emerging features not only challenge our traditional understanding of the trust, but also capture the recursive nature of the TLO process. Both defy our traditional understanding of the scope of the trustee’s powers, discretion, and duties and, in turn, the dynamics of the tripartite relationship within a trust.

7.2.2 Objects of Discretionary Trusts

Trusts in offshore jurisdictions and wealth management centers operate very differently from those in onshore jurisdictions. Traditionally, the beneficiary principle lies at the core of the trust, and its primary rationale is to hold trustees to account. Thus, traditionally at least, a trust is enforceable only by the beneficiaries, who enjoy an equitable proprietary interest in the trust property.Footnote 11 However, to enable a trustee to respond to unforeseen circumstances, modern trusts are invariably settled as discretionary trusts. Not only are trustees given discretion; they are also given, at least in theory,Footnote 12 wide dispositive discretion to distribute the trust assets (including, for example, the power to decide whom to pay, how much, and when). In addition to empowering trustees to add or remove beneficiaries, many discretionary trusts now have no beneficiary but merely objects to whom a trustee may appoint capital or income. Although objects of powers are not a new feature in traditional trusts, they have become a defining feature of modern discretionary trusts.Footnote 13 Objects of discretionary powers are not beneficiaries in the strict sense: Unless the trustee makes an appointment to them, objects have no right to the trust property, no standing to sue, no interest in the trust capital, no right to a definable part of the trust income, and no transmissible right. Instead, an object has only a limited right to be considered as a potential recipient of a benefit by the trustee and, as a corollary, through the trustee’s proper exercise of his or her power. Given the limited rights of objects, as a conceptual matter, they cannot sensibly be treated as beneficiaries, and their presence does not satisfy the traditional beneficiary principle. As a result, trust professionals usually include a default beneficiary clause in a discretionary trust to satisfy the beneficiary principle, even though no one expects that the default beneficiary will receive any trust property. The trust property will almost invariably be distributed pursuant to the wide dispositive discretion of the trustee rather than via the default clause naming the residuary or default beneficiaries. As a result, the trustee’s wide dispositive powers effectively displace the beneficial interests of the sole (default) beneficiaries, and they are thus an affront to the trust concept.

Professor Smith describes these highly discretionary trusts pejoratively as “massively discretionary trusts.”Footnote 14 Because the primary rationale of the beneficiary principle is to hold trustees to account, massively discretionary trusts do not satisfy that principle and distort the trust concept. According to Professor Smith, these law reforms driven by clients and jurisdictional competition are necessarily shortsighted.Footnote 15 Why? As a doctrinal matter, not only may onshore courts hold that a resulting trust can arise in favor of the settlor from the moment of the trust’s inception, but beneficiaries may also collapse the trust.Footnote 16

Nonetheless, even onshore jurisdictions have begun to grapple with the prevalence of objects in modern trusts alongside other offshore innovations. For example, in Schmidt v. Rosewood,Footnote 17 Lord Walker held in relation to two trusts set up in the Isle of Man with distributions to be made by the exercise of powers of appointment, rather than through interests in discretionary trusts, that no distinction exists between discretionary trusts and powers of appointment for the purpose of seeking the disclosure of information from the courts. Accordingly, a beneficiary under a discretionary trust and an object entitled to benefit under a power are equally able to seek protection in respect of the rights they have. The Privy Council affirmed that its right and duty to intervene in the administration of a trust are based on its inherent jurisdiction to do so. Professor Smith criticizes Schmidt for downgrading the rights of fixed beneficiaries by denying them an entitlement as of a right to see trust accounts, thereby eradicating the irreducible core of the trust. Not everyone agrees, however. Some scholars have defended such trusts on the ground that objects of discretionary powers should be treated as beneficiaries for the purposes of the beneficiary principle. Such objects have a proprietary right that applies against third parties; they also have standing to apply to the courts to protect their interests.Footnote 18

The divergence of views highlights the difficulty of finding the conceptual limits of the trust. It is now well established in English law that there is an “irreducible core” of the obligations owed by the trustee, which include the duty to perform the trust honestly and in good faith for the benefit of beneficiaries, who have a correlative right to hold trustees to account for the performance of their duties.Footnote 19 That duty was considered by Millett LJ in Armitage v. Nurse as the “minimum necessary to give substance to … trusts,” which is “fundamental to the concept of a trust.”Footnote 20

This principle creates tension between legal concepts and on-the-ground legal practice – and thus the possibility of recursive development of trust norms. Applying the principle of an irreducible core of trust duties to a “massively discretionary trust”Footnote 21 leads to the conclusion that a trustee’s core duty to perform the trust honestly and in good faith for the benefit of the beneficiaries should not be curtailed. Yet, in trusts with objects and a default beneficiary, there is no beneficiary to enforce the trust. Thus, if mere objects exist (along with a default beneficiary who is unlikely to benefit in reality), it can hardly be said that the trustee still owes any meaningful irreducible core duty in order for the trust to exist. Although Professor Smith suggests that onshore courts will not accept such structures,Footnote 22 on-the-ground practice suggests otherwise. As Professor Tang has argued, because these global trusts are the norm rather than the exception in practice, it is likely that judges in jurisdictions hosting international wealth management centers will accommodate them via a liberal interpretation of trust jurisprudence rather than take a strict view of trust law that would undermine the trust industry in the jurisdiction concerned.Footnote 23 Indeed, such a pragmatic judicial attitude probably prevailed in Hong Kong in Zhang v. DBS, a case on duty modification clauses to which we now turn.

7.2.3 Duty Modification Clauses

First, some background is necessary. The trust assets of a modern trust often comprise companies owned by the settlor-entrepreneur. Bartlett v. Barclays BankFootnote 24 held that where a trust whose sole asset is a controlling shareholding in a company, the trustee has a consequent duty to keep him or herself informed of the company’s affairs, and to use his or her powers to obtain information and decide whether to intervene. As a result, the trustee-shareholder cannot sit passively and leave the running of the company wholly to the directors but instead is under a duty to supervise the management of the company.

The rule of Bartlett creates several problems for trust practice. First, contrary to traditional practice, modern settlors often wish to retain active control over the management and investment activities of their company even after they have transferred it to a trust administered by a third-party trustee. Second, the trustee may not have the expertise necessary successfully to manage the business of the underlying holding company. Besides, the trustee’s duty under Bartlett may require him or her to supervise and intervene in the company’s business, such as by preventing it from entering into an inappropriately risky venture.Footnote 25 Yet, the settlor may prefer the controlled underlying company to pursue an aggressive speculative investment policy, and the trustee may find him or herself in a vulnerable position if the Bartlett duty is not modified.

In modern trusts, therefore, anti-Bartlett clauses are frequently inserted to enable trustees to accept trusteeships while delimiting their duty to inquire into or interfere in the conduct of the company. Anti-Bartlett clauses stipulate that the trustee need not be actively engaged – or involved at all – in corporate management. Such provisions, in turn, separate the function of trust administration from the function of corporate management and, in turn, ensure that the settlor retains control over the company held in trust. They also negate a trustee’s duty to supervise or intervene in investments by the trust in an underlying holding company unless he or she is guilty of dishonesty or of failing to intervene in circumstances where he or she had actual knowledge of dishonesty in the company’s management.

A question remains as to whether the trustee is still subject to a “residual, high-level supervisory obligation”Footnote 26 to oversee the underlying company’s operation despite the presence of a clause that comprehensively excludes his or her duty to supervise, interfere, or make inquiries. The Hong Kong Court of Final Appeal in Zhang v. DBSFootnote 27 rejected the suggestion of any such high-level supervisory obligation. It unanimously held that the anti-Bartlett clauses in the relevant trust deed were valid and that there was no residual obligation or high-level supervisory duty of the trustee that might otherwise contradict or override such express clauses.Footnote 28 The effect of the anti-Bartlett clauses in Zhang v. DBS was to “restrict the power of the trustees to interfere in the conduct or management of [the company’s] investment business,” with the court holding that the powers to intervene “were, on their true construction, unavailable to the trustees.”Footnote 29 DBS Trustee’s concomitant duty to ensure that the company was managed prudently was therefore also excluded. Thus, the only obligation that can be said to be “residual” is the obligation to act in cases involving actual knowledge of dishonesty not covered by anti-Bartlett clauses.Footnote 30 Thus, the decision in Zhang v. DBS suggests that there is no public policy that requires the recognition of such a supervisory duty in the trust instrument and that its existence, if any, is a matter of the instrument’s construction.Footnote 31

Zhang v. DBS is likely to be highly persuasive in offshore and Anglo-common law jurisdictions. It is, after all, the first case examining the effectiveness of an anti-Bartlett clause at a final appellate level, and Lord Neuberger, former President of the Supreme Court of the United Kingdom, sat as a nonpermanent judge in the case. Moreover, trustees will likely welcome the decision, as it relieves them of a high-level supervisory duty to underlying company investments so long as the trust instrument expressly removes such duty. For their part, settlors rely on such clauses to restrain trustees from interfering in or obtaining information on the affairs of the underlying company. Thus, while scholars have questioned whether trustees can or should be completely exonerated from their duty/power to interfere in the management of a trust-owned company by anti-Bartlett clauses,Footnote 32 there are powerful market participants who will continue to press for precisely that norm.

Underneath the exclusion of duties of trustees is the persistent settlor control that is uninterrupted by the transfer of trust property to the trustee. Once the formal, conceptual layer of the trustee-beneficiary relationship in modern trusts is stripped away,Footnote 33 a substantive, commercial relationship between a client and a private banker/professional trustee is revealed. Given that relationship and the desire for persistent settlor control, it is pertinent to ask about the limits on [of] offshore discretionary trusts, the extent of influence that a settlor can retain consistent with prevailing conceptions of trust law, and, correspondingly, the extent of the duties otherwise owed by trustees that can be curtailed.Footnote 34 Professor Barnett, in examining offshore trusts in the South Pacific, even questions how far the concept of the trust can be stretched before it breaks.Footnote 35 Anti-Bartlett clauses, in effect, reserve to the settlor (or some third party) an ability to, inter alia, direct the trustee in the trust investments, alter the nature of the obligations that the trustee owes, and reduce the obligations otherwise imposed on him or her. Such relational dynamics in the modern trust may threaten the irreducible core aspect of the trust.Footnote 36 But because such clauses remove the trustee’s duty of care, which is not part of the trustee’s irreducible core duty, they may be reconcilable with the traditional conception of the trust. Nonetheless, by tailoring the trust deed at the outset in such a way that the trustees have to comply with investment-related directions given by the settlor, the trustees’ investment powers are effectively removed. It is only in the absence of such prescribed directions that a trustee may act as he or she sees fit in accordance with the terms of the trust deed and his or her fiduciary obligations.

7.2.4 Implications

The proliferation of objects and duty modification clauses are but some examples of the significant changes trust law has undergone at a phenomenal speed in the past few decades. Not only have the traditional rules been liberalized, the making of trust law norms has also become transnational. Despite our conception of the trust as a quintessential English concept that emerged in medieval England, the modern trust is embedded in a transnational context. The trust has spread transnationally, and innovations and transformations have been introduced. The innovations and modifications demonstrate that transnational trusts are a new category of their own to be scrutinized from multi-jurisdictional angles. Modern trust research therefore has begun to shift from a predominantly national context to one that emphasizes the interaction between transnational, national, and local lawmaking. Professor Lupoi crafts a new label of “industrial trusts” for these trusts:

Nowadays trustees in the offshore version of trusts (but not only) are companies the business of which is to serve as trustees; each company is the trustee of thousands of trusts (at times, I am told, of tens of thousands). I shall refer to those trusts as “industrial trusts.” It is difficult to understand how the trustee of an industrial trust could fulfil his fiduciary obligations or make use of his fiduciary powers in accordance with the rules laid down with reference to the trustees d’antan. It is also difficult to understand how much it would cost to have such a trustee keep trace of the trust beneficiaries, of their needs and of their desires, so as to be in a position to act “in the interest of the beneficiaries” as the standard jargon would require him to do.Footnote 37

Trust norms were created centuries ago. The modernization and transnationalization of trusts signify the eventual decline in the popularity of the traditional trust and corresponding rise of the transnational trust. Over the centuries, the reasons for setting up a trust have also evolved from property-holding to succession planning and asset protection from creditors and a potential divorce. There is no a priori reason to exclude these goals from the modern transnational trust and to treat such trusts as devices for tax evasion. Nonetheless, given the aforementioned developments, the transnational trust is transforming what it means to be a trustee. A trustee is a custodian, not an active manager with equitable obligations to beneficiaries.

7.3 Trust Law as a Transnational Body of Law: Civil Law Trusts in East Asia

The transplantation of the common law trust to civil law jurisdictions first took place in Europe and then in East Asia. Following national recognition of the Hague Trusts Convention by countries such as Italy and the Netherlands, the trust as a legal institution has gained ground in other civil law countries in Europe.Footnote 38 In East Asia, Japan historically led the way in introducing the Western legal system and ideas to the region.Footnote 39 Many civil law jurisdictions in East Asia have introduced the trust by legislation.Footnote 40 Starting in Japan, the trust as a legal institution spread via South Korea and Taiwan to China.Footnote 41 As the Japanese economy flourished after the Second World War, trust banks emerged to focus mainly on commercial trust activities, such as pension trusts or loan trusts to raise funds for infrastructure projects. The Japanese experience in the reception of the trust inspired South Korea, Taiwan, and China, and trust laws were enacted to regulate trust and investment companies. Most of the theoretical obstacles to the reception of the trust in these civil law jurisdictions stem from the perceived incompatibility of the trust with civil law property concepts. These include the absolute nature of ownership, the doctrine of numerus clausus, the absence of certain key trust components in indigenous law (such as the fiduciary duty of loyalty), and the existence of different remedial rules in civil law jurisdictions, to name but a few. While it is easy to lift specific rules pertaining to the trust concept and codify it in a trust statute, the presence of the aforementioned theoretical obstacles made the transplantation of the system of laws pertaining to the trust a mammoth task. A process of transnationalization has emerged regarding the conceptual foundation of the trust, the duties requiring a trustee’s loyal behavior, and remedies for breaches of trust. What follows is an examination of how these trust norms have settled and become aligned at the transnational level in the East Asian jurisdictions of Japan, South Korea, Taiwan, and China.Footnote 42

7.3.1 Conceptual Foundation of the Trust

The laws of the aforementioned East Asian countries all have strong historical roots in the German civil code (Bürgerliches Gesetzbuch). As a consequence, they not only lack equity courts, but also are historically situated within a legal framework built around the concept of single ownership.Footnote 43 The numerus clausus principle of property rights adopted in many civil law jurisdictions means that only absolute ownership can be vested in a civilian trustee, which runs counter to the core element of the trust architecture, namely the dual ownership of trust property.

The duality of ownership at common law explains the segregation of trust property: The trustee has legal ownership of the property, whereas the beneficiary has equitable ownership. Such equitable ownership means that the beneficiary has a right over the trust assets that is enforceable against the whole world except a bona fide purchaser of a legal estate for value without notice (known as “equity’s darling”). The beneficiary’s equitable ownership of the trust property also provides the traditional justification for the immunity of trust property. In an English trust, trust assets (and their traceable products) are segregated from the trustee’s own assets, and hence are immune from any claims of the trustee’s personal creditors, heirs, and spouse (unless that party is equity’s darling). Such segregation is necessary for the operation of the trust and protection of the beneficiary’s rights. Otherwise, the trust property could be affected by trustee liability incurred for matters unrelated to the trust.Footnote 44

The reception of the trust in East Asia has prompted an inquiry into whether the absence of equitable jurisdiction will hinder the reception of the trust, and, in turn, a rethinking of the conceptual foundation of the trust in both civil and common law jurisdictions. The independence and segregation of trust assets in these East Asian jurisdictions are achieved by way of statutory provisions stipulating that trust assets do not form part of the trustee’s bankruptcy estateFootnote 45 and are immune from the claims of the trustee’s heirs, spouse, and personal creditors.Footnote 46 As a practical matter, these statutory solutions address the problem of lack of an equity jurisdiction and dual ownership. From a conceptual perspective, statutes conferring immunity to the trust assets can be justified through the notion of patrimony in civil law, which provides the conceptual foundation of the civil law trust.Footnote 47 In a trust arrangement, the trustee has two distinct patrimonies: the trust patrimony (comprising the trust assets and liabilities) and his or her own private patrimony (comprising the trustee’s own assets and liabilities). Each patrimony has its own creditors, and thus the trustee’s personal creditors can claim only the trustee’s private patrimony, while the trust creditors (beneficiaries) make claims upon the trustee’s trust patrimony.Footnote 48 Beneficiaries have personal claims against the trust patrimony, which is immune from the trustee’s personal creditors (the latter having access only to the trustee’s private patrimony). Beneficiaries do not have “proprietary rights” over the trust patrimony.

This civil law conceptualization of the trust, prompted by the reception of common law ideas, has recursively prompted common law jurisdictions to rethink the nature of the beneficiary’s right. Some scholars have suggested that even in the English trust, it is not necessary to give the beneficiary any in rem right in the trust property.Footnote 49 All that the beneficiary has is a claim against the segregated trust fund (or trust patrimony), which is not available to the spouse, heirs, or personal creditors of the trustee.Footnote 50 Consequently, the creation of a trust would not violate the numerus clausus principle of property rights adopted in many civil law jurisdictions.

7.3.2 Fiduciary Duty of Loyalty of the Trustee

Even though the trust is a creature born and bred in common law, the concept of the trustee’s fiduciary duty of loyalty demonstrates that a transnational trust law framework can encompass both civil law and common law jurisdictions. In common law jurisdictions, the significance of the concept of fiduciary duty can be seen from the US Restatement Third of Trusts, which defines the trust as “a fiduciary relationship with respect to property [that] subject[s] the trustee to duties to deal with it for the benefit of charity or for one or more persons.”Footnote 51 Thus, it has been said that “a trust is the quintessential fiduciary relationship.”Footnote 52 A trust implements the settlor’s freedom of disposition: By making a transfer in trust rather than outright, a settlor ensures that the property will be managed and distributed in accordance with his or her wishes as expressed in the terms of the trust.

Fiduciary duties are the primary safeguard for beneficiaries in modern trust practice. Nonetheless, it has been said that transnational fiduciary law recognizes different shades of loyalty, and it remains contested whether the duty of care should be seen as a fiduciary duty.Footnote 53 East Asian civil law jurisdictions have incorporated the full range of duties typically seen in English law into their trust statutes, such as the duties to comply with the terms of the trust, to take care,Footnote 54 to act honestly and in good faith, to provide information to beneficiaries or interested parties, and to segregate the trust fund from the trustees’ own assets or other assets held by them,Footnote 55 although the scope of these individual duties is sometimes narrower than in English law. Until recently, China, Japan, Taiwan, and South Korea had no open-ended standard establishing a (fiduciary) duty of loyalty in trust law.

In recent decades, some East Asian countries have introduced the duty of honesty and good faith. Even so, its scope is much narrower than in common law jurisdictions. In English law, the fiduciary no-profit or no-conflict rules are sufficiently wide to cover both the misuse of trust assets and the misuse of the trustee’s position for personal profit where there is a conflict of interest. In some East Asian countries, however, in order to violate the fiduciary duty of honesty and good faith, the misuse of trust assets – as opposed to trust information – is necessary. For example, although both the Japanese Trust Act and Chinese Trust Law contain express general stipulations on fiduciary duty,Footnote 56 the examples of prohibited conflicts of interest in both statutes revolve around the abuse of trust property and self-dealing transactions.Footnote 57 The Taiwanese Trust Law does not even contain express stipulations on fiduciary duty, but only prohibitions on a trustee’s entitlement to trust benefits and on converting trust property for his or her own use.Footnote 58 Thus, the civil law trusts in Japan, Taiwan, and China expressly prohibit only the use of trust assets; neither the making of personal profits for the trustee nor the making of profits out of the trust position or information is covered.

A couple of observations may be made. First, even though there are functional equivalents of the duty of loyalty in the respective trust laws of East Asian countries, the content and extent of those equivalents await further clarification in comparison with their common law counterparts. In particular, Western conceptions of loyalty may be understood differently from the status-based conceptions of loyalty to family elders and authority in most East Asian civil law jurisdictions, which display unique Asian dynamics in the development of fiduciary norms.Footnote 59 This observation reflects transnational legal ordering as a recursive process and is consistent with Halliday and Shaffer’s account that the development of TLOs is dynamic, involving interactions among international, transnational, national, and local actors. Second, the transnationalization of trusts has laid a foundation for transnational fiduciary law as a field existing at the intersection of transnational law and fiduciary law,Footnote 60 thereby expanding both transnational law and fiduciary law by establishing new perspectives on both. This new field shows how transnational law can evolve out of national norms that cross borders and are implemented within local fields that may – or may not – differ in their substantive understandings of loyalty and good faith or their institutional frameworks for remedying breaches of these norms.

7.3.3 Remedies for Breach of Trust

This section first highlights two major remedial differences between Anglo-common law approaches and approaches in East Asia. It then discusses how one may think about those differences from the perspective of TLO theory. Two notable differences from the Anglo-common law approach can be discerned, namely the scope of disgorgement remedy and the availability of the constructive trust. Where a trustee breaches his or her duties, English trusts generally provide for the disgorgement of profits made from the breach,Footnote 61 in addition to compensation for damages arising from the breach. To invoke this remedy, it is irrelevant that the beneficiary has suffered no loss from the breach or may have even profited from it.Footnote 62 There is some Anglo-Australian authority suggesting that it is not necessary to prove that, but for the breach, the trustee would not have made the profit concerned, although the position remains unsettled.Footnote 63

In civil law trusts in East Asia, trustees are liable primarily through a compensatory remedy. The Japanese Trust Act stipulates only the remedy of rescission in the event that a trustee has breached his or her duty of loyalty, with no mention made of the disgorgement remedy.Footnote 64 Even when the disgorgement remedy is available in other jurisdictions, it is fairly limited in scope. For example, the Taiwanese Trust Law provides for a duty to disgorge profits to the trust fund where a trustee has converted trust property for his or her own use, but only on the condition that the trust property has suffered a loss.Footnote 65 The Chinese Trust Law also contains a disgorgement remedy, but applies it only to profits obtained in breach of trust (by misuse of trust assets), not to other breaches (e.g., converting trust property into the trustee’s property or self-dealing transactions). The most recently revised Korean Trust Act also added a disgorgement remedy, which, unlike the Taiwanese provision, allows for the disgorgement of profits obtained from a breach of the trustee’s duty of loyalty even though the trust property suffers no loss.Footnote 66

Another notable difference from English common law is the availability of constructive trusts and proprietary claims against trust assets and their substitutions. It is well established in English law that, first, the trust fund includes the original settled sum and all assets representing it from time to time, whether derived lawfully or unlawfully. Second, as long as the trust assets are traceable into exchange products (substitutions), beneficiaries can assert a proprietary claim in the form of a constructive trust against assetsFootnote 67 held in the hands of any recipient except a bona fide purchaser without notice. Thus, if a trustee breaches a trust and transfers property to a third party, the beneficiary can invoke the equitable tracing process and plaintiff-friendly tracing rules to identify the value of an original asset in a new, substituted asset even though the property has passed through several hands. These tracing rules often include artificial presumptions in favor of the beneficiaries, such as presumptions against the wrongdoing trustee when trust property is mixed with the trustee’s own property, in order to protect the beneficiaries.Footnote 68 Furthermore, the trust assets and their traceable products are also immune from the claims of the heirs, spouses, and creditors of the third-party transferees, who are also subject to duties to refrain from using those assets to meet their personal liabilities. Thus, the rights of beneficiaries under English trust law are enforceable against the whole world, with the exception of a bona fide purchaser for value without notice.

With respect to civil law trusts in East Asia, although the relevant statutory provisions stipulate that trust property includes substituted assets resulting from the trustee’s lawful or unlawful conduct,Footnote 69 they do not contain the extensive tracing rules found in common law trusts. There are thus no rules of (equitable) tracing to resolve evidentiary ambiguities and allocate losses to defaulting trustees. Furthermore, there is no constructive trust on traceable assets, notwithstanding the presence of provisions on the liability of third parties. In other words, a constructive trust is not imposed on traceable assets currently in the hands of unauthorized third parties; there is only personal liability against knowing recipients of trust property (to compensate for a loss)Footnote 70 or a right to rescind the transaction.Footnote 71 Accordingly, if recipients become bankrupt, the trust property will be subject to the claims of their personal creditors.

What does the limited availability of disgorgement and constructive trust in East Asia tell us about the transnational legal ordering of trust law? First, one can see that the transnational processes of legal ordering of trust law are inflected by local and national understandings of remedial law. When the legal ordering of trust norms is viewed transnationally across both common law and civil law jurisdictions, the differences on the availability and scope of disgorgement from the Anglo-common law approach raise the question of whether the beneficiary’s right to demand that the trustee disgorge profits obtained from a breach is a basic feature of the trust. It is probable that the disgorgement remedy serves only the purpose of providing an additional deterrence to breaches by removing trustees’ temptation to engage in a breach. Without the disgorgement remedy, a beneficiary can still rely on the compensatory remedy, although it is less extensive. As to the more limited scope of rights against transferees in civil law jurisdictions in East Asia, this probably suggests that, unlike beneficiaries’ personal rights against their transferees, the proprietary liability of transferees is not a necessary feature of the trust. It is probably a matter of policy whether to allocate the losses arising from a trustee’s breach completely to heirs, spouses, and creditors of third-party transferees who are innocent of the breach. As a matter of policy, English law prefers the interests of beneficiaries over those of an innocent volunteer who receives the trust property, as well as those of innocent creditors, both of whom will be prejudiced by hidden proprietary rights raised against them, whereas East Asia civil law jurisdictions take the opposite view and prefer not to allocate the losses arising from the trustee’s breach completely to this group of innocent third parties. Examining the trust law terrain across both common law and civil law jurisdictions thus illustrates the relevance of TLO theory because such an examination goes far beyond the traditional categorization of laws as civil versus common, or Asian versus Anglo-American, and shows how modern trust lawmaking is a transnational process.

Second, the remedial differences identified earlier also show that there are limits to the unification of trust law. The remedial approach in East Asia is to impose liability on defaulting trustees primarily through a compensatory remedy, whereas the disgorgement remedy and the availability of the proprietary constructive trust are the most important remedies in equity’s armory in Anglo-common law. Whereas common law anchors its regulation of trusts in equity and property law, the basis of civil law’s regulation of trusts is statutory. As trust law has spread in both common law and civil law jurisdictions, the story of East Asian civil law trusts reflects the idea of transnational legal ordering as a dynamic and interactive process. A common question that pertains to different features of the East Asian civil law trust is whether a single, unified theoretical approach to trusts would produce a better understanding of the institution. Significantly, transnationalization does not automatically lead to the uniformity or harmonization of trust law. The East Asian experience shows that it is difficult to unify trust law in light of the remedial differences between Anglo-common law approaches and approaches in East Asia, which reflect different local and national understandings of the basic features of the trust and how the trust should be regulated; rather, “transnational trust law” stands for an approach that seeks to reinterpret existing doctrines of trust law in light of the specific instances of trusts arising in transnational settings. The East Asian dynamic will continue to drive transformations in the future of transnational trust ordering.

7.4 Conclusion

This chapter uses TLO theory to explore the processes through which modern trust law has developed transnationally. It focuses on the horizontal interactions among onshore and offshore jurisdictions, and civil law and common law jurisdictions, as the driver of transnational legal ordering of trust law. Both offshore and onshore jurisdictions, as well as both common law and civil law jurisdictions, have developed rules to regulate the voluntary arrangement involving a settlor, trustee, and beneficiary that is known as the trust. The TLO concept as applied to trusts captures the creation, diffusion, and modification of trust norms across national borders, and it fosters a deeper understanding of the nature of the trust and the process of lawmaking and application regarding trusts in a globalized world.

The modern transnational trust, whether offshore or onshore, is almost antithetical to our conventional understanding of the English trust wherein the settlor drops out of the picture and the trustee assumes equitable obligations to the beneficiaries, who have proprietary rights attached to the trust fund. The transnational dimension of the trust shows that the English trust is but one type of trust; it is definitely not the only acceptable rendition of the trust concept. Only some features of the trust constitute features that are minimally necessary for a civil law trust to exist and function. These observations suggest that regardless of their differences in traditions and technical approaches, from a functional and pragmatic perspective, the divide between onshore and offshore, and between common law and civil law, may be crossed. Nonetheless, given the varieties of the modern transnational trust, a single, unified theoretical approach to trusts is unlikely to produce a better understanding of the institution.

8 Japanese, East Asian, and Transnational Fiduciary Orders

Masayuki Tamaruya
8.1 Introduction

East Asia provides fertile soil for cross-fertilization of theories of transnational legal ordering and fiduciary law.Footnote 1 Modern fiduciary law provides underlying principles in a broad array of fields, including corporate and financial transactions as well as various context of workaday lives.Footnote 2 In East Asian jurisdictions, at least, there are also historical dimensions, as these Western fiduciary norms were received as part of modernization in the nineteenth to twentieth century. While East Asian jurisdictions incorporated modern notions within the traditional or indigenous notion of loyalty, the forms of transplants varied depending on the patterns of modernization and the reception of Western law. The course of history reveals constant interactions of various fiduciary norms across jurisdictional borders, and the patterns were made complex by historical events that included the shifting colonial pressures and economic hegemony, wars, revolutions, and financial crises, as well as legislative imitation and academic exchange of ideas. This chapter attempts to portray this complex process on the East Asian canvass and understand its mechanism against the theoretical framework of transnational legal orders.

Fiduciary norms – particularly those found in agency law, trust law, and company law – were among the most important legal norms received by East Asian countries in the late nineteenth to early twentieth century. Though civil law jurisdictions rarely used the terms “fiduciary” and “duty of loyalty” until recently, their legislation routinely contained the notion of duty of care and the regulation of conflicted transactions. In this chapter, the term “fiduciary norm” is used loosely to include both specific doctrines, such as those concerning the duties of loyalty and care, and normative statements concerning who should be recognized as fiduciaries, whom they should serve, and how those rules should be enforced. The term “norm” broadly encompasses rules, principles, and customary notions that relevant parties perceive as binding, although not necessarily legally enforceable.

In East Asia, modernization in the late nineteenth century onward was carried out by the introduction of the Western legal system and concepts. This has meant that indigenous East Asian norms have seldom been discussed in legislation or legal scholarship. Nevertheless, traditional values in the region contain elements that overlap with modern fiduciary notions. Two strands of loyalty form part of traditional Confucian thought: loyalty to familial elders (孝: ko in Japanese and xiào in Mandarin Chinese) and loyalty to authority (忠: chu in Japanese and zhōng in Mandarin). Between loyalty to the family and loyalty to the State, there is room in this traditional framework for loyalty to the corporation. Teemu Ruskola has detected a parallel between modern norms of fiduciary duty, on the one hand, and the head of the household’s duty to the household corporation as its manager or as a trustee for his heirs in late Imperial China, on the other.Footnote 3 These status-based notions have played an important role in modern social and economic life in Japan and East Asia. Among other things, they have created tensions in debates on the reform of fiduciary governance in the region.

Within East Asia, multiple strands of received fiduciary norms have interacted with each other and with indigenous notions of loyalty. Section 8.2 of this chapter explores the transnational dimension of these processes from the late nineteenth to the late twentieth century. From there, the discussion will chart the increasing frequency, intensity, and complexity of interactions among fiduciary norms from the 1990s to the present day. Section 8.3 will discuss these dynamics against the backdrop of greater cross-border transactions and jurisdictional competition aiming to attract transnational capital, as well as the impact of regional and global crises. Lawyers and policymakers in East Asian jurisdictions embraced different fiduciary models with mixed motives and varying degrees of enthusiasm, as their attractiveness shifted along with changes in market dynamics both domestically and globally.

Market dynamics do not, however, fully explain the transnational development of fiduciary norms in East Asia. In addition, differences between common law and civil law traditions have inflected these transnational processes. On the one hand, this chapter will discuss Hong Kong and Singapore collectively as “common law East Asia,” representing East Asian jurisdictions where common law influence predominates. On the other hand, Japan, Taiwan, Korea, and mainland China will together be discussed as “civil law East Asia” to represent jurisdictions where the influence of civil law has been more pronounced. Although such categorization is inevitably an oversimplification, I do so for the sake of exposition. Section 8.2 will show that civil law East Asia has also received common law influences to a significant degree. Section 8.3 will suggest that within common law traditions, the differences between American and British approaches have had important consequences.

Against this descriptive backdrop, Section 8.4 will draw upon the theory of transnational legal ordering to examine the factors and mechanisms that have shaped the reception, transformation, synchronization, and divergence of fiduciary norms in domestic, regional, and international contexts.Footnote 4 Underlying the transnational developments are the change in the pattern of social interactions from status-based one to more particularized and functional ones, the transformation in the forms of norms from rule-based ones to standard-based ones, and the shifts in the regulatory approach from the reliance on hard law to a greater use of soft law. Each of these transformations facilitated the broader reception of fiduciary norms in East Asian jurisdictions of different social backgrounds and legal traditions. The inquiry will point to the emerging trend in East Asia where evolving corporate and trust laws influence fiduciary norms in nonprofit and family-related areas.

8.2 Modernization and Reception: The Late Nineteenth Century to the Late Twentieth Century

The modern form of fiduciary law arrived in East Asia in the late nineteenth to early twentieth century, as Western imperial powers advanced in the region and Asian countries were compelled to respond. The process of modernization through Westernization began in Japan by the introduction of the civilian codes in the 1890s. Parallel efforts started soon after in China, and although the civilian-inspired legislation was discontinued on the mainland after Communist Revolution in late 1940s, it was carried over to Taiwan. Meanwhile, Common law trusts were introduced in Japan toward 1920s, and a set of legislation reflecting both civilian and common law influence was extended to Korea and Taiwan that it eventually colonized. The civilian influence endured after Japan lost the World War II and its colonial rule was over, while American influence became pronounced in the region. In these jurisdictions, the fiduciary norms are characterized by their mixed sources and nature. By contrast, the reception of fiduciary law in Hong Kong and Singapore was more consistent. Under British rule, these jurisdictions adopted English equity jurisprudence and UK-style legislation. This English legacy, bringing about certainty and predictability for overseas investors, has been used to advance the status of these two jurisdictions as international financial centers in more recent years. These historical courses of reception laid the foundation for the translational evolution of fiduciary norms that accelerated in the 1990s and onward.

8.2.1 The Japanese Reception of Western Legal Norms

The modern layers of Japanese fiduciary norms were laid down by the French-inspired Civil Code (1896) and the German-modeled Commercial Code (1899).Footnote 5 Although the term “fiduciary” did not immediately become a part of the Japanese legal lexicon, these codes contained a series of rules equivalent to present-day fiduciary principles. At the core of Japanese law on fiduciaries is section 644 of the Civil Code, which prescribes an agent’s obligation to manage the principal’s affairs “with the care of a faithful manager.”Footnote 6 This provision applies, mutatis mutandis, to partners,Footnote 7 guardians,Footnote 8 and executors under the Civil CodeFootnote 9 and extends to corporate directors under the Commercial Code.Footnote 10

The Civil Code prohibits an agent from engaging in self-dealing and the representation of both parties in the same transaction.Footnote 11 Similarly, context-specific regulations of conflict-of-interest transactions apply to guardiansFootnote 12 and directors of charitiesFootnote 13 under the Civil Code, and commercial agentsFootnote 14 and corporate directorsFootnote 15 under the Commercial Code.

The Commercial Code also prescribed corporate governance structure for for-profit corporations that parallel the German-style two-tier board (duale Führungsstruktur). Just as the German supervisory board (Aufsichtsrat) provided for the monitoring of the managing board (Vorstand), Japanese statutory auditors (kansayaku) were expected to monitor the business decisions and accounting practices of directors (torishimariyaku). Herman Roesler, the German architect behind the Japanese Code, referred to not just the German example but also to French and British legislation, ensuring that the Code matched the needs of the time in Japan.Footnote 16 Notably, the Japanese statutory auditors’ position was weaker than that of their German counterparts in that, although they had the power to require directors to produce accounting documents for review and conduct inquiries on their business execution, they lacked the power to appoint or remove directors.Footnote 17

On top of the civil law basis for Japanese private law, common law trust was introduced by the Trust Act of 1922.Footnote 18 Under the Act, the trustee must carry out the work of the trusteeship “with the care of a faithful manager,”Footnote 19 a language that parallels the Civil Code’s agency provision. Extending the agency-based regulation, the 1922 Act prohibited the trustee from engaging in self-dealing under any name involving any proprietary or personal rights.Footnote 20 While ensuring consistency with the Civil Code, the drafters of the Trust Act incorporated certain remedies against the breach of trust that track the common law approach and that are more extensive than those available for agency arrangements.Footnote 21

Thus, by the 1930s, fiduciary principles were prescribed under separate codes drawn from different legal traditions. There was no general “duty of loyalty” provision, and the provisions mostly exhibited a rule-based format by listing conflicted transactions, which were prohibited unless there was specific authorization or an independent representative was appointed, depending on the context. The rule-based regulation was not unique to Japan at the time. English fiduciary law had long been largely rule-based, using no-profit, no-conflict formulas.Footnote 22 The general formulation of the duty of loyalty in the United States was broadly accepted only in the 1930s, after the publication of Austin W. Scott’s Treatise on Trusts and the Restatement on Trusts, for which he served as a reporter.Footnote 23 In Anglo-Commonwealth jurisdictions, more systematic consideration of fiduciary law came later in the twentieth century.Footnote 24

8.2.2 Modernization in Civil Law East Asia

In China, after a number of military and diplomatic setbacks against the Western colonial powers, the late Qing Empire embarked on the internal reform to modernize its government system.Footnote 25 Part of the reform that began at the turn of the nineteenth century was the introduction of Western-style legal system and the codification in various areas of law. One of its first products was the Company Law of 1904. Codification efforts continued under the Republican government that took over in 1912, which included replacing the 1904 Law with new Company Regulations in 1914. Another Company Act was introduced in 1929 along with the Civil Code from 1929 to 1930. Japanese legal advisors and Chinese students who had returned from their studies in Japan assisted the drafting process.Footnote 26 Through their involvement, Chinese legislation was influenced by civil law, especially German and Swiss civil law.Footnote 27 Nonetheless, the impact of Western transplants remained marginal. The traditional kinship-based entities – that is, professionally managed commercial enterprises organized in the form of the family – retained their vitality and received recognition by the court during the Republican period.Footnote 28 With the ouster of the Republican government by the communists and the establishment of the People’s Republic of China (PRC) in 1949, the 1929 Act ceased to affect mainland China, although it was carried over to Taiwan where the Kuomintang, which had formed the Republican government, retreated.Footnote 29

Japan was responsible for direct colonial rule in Taiwan and Korea. After the First Sino-Japanese War (1894–95), Taiwan was ceded to Japan by the Qing Empire. After it defeated Russia in the Russo-Japanese War (1904–05), Japan extended its sphere of influence over Korea, ultimately annexing it in 1910.Footnote 30 To modernize the legal system within its territories, the Japanese government mobilized some of its leading scholars to investigate local customs.Footnote 31 Eventually, however, the idea of codifying local customs was abandoned. The Japanese government, instead, imposed its laws and industry regulations in Taiwan and Korea.Footnote 32

It is no apology for colonialism to point out that it laid the foundation for the transnational evolution of fiduciary law in South Korea and Taiwan. The Civil and Commercial Codes under civil law continued to form the basis of the national private laws of both jurisdictions after World War II. Although Japanese rule ceased, its postwar economic development provided a model for many developing economies in the region. In addition, common law influences arrived through trust legislation, securities regulation,Footnote 33 and the corporate governance doctrine.Footnote 34

In South Korea, the Japanese codes remained in effect until the introduction of new codes in the 1950s and 1960s, in part because of the Korean War. A new Civil Code was enacted in 1958 following the German model,Footnote 35 and the Trust Act was introduced in 1961 with the Japanese legislation serving as the main source of reference.Footnote 36 The Commercial Code of 1962 introduced the German-Japanese style of a two-tier structure of corporate governance comprising the board of directors and statutory auditors. In 1969, securities investment trust legislation was introduced.Footnote 37 Since the mid-1960s, South Korea was undergoing a rapid economic development, which was largely orchestrated by the industrial conglomerates known as chaebol working closely with the military government. Chaebol’s concentrated ownership structure with complex cross-holdings created unique challenges for corporate governance even after the political democratization in 1987.Footnote 38

Postwar Taiwan came under the rule of Kuomintang and remained so when they retreated from mainland China in 1949 following their defeat by the communists. The legislation imposed during Japanese colonial rule was replaced by the laws of the Republic of China that had been introduced in 1929 and 1930. Despite the formal change in the Taiwanese legal regime, Tay-sheng Wang observed that the old Japanese codes were preserved in substance because most of the newly introduced codes had been modeled on Japanese legislation as drafted in the late 1920s.Footnote 39 Although Taiwan’s public life remained under martial law until 1987, as its economy took off in the 1960s, corporate and commercial activities flourished.Footnote 40 Within these fields, American influence became prominent, with the Company Act amended in 1946 and the Securities and Exchange Act enacted in 1968.Footnote 41

8.2.3 American Law’s Influence on Japanese Fiduciary Law

In Japan, the influence of American law became pronounced after World War II in light of the dominant role played by the United States in the military occupation by the Allied Powers. A number of New Deal–inspired legislations were introduced, including antitrust law, securities law, and labor standards law, as well as a new Constitution. American concepts of fiduciary law were introduced at this time, but the transplantation efforts met at least two obstacles.

First, Japanese lawyers struggled to incorporate the American notion of duty of loyalty into the preexisting statutory framework.Footnote 42 The concept was ultimately considered redundant, while its remedial implications were not fully appreciated. In 1950, the Commercial Code was amended to introduce section 254-2, which provided the following:

A director owes a duty to obey the provisions of the laws, the articles of incorporation, and the decisions of the general meeting of shareholders, and a duty to carry out their work loyally in the interests of the corporation.Footnote 43

A similar statutory duty of loyalty was imposed on the managers of securities investment trustsFootnote 44 and investment advisors.Footnote 45

During the 1960s, Japanese courts expanded the restriction on the directors’ disloyal conduct by interpreting the preexisting rules in both Civil and Commercial Codes against conflict-of-interest transactions broadly.Footnote 46 This left no room for the 1950 statutory duty of loyalty to do any independent work. The Supreme Court held as such in 1970:

Section 254-2 of the Commercial Code merely clarifies and details the duty of a faithful manager established in Section 254(3) of the same Code and Section 644 of the Civil Code. It does not impose a separate, higher duty than the general duty of faithful management required of all agents.Footnote 47

The second, and perhaps more significant, obstacle related to the task of reconciling the American concept of corporate governance with the Japanese style of corporate management. By the 1970s, Japan’s rise to the status of the world’s second-largest economy attracted international attention toward some of the unique features of its corporate management and labor relationships. These features comprised lifetime employment and a steep seniority wage progression that secured employees’ loyalty to such an extent that the companies would operate as the communities of employees.Footnote 48 The boards of directors almost exclusively included senior managers who had devoted their entire careers to their companies.Footnote 49 Shareholders seemed content to have their interests subordinated to other stakeholders’ interests, justifying their investments in terms of wider business interests rather than just investment returns.Footnote 50

American business leaders took the position that the Japanese corporate sector was closed to outsiders and lacked transparency. From their point of view, Japan’s corporate governance was inadequate. Curtis Milhaupt summarized Japan’s corporate governance as follows:

The market for corporate control was not active during Japan’s post-war high-growth period. In the post-war corporate governance regime, publicly traded firms were typically affiliated with a corporate group (keiretsu) with a major bank at the center. Group-affiliated firms cross-held shares of their affiliates, forming stable, friendly investor relationships involving significant percentages of the public float. Investor activism was rare and hostile takeover activity was condemned as antithetical to Japanese business norms, which conceptualizes the firm as a community of employees rather than an assemblage of financial assets to be bought and sold.Footnote 51

While both Japanese and American business leaders would have agreed to the substance of this summary, the assessment as to whether the Japanese system needs fixing was beginning to diverge by the late 1980s.

In 1989, a government-level negotiation, known as the US–Japan Structural Impediments Initiative, commenced. To alleviate a mounting trade imbalance between the two countries, the US government demanded that Japan remove a wide range of trading impediments, including corporate governance norms. Following the negotiations, some reforms were introduced to expand shareholder rights. The 1993 revision of the Commercial Code and related statutes expanded the shareholder right to review corporate books,Footnote 52 made shareholder derivative suits more accessible,Footnote 53 and sought to enhance the independence of statutory auditors.Footnote 54 The introduction of independent directors was discussed during the negotiations but did not become a part of the reform package, in anticipation of resistance from the industry. This became a hotly debated issue from the late 1990s onward.

8.2.4 Developments in Common Law East Asia

While the modernization of corporate governance in Japan focused upon the civil law, in Southeast Asia, Hong Kong and Singapore incorporated norms from English common law and tracked major statutory developments in the UK and Commonwealth nations.

Singapore, a trading post for the British Empire since 1819, was ceded to the East India Company after the 1824 Anglo–Dutch Agreement. English common law and equity became applicable under the 1826 Second Charter of Justice, although Singapore came under the direct control of Britain as part of the Straits Settlements in 1876. The Companies Ordinance was introduced in 1889 after the model of the UK Companies Act 1862.

Meanwhile, Hong Kong, initially occupied by the British in 1841, formally became a British colony in 1842 after Qing China’s defeat in the First Opium War. Principles of English common law and equity were gradually transplanted after the Charter of the Colony of Hong Kong in 1843, and the first Companies Ordinance was enacted in 1865, also based on the UK Companies Act 1862.Footnote 55

Both Singapore and Hong Kong updated their company laws by generally tracking the legislative developments in the United Kingdom throughout the remainder of the nineteenth century and much of the twentieth century. In the field of trust law, apart from the general reception of equity, the statutory foundations in both jurisdictions were based on the UK Trustees Act of 1925. Subsequently, both jurisdictions updated their trust statutes largely in line with developments in the United Kingdom.Footnote 56

In Hong Kong, a small number of wealthy merchant families were directly involved in managing Hong Kong’s economic affairs for over a century and a half. Their influence in the legislative policymaking made Hong Kong’s social and legal structure sensitive to the interests of the users of Hong Kong as a port for trade or a market for trading financial instruments and services.Footnote 57 The Companies Ordinance 1932 was modeled after the UK 1929 Act and served as the basic framework of Hong Kong Company Law until it was replaced by the Companies Ordinance 2014, an extensive reform with a view to enhancing Hong Kong’s status as a major international business and financial center.Footnote 58

The growth of wealth in mainland China following its opening up in 1979 supported economic growth in Hong Kong. Since the 1990s, an increasingly large number of Chinese companies have been listed on stock exchanges in Hong Kong. In the 1990s, Hong Kong’s securities market regulator, the Securities and Futures Commission, engaged with the PRC Commission for Restructuring of the Economic System to negotiate a Memorandum of Regulatory Cooperation.Footnote 59 Today, Hong Kong’s Rules Governing the Listing of Securities contain a special chapter 19A, which specifically applies to issuers incorporated in mainland China to ensure protection for security holders. The UK-style company and trust laws have continued to apply in the Special Administrative Region following the 1997 handover under the constitutional principle of “one country, two systems.”Footnote 60

Singapore attained self-government in 1959, joined the Federation of Malaysia in 1963, and achieved independence in 1965.Footnote 61 In 1967, the Companies Act was introduced to follow the Australian Uniform Companies Acts of 1961–1962. In pursuit of the government’s objective of becoming Asia’s financial center, Singapore frequently amended its company legislation. In 1976, the Code on Takeovers and Mergers was introduced. While the Code followed the London City Code’s self-regulatory tradition, it was given statutory backing along with an administrative implementation mechanism, the Securities Industry Council, which had the power to enforce the Code and resolve disputes in a nonjudicial setting.Footnote 62

One unique feature that differentiates Singapore from Hong Kong is the role of government-linked corporations in the development of the Singapore economy. The Temasek Holdings, incorporated in 1974 with the Government’s Minister for Finance as the sole shareholder, has played a vital and unique role in promoting transparent governance in its portfolio companies.Footnote 63 This illustrates the ingenuous way in which Singapore explores comparative advantage on the basis of the common English legal tradition.

Both Hong Kong and Singapore faced a unique corporate governance challenge associated with the concentrated shareholding by either families or the State in both local and incoming Chinese companies. Strong family or State control, which can be observed across East Asia,Footnote 64 creates a tension with the Anglo-American corporate governance model premised on dispersed shareholder ownership. This tension is one of the principal themes of the transnational processes of legal ordering to which this chapter now turns.Footnote 65

8.3 Greater Transnationalization: Reforms Since the 1990s
8.3.1 American Corporate Governance in Civil Law East Asia

By the 1990s, global debates on corporate governance seemed to be dominated by the American model, which emphasized shareholder primacy, the prominent role of independent directors in fiduciary governance, and judicial enforcement of fiduciary rules through derivative suits or securities litigation.Footnote 66 Optimism reigned that corporate laws and regulations around the world would converge on this model, which many (at least in the West) deemed the most efficient and effective.Footnote 67

South Korea felt the impact of American-style corporate governance when it was hit by the East Asian financial crisis after the 1997 currency crisis in Thailand. After the bailout package mandated by the International Monetary Fund (IMF), South Korea introduced some reforms that mirrored American-style corporate governance. In 1998, the Commercial Code was revised to introduce the notion of the duty of loyalty,Footnote 68 expand the scope of derivative suits,Footnote 69 and enhance the minority shareholders’ exercise of their rights.Footnote 70 The revision in the following year introduced the American-style committee system where independent directors played a key role, and the audit committee replaced the traditional statutory auditor.Footnote 71 After a series of changes in the Securities and Exchange Act, Bank Act, and Insurance Business Act, large companies and financial institutions in South Korea are now required to have at least three independent directors constituting the majority of the board, although the original statutory auditor remains an option for smaller companies.Footnote 72

Although the changes in Taiwan were less drastic, the American influence became increasingly apparent, as its government pursued economic globalization strategy. In 2001, the Taiwanese Company Act was amended to specifically provide for the duty of loyalty.Footnote 73 In 2006, the Stock Exchange Act was amended to introduce independent directors and the audit committee.Footnote 74 The appointment of independent directors was required only for financial institutions and large listed companies; most publicly held corporations were given the additional option of retaining the two-tier system or appointing both corporate auditors and independent directors. The Financial Supervisory Commission expanded the scope of companies that were required to appoint independent directors.Footnote 75

As in Japan, inscribing fiduciary norms into the civil law statutory foundation proved to be a major comparative law conundrum in South Korea and Taiwan. In both jurisdictions, the implications of introducing the duty of loyalty provision remain unclear.Footnote 76 Commentators questioned whether the mandatory independent director regime was functioning as intended by its proponents.Footnote 77 Corporate governance debates were often affected by idiosyncratic factors. Among the salient factors in Taiwan was the ambivalent and often politicized relationship between the businesses that pursue growth across from the booming mainland China, and the government that still maintain regulatory and ownership control over major financial and business sectors in the postmarital era.Footnote 78 In South Korea, the dominance of large groups of related corporations known as chebol, which operate under concentrated family or individual control, posed a unique challenge for corporate governance.Footnote 79

8.3.2 The Rise of the Corporate Governance Code in Common Law East Asia

Although American and English laws share common law origins, there are differences in their approaches to corporate governance. Company legislation in the UK and Commonwealth nations relies more on ex ante measures such as disclosure and board or shareholder approvals, and less on derivative suits to regulate related party transactions.Footnote 80 The British regulatory approach relies more on self-regulation such as the Stock Exchange rules and the City Code on Takeovers and Mergers than the binding legislative provisions in the United States.Footnote 81 Finally, the Company Law debate in the 1990s in the United Kingdom began to consider broader interest groups as part of the corporate stakeholders, to which corporate directors owe a fiduciary duty.Footnote 82

When the Cadbury Report developed a set of principles of good corporate governance to be incorporated into the London Stock Exchange’s Listing Rules in 1992,Footnote 83 Hong Kong quickly introduced the Code of Best Practice as part of the Stock Exchange’s Listing Rules the following year. When the Combined Code of Corporate Governance was made applicable to all UK listed companies in 1998, the Hong Kong stock exchange updated the listing rules the same year.Footnote 84 Singapore followed suit, adopting the Corporate Governance Code as part of the Singapore Exchange Listing Rule in 2001.Footnote 85

These corporate governance codes have been updated regularly in Hong Kong and Singapore, earning them consistently high scores and rankings in international indexes of corporate governance.Footnote 86 As the two jurisdictions vied with each other to attract foreign investments, they sought to signal attractiveness to capital by updating their corporate governance codes. In the run-up to the introduction of the Corporate Governance Code, Singapore’s Corporate Governance Committee made it clear that its goal was to attract international capital in listed companies to Singapore by making it a financial hub of international standing.Footnote 87 Some recent scholarship has criticized this strategic signaling to the extent that it is prone to overlook unique challenges brought about by the local conditions. As David C. Donald observed in the context of Hong Kong’s securities market regulation,

The legal framework goes to great lengths to match the “best practice” requirements originating in New York or London …, even though such requirements might be unnecessary in Hong Kong …, whilst overlooking the real source of governance risk: controlling shareholders and the power they wield directly and indirectly.Footnote 88

The prevalence of block-holding by family-dominated corporations or Chinese State-owned enterprises means that the agency problem arose not so much from the separation of ownership and management as from the failure of the large shareholder to act faithfully for the minority shareholders. In other words, the real challenge presented to the court and policymakers often requires different kinds of solutions than are offered by the American or the British models of corporate governance that presuppose dispersed shareholdings.Footnote 89

Similar patterns of cross-border competition and local calibration of legal doctrines can be observed in the field of trust law. Unconstrained by either the comparative law conundrum in civil law jurisdictions or English conservativism, both Hong Kong and Singapore have displayed remarkable agility in law reform, driven by the entrepreneurial spirit typical of common law lawyers and client demands from China and across the globe. Both jurisdictions have generally followed Anglo-Commonwealth developments to trust doctrine and, at the same time, competed with each other in offering global services using offshore trusts.Footnote 90 If the proximity to mainland China gave Hong Kong an advantage in developing its capital market, the relative distance from China meant a greater sense of security for the high net-worth individuals, which Singapore could exploit to promote itself as a prime wealth management center.

8.3.3 Japanese Reception

In 1991, the Japanese bubble economy collapsed, leading to a long-lasting recession. Japanese corporate law in the 1990s and 2000s was characterized by extensive reform debates and frequent legislative revisions. Statutes were amended almost annually, including the introduction of a freestanding Companies Act in 2005 to replace the corporate law section of the Commercial Code.Footnote 91

The American approach dominated in the 1990s and early 2000s. After the 1993 revision of the Commercial Code reduced filing fees,Footnote 92 derivative suits increased in number, revealing a series of mismanagement and accounting irregularities in major Japanese companies.Footnote 93 Derivative suits also contributed to the development of case law on the range of duties owed by the directors of banking institutions and other for-profit companies. In the 2000s, the Japanese courts adopted the American business judgment rule with certain modifications.Footnote 94

Requiring independent directors on boards was a controversial proposition in Japan, where companies were still seen as communities of employees.Footnote 95 During the preparation for the 2002 corporate law reform, a proposal was made to require each company to appoint at least one independent director. Eventually, the proposal was defeated, and instead, the company was given an option to replace the statutory auditor with committees for audit, nomination, and compensation.Footnote 96 Each committee had to have at least three members, and the majority had to be independent directors. This optional approach reflected the policymakers’ ambivalence toward American-style corporate governance.Footnote 97 Its impact was limited, with only 1.7 percent of listed companies choosing this option by 2014.Footnote 98 The link between independent directors and good corporate performance remained elusive.Footnote 99

The corporate law reforms of the mid-2000s began to see greater use of a soft law approach. As mergers and acquisitions increased in number and attracted attention,Footnote 100 a series of nonbinding guidelines were published by the Ministry of Economy, Trade, and Industry to supply guiding principles and ensure fairness.Footnote 101 As Curtis Milhaupt observed, the policymaking report underlying these guidelines:

adroitly straddled the conceptual divide between the shareholder orientation of US corporate law and the more stakeholder- (particularly employee-) oriented approach of post-war Japanese corporate governance practices.Footnote 102

The policymakers’ ambivalence toward American-style corporate governance extended to both substance and approach and continued for much of the 2000s.

8.3.4 Developments after the Financial Crisis in 2007

The global financial crisis in 2007 brought about a shift in the debate over the proper forms of corporate and market governance. The debate that had been dominated by the American model of statutory law and derivative litigation began to shift to the British approach of greater self-regulation.Footnote 103 After the Kay Review expressed critical views regarding short-termism in equity markets,Footnote 104 the UK Financial Reporting Council published the UK Stewardship Code in 2010 to encourage institutional investors to engage in corporate governance in the interest of their beneficiaries.Footnote 105 The Code’s soft law approach, where the regulated company may either comply with the requirement or if they do not comply, explain publicly why not, became quickly popular around the world.

Japan was the first to follow the United Kingdom’s lead by introducing its version of the Stewardship Code in 2014. The Code encouraged institutional investors to engage constructively with the companies in which they invested.Footnote 106 The motive behind the Japanese shift, however, may not have been the same as the one that drove the UK Stewardship Code.Footnote 107 Institutional investors’ engagement with the investee companies was not just for the prevention of myopic excessive risk-taking but was also key to achieving a long-term increase in corporate value in Japan.Footnote 108 This was apparent in an influential report published by Professor Kunio Ito, his fellow academic experts, and representatives from institutional investors and the corporate sector.Footnote 109 While echoing the Kay Review’s emphasis on the dialogue between companies and institutional investors, the Ito Review stressed that Japanese companies should aim for a return on equity of 8 percent to receive recognition from global investors.Footnote 110

The term “fiduciary duty” began to seep into Japanese financial regulation. In 2014, the Financial Services Authority (FSA) began to use the term in its guidance document that set out the FSA’s approach to inspection and oversight over financial institutions.Footnote 111 The “Japan Revitalization Strategy” published by the Cabinet in 2016, emphasized that action must be taken “to ensure that all entities engaged in the formation of assets by customers … fulfill their fiduciary duties (customer-oriented management of operations).”Footnote 112 The FSA followed up by publishing “Customer-first Business Practices,” which set out seven principles to encourage financial service providers to develop best practices to serve their customers’ best interests.Footnote 113 These principles were expressly nonbinding and created an expectation that any financial institution deviating from any of the principles should provide a full explanation.

Stewardship codes have been introduced in at least ten jurisdictions and the European Union. Investor-led best practice guidance has been introduced in at least nine jurisdictions, including the United States.Footnote 114 Corporate governance codes have been adopted in a greater number of jurisdictions. The United Kingdom’s initiative in 1992 was quickly followed by similar initiatives in other Commonwealth jurisdictions. The OECD developed the Principle of Corporate Governance in 1999 and encouraged its adoption through mutual assessment and policy discussions. According to the 2019 OECD report, nearly all forty-seven jurisdictions surveyed had a national Code or Principle of Corporate Governance, with the notable exceptions of China, India, and the United States.Footnote 115

Japan was late in introducing the Corporate Governance Code. In 2015, the FSA and the Tokyo Stock Exchange published the Japanese Corporate Governance Code.Footnote 116 Japanese corporate lawyers soon found the UK notion of enlightened shareholder value and the “comply or explain” approach conducive to their culture. The Code had a tangible impact. The 2015 Code stated that listed companies should appoint at least two independent directors.Footnote 117 As of 2014, only 21.5 percent of the companies listed in section 1 of the Tokyo Stock Exchange satisfied this provision, but by 2019, the number reached 93.4 percent.Footnote 118 It was only in December 2019 that the Companies Act was amended to require listed corporations to appoint one independent director.

On August 19, 2019, the Business Roundtable, a group of American CEOs, issued a statement announcing that it had decided to retract its long-standing commitment to the principle of shareholder primacy. Nikkei Shinbun, the Japanese equivalent of the Financial Times, reported this on its front page with a tone of incredulity: “US Businesses Reconsider ‘Shareholder Primacy’: Declares to Give Due Regard to Employees.”Footnote 119

8.3.5 Chinese Participation in the Transnational Development of Fiduciary Norms

In 1993, China enacted its first Company Act since the Communist Party came into power in 1949. Consistent with China’s civil law tradition, the Act required a supervisory board comprising representatives of the shareholders and employees to supervise directors and managers.Footnote 120 The drafters avoided the Anglo-American formulation of corporate fiduciary duties.Footnote 121 The directors were obliged to “faithfully perform their duties” so as not “to use their position and power of office in the company to seek personal gains” and not “to exploit their power of office to accept bribes or other illicit gains” or “to seize the company’s property.”Footnote 122

The common law fiduciary formulation was arriving just as the 1993 Act was being prepared.Footnote 123 Earlier in 1993, nine State-owned enterprises were preparing for listings on the Hong Kong stock exchange. To appease the overseas investors’ skepticism toward their governance structure, the PRC Commission for Restructuring of the Economic System (CRES) issued a letter to the Hong Kong Securities and Futures Commission clarifying that the obligation of honesty (誠心責任) held to be owed by the PRC joint-stock company in an earlier official statement had “the same type of meaning as a fiduciary duty under Hong Kong law.”Footnote 124 When the 1993 Act was promulgated, CRES issued a regulatory addendum reiterating that directors and senior management of PRC-domiciled issuers with overseas listings owe the same obligation of honesty, and thus seeking to assure investors that Hong Kong’s fiduciary duty jurisprudence is applicable.

In 2002, the China Securities Regulatory Commission and State Economy and Trade Commission jointly promulgated the Code of Corporate Governance for Listed Companies. The Code contained provisions incorporating Delaware-style corporate fiduciary duties of care, loyalty, and good faith. The listed companies were required to implement corporate governance through committees, and the majority of the directors to fill each committee were required to be independent.Footnote 125 Since the 1993 Act was also applicable to listed companies, the combined effect was, in Jiangyu Wang’s words, that “Anglo-American jurisdictions install independent directors on the board, Germanic-Japanese jurisdictions provide a supervisory board or kansayaku, but listed companies in China must have both.”Footnote 126

Thus, when the Company Act was overhauled in 2005, the common law-style fiduciary law was a part of the listed companies’ obligations. A newly introduced section 148 provided for corporate directors’ and officers’ “duty of loyalty and duty of care to the company.”Footnote 127 It was followed by the new section 149, prohibiting the misappropriation of company funds, direct and indirect self-dealing, corporate opportunities and competing businesses, and a list of conflicted transactions that is more detailed than any other corporate legislation under civil law.Footnote 128

The Company Act also contains provisions distinct to China. In addition to abiding by laws and administrative regulations, Chinese companies are exhorted to “observe social morality,” “accept supervision by the government and the public, and bear social responsibilities.”Footnote 129 They must protect the lawful rights and interests of their employeesFootnote 130 and provide the necessary conditions for the activities of the labor union and Communist Party organizations.Footnote 131 These provisions are conspicuous not just for taking a broad conception of corporate constituencies but also for expressing, in Ruskola’s words, “the extraordinary moral optimism of the Confucian tradition” that everyone’s interests are ultimately expected to harmonize.Footnote 132 Insistence on the role of the Party organization in for-profit entities has increased in recent years and has an impact on both domestic and foreign businesses.Footnote 133 The Code of Corporate Governance was revised in 2018 to require establishing Party organization within listed corporations and incorporating Party building work into the articles of association of State-owned enterprises.Footnote 134

A similar mixing of civil and common law fiduciary norms with local conditions against an international background can be seen in the field of trust law. Whereas the Chinese Trust Act of 2006 follows the civil law style of trust legislation in Japan, South Korea, and Taiwan, it is the trust services offered from Hong Kong and Singapore that cater to the demands of wealthy Chinese capitalists.Footnote 135 Reflecting their preference for retention of control over trust assets, the Chinese Trust Act gives settlors a strong influence over trust management.Footnote 136 Offshore jurisdictions have also reacted to their demands by introducing special trust legislation that allows settlors to reserve various powers over the management of trusts by the trustee.Footnote 137 The statute in both Hong Kong and Singapore expressly provides that a trust cannot be declared invalid when the settlor reserves to himself the power of investment and asset management decisions.Footnote 138 This development has questioned the basic notion of common law trusts as a fiduciary relationship between the trustee and the beneficiaries, from which the settlor drops out once the trust has been created.Footnote 139

8.4 National, Regional, and Transnational Fiduciary Orders

The historical account thus far shows that various strands of fiduciary norms interacted to create a dynamic evolution of legal orders across East Asia. They were derived from civil law, American and English common law, and indigenous sources sometimes dating back centuries. The theory of transnational legal ordering provides a framework for evaluating these complex patterns of fiduciary norms’ rise and transformation across jurisdictional borders, their normative settlements and institutional underpinnings, and the interactions among various components or subsets of fiduciary norms.Footnote 140

8.4.1 Mechanisms of Transnational Fiduciary Ordering

The major driver of the development of a fiduciary order in late nineteenth-century East Asia was modernization through transplantation of the Western legal system and ideas. The efforts made by Japanese lawyers and policymakers to introduce civil law codes and mix them with common law inspiration foreshadowed the dynamic development of the fiduciary order in Taiwan and South Korea. Hong Kong and Singapore adopted the common law tradition as a result of British rule.

The history of colonization in the region was inseparable from modernization. All of the jurisdictions discussed were, apart from Japan, colonized to some extent by Japan and Britain. The United States did not colonize any of the jurisdictions discussed here; however, its economic dominance in later years created a pressure that the policymakers in the receiving jurisdictions found impossible to resist. Nonetheless, the receiving jurisdictions did not just remain passive. After colonial rule ended, East Asian jurisdictions employed different comparative law strategies to achieve economic competitiveness and attract cross-border investment. In the past several decades, the greater presence of Asian wealth within the world economy has begun to affect the evolution of fiduciary norms in the region and beyond.

Legislative imitation and the academic exchange of ideas also contributed to these transformations in fiduciary norms. The early experience in civil law jurisdictions in East Asia suggests that codes travel better than case law, with the code-based duty of care and specific prohibition of conflicted transaction more readily accepted than common law formulation, including duty of loyalty. However, in common law jurisdictions in East Asia under British colonial rule, equity jurisprudence based on English case law was influential along with the legislation modeled after the UK and Commonwealth legislation. Although the divide between civil and common law systems was tangible in earlier years, the interactions between them became more frequent and dynamic in and after the 1990s. Within common law jurisdictions, American and Anglo-Commonwealth approaches had important differences, and vacillation in intellectual leadership between them shaped the trends of fiduciary norms and governance structures across East Asian jurisdictions.

The increasing movement of people, services, and capital across national borders also is a factor driving the transnational development of fiduciary norms in East Asia. This became prominent particularly in the 1990s and onward, with Hong Kong and Singapore spearheading the trend with their quest to be international financial centers. South Korea and Taiwan also carried out corporate governance reforms out of a desire to attract foreign investments.Footnote 141 Even in Japan, sensitivities to corporate governance arose with the rise in foreign investors in Japanese capital markets and the concomitant decline in cross-holding among domestic companies.Footnote 142

Finally, regional and global crises have had unpredictable but profound consequences, operating as precipitating conditions of transformative change and bringing about the transnational uptake of fiduciary norms in East Asia. The Asian financial crisis led major Asian jurisdictions to introduce American-style fiduciary norms. The global financial crisis in 2008 provided momentum for the UK-style corporate governance norm to garner wider acceptance in East Asia and across the globe.

8.4.2 Normative Settlement and Institutional Factors

Transnationalization does not automatically lead to uniformity or the universal enforcement of the law.Footnote 143 A conspicuous feature of fiduciary law is that its core notion of loyalty has almost universal appeal as both a moral and a legal principle. This is so even though fiduciary law is often considered common law in origin. Although civil law jurisdictions did not use the terms “fiduciary” or “duty of loyalty” in earlier times, their equivalents could be found in the form of regulation of conflicted transactions by certain categories of entrusted persons. Yet, the different formulations or perceptions of fiduciary norms have created tensions both within the domestic and in cross-border contexts. The indigenous notion of loyalty supposedly overridden by modern fiduciary law would sometimes surface unexpectedly, leading to debates and complications in reform processes.

The ubiquity of a basic concept of fiduciary loyalty may explain the relatively weak presence of institutional bodies that operate transnationally to enhance harmonization and uniformity. This was particularly true until the 1980s. Even when the IMF and the OECD began to operate in the field of corporate governance in the 1990s, their role was more limited than that of, for instance, the Basel Committee in banking regulationsFootnote 144 or the International Organization of Standardization in industry regulations.Footnote 145

Given this background, at least three factors characterized the evolution of fiduciary law in the region. The first is a change in the pattern of social interactions. Tamar Frankel explained the rise of fiduciary law in terms of the shift in social relations from status-based ones to more particularized and functional relations of reliance, although she carefully noted the danger of overgeneralization.Footnote 146 Both in Japan and East Asia, the status-based notion of loyalty held sway for a long time, but gradually lost its grip as the influence of the household abated and corporate dominance declined toward the end of the twentieth century.Footnote 147 The greater mobility of the population, both within and across national borders, accelerated the trend in recent years.

Second, fiduciary norms have shifted from rule-based to standard-based forms.Footnote 148 This is significant because the shift can facilitate the application and cross-fertilization of such rules across broader subject matters and across different jurisdictions with different social and legal backgrounds. For civil law East Asia, there has been an observable shift from the predominance of individualized rules that regulate various conflicting transactions to a gradual acceptance of the American duty of loyalty across many areas of law. A similar shift from particularized rules to broader principles happened in common law jurisdictions, in which more theorizing of fiduciary law took place toward the end of the twentieth century.Footnote 149 These developments may have been affected by the greater acceptance of the unified conception of “fiduciary-like duties” in recent years in European civil law jurisdictions.Footnote 150

Third, a shift in the regulatory approach from the reliance on hard law to a greater use of soft law facilitated a broader reception of fiduciary norms. In the Japanese context, for instance, the ambivalence of the American-style fiduciary governance that emphasized shareholder primacy and court enforcement led to the adoption of an optional approach to corporate governance. The UK Corporate Governance Code and Stewardship Principles proved more attractive because they allowed for a divergence from the standard model. The soft law regulation allowed relevant actors to deviate from the norm, but when pressed to explain the deviation, they often chose to adopt the standard model. This allowed legislators, regulators, exchanges, and sometimes the court to wait for the general acceptance of the norm and then give them binding effect, hardening the intended norms.

Despite these general trends in gradual acceptance, the motivations of domestic policymakers in East Asia often varied from what the overseas proponents of fiduciary regulations intended. At the same time, these regional divergences and gaps could serve as an opportunity to reconsider the prevailing fiduciary norms.Footnote 151 For most of the period reviewed earlier, Asian jurisdictions were on the receiving end of the conveyance of fiduciary norms. Despite the rise in its economic power, Japan played, at best, a modest role in promoting legal unification or transnational ordering.Footnote 152 Nevertheless, the rise of Asian wealth created an opportunity to reconsider some of the broadly accepted notions of fiduciary models outside Asia. Whether this will lead to positive changes in the cross-border dialogue or offer an alternative that has universal appeal remains to be seen.

8.4.3 Fiduciary Norms in Distinct Areas of Law

The discussion so far was mostly concerned with corporate and trust laws. The global and transnational transformation is beginning to influence areas that have been less susceptible to such changes, namely family, guardianship, succession, and nonprofits.Footnote 153

In Japan, over the past few decades, fiduciary rules and “duty of loyalty” provisions were newly introduced in statutes governing pensions,Footnote 154 trusts,Footnote 155 and nonprofits,Footnote 156 as well as professional responsibilities applicable to lawyers.Footnote 157 It should be noted that Japanese society is rapidly aging. When the Japanese age-old guardianship system was reformed in 1999,Footnote 158 the use of guardianship increased, but abuse also skyrocketed. Beginning in 2010, a broader cohort of the Japanese population is looking to trusts as an alternative to guardianship and wills.Footnote 159 Similar social changes in East Asia may portend the broader application of fiduciary norms. The populations in the region are also aging, with Japan closely followed by Hong Kong, Singapore, South Korea, and Taiwan. The Chinese population aged sixty-five years and above will grow from 136.9 million in 2015 to an estimated 348.8 million by 2030.Footnote 160

Another notable change is the realignment of the relationship between the government and civil society. In Japan, criticism of bureaucratic overbearing on charitable institutions led to the overhaul of nonprofit legislation in 2006.Footnote 161 Broadly in East and South East Asia, there has been a tide of nongovernmental organizations (NGOs) mushrooming in policy areas such as environmental protection, human rights, and women’s rights since the 1990s and onward, although the relationship between the State and civil society has remained complex.Footnote 162 Civic activities have flourished in post-military regimes in South Korea and Taiwan, and China also introduced new charity legislation in 2016.Footnote 163 The vitality of Hong Kong’s civil society manifested itself in recent years, although it suffered a setback from the crackdown by Beijing in 2020.Footnote 164 Hong Kong has operated without a charity commission, and a reform proposal to introduce one had failed in 2013.Footnote 165 In Singapore, charities have long been neglected, but recent years have seen greater interest in part because of the rise in philanthropic momentum, and in part owing to some publicized scandals implicating major charities.Footnote 166

At a more conceptual level, there has been a greater appreciation of the trust and its equivalents in civil law jurisdictions around the turn of the last century.Footnote 167 Comparative inquiries into both common and civil law jurisdictions have shown that trusts can be understood as constituting a part of organizational law enabling asset partitioning and fiduciary governance.Footnote 168 Although some European jurisdictions have been slow to introduce trusts in noncommercial settings, the East Asian experience can complement academic inquiries in Europe by indicating that trusts can be used as an alternative to guardianship and testamentary instruments.Footnote 169 All this opens up the possibility of recursive development of fiduciary norms across civil law and common law jurisdictions and across various problem areas in which a person entrusted with certain properties or powers is under an obligation to act solely in the interests of the beneficiary and to avoid, or at least manage, any conflicts of interest.

8.5 Conclusion

In her 2014 article exploring the possibility of universal fiduciary principles, Tamar Frankel sought to bridge differences between the common law and civil law jurisdictions.Footnote 170 Although evolution is not yet complete, the East Asian example suggests that fiduciary norms may gradually settle upon certain standards that cut across the divide between common law and civil law. In evaluating the degree of settlement (or lack thereof), the theory of transnational legal ordering provides a useful analytical framework for the detailed understanding and nuanced explanation of the evolution of fiduciary law across jurisdictional borders.

Fiduciary law’s development in East Asia, which spans more than a century, provides a particularly rich field for exploring processes of transnational legal ordering. The historical development of East Asian fiduciary law contains certain unique features. The conspicuous role of national law set fiduciary law apart from other examples of transnational legal ordering.Footnote 171 Indigenous loyalty norms have uniquely worked with local conditions, as they facilitated the transnational settlement of fiduciary norms, but at the same time created tensions implicating modern reform debates and implementation of reforms. To the extent that the theory of transnational legal ordering has been shown to provide a valuable framework of analysis for this area of law that is historically unique, dynamically changing, and attracting attention worldwide, this chapter has confirmed its validity and broad application.

9 Transnational Migration of Laws and Norms in Corporate Governance Fiduciary Duties and Corporate Codes

Jennifer G. Hill
Footnote *
9.1 Introduction

Transnational law is a far-from-settled concept.Footnote 1 There is uncertainty as to what the term actually means,Footnote 2 and how it differs from other concepts,Footnote 3 such as national legal ordering or global law.Footnote 4 For early theorists in the field, the essence of transnational law was its role in regulating conduct or events that crossed national boundaries.Footnote 5 More recent scholarship, however, has focused not on what is being regulated,Footnote 6 but rather on how laws and norms are transmitted between supranational and local levels.Footnote 7 Nonetheless, a common theme underpinning most conceptions of transnational law is that it involves social problems and solutions that transcend any individual state,Footnote 8 and that, as a result, “[l]aw can no longer be viewed through a purely national lens.”Footnote 9

Corporate governance, with its array of public and private actors,Footnote 10 fits naturally within the concept of transnational law.Footnote 11 Financial markets today are global and interconnected,Footnote 12 and transnational law provides a valuable framework for examining a range of contemporary corporate governance issues. Although capital market structures across jurisdictions vary significantly,Footnote 13 globalization increases the risk of similar or shared problems, which can be exacerbated via contagion across financial markets.Footnote 14 In this environment, the corporation has taken on a greater societal role.Footnote 15 Indeed, according to The British Academy’s influential Future of the Corporation project, the main purpose of business today is “to solve the problems of people and planet profitably.”Footnote 16

A spate of corporate law scandals and crises in recent decades has highlighted the transnational nature of contemporary corporate governance. At the beginning of the twenty-first century, scandals, including Enron and WorldCom in the United States,Footnote 17 occurred around the world.Footnote 18 Although these scandals appeared in multiple jurisdictions, they were arguably isolated events with different origins and motivations.Footnote 19 The same cannot be said of the 2007–09 global financial crisis, which exemplified the risk of contagion across interconnected financial markets.Footnote 20 This risk is again apparent in the continuing economic fallout from the COVID-19 crisis.Footnote 21

Not only can corporate governance problems transcend national boundaries, so too can their solutions, which often involve regulatory efforts at both a national and transnational level.Footnote 22 Discerning the causes of these crises is rarely an easy feat, yet the framing of the underlying problems can be critical to the particular legal solutions adopted.Footnote 23

Corporate governance today is highly fragmented; it has been described as “a braided framework encompassing legal and non-legal elements.”Footnote 24 These elements operate to “constrain and enable” the behavior of key corporate players, which is an important aspect of transnational legal orders.Footnote 25 This chapter explores, from a transnational perspective, the transmission of laws and norms that constrain directors’ conduct and enhance corporate accountability,Footnote 26 focusing on two key examples of such accountability mechanisms – fiduciary duties and corporate codes. The chapter begins with a comparative and historical examination of directors’ fiduciary duties in the United States, the United Kingdom, and Australia. It analyzes whether the transfer of fiduciary law to these common law jurisdictions has resulted in a unified approach to directors’ duties, as is often assumed by studies such as the law matters hypothesis.Footnote 27 The chapter then moves on to discuss the modern phenomenon of national corporate codes, which originated in the United Kingdom in the early 1990s. The chapter considers the global transmission of these codes and their role as “norm creators.” It also assesses the transmission of these laws and norms against the backdrop of convergence and path dependence theories in corporate governance.

9.2 Transmission of Law through Legal Transplantation and Imitation: Uncommon Common Law Approaches to Directors’ Fiduciary Duties

Fiduciary duties constitute one of the most important legal mechanisms for constraining the conduct of company directors. The law of fiduciary duties was, from a historical perspective, a distinctly national affair.Footnote 28 The classification of company directors as “fiduciaries” represented a central pillar of early British law, developing by analogy to trustees and agents,Footnote 29 who were considered archetypal fiduciaries.Footnote 30 The famous 1742 UK decision, Charitable Corp v. Sutton (“Sutton’s case”),Footnote 31 laid the groundwork for modern directors’ duties, with Lord Hardwicke LC stating that directors were bound to execute their responsibilities with “fidelity and reasonable diligence.”Footnote 32

There are strong similarities in the approach to directors’ fiduciary duties across common law jurisdictions, such as the United Kingdom, the United States and Australia.Footnote 33 This is hardly surprising, given the United Kingdom’s colonial past.Footnote 34 The similarities are often clear historical examples of legal transplantationFootnote 35 of British law to other common law jurisdictions.Footnote 36 In Delaware, the most important US state for the purposes of corporate law,Footnote 37 directors’ duties of loyalty and care today are the direct descendants of Lord Hardwicke’s description of eighteenth-century British directors’ responsibilities.Footnote 38

Similarities between common law jurisdictions were an important aspect of La Porta et al.’s influential law matters hypothesis, promulgated over two decades ago.Footnote 39 This hypothesis had significant implications for the “settlement and unsettlement of legal norms”Footnote 40 within a transnational legal ordering framework. The hypothesis claimed that investor legal protection is directly linked to a jurisdiction’s financial development,Footnote 41 and predicted that jurisdictions with superior investor protection would develop deep dispersed capital market structures, such as those in the United States and the United Kingdom.Footnote 42 “Legal origins” played a central role in the hypothesis, since the study concluded that common law jurisdictions within the British “legal family”Footnote 43 provided stronger investor protection than civil law jurisdictions.Footnote 44 One feature of the common law system that the study viewed as particularly advantageous was the central role of independent judges, who rely on legal reasoning to decide cases.Footnote 45 Judicial reasoning is a central feature of the development of fiduciary law.

The law matters hypothesis contributed to a major debate in comparative corporate governance as to whether corporate law regimes would convergeFootnote 46 or whether, as path dependence theorists argued, legal differences around the world would persist.Footnote 47 The law matters hypothesis provided powerful support for convergence theory,Footnote 48 since it assumed that jurisdictions with substandard legal rules would follow the siren song of economic efficiency and adopt superior rules by means of voluntary imitation.Footnote 49

The law matters hypothesis proved to be extraordinarily influential in defining a set of problems and their solutions.Footnote 50 It also had real-world consequences in terms of changes to legal rules and norms. On the premise that good corporate governance can improve national economic performance, major international organizations, such as the Organisation for Economic Co-operation and Development (“OECD”), developed model corporate governance rules for ready international transplantation.Footnote 51 The World Bank also adopted the methodology of the law matters study, applying it to a number of working papers, including the bank’s Doing Business reports.Footnote 52 These supranational organizations sometimes required corporate governance reforms as a condition of financial assistance.Footnote 53

In spite of its influence, the law matters hypothesis attracted widespread academic criticism.Footnote 54 Much of the censure related to the study’s Manichean divide between common law and civil law systems.Footnote 55 Another, albeit less prominent, criticism was that the hypothesis overstated the similarities within the common law world.Footnote 56

Although it is often assumed that there is a unified common law approach to fiduciary duties, there are, in fact, significant granular differences at a national level, which, in accordance with transnational legal theory, is also reflected in actual legal practice at the local level. These differences across common law jurisdictions illustrate how supposedly shared laws and norms can diverge in their operation across jurisdictions and over time.Footnote 57

For example, although US corporate law descended from English company law, each legal system had a different organizational starting point.Footnote 58 These different starting points radically altered UK and US corporate law trajectories. Modern UK company law derives from the unincorporated joint-stock company, which was a quintessentially private body, with strong contractual elements.Footnote 59 US corporate law, on the other hand, developed from a very different type of organization, the British royal chartered corporation, which had strong quasi-public roots and strict mandatory rules limiting directors’ actions.Footnote 60 The effect of these different organizational starting points – and subsequent backlash against those starting points – affected the scope of directors’ discretion and the role of fiduciary duties.Footnote 61 Whereas, for instance, early American general incorporation law statutes tightly constrained directors’ conduct,Footnote 62 this changed in the late nineteenth-century era of competition for corporate charters.Footnote 63 It was during this period, that Delaware substituted the corporation, rather than the state, as primary “law-maker,”Footnote 64 resulting in a new vision of US corporate law as inherently “enabling.”Footnote 65

Another difference across common jurisdictions relates to the sources of modern directors’ duties. In Delaware, directors’ fiduciary duties, true to their historical roots, are purely equitable.Footnote 66 There has been a shift, however, under modern UK and Australian law toward statutory directors’ duties.Footnote 67 UK directors’ statutory duties, which were introduced in 2006,Footnote 68 eradicate and replace common law and equitable duties,Footnote 69 whereas Australia’s statutory dutiesFootnote 70 operate in addition to the general law.Footnote 71

The jurisdictions also adopt different approaches as to which directors’ duties should, and should not, be classified as “fiduciary.” US corporate law tends to regard all directors’ duties, including the duty of care, as fiduciary in nature; however, UK and Australian courts only characterize proscriptive duties (or duties requiring “self-denial”)Footnote 72 as fiduciary.Footnote 73 The jurisdictions differ too on the extent to which stakeholder interests are implicated in directors’ duties. Whereas Delaware and Australia have traditionally adopted a shareholder-centred approach to directors’ duties, the United Kingdom now applies an “enlightened shareholder value”Footnote 74 approach to corporate governance, which requires directors to consider the interests of a wide range of stakeholders when making business decisions.Footnote 75 India, another common law jurisdiction, goes even further in this regard, adopting a “pluralist approach” that recognizes the interests of both stakeholders and shareholders, “without necessarily indicating a preference to either.”Footnote 76

The stringency of fiduciary duties is affected by the scope of certain safe harbors available to directors.Footnote 77 A disparity across jurisdictions in this regard is particularly evident in the context of the duty of care.Footnote 78 In Delaware, for example, directors receive a high level of protection against monetary liability for breach of the duty of care as a result of the generous US business judgment rule.Footnote 79 Even gross negligence will not generally attract liability,Footnote 80 given the operation of Del GCL § 102(b)(7), which expressly authorizes the inclusion of exculpation clauses in corporate charters.Footnote 81 It also seems that the bedrock of Delaware fiduciary law,Footnote 82 the duty of loyalty, can itself now be waived in some circumstances.Footnote 83 The same is certainly not true of the UK and Australian legal regimes, which offer far less protection to directors for breach of their duties.Footnote 84

Enforcement of directors’ duties is another important way in which these jurisdictions differ from one another. Although private enforcement is the norm in the United States and the United Kingdom,Footnote 85 Australian corporate law relies predominantly on a public enforcement regime, whereby the business regulator, the Australian Securities and Investments Commission (“ASIC”), is responsible for enforcing statutory directors’ duties. It appears that this mode of enforcement has also affected the substance of directors’ duties in Australia, shifting them from the realm of private duties to public duties.Footnote 86

These differences relating to fiduciary duties in jurisdictions that share a common law heritage sit uneasily with the law matters hypothesis. Furthermore, the kind of global convergence in corporate law rules, and the accompanying shift in capital market structure, which was predicted by the law matters hypothesis, has not eventuated. Concentrated share ownership has, in fact, increased and continues to be a far more common capital market structure around the world than dispersed ownership.Footnote 87

These fiduciary duty differences are more consistent with a path dependence theory of legal development.Footnote 88 Path dependence stresses the importance of historical, political, and social factors in the settling of laws and norms.Footnote 89 Each of these factors is important in explaining fiduciary duty differences across common law jurisdictions. Legal change in this area has also often occurred as a result of commercial backlash and strategic responses of regulated parties themselves.Footnote 90

Finally, corporate scandals and crises are prime drivers of legal change. They often result in jurisdictionally tailored regulatory responses,Footnote 91 which can differ depending upon the framing of the underlying problem that needs to be addressed.Footnote 92 Transmission of law by means of transplantation or voluntary imitation is, therefore, by no means the end of the story. The transmitted law will remain dynamic and continually evolving in local context. This is inevitable, given the possibility of different interpretations of the law at a local level, different priorities concerning policy and enforcement, and the way in which commercial pushback can actually alter the contours of the law.

9.3 The Transnational Impact of Corporate Codes as Norm Creators

The behavior of corporate actors is not only shaped by enforceable national laws. It is also shaped by social normsFootnote 93 and governance practices, which may indeed be more important than formal legal rules in affecting the behavior of certain corporate actors, including directors.Footnote 94

Corporate codes can be influential sources of norms that affect directors’ behavior.Footnote 95 These codes, which provide a sharp contrast with state-made law,Footnote 96 have become an important feature of modern corporate governance, and the norms they create are in a state of continuous development.Footnote 97 Two types of code are particularly significant in this respect – corporate governance codes (“governance codes”) and shareholder stewardship codes (“stewardship codes”).

In establishing norms associated with governance procedures and practices, these codes operate in a parallel universe to corporate law. However, they can also interact in complex ways with mandatory corporate law rules, such as fiduciary duties,Footnote 98 to drive greater international convergence or divergence. Whereas fiduciary law constitutes an ex post species of regulation, governance codes operate as a form of ex ante self-regulation, which can determine and transmit societal expectations of corporate actors.Footnote 99 Such codes can affect the scope of directors’ discretion; the balance of power within the corporation; the nature of the directors’ obligations; and enforcement mechanisms.

Corporate codes epitomize the movement away from “legal rules standing alone to legal rules interacting with non-legal corporate processes and institutions,”Footnote 100 which characterizes modern corporate governance. Furthermore, the lines between formal legal rules and norms can sometimes be blurred and hard to define,Footnote 101 and there can be movement in either direction between hard law, comprising enforceable legal rules, and soft law, encompassing norms. For example, the appointment of independent directors on US listed public company boards was a prevalent business norm well before it became mandated under the 2002 reforms following Enron’s collapse.Footnote 102

Interesting tensions between hard law and soft law are also apparent at an international level. Many common law jurisdictions – though not the United States – protect certain fundamental shareholder rights by mandatory rules in their corporations legislation.Footnote 103 The vision of Delaware corporations law as inherently “enabling”Footnote 104 has restricted the level of mandatory rules under US state corporations law.Footnote 105 As a result, much of US corporate law is made, not by the state but rather by private ordering by corporate actors.Footnote 106 In recent times, institutional investors have sought to use private ordering to transplant numerous mandatory shareholder protection rules, embedded by statute in other common law jurisdictions, into the United States on a company-by-company basis.Footnote 107 This US trend demonstrates the use of private ordering by shareholders as a self-help mechanism. It suggests that, in an era of globalized investment, institutional investors have become increasingly aware of comparative legal rights across jurisdictions,Footnote 108 and it has effectively rendered the United States an importer, rather than exporter, of corporate law.Footnote 109 The trend also represents a challenge to transnational law assumptions about the meaning of “globalized business interests,”Footnote 110 since it highlights the fact that there is a power struggle in this regard between formidable global institutional investors and US boards of directors.Footnote 111

Corporate codes have been responsible for the global transplantation of norms over the last few decades. Governance codes can be traced back to the influential 1992 UK Cadbury Committee Report.Footnote 112 Although the concept of “corporate governance” had entered the US lexicon during the 1970s,Footnote 113 it was not embraced in other common law jurisdictions, such as the United Kingdom and Australia, until the beginning of the 1990s.Footnote 114 The Cadbury Committee Report was a major catalyst in its uptake.Footnote 115

The Cadbury Committee’s Final Report was accompanied by a Code of Best Practice.Footnote 116 The famous “comply or explain”Footnote 117 aspect of many governance codes was bolstered shortly afterward by an amendment to the London Stock Exchange Listing Rules, requiring all listed companies to include a statement in their annual reports as to whether they fully adhered to the Code of Best Practice.Footnote 118 Although adherence to the code was not mandatory, any divergence required an explanation. The current version of this code is the 2018 UK Corporate Governance Code.Footnote 119

Since the Cadbury Committee laid down the blueprint for governance codes, their transmission around the world has been remarkable. In 1999, only twenty-four countries were reported to have a national governance code.Footnote 120 This number rose to sixty-four by 2008 and to ninety-three by 2015.Footnote 121 Almost all of the forty-nine jurisdictions evaluated in a 2019 OECD surveyFootnote 122 had a national governance code or principles,Footnote 123 with 83 percent of those operating on a “comply or explain” basis.Footnote 124 Yet, the exceptions in the OECD survey were notable. Neither the United States nor India had adopted a national governance code.Footnote 125 China was also an outlier,Footnote 126 though for different reasons. China has a national governance code in place, but, unlike most other countries’ codes, which operate on a voluntary, “comply or explain” basis, the Chinese provisions are mandatory.Footnote 127

What accounts for the success of governance codes as a regulatory technique and their rapid transmission? One important factor was timing. The 1990s, which have been described as “the decade of corporate governance,”Footnote 128 witnessed a decline in capital market segmentation, accompanied by the rise of globalized capital markets and investment strategies.Footnote 129 This proved to be a ripe environment for reception of norms relating to improved governance practices and procedures.

The spread of governance codes was also aided by a development involving the vertical transmission of norms. In 1999, when only twenty-four countries had adopted a UK-style governance code,Footnote 130 the OECD released the first version of its supranational Principles of Corporate Governance.Footnote 131 As one scholar has noted, the OECD principles were not plucked “from thin air.”Footnote 132 Rather, they relied on national governance codes, predominantly from common law jurisdictions like the United Kingdom.Footnote 133 As the OECD principles received increased attention at the supranational level, the rate of horizontal transmission of governance codes accelerated. This two-directional dynamic effectively transformed the Cadbury Committee’s original governance code into an international standard.Footnote 134 Top-down vertical transmission of norms by transnational networks, such as the OECD,Footnote 135 became increasingly visible during the 2007–09 global financial crisis.Footnote 136 These developments in contemporary corporate regulation epitomize the fact that transnational legal ordering occurs “multi-directionally and recursively up from and down to the national and local levels.”Footnote 137

Corporate scandals and crises have had a central role in the development of corporate codes. In the case of governance codes, for example, the Cadbury Committee’s relevance was heightened by a wave of British business scandals that occurred during the committee’s deliberations.Footnote 138 The United Kingdom also became the first jurisdiction to adopt a national stewardship code,Footnote 139 which was a direct response to the global financial crisis.Footnote 140 The original UK Stewardship Code was adopted in 2010,Footnote 141 with revised versions issued in 2012Footnote 142 and 2020.Footnote 143

Stewardship codes highlight the important link between problem framing and regulatory outcomes.Footnote 144 For example, a common view in the United States in the aftermath of the global financial crisis was that shareholders contributed to the crisis, by exerting pressure on corporate managers to engage in excessive risk-taking to increase profitability.Footnote 145 Yet, a very different interpretation of the crisis existed in the United Kingdom. The prevalent UK view was that the real problem had been the failure by institutional investors to participate actively in corporate governance and to provide an effective counterweight to excessive managerial risk-taking.Footnote 146 The 2010 UK Stewardship Code was designed to address this problem.Footnote 147

The horizontal transmission of stewardship codes has, like governance codes, been rapid and widespread. Since 2010, more than twenty countries have followed the United Kingdom’s lead in adopting stewardship codes, and that number is growing.Footnote 148 Like the original UK Code, most stewardship codes around the world operate on a “comply or explain” basis, and signing up to such codes is also usually voluntary.Footnote 149

Asian jurisdictions, in particular, have been eager to embrace stewardship codes.Footnote 150 This is in spite of the fact that the structure of Asian capital markets is fundamentally different from the UK capital market structure. Unlike UK listed companies, where the vast majority of shares are held by institutional investors,Footnote 151 Asian listed companies typically have concentrated ownership structures, with family members or the state as controlling blockholders.Footnote 152 This underlying difference can skew the operation of these codes, so that any similarity to the original UK model is superficial only.Footnote 153 For example, it has been argued that Singapore’s “near carbon-copy” of the UK Stewardship Code in fact upends the UK model’s goal of enhancing institutional investor participation.Footnote 154 Instead, Singapore’s version can operate to bolster the existing power of majority shareholders in state-controlled and family-controlled companies, thereby potentially reducing the incentives of institutional investors to participate in corporate governance.Footnote 155

Although the United Kingdom has been the progenitor of governance codes and stewardship codes around the world, the adopted codes are by no means uniform. There is considerable divergence in the substance of these codes,Footnote 156 which is attributable to a range of factors, including the issue of “who writes the rules.”Footnote 157 Divergence is particularly noticeable in terms of the emphasis given to environmental, social and governance (ESG) in modern codes.Footnote 158

A range of different organizations have responsibility for the authorship of corporate codes. They include government agencies, stock exchanges, and business organizations.Footnote 159 These diverse origins can result in major differences concerning the stringency and enforceability of codes.Footnote 160 They can also affect the content of the codes, including whether the codes emphasize shareholder or stakeholder interests.Footnote 161 For example, the United States does not have a national governance code. However, in 2017, the Investor Stewardship Group (“ISG”)Footnote 162 issued the US Corporate Governance Principles,Footnote 163 which are a set of purely voluntary, self-regulatory norms concerning governance. ISG is a collective of some of the largest US-based and international asset owners and managers,Footnote 164 including several activist hedge funds.Footnote 165 Given the identity of the actors behind the US governance principles, it is hardly surprising that the norms they contain reflect a strongly private, shareholder-focused conception of corporate governance and directors’ duties.Footnote 166

These US norms provide a striking contrast with the trajectory of contemporary UK and Australian governance codes. The UK governance code is administered by an independent government-backed regulator, the Financial Reporting Council (“FRC”),Footnote 167 and the Australian version is overseen by a governance committee of the Australian Securities Exchange (“ASX”).Footnote 168 Recent amendments to the UK and Australian governance codes represent a far more public conception of the corporation and of directors’ responsibilities than the US Corporate Governance Principles.Footnote 169 The 2018 UK Corporate Governance Code notes, for example, that the role of a successful company is not only to create value for shareholders but also to contribute to “wider society.”Footnote 170 Both the UK and the Australian governance codes also pay heightened attention to the interests of stakeholders, particularly employees.Footnote 171 They exemplify how, in contrast to traditional corporate law, governance norms today cover a pluralistic range of concerns, which are promoted by state and private actors alike.Footnote 172

The issue of “who writes the rules” is also highly relevant to stewardship codes. In some jurisdictions, such as the United Kingdom and Japan, stewardship codes are issued by government regulators or quasi-regulators.Footnote 173 In others, such as South Korea and South Africa, they are promulgated by industry players.Footnote 174 Finally, in some countries, including Australia, Canada, and the United States, stewardship codes have been initiated by investors themselves.Footnote 175 This divergence concerning “who writes the rules” can influence the content and effectiveness of particular stewardship codes, and can also affect the extent to which shareholder activism, including collective activism, is tolerated and encouraged.Footnote 176

The regulatory goals underpinning the introduction of stewardship codes also vary across jurisdictions. The aim of the original UK Stewardship Code was to provide a check on excessive risk-taking in the aftermath of the global financial crisis. Yet, in Japan, one of the earliest jurisdictions to transplant a UK-style stewardship code, the policy rationale was quite different. Japan’s code was designed to reverse declining profitability and increase investor returns, by creating a “warmer climate” for foreign investors and shareholder activists.Footnote 177 Japan’s adoption of a stewardship code also demonstrates how localized political friction can affect the content of such codes. Japan’s stewardship code adopted a relatively gentle approach concerning shareholder activismFootnote 178 compared to the UK prototype.Footnote 179 It seems that this was a compromise to appease Japanese critics, who resisted the shift effected by the code from a stakeholder-oriented approach to a stronger shareholder-oriented focus.Footnote 180 It has been argued that other Asian jurisdictions, such as Singapore, Hong Kong, and Malaysia, have adopted stewardship codes in order to signal their commitment to good corporate governance, thereby attracting foreign investment in global capital markets.Footnote 181

Another factor undermining international convergence of corporate codes is that the underlying UK model has itself undergone fundamental changes over time, creating further disjunction across jurisdictions. For example, in 2018, a British regulatory reviewFootnote 182 branded the much-vaunted and imitated UK Stewardship Code a failure.Footnote 183 The FRC responded to this damning assessment by adopting a “substantial and ambitious” revised version of the code, the 2020 UK Stewardship Code.Footnote 184 This new UK Code emphasizes shareholder stewardship activities and outcomes over aspirational policies.Footnote 185 It also includes far broader aims than earlier versions, with a marked shift from stewardship involving protection of shareholder interests toward stewardship that encompasses ESG issues, including climate change.Footnote 186

9.4 Conclusion

Fiduciary duties and corporate codes, which are designed to constrain directors’ conduct and enhance corporate accountability, are key aspects of corporate governance. This chapter discusses some of the complex processes by which these laws and norms have been transmitted nationally and transnationally, and the extent to which this transmission has contributed to a uniform regulatory approach.

It is often assumed that there is a cohesive approach to the law of fiduciary duties across common law jurisdictions. The chapter provides a comparative and historical analysis of three common law jurisdictions – the United States, the United Kingdom, and Australia – and shows that, in spite of their common legal heritage, there are sufficiently important granular differences at a national level, in terms of both law and local legal practice, to challenge the existence of any homogeneous law regarding directors’ fiduciary duties in these jurisdictions.Footnote 187

The chapter also discusses an important transnational regulatory development, which has occurred in recent decades across both common law and civil jurisdictions. This is the rise of corporate codes, such as governance codes and stewardship codes. These codes also embody important norms, and could, in theory, contribute to greater corporate governance convergence around the world. However, a critical issue in relation to corporate codes is “who writes the rules.” In fact, a range of different bodies issue and administer these codes, and this can affect the focus of the codes and the norms they contain.

Codes are also constantly evolving and can operate differently depending on the underlying capital market structure of the jurisdictions in which they operate. Not only can these codes differ across jurisdictions, they can also transmute over time, particularly in responding to corporate scandals and crises. For example, some recent codes, such as the 2020 UK Stewardship Code, reflect an image of the corporation as having a far greater societal role.Footnote 188 The evolution of both fiduciary duties and corporate codes discussed in this chapter is more consistent with path dependence, rather than convergence, theory in corporate governance.

10 Empire and the Political Economy of Fiduciary Law

Seth Davis
10.1 Introduction

For five weeks in the waning months of 1923, Zitkala-Ŝa, a Dakota writer, activist, and public intellectual, traveled around Eastern Oklahoma as a researcher for the General Federation of Women’s Clubs (GFWC).Footnote 1 The topic of her research – Oklahoma probate law – may sound uncontroversial. Yet Zitkala-Ŝa, an advocate of American Indian suffrage and critic of the US Bureau of Indian Affairs’ corruption, was no stranger to controversy.Footnote 2 And her report on Oklahoma’s probate system, published by the Indian Rights Association, was explosive. Zitkala-Ŝa and her coauthors found nothing less than “legalized plunder” of land and wealth from members of Native nations in Oklahoma.Footnote 3

Fiduciary law was at the center of this system of legalized “exploitation.”Footnote 4 According to the report, “Indians are virtually at the mercy of groups that include the county judges, guardians, attorneys, bankers, merchants – not even overlooking the undertaker – all regarding Indian estates as legitimate game.”Footnote 5 The game was played through the appointment of non-Native guardians to manage the resources of Native people. County judges, who were elected every two years, were happy to hand out “Indian guardianships” as “plums” to their “faithful friends” by declaring Indians to be incompetent to manage their own affairs.Footnote 6 These “professional” guardians took their cut of the wealth of their wards, as did banks and merchants, not to mention attorneys.Footnote 7 Thus, fiduciary law was the frame for legalizing the domination of Native people and facilitated commerce based upon the expropriation of their resources.Footnote 8

This is not a familiar description of the economic structure of fiduciary law. In the typical account, fiduciary law facilitates market exchanges by supplying legal standards to govern the behavior of agents who are entrusted with discretion over the interests of their principals. These government-supplied standards – the fiduciary duty of loyalty and the duty of care – make it less costly for private parties to contract for services.Footnote 9

The exchange-facilitating account is a law-and-economics version of the idea that fiduciary law enhances autonomy. Fiduciary law, that is, creates opportunities for individuals to pursue their own goals and be authors of their own lives. This autonomy-enhancing vision has widespread appeal, and not just for those who think fiduciary law is a species of contract law. Fiduciary law, the ideal holds, “emphasizes not personal conflict and domination,” but rather “cooperation and identity of interest pursuant to acceptable but imposed standards.”Footnote 10

I want to suggest that the familiar description of fiduciary law has a problem. Most scholarship on fiduciary law says nothing about European or US imperialism. There is no discussion of the ways in which fiduciary law framed imperial struggles over political and economic power. There is no mention of the roles that fiduciary law played in various European empires and the US Empire between the late fifteenth century, when imperial expansion began, and the time of rapid decolonization in the 1960s.Footnote 11

What follows is a summary of a political economy of fiduciary law and imperialism that I hope to develop at length and in detail.Footnote 12 My argument is that the familiar description of the economic structure of fiduciary law is incomplete. So too is the autonomy-enhancing account of fiduciary law. Fiduciary law, I want to argue, may enhance exploitation to facilitate market exchange. It provided an ideological justification for imperial expansion in the interests of opening up trade between peoples. And as Zitkala-Ŝa’s report found, and as many other examples show, fiduciary law played institutional roles in the financing, administration, and oversight of imperial exploitation and the facilitation of trade among those who benefitted from it.Footnote 13

10.2 Imperialism and the Typical Picture of Fiduciary Law

The case, then, for including imperialism within the picture of fiduciary law is straightforward. Imperial powers claimed to be fiduciaries acting on behalf of peoples under their rule. They used the vocabulary of “guardianship” and “trusteeship,” paradigmatic fiduciary relationships that trace back to Roman law.Footnote 14 To be sure, this fiduciary ideal was not universal, much less universally adhered to. Imperial legal systems changed over time and differed from one another. Unsurprisingly, the fiduciary ideal developed more clearly and more fully in the common law empires of Britain and the United States than in civil law systems, which never had the common law trust. Various empires, moreover, resisted the idea that the law of nations governed their relations with peoples subject to imperial rule.Footnote 15 Even so, we can trace a pattern of greater institutionalization of fiduciary norms over time as modern states emerged and consolidated their political sovereignty. By 1919, a fiduciary norm was so settled that the newly formed League of Nations system enshrined the “sacred trust of civilization” as an institution of international relations.Footnote 16

If that were not enough reason to take imperialism more seriously than the field of fiduciary law does, here is another: The “sacred trust of civilization” has a plausible claim to being fiduciary law’s first transnational legal order (TLO).Footnote 17 The League’s Mandate System entrusted authority over various territories and peoples in Africa, the Middle East, and Oceania to various mandatory powers, primarily though not exclusively European states. It included norms and institutions we typically associate with fiduciary relations, including mechanisms for oversight of the mandates. The fiduciary office – the office of the “sacred trustee,” that is – provided a frame for resolving disputes among imperial powers by allocating authority to exploit persons and resources among them.Footnote 18 Thus, the Mandate System was arguably was the first fiduciary TLO, a point that I return to later.

Fiduciary law, moreover, played a broader role in the construction and management of empires. Its role, that is, was not limited to the sacred trust of civilization or even the law of nations. What we now think of as institutions and practices associated with “private” fiduciary law – including the separation of ownership from control of property, the use of fiduciary institutions as investment vehicles, and the expectation that fiduciaries will give an accounting – were part of the financing and administration of various European and US Empires.

In short, fiduciary law played both ideological and institutional roles in various European empires and the US Empire. The ideological role of fiduciary law in imperial rule has gotten more attention, particularly among legal scholars.Footnote 19 The norm of fiduciary responsibility – the idea, that is, that fiduciaries are not self-serving actors but instead representatives acting on behalf of someone else – lent itself to discourses that legitimated imperial power based upon religious bigotry and cultural racism. The institutional dimension deserves more attention, especially in legal scholarship.Footnote 20 Some institutions, particularly the “company-states” that actually administered imperial rule on behalf of European sovereigns, bridged the “sacred trust” and the private entrustment of authority for business purposes.Footnote 21 Consider the best-known example, the English East India Company, whose violence and corruption in Indian prompted debates in London about the allocation of trust authority within the Empire.Footnote 22 “Public” and “private” fiduciary authority were entangled in other ways that facilitated domination. For example, during the 1830s, the largest firms pooling American and British capital to finance the removal of Native nations from the southeastern United States, such as the Boston and Mississippi Land Company, were structured as trusts.Footnote 23 The US government forced these Native nations to resettle in Indian Territory, which later became the State of Oklahoma. By the early twentieth century, as Zitkala-Ŝa reported, Oklahoma’s law of guardianship and probate was the key to a system of “legalized robbery” of the lands and wealth of Native families, including many from those nations that the United States had forcibly moved a century early.Footnote 24 Thus, together, private and public fiduciary law were tools of subordination.

As these examples show, fiduciary law could enhance subordination in either of two ways. On the one hand, legal norms and institutions could facilitate subordination within a fiduciary relationship. The Mandate System of the League of Nations is one example. On the other hand, fiduciary law also facilitated subordination outside the fiduciary relationship, as with, for example, the use of trusts to funnel global capital toward the forced removal of Native nations from their homelands.

Thus, fiduciary law’s relationship to autonomy is more complicated than the field’s ideals might suggest. Many scholars argue that fiduciary law enhances autonomy by supplying standards of behavior that facilitate bargains for fiduciary services. Fiduciary law responds to the risk that comes whenever someone is in charge of someone else’s interests. People put fiduciaries in charge of their property or other interests for many reasons. Maybe the fiduciary’s an expert. Or maybe they just want someone else to do the work. Whatever the reason, the risk is the same. “Abuse of power” is one way to put the problem that comes when one person has discretionary authority over the interests of another.Footnote 25 Or we might call it “an agency problem.”Footnote 26 Fiduciary law aims to solve this problem by requiring fiduciaries to be loyal, that is, to subordinate their interests to the beneficiaries’ interests. Thus, fiduciary law protects people who trust others to provide them with services and expertise. In so doing, fiduciary law enhances individual autonomy.

This autonomy-enhancing account has obvious appeal. After all, many fiduciary relationships exist only because people agreed to them. For those who think fiduciary law is contract law, fiduciary duties enhance autonomy by providing default rules to fill gaps in incomplete contracts. Transaction costs prevent the parties from spelling out the details of fiduciary duties in every contract. Fiduciary law’s duty of loyalty requires the agent to pursue the principal’s interests, not the agent’s own or some third party’s interest. And the duty of care demands the agent pursue the principal’s interests with reasonable competence. The government facilitates fiduciary bargains by supplying and enforcing those duties.Footnote 27

The autonomy-enhancing account has appeal even for those scholars who reject the contractarian view of fiduciary law. Consider this description by Tamar Frankel, who more than anyone is responsible for the idea that fiduciary law is a distinct body of law: “a fiduciary society emphasizes not personal conflict and domination among individuals, but cooperation and identity of interest pursuant to acceptable but imposed standards.”Footnote 28 Fiduciary law, that is, facilitates relationships in which “entrustors” rely upon the services of fiduciaries for the entrustors’ own benefit.Footnote 29

In this chapter, I want to ask how this picture of fiduciary law changes if we put imperialism within it.

10.3 Fiduciary Exploitation and Free Exchange

Scholars have begun to explore how fiduciary law, when understood as a distinctive body of law in its own right, influenced the emergence of modern markets. In recent work, for example, Michael Halberstam and Justin Simard have argued that “lawyers as trusted agents” were important to economic development in the nineteenth-century United States.Footnote 30 The story they tell is one in which lawyers performed a wide array of services for clients in “high-risk markets,” where businesspeople had to rely upon agents they could not monitor due to physical distance, the use of bills of exchange and private bank notes, and the lack of rapid means of communication.Footnote 31 As economic actors, lawyers were crucial to securing trust in these markets. Their work was not limited to drafting briefs. The list of typical tasks is illustrative: “lawyers surveyed land, hired workers, paid taxes, collected notes, drafted agreements, examined titles, prepared and interpreted insurance policies, managed finances, organized partnerships, transferred money, and prepared detailed reports.”Footnote 32 Many of these lawyers were graduates of Litchfield Law School, where both Aaron Burr and John C. Calhoun were once students, and whose graduates constituted “nearly 5 percent of the lawyers in the United States” by the 1830s, when the school closed.Footnote 33 One of these graduates was Elisha Whittlesey, whose work as a land agent in Ohio is representative of the practice of lawyers as trusted agents in the early nineteenth century. Lawyers like Whittlesey “worked as long-distance land agents, helping eastern speculators sell land located in the West.”Footnote 34

In the twilight of this career, when he was now the “Honorable Elisha Whittlesey,” the former Comptroller of the US Treasury, Whittlesey gave a speech to the Mahoning County Agricultural Society.Footnote 35 The Society’s meeting was an opportunity for the aged attorney to reflect on the history of Ohio. Whittlesey was especially struck by an exhibition representing “pioneer life in the log cabin,” which, he commented, “reminds every old settler, of the country as it was fifty years ago.”Footnote 36 The longtime Ohioan went on to offer some advice on best agricultural practices, including how to cultivate “cucumbers, tomatoes and other garden vegetables,” as well as “Indian corn.”Footnote 37 Whittlesey’s references to Indian corn were his address’s only hints of what listeners must have known but were already in the process of forgetting: Land speculation and pioneer life in the West involved the sale and settlement of Indian lands. The name of Mahoning County, where Whittlesey gave his address, not to mention the name “Ohio,” and the names of all of Ohio’s “major waterways – the Mahoning, Cuyahoga, Walhonding, Miami, Sandusky, Tuscarawas, Maumee, Scioto, and Ohio rivers” – testify to the presence of Native peoples.Footnote 38

Lawyers as trusted agents in nineteenth-century America were playing an important role in a system of land exchange that was built at least in part upon the exploitation of Native nations and the expropriation of their lands.Footnote 39 The role of fiduciary law in this system was not limited to the role of lawyers like Whittlesey who acted as land agents for the eastern land speculators. Fiduciary law, that is, played a bigger market-constituting role than the one that Halberstam and Simard recount.

* * *

To begin to understand the ideological and institutional roles of fiduciary law in facilitating exploitation and exchange, there is no better place to start than Tizatlan, a city in what today is Mexico, and no better time than 1519, long before the 1795 Treaty of Greenville cleared the way for settlement of much of the Ohio Territory, and even longer before the so-called sacred trust of civilization had become a TLO with the Covenant of the League of Nations.

In September 1519, an alliance was struck at the palace of Xicotencatl, the tlatoani, or “one who speaks,” of Tizatlan, located in a place that today is part of the Mexican state of Tlaxcala.Footnote 40 For weeks, the Tlaxcalans had battled a company of several hundred men who burned villages and maimed “emissaries suing for peace.”Footnote 41 Now, this company, dependent upon their translator Malintzin, a noblewoman from one of the Tlaxcalans’ traditional trading partners, promised to join forces with the Tlaxcalans against a long-standing foe, the Mexica of Tenochtitlan.Footnote 42 Tlaxcalan painters would later record the peace in images on palace walls and bark paper, so that all could “recall[]” the alliance in “perpetuity.”Footnote 43 In December 1519, several thousand Tlaxcalans marched with several hundred of their Spanish allies into one of the largest cities in the world, with avenues so broad that they “put the tiny, mazelike streets of European cities to shame.”Footnote 44

This grand city, Tenochtitlan, would fall two years later to allied forces. The next year, Charles V, Holy Roman Emperor and King of Spain, appointed Hernán Cortés, the leader of the Spanish company of adventurers who allied with the Tlaxcalans, as the captain-general of New Spain. As a sovereign with imperial aspirations, and no small measure of anxiety about competition from the Ottoman Empire,Footnote 45 Charles V had placed great trust in Cortés’s company. Cortés, who “knew Spanish law well,”Footnote 46 was not much troubled by those who would come to question the legitimacy of the Spanish Crown’s assertion of sovereignty over the lands of the Mexica and other Indigenous Peoples. But Charles V, a pious man, apparently was, and consulted confessors to quiet his troubled mind.Footnote 47

Spanish intellectuals were divided on the question of whether European sovereigns could legitimately claim authority over those peoples they called Indios. The key figure, at least for modern international law scholars, is Francisco de Vitoria, a theologian and jurist. In a series of public lectures, which his students scribbled down, Vitoria disagreed with those who argued that Indians had did not have moral agency, natural rights, or their own governments. Instead, Vitoria argued that the Spanish claim of sovereignty over the Indigenous lands was legitimate to the extent that Spaniards acted to stop violations of natural rights, particularly “human sacrifices,” and to protect the right of all people to travel and seek to trade with one another.Footnote 48

Guardianship itself was not a new idea. Roman law had the tutela and cura, the former a legal device for the administration of property for the benefit of children who had no paterfamilias exercising authority over them, and the latter a relationship in which one adult had authority over the interests of another deemed incapable of managing their own affairs.Footnote 49 Canon law carried forward the idea of guardianship as the medieval church required tutors and curators “to act as fiduciaries” for those subject to their authority.Footnote 50 Vitoria did not conclude that Indians were children or incapable of reason, but nevertheless invoked the idea of guardianship to argue that the Spanish Crown had the right to wage war against Indians in order to prevent injustice.Footnote 51

Vitoria imagined a world in which the Spanish and Indians could trade freely with one another, only to deny them equal status as political communities. Indians “lack[ed]” many “wares” that the Spanish could provide in exchange for “either gold or silver or other wares of which the natives have abundance.”Footnote 52 Trade bound them as equals, and the right to trade demanded that the Indians and Spanish treat with one another. As Vitoria put it, “it is certain that the aborigines can no more keep off the Spaniards from trade than Christians can keep off other Christians.”Footnote 53 Both had a right to travel and seek to trade. If Indians refused to accept Spanish attempts to travel, the Spanish were justified in intervening to protect this universal right.Footnote 54

This ideology of guardianship was a serious response to a problem of conscience. Vitoria was not the only metropolitan elite who questioned the violence of conquest. He was, however, among the most creative in offering a justification for Spanish sovereignty and identifying limits on its exercise. The key was his pairing of guardianship with a discourse of religious and cultural difference – a discourse that, as Robert Williams has put it, was the “perfect instrument of empire.”Footnote 55

At the same time, Indigenous Peoples sought to use the Spanish system to protect their rights and sometimes punctured the pretensions of Spanish guardianship. In the mid-1550s, for example, Tlaxcalan leaders prepared a lienzo in connection with a petition to the Spanish Crown. In the Lienzo de Tlaxcala, “[i]n scene after scene, the Spaniards are in the capable hands of Indians,” as the “[t]he Tlaxcalans fight everywhere alongside the Spanish, [with] their alliance … symbolized in the person of Malintzin herself.”Footnote 56 The lienzo thus reflects the reality of an alliance in which “the Spanish really were dependent on Indians”Footnote 57 – not the other way around, as Cortés liked to imply in his letters and as Vitoria’s idea of guardianship would suggest to later generations of scholars of international law. It is worth remembering, however, that the Tlaxacan’s lienzo was retelling events from 1519 to 1521. By the 1550s, the balance of power had shifted in the heartland of New Spain.Footnote 58 Even there, however, Indigenous Peoples, such as the Nahuas, sometimes succeeded in using the tools of Spanish rule, such as litigation in the Juzgado General de los Indios, to protect their lands and personal rights.Footnote 59

The lesson is that people (or peoples) may shape the very legal order that aims to control them. Even so, we should not assume that New Spain had an institutionalized scheme for the faithful guardianship of the rights of Indigenous Peoples. We should not, in other words, mistake the power of an ideology for its institutionalization in practice.Footnote 60 Despite all that its etymology might suggest,Footnote 61 the encomienda system was not a settled fiduciary institution. Under this system, the Crown entrusted Spanish conquerors with rights to labor and tribute from Indigenous Peoples and imposed duties on the encomenderos to convert them to Christianity and to protect them from violence. During the early-to-mid-sixteenth century, the Crown’s attempts to constrain settlers’ most violent abuses, including through laws such as the Leyes Nuevas of 1542, sparked murderous resistance in some cases and were largely ignored in others. Nor should we assume that the institution of the Protectoria de Los Indios, established in response to the advocacy of Bartolomé de las Casas and Fray Francisco Jimenez de Cisneros, was a full-fledged fiduciary institution.Footnote 62

* * *

The company-states that emerged as transnational actors in the seventeenth century were closer to what we now think of as fiduciary institutions. One of the biggest differences between the Spanish empire on the one hand and the Dutch and English empires on the other hand was the latter’s reliance upon chartered companies. The Dutch and English East India Companies were formed by merchants and held charters from their respective sovereigns. As institutions, they combined functions and aims that we divide between “private” companies and “public” governments. Their charters, like constitutions, assigned various powers and rights, including powers that we associate with the sovereignty of states. These included powers to maintain armed forces, make war, and enter into treaties with foreign sovereigns. At the same time, these chartered companies had features that today we associate with private businesses, including some features, such as the separation of ownership from control of property, that are characteristic of private fiduciary relationships.Footnote 63 To call the managers of these companies “fiduciaries” would be anachronistic, at least if we mean to suggest that they were subject to judicially enforceable fiduciary duties of loyalty and care in the way that corporate directors are today. Modern fiduciary law did not exist when these companies were chartered. Indeed, it began to develop during the period of their imperial expansion.

It would be too much to say that modern fiduciary law developed because of imperialism. That is not my point. It is not too much, however, to say that imperial histories and the history of fiduciary law are intertwined.Footnote 64

It is, moreover, fair to say that chartered companies such as the East India Companies “pioneered” various “institutional features” that are characteristic of modern business firms: separate legal personality, limited liability, joint-stock ownership, and the separation of management and ownership. Imperialism did entail institutional challenges that required legal innovation. European companies seeking to establish forts and factories in Asia needed to make long-term investments, not least in their armed forces. To make such investments, they needed to lock in capital. The Dutch were the first movers in the institutional innovation of locking-in capital, which the Vereenigde Oost-Indische Compagnie (the VOC, or Dutch East India Company), deployed for trade and violence, or, perhaps more accurately, violence and then trade. By the second half of the seventeenth century, the English East India Company had “emulate[d] the VOC’s consolidation of equity maturity.”Footnote 65

The agency problems resulting from the companies’ institutional innovations are obvious. First, there was the problem of high-level managers failing to act as faithful agents of shareholders. For example, while the Le Maire controversy is better known today,Footnote 66 there is something strikingly familiar in the complaints about VOC mismanagement from shareholders who published pamphlets and lobbied for charter amendments from 1622 to 1625. As one pamphleteer put it, quoting the Bible, “Give an account of your stewardship, because you cannot be manager any longer.”Footnote 67 Second, there was the problem of servants of the East India Companies pursuing their own interests while working abroad. The English East India Company, for example, permitted its employees to engage in their own trades abroad and dismissed them if they strayed too far from the limits on private trading and their obligation to pursue trades on the Company’s behalf.Footnote 68

The English East India Company is perhaps the best-known example of an institution that bridges the sacred trust of civilization and the private entrustment of authority for business purposes. The Company’s corruption and maladministration in India prompted legal and political debates about the entrustment of sovereign authority for business purposes. While Vitoria used the idea of guardianship to limit the sovereignty of non-Christian, non-European peoples, Edmund Burke employed the idea of “trust” to deny the sovereignty of the East India Company, accusing it of plundering India and abusing the authority entrusted to it. Burke demanded that Parliament take greater control of imperial policy and supported a bill before the House of Commons that would have radically changed the management of the Company and the rights of its shareholders. As Burke put it in a 1783 speech to Parliament, “it is of the very essence of every trust to be rendered accountable.”Footnote 69 To his listeners, whatever their views of the proposed bill, Burke’s statement about the enforceability of a trust was familiar doctrine.Footnote 70 And while the bill failed, to be followed shortly by the enactment of a different bill reforming governance of the Company,Footnote 71 Burke’s ideas about the trust obligations of imperial officials would resonate for later generations that institutionalized the fiduciary law of British imperialism, both in India and elsewhere.

* * *

Burke’s trust speech to Parliament took place on December 1, 1783, less than two months after the signing of the Treaty of Paris between Britain and the United States. After losing their empire over thirteen colonies in North America, the British pivoted to consolidate their empire in India.Footnote 72 For its part, the fledgling United States hoped to secure in the eyes of the world its claims to sovereign authority. In so doing, it confronted Native nations, some of which had treaties with the English, French, and Spanish crowns recognizing them as independent peoples.Footnote 73

Long before the American Revolution, Native nations in what is now the eastern United States engaged in diplomacy with various European sovereigns, including the English Crown. For many of these Native nations, concepts of kinship framed diplomacy between peoples. Parties to a treaty might refer to each other as brothers. A people that depended upon the military protection of another might use the term “father” to refer to their treaty partner. Native diplomats sometimes had to remind their English treaty partners that the use of these terms did not imply submission.Footnote 74

In its earliest treaties, negotiated during the American Revolution when the United States needed military support, the Continental Congress recognized Native nations as independent peoples. US officials often used kinship terms drawn from Indigenous diplomacy when treating with Native diplomats.Footnote 75 During this period, the United States typically would promise to protect Native nations from military threats as well as from white settlers. Native nations emphasized this duty of protection when demanding that the United States make good on its guarantees of security for their lands.Footnote 76

The best-known example is the Cherokee cases of 1831–32.Footnote 77 After gold was discovered within the territory of the Cherokee Nation, the State of Georgia enacted a series of laws that purported to regulate Cherokee territory. The Cherokee Nation unsuccessfully petitioned Congress and President Andrew Jackson for redress. It also bought a bill in equity in the original jurisdiction of the Supreme Court, which dismissed the bill on jurisdictional grounds. The leading opinion, written by Chief Justice John Marshall, reasoned that the Cherokee Nation was a “domestic dependent nation,” not a “foreign State” entitled under the US Constitution to sue in the Court’s original jurisdiction.Footnote 78 Marshall added that the relationship between the Cherokee Nation and the United States might be described as one between a “ward” and its “guardian.” The Cherokee Nation did not, however, let the matter drop. It authorized its attorneys to represent a missionary who had been convicted of violating a Georgia law requiring whites to obtain the State’s permission before entering Cherokee territory. In the second case, Worcester v. Georgia, the US Supreme Court held that the State of Georgia had no authority over the Cherokee Nation by virtue of its treaties with the United States.Footnote 79 The Cherokee Nation’s lawyers pointed to European international law in their arguments. Accepting those arguments, the Court cited Vattel’s Law of Nations, analogizing the Cherokee Nation to those European “tributary” states that had entered into treaties placing themselves under the protection of a more powerful sovereign while retaining their rights of self-government.Footnote 80

The Cherokee cases give us a sense of the ways in which a fiduciary idea framed struggles over political and economic power between Native nations and settler governments. In essence, the Cherokee Nation argued that it was the beneficiary of a specific trust – a treaty promise of protection. It was like various European states that enjoyed similar treaty promises. In making this argument, the Cherokee Nation pushed back on those strands of European international law that were cited to oppose Indigenous sovereignty.Footnote 81

There is a second sense in which the Cherokee cases are illustrative. The Supreme Court’s decision in Worcester did not stop the US government from forcing the Cherokee Nation and other Native nations to leave their homelands. Fiduciary law and its associated institutions facilitated removal and the land grab that followed. As Claudio Saunt has explained, removal “was a financial as well as political and military operation, the mechanics of which were scrutinized by New York and London bankers as much as by federal officials.”Footnote 82 Financial firms from Wall Street, State Street, and London provided capital that went toward the dispossession of Native people. Many of these firms were trusts. They invested in land speculation, which was carried out through schemes that “were both banal and appalling”: Speculators, for example, “burned down houses and drove off the residents.”Footnote 83 The result was not a well-functioning market, but one in which fraud, violence, and collusion between companies combined to deprive Native people of market value for lands they did not want to leave in the first place.Footnote 84

Perhaps most appalling is the way in which Native peoples’ own assets were used to finance their own exploitation. Removal treaties, which were negotiated between the US and Native nations under duress, put Native assets into trust with the United States acting as the trustee. These treaties were an example of what Emilie Connolly has recently called “fiduciary colonialism.”Footnote 85 During its first few decades, the United States promised to provide annuities to various Native nations, a practice that echoed Indigenous traditions of gift diplomacy. Over time, the US government began to promise payments of specie as annuities – a crucial development, as specie was “an exceedingly scarce and attractive form of capital to Natives’ trading partners.”Footnote 86 By the time of the removal era, the Jackson Administration had moved to the use of investments in trust funds, with the United States investing the principal and dispensing the interest as an annuity. These investments funded “banks, canals, railways, and other state-financed carriers of westward expansion.”Footnote 87 During the removal period, Indian agents invested Native money at the instance of land speculators and state banks, leading to a system where a speculator might, for example, borrow specie certificates tied to Native money and use those certificates to buy Native land.Footnote 88

In short, the story of removal is one of exchange through fiduciary exploitation. It is a story that would be repeated in US history. For instance, as we saw with Zitkala-Ŝa’s report on Oklahoma guardianship and probate law, Native people whose ancestors were forced to leave their homelands in the nineteenth century would lose their wealth to fiduciary exploitation in the twentieth.

The juridical expression of this institutional dynamic may be found in the US Supreme Court’s opinion in Lone Wolf v. Hitchcock.Footnote 89 In the late nineteenth century, the US Congress authorized the allotment of the lands of various Native nations with the aim of assimilating Native people. Allotment meant parceling out tribal lands into individual plots, with some plots to be held in trust for tribal members, while others would be sold to white settlers. Lone Wolf and other leaders of the Kiowa, Comanche, and Apache Nations filed a bill in equity to enjoin implementation of the allotment policy, arguing that the Constitution protected their treaty-guaranteed property rights against allotment. The Supreme Court dismissed the bill. It reasoned that allotment was a “mere change in the form of investment” of Native assets, one that a trustee was entitled to make.Footnote 90

* * *

Investing the assets of Native people required an administrative apparatus for accounting for those assets. This was not the only sort of accounting that institutionalized the fiduciary ideal of imperial rule. The compiling of population statistics was another. The idea that imperial powers were guardians for particular peoples both supported, and was supported by, the institution and expansion of accounting practices that sought to quantify populations and their resources.Footnote 91

Consider, for example, the instruction that Chief Protector George Augustus Robinson sent in 1839 to every assistant protector working at the Port Phillip Aboriginal Protectorate in New South Wales.Footnote 92 The Protectorate was brand new, established in 1838 at the direction of the Colonial Office of the British Empire in response to an 1837 report of the House of Commons Aborigines Committee.Footnote 93 What the Empire needed, the report concluded, was an institution to put Aboriginal peoples on the path to civilization, which required, among other things, protecting them from white settlers.Footnote 94

To this day, Taungurung people remember the violence of the first encroachment of white settlers into their homelands, which are in what today is the state of Victoria, Australia. As Taungurung Elder Roy Patterson put it, “there was a big fight” between white sheep and cattle ranchers and Aboriginal people over access to water.Footnote 95 In this fight, “[t]he white people shot the Aboriginals for killing their animals.”Footnote 96

The Colonial Office’s idea of protection was to settle Aboriginal populations around protectorate stations and turn them into sedentary farmers. Chief Protector Robinson of Port Phillip Protectorate thought that only a gradual process of resettlement would succeed. Assistant protectors should therefore periodically travel to meet with the Aboriginal peoples entrusted to their care. On his instructions, the protectors at Port Phillip had to give biannual accountings of “the number of journeys you have made, the number of cases you have enquired into, with the results of such journey, the number of days spent at any fixed station, [and] the number of days in traveling or elsewhere.”Footnote 97 One assistant protector, Edward Stone Parker, a teacher and lay preacher, responded with all that and more, including statistical tables offering daily average attendance figures for the Taungurung people at this station over an eight-year period ending in 1849, when the Protectorate was shut down. Never mind that Parker’s daily averages were almost certainly a “fantasy” – that is, a “projection” of Parker’s desire that the Taungurung would settle at his station and become farmers.Footnote 98 In the end, Assistant Protector Parker was a good fiduciary. He gave his account.

The history of the British Empire is full of fiduciaries who gave their account. One of the most influential and representative was The Dual Mandate in British Tropical Africa, a work of imperial theory by the Right Honourable Lord Frederick John Dealtry Lugard, whose many administrative positions include the Governor-Generalship of Nigeria and the Governorship of Hong Kong. The title page of the 1922 edition, published in Edinburgh and London by William Blackwood and Sons, included a pithy quotation from Joseph Chamberlain that stated the dual mandate of European empires: “We develop new territory as Trustees for Civilisation, for the Commerce of the World.”Footnote 99 Imperial administrators, that is, had a fiduciary duty to civilize peoples subject to their rule and open up markets for their benefit and the benefit of the people of the imperial metropole. For Lugard, the most effective system for fulfilling this dual mandate was indirect rule, which incorporated local leaders and political systems into imperial administration. Assimilation would be gradual and “progressive”; the imperial government would be “sympathetic” to the “aspirations” of peoples “and the guardians” of their “natural rights.”Footnote 100 At the same time, the peoples of Africa could not deny the right of Europeans to trade in Africa’s natural resources. The “task of developing these resources was … a ‘trust for civilisation’ and for the benefit of mankind.”Footnote 101 Indeed, this sacred trust had already been institutionalized as a principle of international relations.

* * *

Four hundred years after Tlaxcalans and Spaniards marched to Tenochtitlan, the US Government Printing Office in Washington, DC, printed two monographs on the same subject: “wardship” in international law. That was the title of the monograph by Charles Fenwick, a political scientist whose career included a stint as the president of the American Society of International Law (ASIL).Footnote 102 His Wardship in International Law focused upon states that were (or had been) wards of other states. The other monograph was The Question of Aborigines in the Law and Practice of Nations by Alpheus Henry Snow, who, like Fenwick, was a member of ASIL.Footnote 103 Snow’s monograph concluded that “Aboriginal Tribes,” as he put it, are wards of whatever “civilized State” colonizes their lands.Footnote 104 According to Fenwick and Snow, wardship was a settled TLO.

The year 1919 not only marked the four-hundredth anniversary of the alliance between the Tlaxcalans and Cortes’s company. It also was an important one in the history of European international law – and in the history of the idea that “civilized States” were guardians for colonial wards. In that year, the Covenant of the League of Nations entered into force. Article 22 of the Covenant created the Mandate System, which proclaimed that so-called “advanced nations” would hold a “sacred trust of civilization” for “peoples not yet able to stand by themselves under the strenuous conditions of the modern world.”Footnote 105

Thus, four hundred years after Cortes’s company and their Tlaxcalan allies marched several thousand strong into Tenochtitlan, and three hundred and eighty years after Vitoria delivered his lectures at the School of Salamanca, the League of Nations treated trusteeship as an organizing idea of international law and international relations.

It is not surprising that the US government printed monographs on trusteeship in 1919. US President Woodrow Wilson played an important role in the creation of the League of Nations’ mandate system. The original proposal for the mandate system, crafted by General Jan Smuts of South Africa, included parts of Europe that had been under the rule of the Austro-Hungarian Empire, the Ottoman Empire, and the Russian Empire. Wilson’s counterproposal, which carried the day, applied the Mandate System of trusteeship to peoples outside Europe. So-called class A territories in the Middle East were formerly controlled by the Ottoman Empire and placed under the mandate power of France or the United Kingdom. The remaining Class B and C territories had been German colonies. Belgium, France, and the United Kingdom assumed authority with respect to the Class B mandates, which were in East Africa, the Cameroons, and Togoland. Class C mandates in Oceania were assigned to Australia, Japan, New Zealand, and the United Kingdom, while South West Africa was assigned to South Africa. Wilson claimed that the Mandate System would protect “helpless peoples” from “exploitation” and support them on the path to collective self-determination.Footnote 106

The Mandate System’s “sacred trust of civilization” is arguably fiduciary law’s first TLO. We can, of course, trace the “sacred trust” from the League of Nations through legal commentary all the way back to Vitoria.Footnote 107 In doing so, we would pause over international predecessors to the League of Nations’ trusteeship system, including the Berlin Conference of 1884–85 and the international response to the Congo Free State.Footnote 108 The former arguably confirmed that trusteeship was a transnational norm of European imperialism.Footnote 109 Trusteeship was linked with the Conference’s aim to settle disputes about European claims to African territory, with European imperialists assuming a dual mandate in the interests “of free commerce, tutelage, and security from war.”Footnote 110 The horrors of the Congo Free State, and the international response, repeated this theme.Footnote 111 These examples underscore the role of fiduciary law in allocating authority among imperial powers; in this sense, imperial trusteeship was not about the relationship between a fiduciary and a beneficiary, but rather about the relationships among fiduciaries. The League of Nation’s innovation was to institutionalize trusteeship as a system of colonial administration subject to transnational oversight.

The result was a full-fledged TLO. In the terms of TLO theory, a TLO emerges as people (and institutions) settle upon legal norms that order how they act. Thus, a TLO is “a collection of formalized legal norms and associated organizations and actors that authoritatively order the understanding and practice of law across national jurisdictions.”Footnote 112 In these terms, a TLO is fully institutionalized when people “simply take for granted” the relevant “set of legal norms,” following them at the transnational, national, and local levels.Footnote 113

The Mandate System was an institutionalized TLO. Its norms were legal norms formalized in the Covenant of the League of Nations, not to mention other legal documents, such as the mandate agreements that the League and the mandate powers agreed to and the questions that the Permanent Mandates Commission (PMC) propounded to the mandatory powers, not to mention the annual reports from those powers to the League.Footnote 114 These norms were directed toward the mandate powers, the territories subject to the mandates, and the League as an overseer of the Mandate System. These norms aimed – and, in some measure, succeeded – at “produc[ing] order” in response to the disorder of war among imperial powers.Footnote 115 And this legal order was transnational: It ordered legal and political relationships that transcended the boundaries of the nation-state and, indeed, helped (re)constitute the system of state sovereignty after World War I.Footnote 116 This TLO was institutionalized over time through the work of the League Council, the Permanent Mandates Commission (PMC), and the Permanent Court of International Justice, as well as the administrative and reporting activities of the mandate powers. In addition, the peoples of the mandate territories could and did petition the League, notwithstanding the limits that the Commission put on the right to petition.Footnote 117

There is perhaps no better evidence of the institutionalization of the Mandate System than the accounting practices that it generated. Fiduciaries are expected to account for their administration of another’s interests. And that is precisely what the Mandate System demanded. As Antony Anghie has summarized it, “the PMC sought an immense amount of information” from the mandatory powers on various topics, including the economy and labor.Footnote 118 In 1926, for example, the PMC drew up 118 questions for B and C Mandates on this wide-ranging set of topics: “Status of the Territory”; “Status of the Native Inhabitants of the Territory”; “International Relations”; “General Administration”; “Public Finance”; “Direct Taxes”; “Indirect Taxes”; “Trade Statistics”; “Judicial Organisation”; “Police”; “Defence of the Territory”; “Arms and Ammunition”; “Social, Moral and Material Condition of the Natives,” including the telling query, “please state approximately the total revenue derived from the natives by taxation and the total amount of the expenditure on their welfare”; “Conditions and Regulation of Labour”; “Liberty of Conscience and Worship”; “Education”; “Alcohol, Spirits and Drugs”; “Public Health”; “Land Tenure”; “Forests”; “Mines”; and, finally, “Population.”Footnote 119 The production of legal documents is not necessarily the production of legal order. But the accounting that the League demanded from the mandatory powers, and the annual reports they provided, underscore the depth of the institutionalization of the “sacred trust” as a frame for administration.

For a system nominally adopted to enhance the autonomy of colonized peoples, the Mandate System proved well adapted to facilitating their subordination. As Antony Anghie has argued, the Mandate System maintained significant continuity with prior periods of imperialism, even as it departed from the sort of “outright exploitation of native peoples by charter companies that took place in the nineteenth century.”Footnote 120 For example, though members of the PMC sometimes questioned it, the familiar pattern of fiduciary administration in which peoples paid “for their own exploitation and conquest” continued.Footnote 121

Here too, however, people could and did shape the legal order that sought to control them.Footnote 122 As Anghie points out, for instance, “the people of Nauru succeeded in protecting their interests, at least in part, through an astute use” of international procedures.Footnote 123 Citing the terms of the Mandate System, as well as those of the successor UN Trusteeship system, the Republic of Nauru brought a case to the International Court of Justice against Australia for destructive mining and other practices that violated its rights to self-determination and permanent sovereignty over natural resources.Footnote 124 More recently, however, Nauru has become the site of an offshore immigration detention facility for the Australian government, suggesting that legacies of the Mandate System persist.

Following World War II and the creation of the United Nations, the Trusteeship Council, which began its work in 1947, took up the task of overseeing the fiduciary administration of trust territories, most of them former mandate territories.Footnote 125 In 1994, the Council ended its work when Palau became a UN member. Decolonization in the 1960s punctuated the Council’s period of operations. During the decolonization era, nationalist leaders such as Nnamdi Azikiwe of Nigeria and Kwame Nkrumah of Ghana criticized the ideology and institution of international trusteeship as paternalistic and exploitativeFootnote 126 – a far cry from scholars’ typical story about fiduciary law.

10.4 Conclusion

Imperialism is part of the big picture of world history. Yet, it is not part of the typical picture of fiduciary law. This omission has made for incomplete theory and an incomplete political economy of fiduciary law. By putting imperial histories into the picture of fiduciary law, this chapter has explored what fiduciary law has done in the world and the values it has served. The aim is to think about fiduciary law descriptively in a way that may have implications for normative theory building.

Taking imperialism seriously would mean recognizing that fiduciary law can simultaneously be for autonomy and for domination. There is much to be said for a pluralist view of fiduciary law, one that, as Dagan puts it, sees fiduciary law as a “heterogeneous” legal category in which some fiduciary relationships “enhance autonomy.”Footnote 127 This heterogeneity raises the question whether it makes sense to think of fiduciary law as a field in its own right. Perhaps the lesson of this chapter is that certain categories of legal relationships – guardianship, for example – are just so different from other categories – agency, let’s say – that we should not lump them. Yet, I think, the lesson is that we should be thinking of these sorts of relationships together, because they are bound together as a matter of political economy. Not simply autonomy enhancing, nor simply subordinating, fiduciary law has framed struggles over political and economic power, while fiduciary institutions have been sites of those struggles.

Footnotes

7 Transnational Legal Ordering of Modern Trust Law

* I am grateful to the editors for their helpful comments. The usual caveats apply. Research for this chapter was funded by the RGC General Research Fund 2023–2024 (project number: 17607723).

1 Halliday and Shaffer define a “transnational legal order” as “a collection of formalized legal norms and associated organizations and actors that authoritatively order the understanding and practice of law across national jurisdictions.” Terence C. Halliday & Gregory Shaffer, Transnational Legal Orders, in Transnational Legal Orders 3, 4 (Terence C. Halliday & Gregory Shaffer eds., 2015); see also Chapter 1 of this volume.

2 Lionel Smith, Give the People What They Want? The Onshoring of the Offshore, 103 Iowa L. Rev. 2155, 2174 (2018).

3 The Convention was opened for signature on July 1, 1985 and entered into force on January 1, 1992. So far, fourteen states have ratified the Convention. For a discussion of the civilian experience of ratification of the Convention, see Michele Graziadei, Recognition of Common Law Trusts in Civil Law Jurisdictions under the Hague Trusts Convention with Particular Regard to the Italian Experience, in Re-Imagining the Trust: Trusts in Civil Law (Lionel Smith ed., 2012).

4 Hague Trusts Convention, Preamble.

5 Hague Trusts Convention, art. 2.

6 The Hague Trusts Convention is in force in the following common law jurisdictions: Australia, Canada, Hong Kong, Malta, Cyprus, and the United Kingdom; as well as the following civil law jurisdictions: Italy, Liechtenstein, Luxembourg, Monaco, Netherlands, Panama, San Marino, and Switzerland. France and the United States have signed, but not ratified, the Convention.

7 For a recent empirical study on the worldwide growth and transformation of trust practice, see Adam S. Hofri-Winogradow, Trust Proliferation: A View from the Field, 31 Trust L. Int’l 152–82 (2017).

8 International Monetary Fund, Offshore Financial Centers: IMF Background Paper (June 2020).

10 See Rebecca Lee, The Evolution of the Modern International Trust: Developments and Challenges, 103 Iowa L. Rev. 2069, 2076–81 (2018).

11 Lynton Tucker et al., Lewin on Trusts ¶ 1-005 (20th ed 2020).

12 In practice, settlors (the creators of trusts) express nonbinding requests through letters of wishes to trustees concerning how the latter’s wide dispositive discretion is to be exercised: See Australia: Hartigan Nominees Pty Ltd v. Rydge (1992) 29 NSWLR 405, 408; England: Breakspear v. Ackland [2008] EWHC 220, [5]; Jersey: In re Rabaiotti 1989 Settlement [2000] JLR 173, 173–74.

13 Peter Turner, The Entitlements of Objects as Defining Features of Discretionary Trusts, in Trusts and Modern Wealth Management 242–76 (Richard Nolan et al. eds., 2018).

14 Lionel Smith, Massively Discretionary Trusts, 70 CLP 17 (2017).

15 Smith, supra Footnote note 2, at 2174.

16 Smith, supra Footnote note 14, at 18.

17 Schmidt v. Rosewood Trust Ltd (Isle of Man) [2003] UKPC 26; [2003] 2 AC 709.

18 Charles Holbech, Discretionary Objects and the Beneficiary Principle, 27 T&T 321, 324 (2021); see also Turner, supra Footnote note 13, at 242–76.

19 Armitage v. Nurse [1998] Ch 241 held that a trustee can validly exempt liability for a breach of trust unless it is a dishonest breach of trust. It thus follows that it is also permissible for an exemption clause to exempt a trustee, whether lay or professional, from liability for a loss arising from negligence: Armitage v. Nurse at 253H-254A; see also Lee v. Torrey [2015] NZHC 2135 at [127]. But even though such clauses are capable of excluding a trustee’s liability for a breach of trust in a wide array of circumstances, they must not infringe the “irreducible core” of the obligations owed by the trustee.

20 Armitage v. Nurse [1998] Ch 241 at 253. See also Adam Hofri-Winogradow, The Irreducible Cores of Trustee Obligations, 139 LQR 311 (2023); Alexander Trukhtanov, The Irreducible Core of Trust Obligations, 123 LQR 342, 344 (2007); David Hayton, The Irreducible Core Content of Trusteeship, in Trends in Contemporary Trust Law 47–55 (A. J. Oakley ed., 1996).

21 Smith, supra Footnote note 14, at 17.

22 Footnote Id. at 18.

23 Hang Wu Tang, From Waqf, Ancestor Worship to the Rise of the Global Trust: A History of the Use of the Trust as a Vehicle for Wealth Transfer in Singapore, 103 Iowa L. Rev. 2263, 2289–90 (2018).

24 Bartlett v. Barclays Bank [1980] 2 WLR 430.

25 Zhang Hong Li v. DBS Bank (Hong Kong) Ltd [2019] HKCFA 45; (2019) 22 HKCFAR 392; Tucker et al., supra Footnote note 11, at 34-056–34-058.

26 Zhang Hong Li v. DBS Bank (Hong Kong) Ltd [2019] HKCFA 45; (2019) 22 HKCFAR 392 at [39]. See also Appleby Corporate Services v. Citco Trustees 17 ITELR 413 for a discussion of the trustee’s duty of supervision.

27 Zhang Hong Li v. DBS Bank (Hong Kong) Ltd [2019] HKCFA 45; (2019) 22 HKCFAR 392. In that case, Zhang and his wife Ji had established a family trust governed by Jersey law with themselves and their minor children as beneficiaries. The only trust asset was the sole share of their private investment company that had been set up to make high-risk investments. The trust deed contained extensive anti-Bartlett clauses that restricted the trustee’s duties. For example, the deed stipulated that the trustee was under no duty to interfere with the management or conduct of the business of the investment company, but was to leave it to the directors and Ji, and was under no duty to supervise them unless it had actual acknowledge of dishonesty.

28 Zhang Hong Li v. DBS Bank (Hong Kong) Ltd [2019] HKCFA 45; (2019) 22 HKCFAR 392 at [45].

29 Footnote Id. at [79].

30 Footnote Id. at [61]–[63]. On the facts, there was no actual knowledge of dishonesty that required DBS Trustee to interfere.

31 Tucker et al., supra Footnote note 11, at [34-059] subpara. 7.

32 Underhill and Hayton Law of Trusts and Trustees [51.55] (Charles Mitchell et al. eds., LexisNexis Butterworths 2022).

33 For additional discussion, see Adam Hofri-Winogradow, The Stripping of the Trust: A Study in Legal Evolution, 65 U. Toronto L.J. 1 (2015).

34 See, e.g., David Russell & Toby Graham, The Limits of Discretionary Trusts: Have Powers of Addition and Removal Been Taken a Step Too Far?, 27 T&T 280 (2021); Katy Barnett, Offshore Trusts in the South Pacific: How Far Can the Concept of the Trust Be Stretched before It Breaks?, in 1 Asia-Pacific Trusts Law: Theory and Practice in Context 373 (Ying Khai Liew & Matthew Harding eds., 2021).

36 See Rebecca Lee & Man Yip, Exclusion of Duty and the Irreducible Core Content of Trusteeship, 10 J. Equity 131, 141–49 (2020).

37 Maurizio Lupoi, Trusts and Their Comparative Understanding, 27 T&T 286, 293–94 (2021).

38 See, e.g., M. J. De Waal, In Search of a Model for the Introduction of the Trust into a Civilian Context, 12 Stellenbosch L. Rev. 63 (2001); H. L. E. Verhagen, Trusts in the Civil Law: Making Use of the Experience of “Mixed” Jurisdictions, 3 European Rev. Private L. 477, 488 (2000).

39 Japan enacted the Trust Act in 1922 (Law No. 512 of 1922). See also Masayuki Tamaruya, Chapter 8 of this volume, suggesting that Japan has played a positive role in promoting transnational ordering, making informed suggestions for potential domestic reform.

40 See also Chapter 2 of this volume.

41 See Lusina Ho & Rebecca Lee, Reception of the Trust in Asia: A Historical Perspective, in Trust Law in Asian Civil Law Jurisdictions: A Comparative Analysis ch. 2 (Lusina Ho & Rebecca Lee eds., 2013).

42 See Lusina Ho & Rebecca Lee, Emerging Principles in Asian Trust Law, in Ho & Lee, supra Footnote note 41, ch. 13. The East Asian trust laws discussed in this chapter include: Shintaku-hō [Trust Act], Law No. 108 of 2006 (Japan); Sintagbeob [Trust Act], Act. No. 10924, Jul. 25, 2011 (South Korea); Xintuofa [Trust Law], Law of Jan. 26, 1996; amended Dec. 30, 2009 (Taiwan); Xintuofa [Trust Law], Order no. 50 of the President of PRC of 2001, Oct. 1, 2001 (China). For ease of reference, the Trust Act of Japan 2006, Trust Act of Korea 2011, Trust Law of Taiwan 2009, and Trust Law of China 2001 are referred to as the Japanese Trust Law, Korean Trust Act, Taiwanese Trust Law, and Chinese Trust Law, respectively, in this chapter.

43 Chapter 2 of this volume.

44 See Maurizio Lupoi, Trusts: A Comparative Study 199 (2000).

45 See Japanese Trust Act, art. 25(1); Taiwanese Trust Law, art. 11; and Chinese Trust Law, art. 16.

46 See, e.g., Japanese Trust Act, art. 25(1); Korean Trust Act, arts. 24 and 25; Taiwanese Trust Law, arts. 10 and 11; and Chinese Trust Law, arts. 16 and 17.

47 Kenneth Reid, Conceptualising the Chinese Trust: Some Thoughts from Europe, in Towards a Chinese Civil Code: Comparative and Historical Perspectives 209 (Chen Lei & C.H. van Rhee eds., 2012); Kenneth Reid, Patrimony Not Equity: The Trust in Scotland, 8 European Rev. Private L. 427 (2000); Rebecca Lee, Conceptualising the Chinese Trust, 58 Int’l & Comp. L.Q. 655 (2009); Kai Lyu, Re-Clarifying China’s Trust Law: Characteristics and New Conceptual Basis, 36 Loy. L.A. Int’l & Comp. L. Rev. 447 (2015).

48 Thus, there is a duty to segregate and administer trust property from the trustee’s own property: see, e.g., Japanese Trust Act, art. 34(1); Korean Trust Act, art. 4(2); Taiwanese Trust Law, art. 24.

49 See Ben McFarlane & Robert Stevens, The Nature of Equitable Property, 4 J. Equity 1 (2010) for the view that the beneficiary’s right is a right against the specific right of the trustee over the property, but not a property right itself. Cf. the traditional view that beneficiaries have equitable title to the trust property: James Penner, The (True) Nature of a Beneficiary’s Equitable Proprietary Interest under a Trust, 27 Canadian Journal of Law & Jurisprudence 473 (2014).

50 Verhagen, supra Footnote note 38, at 488.

51 US Restatement of the Law (3d) of Trusts, § 2 (Am. Law Inst. 2003).

52 Robert H. Sitkoff, Fiduciary Principles in Trust Law, in The Oxford Handbook of Fiduciary Law (Evan J. Criddle et al. eds., 2019).

53 Bristol and West Building Society v. Mothew [1998] Ch 1, 18; Permanent Building Society (in liq) v. Wheeler (1994) 11 WAR 187.

54 Japanese Trust Act, art. 29(2); Korean Trust Act, art. 32; Taiwanese Trust Law, art. 22; and Chinese Trust Law, art. 25.

55 Japanese Trust Act, arts. 34 and 36–39; Korean Trust Act, arts. 37 and 39; Taiwanese Trust Law, arts. 24 and 31; and Chinese Trust Law, arts. 20, 29, 33 and 49.

56 See Japanese Trust Act, art. 30 and Chinese Trust Law, art. 25.

57 See Japanese Trust Act, art. 31 and Chinese Trust Law, arts. 26–28.

58 Taiwanese Trust Law, arts. 34 and art. 35.

59 In the context of Japan, see Masayuki Tamaruya, Japanese Law and the Global Diffusion of Trust and Fiduciary Law, 103 Iowa L. Rev. 2229 (2018) and Chapter 8 of this volume.

60 Tamar Frankel, Transnational Fiduciary Law, 5 UCI J. Int’l, Transnat’l, & Comp. L. 15 (2020).

61 Regal (Hastings) Ltd v. Gulliver [1942] 1 All ER 378. In fact, traditional English principles go further to suggest that the trustee is liable to hold the profit and assets purchased with bribes and secret commissions on (constructive) trust for the beneficiaries: AG for Hong Kong v. Reid [1994] 1 AC 324; FHR European Ventures LLP v. Cedar Capital Partners LLC [2014] UKSC 45, overturning Lister & Co. v. Stubbs (1890) LR 45 Ch D 1.

62 Regal (Hastings) Ltd v. Gulliver [1942] 1 All ER 378.

63 England: Murad v. Al Saraj [2005] EWCA Civ 959; [2005] All ER (D) 503; Australia: Ancient Order of Foresters in Victoria Friendly Society Ltd v. Lifeplan Australia Friendly Society Ltd [2018] HCA 43; (2018) 265 CLR 1, 88. The Hong Kong Court of Appeal in Kao, Lee & Yip v. Koo [2003] 3 HKLRD 296 has expressed the principle in a more circumspect manner, suggesting the need for reasonable approximation between the breach and the gain made, whereas the Singapore Court of Appeal in UVJ v. UVH [2020] SGCA 49 recently affirmed the requirement of but-for causation. See also Matthew Conaglen, Identifying the Profits for Which a Fiduciary Must Account, 79(1) Cambridge L.J., 38 (2020).

64 Japanese Trust Act, art. 31(6) and (7).

65 Taiwanese Trust Law, art. 35(3).

66 Korean Trust Act, art. 43(3).

67 The beneficiary can assert his or her beneficial title over the substituted trust asset by way of a constructive trust: Foskett v. McKeown [2001] 1 AC 102 at 127. Needless to say, he or she may also bring a personal action to require the trustee to restore the trust fund.

68 For example, where a trustee mixes trust monies with his or her own, the rule in Re Hallett (1880) 13 Ch D 696 presumes that the trustee draws out his or her own monies first so that the beneficiary may claim the balance of the fund. However, if property is purchased from the mixed fund, and the remaining trust fund is then dissipated, the beneficiary can claim against the property: Re Oatway [1903] Ch 356. See generally Lionel Smith, The Law of Tracing (1997).

69 See, e.g., Korean Trust Act, art. 27; Taiwanese Trust Law, art. 9(2); and Chinese Trust Law, arts. 14 and 26.

70 Chinese Trust Law, art. 22.

71 Korean Trust Act, art. 75(1); Japanese Trust Act, art. 27(1); Taiwanese Trust Law, art. 18(2).

8 Japanese, East Asian, and Transnational Fiduciary Orders

1 This chapter builds from an earlier article: Masayuki Tamaruya & Mutsuhiko Yukioka, The Japanese Law of Fiduciaries from Comparative and Transnational Perspectives, 5 U.C. Irvine J. Int’l Transnat’l & Comp. L. 135 (2020). The author is grateful to Kelvin F. K. Low, Kye Joung Lee, as well as participants at the “Between the Global and the Local” paper session of the Law and Society Association 2020 Annual Meeting. The author also received generous financial support from Japan Society for the Promotion of Science (JSPS Kakenhi Grant No. 19H01408).

2 Evan J. Criddle et al., Introduction, in The Oxford Handbook of Fiduciary Law xix, xx (Evan J. Criddle et al. eds., 2019).

3 Teemu Ruskola, Corporation Law in Late Imperial China, in Research Handbook on the History of Corporate and Company Law 355, 361 (Harwell Wells ed., 2018).

4 For the analytical framework, see Terence C. Halliday & Gregory Shaffer, Transnational Legal Orders, in Transnational Legal Orders 3 (Terence C. Halliday & Gregory Shaffer eds., 2015); John Braithwaite & Peter Drahos, Global Business Regulation 15–26 (2000).

5 Civil Code, Law No. 89 of 1896; Commercial Code, Law No. 48 of 1899.

6 Civil Code § 644.

7 Footnote Id. § 671.

8 Footnote Id. § 869.

9 Footnote Id. § 1012.

10 The relevant Commercial Code provision was introduced as § 164(2) by Law No. 73 of 1911; renumbered as § 254(2) by Law No. 72 of 1938; and renumbered as § 254(3) by Law No. 167 of 1950. It is now superseded by Companies Act, Law No. 86 of 2005, § 355.

11 Civil Code § 108.

12 Footnote Id. § 860.

13 Footnote Id. § 57.

14 Commercial Code § 48.

15 Footnote Id. §§ 264, 265.

16 Haruhito Takada & Masamichi Yamamoto, The “Roesler Model” Corporation: Roesler’s Draft of the Japanese Commercial Code and the Roots of Japanese Corporate Governance, 45 Zeitschrift für Japanisches Recht [Journal of Japanese Law] 45 (2018).

17 Tsukasa Miyajima, Auditing Structure, in History of Commercial Law Studies in Showa Period 389, 391–96 (Yasuichciro Kurasawa & Takayasu Okushima eds., 1996).

18 Trust Act, Law No. 62 of 1922.

19 Footnote Id. § 20.

20 Footnote Id. § 22.

21 Footnote Id. § 31.

22 Aberdeen Rly Co v. Blaikie Bros (1854) 1 Macq 463, [1843–60] All ER Rep 249; Bray v. Ford [1896] AC 44.

23 Austin W. Scott, The Trustee’s Duty of Loyalty, 49 Harv. L. Rev. 521 (1936); Austin W. Scott, The Restatement of the Law of Trusts, 31 Colum. L. Rev. 1266 (1931).

24 Paul D. Finn, Fiduciary Obligations (1977, reprinted 2017); Matthew Conaglen, Fiduciary Loyalty: Protecting the Due Performance of Non-Fiduciary Duties (2010).

25 Teemu Ruskola, Conceptualizing Corporations and Kinship: Comparative Law and Development Theory in a Chinese Perspective, 52 Stan. L. Rev. 1599, 1677–80 (2000).

26 Hideaki Nishi, Making of the Modern Law of Republic of China: Custom Research, Codification and Chinese Legal Studies 11–33 (2018).

27 Andrew Jen-Guang Lin, Common Law Influences in Private Law – Taiwan’s Experiences Related to Corporate Law, 4(2) National Taiwan Univ. L. Rev. 107, 111 (2009).

28 Ruskola, supra Footnote note 25, at 1681.

29 See infra Footnote notes 39Footnote 41 and accompanying text.

30 Lusina Ho & Rebecca Lee, Reception of the Trust in Asia: An Historical Perspective, in Trust Law in Asian Civil Law Jurisdictions: A Comparative Analysis 10, 10–11 (Lusina Ho & Rebecca Lee eds., 2013).

31 See, e.g., Santaro Okamatsu, Provisional Report on Investigations of Laws and Customs in the Island of Formosa (1902). Okamatsu, Professor of Law at Kyoto Imperial University, was actively engaged in studying customs in Taiwan and Manchuria. Hideaki Nishi, The Making of “Taiwan Private Law” 23–25 (2009).

32 Korean Private Law Ordinance of 1912; Taiwan Private Law Implementation Ordinance No. 406 of 1922.

33 Taiwanese Securities and Exchange Act of 1968; South Korean Securities and Exchange Act of 1962.

34 Corporate Governance in Asia: A Comparative Approach 385 (Bruce Aronson & Joongi Kim eds., 2019).

35 Section 681 of South Korean Civil Code requires the agent to “manage the affairs entrusted to him with the care of a good manager in accordance with the tenor of the mandate.” See supra Footnote note 10 and accompanying text for discussion of a parallel provision in Japanese Civil Code § 644.

36 South Korean Trust Act, Act No. 900, Dec. 30, 1961, now superseded by Act No. 7428, Mar. 31, 2005.

37 Ying-Chieh Wu, Trust Law in South Korea: Developments and Challenges, in Ho & Lee, supra Footnote note 30, at 47–48.

38 Jeong Seo, Who Will Control Frankenstein?: The Korean Chaebol’s Corporate Governance, 14 Cardozo J. of Int’l & Comp. L. 21 (2006).

39 Tay-sheng Wang, Legal Reform in Taiwan under Japanese Colonial Rule, 1895–1945 176 (2000). See supra Footnote notes 30Footnote 32 and accompanying text.

40 Lawrence S. Liu, The Politics of Corporate Governance in Taiwan, in Transforming Corporate Governance in East Asia 255, 256 (Hideki Kanda et al. eds., 2008).

41 Lin, supra Footnote note 27, at 111.

42 Hideki Kanda & Curtis J. Milhaupt, Re-examining Legal Transplants: The Director’s Fiduciary Duty in Japanese Corporate Law, 51 Am. J. Comp. L. 887, 900–01 (2003).

43 Commercial Code § 254-2, later renumbered § 254-3, was superseded by Companies Act, Law No. 86 of 2005, § 355.

44 Securities Investment Trust Act, Law No. 198 of 1951, § 71, inserted by Law No. 106 of 1967.

45 Investment Advisors on Securities Regulation Act, Law No. 74 of 1986, § 21, repealed by Law No. 66 of 2007 and consolidated into the Financial Instruments and Exchange Act, Law No. 25 of 1948.

46 Oe Industrial v. Business Consultancies, 17(8) Minshu 909 (Supreme Court, Sept. 5, 1963); San’ei Electronics v. Japan Victor, 22(13) Minshu 3511 (Supreme Court, Dec. 25, 1968). For discussion of these cases, see Tamaruya & Yukioka, supra Footnote note 1, at 141.

47 Arita v. Kojima, 24(6) Minshu 625 (Supreme Court, June 24, 1970).

48 James C. Abegglen, The Japanese Factory: Aspects of Its Social Organization 39–40 (1958); Organisation for Economic Cooperation and Development, Manpower Policy in Japan: Reviews of Manpower and Social Policies Number 11 (1973).

49 Ronald J. Gilson & Curtis J. Milhaupt, Choice as Regulatory Reform: The Case of Japanese Corporate Governance, 53 Am. J. Comp. L. 343, 348–49 (2005).

50 See, e.g., Gen Goto, Legally Strong Shareholders of Japan, 3 Mich. J. Private Equity & Venture Cap. L. 125, 142–43 (2014), Bruce Aronson, Japanese Corporate Governance Reform: A Comparative Perspective, 11 Hastings Bus. L.J. 85, 95 (2015). For a historical account of the shareholding structure in Japan, see Julian Franks et al., The Ownership of Japanese Corporations in the Twentieth Century, 27 Rev. Fin. Stud. 2580 (2014).

51 Curtis Milhaupt, Takeover Law and Managerial Incentives in the United States and Japan, in Enterprise Law: Contracts, Markets, and Laws in the US and Japan 177, 182 (Zen’ichi Shishido ed., 2014).

52 Commercial Code § 293-6, as amended by Law No. 62 of 1993.

53 Footnote Id. §§ 267(4), 268-2(1), as amended by Law No. 62 of 1993.

54 Commercial Code Special Provisions on Company Auditor etc. Act § 18(1), as amended by Law No. 62 of 1993.

55 S. H. Goo, Study Report on History of Company Incorporation in Hong Kong (2013).

56 Hong Kong Trustee Ordinance 1934, Cap. 29, and Singapore Trustee Act 1967, both based on England’s Trustee Act 1925, 15 & 16 Geo. 5 c. 19.

57 David C. Donald, A Financial Centre for Two Empires: Hong Kong’s Corporate, Securities and Tax Laws in Its Transition from Britain to China 53 (2014).

58 Companies Ordinance 2014, Cap. 622.

59 Donald, supra Footnote note 57, at 242–46. On the impact of these negotiation on Chinese corporate governance, see text accompanying Footnote notes 123Footnote 126.

60 The Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China art. 8.

61 Kelvin F. K. Low, Victoria Meets Confucius in Singapore: Implied Trusts of Residential Property, in Asia-Pacific Trusts Law: Theory and Practice in Context 97 (Linkai Yang & Matthew Harding eds., 2021); Goh Yihan & Paul Tan, An Empirical Study on the Development of Singapore Law, in Singapore Law: Fifty Years in the Making (Goh Yihan & Paul Tan eds., 2015).

62 Wai Yee Wan, Legal Transplantation of UK-Style Takeover Regulation in Singapore, in Comparative Takeover Regulation: Global and Asian Perspectives 406, 407 (Umakanth Varottil & Wan Wai Yee eds., 2017).

63 Tan Cheng-Han, Dan W. Puchniak, and Umakanth Varottil, State-Owned Enterprises in Singapore: Historical Insights into a Potential Model for Reform, 28 Colum. J. Asian L. 61, 89 (2015).

64 The tendency is less conspicuous in Japan and Taiwan. OECD Equity Market Review 2019, 43–44 (2019).

65 Dan W. Puchniak & Kon Sik Kim, Varieties of Independent Directors in Asia, in Independent Directors in Asia: A Historical, Contextual and Comparative Approach 89, 119–28 (Dan W. Puchniak et al. eds., 2017); David C. Donald, Conceiving Corporate Governance for an Asian Environment, 12 U.PA. ASIAN L. REV. 88 (2016).

66 Principles of Corporate Governance: Analysis and Recommendations (America Law Institute 1994); Melvin Aron Eisenberg, An Overview of the Principles of Corporate Governance, 48 Bus. Law. 1271 (1993).

67 Henry Hansmann & Reinier Kraakman, The End of History for Corporate Law, 89 Geo. L. J. 439 (2001); Rafael La Porta et al., Law and Finance, 106 J. of Pol. Econ. 1113 (1998).

68 South Korean Commercial Code § 382-3, introduced by Law No. 5591, Dec. 28, 1998.

69 Footnote Id. § 403.

70 E.g., Footnote id. § 366 (minority shareholder’s right to request convocation of shareholders’ meeting); § 363-2 (right to make proposal for the shareholders’ meeting); § 385-2 (minority shareholder’s right to petition the court for removal of a director); § 402 (right to injunction).

71 Footnote Id. § 393-2 (committees of board of directors); § 415-1 (audit committee), introduced by Law No. 6086, Dec. 31, 1999.

72 Kyung-Hoon Chun, Korea’s Mandatory Independent Directors: Expected and Unexpected Roles, in Puchniak et al., supra Footnote note 65, 176, at 184–96.

73 Taiwanese Company Act § 23(1).

74 Taiwan Securities and Exchange Act §§ 14-2(1), 14-4(1).

75 Hsin-ti Chang et al., From Double Board to Unitary Board System: Independent Directors and Corporate Governance Reform in Taiwan, in Puchniak et al., supra Footnote note 65, 241, at 244–45.

76 Lin, supra Footnote note 27, at 124–25; Jong-Hoon Lee, Corporation Laws & Cases of South Korea § 8.06[G] (2016).

77 Jill F. Solomon et al., Corporate Governance in Taiwan: Empirical Evidence from Taiwanese Company Directors (2003) 11 Corporate Governance: An International Review 235, 238–39; Chun, supra Footnote note 72, at 177.

78 Liu, supra Footnote note 40, at 255–57.

79 Chun, supra Footnote note 72, at 179–80.

80 Dan W. Puchniak & Umakanth Varottil, Related Party Transactions in Commonwealth Asia: Complicating the Comparative Paradigm, 17 Berkeley Bus. L. Rev. 1, 20–23 (2020).

81 Brian R. Cheffins, Does Law Matter? The Separation of Ownership and Control in the United Kingdom, 30 J. Legal Stud. 459, 472–76 (2001).

82 Sarah Worthington, Sealy & Worthington’s Text, Cases, & Materials in Company Law 337 (11th ed. 2016); White Paper, Company Law Reform, para. 3.3, at 20–21(Cm 6465, March 2005); Companies Act 2006 c. 46 s 172(1) (UK).

83 Committee on the Financial Aspects of Corporate Governance, Report (Gee 1992); Code of Best Practice (Gee 1992). For historical background, see Brian R. Cheffins, The Rise of Corporate Governance in the UK: When and Why (2015) 68 CLP 387.

84 Syren Johnstone and Say H. Goo, Report on Improving Corporate Governance in Hong Kong a Comparative Based Study 55–56 (2017).

85 Corporate Governance Committee, Report of the Committee and Code of Corporate Governance (March 2001).

86 For more detailed and nuanced comparison of Hong Kong and Singapore corporate and financial market regulation, see, e.g., Christopher Chen et al., Regulating Squeeze-out Techniques by Controlling Shareholders: The Divergence between Hong Kong and Singapore, 18 J. Corp. L. Stud. 185 (2017).

87 Corporate Governance Committee, Consultation Paper 1 (Nov. 2000) (Singapore).

88 Donald, supra Footnote note 57, at 93.

89 Cheng-Han et al., supra Footnote note 63, at 92–93 (2015).

90 Rebecca Lee, The Evolution of the Modern International Trust: Developments and Challenges, 103 Iowa L. Rev. 2069 (2018); Tang Hang Wu, From Waqf, Ancestor Worship to the Rise of the Global Trust: A History of the Use of the Trust as a Vehicle for Wealth Transfer in Singapore, 103 Iowa L. Rev. 2263 (2018).

91 Companies Act, Law No. 86 of 2005.

92 Commercial Code § 267(4), inserted by Law No. 62 of 1993, now incorporated in Companies Act § 847-4(1).

93 Tomotaka Fujita, Transformation of the Management Liability Regime in Japan in the Wake of the 1993 Revision, in Kanda et al., supra Footnote note 40, at 15, 17 table.

94 Apamanshop Derivative Litigation, 2091 Hanrei jiho 90 (Sup. Ct. July 15, 2010).

95 Gen Goto et al., Japan’s Gradual Reception of Independent Directors: An Empirical and Political-Economic Analysis, in Puchniak et al., supra Footnote note 65, at 439–44.

96 Special Exceptions to Commercial Code Concerning Audit, etc. Act, Law No. 22 of 1974, § 21-5 et seq, inserted by Law No. 44 of 2002.

97 Gilson & Milhaupt, supra Footnote note 49, at 343.

98 Tokyo Stock Exchange, TSE-Listed Companies White Paper on Corporate Governance 2015, 15 (2015). For post-2014 developments, see Footnote note 116Footnote 118 and accompanying text.

99 Bruce Aronson, Case Studies of Independent Directors in Asia, in Puchniak et al., supra Footnote note 65, 431, at 439–44.

100 Livedoor v. Nippon Broadcasting System, 1899 Hanrei Jiho 56 (Tokyo High Court, 23 March, 2005); Steel Partners v. Bull-Dog Sauce, 61(5) Minshu 2215 (Sup. Ct. Aug. 7, 2007).

101 Ministry of Economy, Trade and Industry (METI) & Ministry of Justice (MOJ), Takeover Defense Guidelines for Protecting and Enhancing Corporate Value and the Common Interests of Shareholders (May 27, 2005); METI, Management Buyout Guidelines for Enhancing Corporate Value and Fair Procedures (Sept. 4, 2007). For backgrounds, see John Buchanan, Dominic Heesang Chai & Simon Deakin, Hedge Fund Activism in Japan: The Limits of Shareholder Primacy 259–65 (2012).

102 Milhaupt, supra Footnote note 51, at 183–87, referring to Corporate Value Study Group, Preparing Defensive Measures toward Hostile Takeovers (Measures to Defend Corporate Value (2005).

103 Bruce Aronson et al., Corporate Legislation in Japan, in Routledge Handbook of Japanese Business and Management 103–05 (Parissa Haghirian ed., 2016).

104 The Kay Review of UK Equity Markets and Long-Term Decision Making (Final report July 2012).

105 Financial Reporting Council, The UK Stewardship Code (July 2010; revised September 2012).

106 Council of Experts on Japanese Stewardship Code, Principles for Responsible Institutional Investors (Japan’s Stewardship Code): Promoting Sustainable Growth of Companies through Investment and Dialogue (February 2014; revised May 2017).

107 Jennifer G. Hill, Good Activist/Bad Activist: The Rise of International Stewardship Codes, 41 Seattle U. L. Rev. 497, 513–24 (2018).

108 Gen Goto, The Logic and Limits of Stewardship Code: The Case of Japan, 15 Berkeley Bus. L.J. 365, 394 (2019).

109 Final Report of the Ito Review, Competitiveness and Incentives for Sustainable Growth: Building Favorable Relationships between Companies and Investors (August 2014).

110 Footnote Id. at 18.

111 Financial Services Agency, Financial Monitoring Policy for 2014–2015 (Policy for Supervision and Inspection) (Sept. 2014).

112 Cabinet Resolution, Japan Revitalization Strategy 2016, 154 (June 2, 2016).

113 Financial Services Agency, Customer-first Business Practices (Mar. 30, 2017).

114 EY, Q&A on Stewardship Codes (Aug. 2017); Investor Stewardship Group, Stewardship Principles: Stewardship Framework for Institutional Investors (Jan. 1, 2018).

115 OECD Corporate Governance Factbook 2019, 29–30, 41–44 table 2.2 (2019). For the OECD’s initiative, G20/OECD Principles of Corporate Governance (Sept. 2015).

116 Tokyo Stock Exchange, Japan’s Corporate Governance Code: Seeking Sustainable Corporate Growth and Increased Corporate Value over the Mid- to Long-Term (2015).

117 Footnote Id. Principle 4–8.

118 Tokyo Stock Exchange, The Appointment of Independent Outside Directors and the Creation of Appointment and Compensation Committees in Companies Listed in Section 1 of Tokyo Stock Exchange 3 (Aug. 1, 2019).

119 U.S. Businesses Reconsider ‘Shareholder Primacy’: Declares to Give Due Regard to Employees, Nikkei Shimbun (Aug. 20, 2019).

120 Shen Wei, Corporate Law in China: Structure, Governance and Regulation 253–54 (2015).

121 Nicholas C. Howson, Fiduciary Principles in Chinese Law, in Criddle et al., supra Footnote note 2, at 603, 606–07.

122 Chinese Company Act § 59 (1993).

123 For background, see Donald, supra Footnote note 57, at 241–44.

124 Howson, supra Footnote note 121, at 608 (quoting CRES’ 1992 Opinions on Standards for Companies Limited by Shares, and 1993 letter).

125 China Securities Regulatory Commission and State Economy &Trade Commission, Code of Corporate Governance for Listed Companies §§ 33, 52. The Delaware-style characterization is by Howson, supra Footnote note 121, at 609.

126 Jiangyu Wang, China, in Aronson & Kim, supra Footnote note 34, at 238, 238.

127 Chinese Company Act § 148 (2005 amendment), now renumbered § 147.

128 Id § 149 (2005 amendment), now renumbered § 148; Wei, supra Footnote note 120, at 261.

129 Chinese Company Act § 5.

130 Id § 17.

131 Id §§ 18, 19.

132 Ruskola, supra Footnote note 25, at 1692–93.

133 Richard McGregor, How the State Runs Business in China, The Guardian (July 25, 2019).

134 China Securities Regulatory Commission, Code of Corporate Governance for Listed Companies 2018 § 5.

135 Masayuki Tamaruya, Japanese Law and the Global Diffusion of Trust and Fiduciary Law, 103 Iowa L. Rev. 2229, 2230 (2018).

136 Chinese Trust Act of 2006 § 2.

137 A prominent example is the STAR trust now incorporated in Cayman Islands Trusts Law, Part VIII, §§ 95-109 (2017 Revision). For background, see J. C. Sharman, Chinese Capital Flows and Offshore Financial Centers, 25 Pacific Rev. 317 (2012).

138 Hong Kong Trustee Ordinance s 41X; Singapore Trustees Act s 90(5).

139 Lionel Smith, Give the People What They Want? The Onshoring of the Offshore, 103 Iowa L. Rev. 2156 (2018).

140 Halliday & Shaffer, supra Footnote note 3, at 55–63.

141 See Liu, supra Footnote note 40, at 259 (Taiwan); Chun, supra Footnote note 72, at 188–90 (South Korea).

142 Hideaki Miyajima & Fumiaki Kuroki, The Unwinding of Cross-shareholding in Japan: Causes, Effects, and Implications, in Corporate Governance in Japan: Institutional Change and Organizational Diversity 79, 85 (Masahiko Aoki et al. eds., 2007); Buchanan et al., supra Footnote note 101, at 126–27.

143 Halliday & Shaffer, supra Footnote note 137, at 55–58.

144 Eric Helleiner, Regulating the Regulators: The Emergence and Limits of the Transnational Financial Legal Order, in Halliday & Shaffer, supra Footnote note 4, at 231, 235–54.

145 Tim Büthe, Institutionalization and Its Consequences: The TLO(s) for Food Safety, in Halliday & Shaffer, supra Footnote note 4, at 258, 267–69.

146 Tamar Frankel, Fiduciary Law, 71 Cal. L. Rev. 795, 798–801 (1983).

147 Katsuto Iwai, What Will Become of the Company Henceforth? 354–60 (2008).

148 See, e.g., Louis Kaplow, Rules versus Standards: An Economic Analysis, 42 Duke L. Rev. 557 (1992).

149 See Footnote notes 22Footnote 24 and accompanying text.

150 Martin Gelter & Geneviève Helleringer, Fiduciary Principles in European Civil Law System, in Criddle et al., supra Footnote note 2, at 583, 585.

151 See supra Footnote notes 135Footnote 139, and accompanying texts.

152 Braithwaite & Drahos, supra Footnote note 4, at 27 (“Japan’s influence is remarkably weak.”)

153 Otto Kahn-Freund, On Uses and Misuses of Comparative Law, 37 Modern L. Rev. 1, 16–17 (1974).

154 Defined Contribution Pension Plans Act, Law No. 88 of 2001, §§ 43, 44; Defined Benefit Corporate Pension Plans Act, No. 50 of 2001, §§ 69–72.

155 Trust Act, Law No. 108 of 2006, §§ 29–32.

156 General Association and General Foundation Act, Law No. 48 of 2006 §§ 83–84; Social Welfare Act, Law No. 45 of 1951, §§ 45-16, inserted by Law No. 21 of 2016.

157 Japan Bar Association, Code of Professional Responsibilities §§ 27, 28, 42, 63–68 (2004).

158 Consensual Guardianship Contract Act, Law No. 150 of 1999; Civil Code §§ 838–876-10, amended by Law No. 149 of 1999.

159 Masayuki Tamaruya, Japanese Wealth Management and the Transformation of the Law of Trusts and Succession, 33 Tr. L. Int’l 147, 147–48 (2020).

160 Wang He et al., The Aging World 2015 3–11 (US Census Bureau, March 2016); Mitsuru Obe, Asia’s Worst Aging Fears Begin to Come True, Nikkei Asian Review (Apr. 9, 2019).

161 Masayuki Tamaruya, Fiduciary Law and Japanese Nonprofits: A Historical and Comparative Synthesis, in Firm Governance: The Anatomy of Fiduciary Obligations in Business 261 (Arthur Laby & Jacob Russell eds., 2021).

162 Lei Xie and Joshua Garland, NGOs in East and Southeast Asia, in Routledge Handbook of NGOs and International Relations 463, 644 (Thomas Davies ed., 2019).

163 Charity Law of the People’s Republic of China, The National People’s Congress Chairman’s Order 12th Congress No. 43.

164 Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (June 30, 2020).

165 The Law Reform Commission of Hong Kong, Report: Charities (Dec. 2013).

166 Rachel P. S. Leow, Four Misconceptions about Charity Law in Singapore, Singapore J. L. Stud. 37–54 (2012).

167 Henry Hansmann & Ugo Mattei, The Functions of Trust Law: A Comparative Legal and Economic Analysis, 73 N.Y.U. L. Rev. 434 (1998); Commercial Trusts in European Private Law (Michele Graziadei et al. eds., 2005).

168 Henry Hansmann & Reinier Kraakman, The Essential Role of Organizational Law, 110 Yale L.J. 387 (2000); Robert H. Sitkoff, Trust Law as Fiduciary Governance Plus Asset Partitioning, in The Worlds of the Trust 428 (Lionel Smith ed., 2013).

169 See David J. Feder & Robert H. Sitkoff, Revocable Trusts and Incapacity Planning: More than Just a Will Substitute, 24 Elder L.J. 1 (2016); Passing Wealth on Death (Alexandra Braun et al. eds., 2016).

170 Tamar Frankel, Toward Universal Fiduciary Principles, 39 Queen’s LJ 391, 432–35 (2014).

171 Thilo Kuntz, Transnational Fiduciary Law: Spaces and Elements, 5 U.C. Irvine J. Int’l Transnat’l & Comp. L. 45, 64–66 (2020).

9 Transnational Migration of Laws and Norms in Corporate Governance Fiduciary Duties and Corporate Codes

* Thanks go to all the participants in a symposium on Transnational Fiduciary Law at the University of California Irvine. I benefited immensely from everyone’s comments and contributions at this symposium. I would also like to thank Tim Bowley, Cally Jordan, and Iain MacNeil for helpful comments and Mitheran Selvendran and Alana Komesaroff for excellent research assistance. Finally, I am grateful to Monash University for providing funding for this research under a Networks of Excellence (NoE) Research Grant on “Enhancing Corporate Accountability.”

1 See, e.g., Ralf Michaels, State Law as a Transnational Legal Order, 1 U.C. Irvine J. Int’l, Transnat’l & Comp. L. 141, 143 (2016) (describing transnational law as “vague” and outlining different possible meanings of transnational law). See also Peer Zumbansen, Can Transnational Law be Critical? Reflections on a Contested Idea, Field and Method, in Research Handbook on Critical Legal Theory 473, 478 (Emilios Christodoulidis et al. eds., 2019).

2 See Gregory Shaffer, Theorizing Transnational Legal Ordering, 12 Ann. Rev. L. & Soc. Sci. 231, 232 (2016) (noting that references to transnational law or legal ordering are often vague, resulting in academic literature becoming “a jungle without a map”).

3 See generally Michaels, supra Footnote note 1; Terence C. Halliday & Gregory Shaffer, Transnational Legal Orders, in Transnational Legal Orders 3, 3–4, 11ff (Terence C. Halliday & Gregory Shaffer eds., 2015).

4 See, e.g., Benedict Kingsbury et al., The Emergence of Global Administrative Law, 68 Law. & Contemp. Probs. 15, 15 (2005).

5 Philip C. Jessup, Transnational Law 2 (1956).

6 See, e.g., Shaffer, supra Footnote note 2, at 232.

7 See, e.g., Halliday & Shaffer, supra Footnote note 3, at 3; Shaffer, supra Footnote note 2, at 237; Michaels, supra Footnote note 1, at 144–47.

8 However, according to Halliday and Shaffer, the nation-state remains a central feature of lawmaking, and therefore transnational law and state law are closely connected. See Halliday & Shaffer, supra Footnote note 3, at 13. See also Michaels, supra Footnote note 1, at 147. Major shifts can occur in the political balance between transnational and national legal orders. See, e.g., Zumbansen, supra Footnote note 1, at 473.

9 Halliday & Shaffer, supra Footnote note 3, at 63.

10 See generally Dionysia Katelouzou & Peer Zumbansen, The New Geographies of Corporate Governance, 42 U. Pa. J. Int’l L. 51 (2020).

11 Footnote Id. at 69–70 (referring to the “distinctly transnational, hybrid formation processes of corporate governance in globalized financial markets”).

12 See, e.g., World Economic Forum, The Financial Development Report 2009, xi (2010); Int’l Org. Sec. Comm’n (IOSCO), Remarks by David Wright, Secretary General of IOSCO, The Atlantic Council, Washington, DC, Dec. 10, 2012, 5, https://www.iosco.org/library/speeches/pdf/20121210-Wright-David.pdf (accessed June 14, 2022).

13 Capital market structure lies across a spectrum, from concentrated ownership to less concentrated ownership, with differing levels of institutional investment. See, e.g., OECD, OECD Corporate Governance Factbook 2021 24–26 (2021), https://www.oecd.org/corporate/Corporate-Governance-Factbook.pdf (accessed June 14, 2022); Dan W. Puchniak, The False Hope of Stewardship in the Context of Controlling Shareholders: Making Sense out of the Global Transplant of a Legal Misfit, Am. J. Comp. L. (forthcoming); OECD, Owners of the World’s Listed Companies Annex, Table A.4 (2019), https://www.oecd.org/corporate/ca/Owners-of-the-Worlds-Listed-Companies.pdf (accessed June 14, 2022).

14 See, e.g., supra Footnote note 12.

15 See, e.g., Jennifer G. Hill, Corporations, Directors’ Duties and the Public/Private Divide, in Fiduciary Obligations in Business 285 (Arthur B. Laby & Jacob Hale Russell eds., 2021); Katelouzou & Zumbansen, supra Footnote note 10.

16 See The British Acad., Policy & Practice for Purposeful Business: The Final Report of the Future of the Corporation Programme, 48 (2021) (UK).

17 See, e.g., Jeffrey N. Gordon, What Enron Means for the Management and Control of the Modern Business Corporation: Some Initial Reflections, 69 U. Chi. L. Rev. 1233 (2002); John C. Coffee, What Caused Enron?: A Capsule Social and Economic History of the 1990s, 89 Cornell L. Rev. 269 (2004).

18 See generally Jennifer G. Hill, Regulatory Responses to Global Corporate Scandals, 23 Wis. Int’l L.J. 367 (2005).

19 See John C. Coffee, A Theory of Corporate Scandals: Why the US and Europe Differ, 21 Ox. Rev. Econ. Pol. 198 (2005).

20 See World Economic Forum, supra Footnote note 12.

21 See, e.g., Panel 1, Monash University: The Differential Health, Economic and Financial Effects of the COVID-19 Crisis, European Corporate Governance Institute (ECGI) and Global Corporate Governance Colloquia (GCGC), The COVID-19 Crisis and Its Aftermath: Corporate Governance Implications and Policy Challenges, 24 Hour Global Webinar (Apr. 16, 2020), https://ecgi.global/content/covid-19-crisis-and-its-aftermath-corporate-governance-implications-and-policy-challenges (accessed June 14, 2022) (comparing and contrasting the impact of the global financial crisis with the likely economic impact of the COVID-19 crisis).

22 See Luca Enriques, Regulators’ Response to the Current Crisis and the Upcoming Reregulation of Financial Markets: One Reluctant Regulator’s View, 30 U. PA. J. Int’l L. 1147 (2009). The quest for financial stability in the wake of the global financial crisis is a classic example of how the legalization of social orders increasingly occurs at a transnational level. Halliday & Shaffer, supra Footnote note 3, at 3.

23 See Halliday & Shaffer, supra Footnote note 3, at 7–8. There were multiple possible explanations for the collapse of Enron and the global financial crisis, which resulted in different regulatory responses to these crises. See generally Coffee, supra Footnote note 17; Hill, supra Footnote note 18; Eilis Ferran et al., The Regulatory Aftermath of the Global Financial Crisis (2012).

24 Ronald J. Gilson, From Corporate Law to Corporate Governance, in The Oxford Handbook of Corporate Law and Governance 3, 6 (Jeffrey N. Gordon & Wolf-Georg Ringe eds., 2018). See also Mariana Pargendler, The Rise of International Corporate Law, 98 Wash. U. L. Rev. 1765, 1818 (2021) (describing international corporate law as “not monolithic, but fragmented, diverse, highly networked, and dynamic”); Tim Bowley & Jennifer G. Hill, The Global ESG Stewardship Ecosystem (2022) (unpublished manuscript) (on file with the authors); Elizabeth Pollman, Corporate Social Responsibility, ESG, and Compliance, in Cambridge Handbook of Compliance 662 (D. Daniel Sokol & Benjamin van Rooij eds., 2021); Wolf-Georg Ringe, Investor-Led Sustainability in Corporate Governance (Working Paper, Nov. 2021).

25 See Halliday & Shaffer, supra Footnote note 3, 5.

26 See John Armour et al., Agency Problems and Legal Strategies, in The Anatomy of Corporate Law: A Comparative and Functional Approach 29 (Kraakman et al. eds., 3d ed. 2017).

27 See generally Rafael La Porta et al., Law and Finance, 106 J. Pol. Econ. 1113 (1998); Rafael La Porta et al., Corporate Ownership Around the World, 54 J. Fin. 471 (1999).

28 See generally Jennifer G. Hill & Matthew Conaglen, Directors’ Duties and Legal Safe Harbours: A Comparative Analysis, in Research Handbook on Fiduciary Law 305, 306–07 (D. Gordon Smith & Andrew S. Gold eds., 2018). See also Halliday & Shaffer, supra Footnote note 3, at 3.

29 See Deborah A. DeMott, Fiduciary Principles in Agency Law, in Fiduciary Principles in Agency Law 23, 2324 (Evan J. Criddle et al. eds., 2018).

30 See Hosp. Prods Ltd v. US Surgical Corp. (1984) 156 CLR 41, 68 (Austl.).

31 Charitable Corporation v. Sutton (1742) 2 Atk. 400 (UK).

32 Footnote Id. at 406. See also Joseph W. Bishop Jr., Sitting Ducks and Decoy Ducks: New Trends in the Indemnification of Corporate Directors and Officers, 77 Yale L.J. 1078, 1096–97 (1968).

33 These similarities also extend to a number of common law jurisdictions in Asia, such as Singapore, Hong Kong, Malaysia, and India.

34 See, e.g., Umakanth Varottil, The Evolution of Corporate Law in Post-Colonial India: From Transplant to Autochthony, 31 Am. U. Int’l L. Rev. 253, 258 (2016) (noting Indian corporate law’s colonial roots).

35 See generally David Cabrelli & Matthias Siems, Convergence, Legal Origins, and Transplants in Comparative Corporate Law: A Case-Based and Quantitative Analysis, 63 Am. J. Comp. L. 109 (2015).

36 See Rafael La Porta et al., The Economic Consequences of Legal Origins, 46 J. Econ. Lit. 285, 286 (2008) (arguing that, historically, legal traditions were spread around the globe primarily by conquest and colonization).

37 See generally Michal Barzuza, Market Segmentation: The Rise of Nevada as a Liability-Free Jurisdiction, 98 Va. L. Rev. 935, 939 (2012).

38 See generally Randy J. Holland, Delaware Directors’ Fiduciary Duties: The Focus on Loyalty, 11 U. Pa. J. Bus. L. 675, 680–81 (2009). Australia also took its lead from the United Kingdom with regard to corporate law, including directors’ duties. See, e.g., Rosemary Teele Langford et al., The Origins of Company Directors’ Statutory Duty of Care, 37 Syd. L. Rev. 489, 507–08 (2015).

39 See supra Footnote note 27.

40 Halliday & Shaffer, supra Footnote note 3, at 5.

41 La Porta et al., supra Footnote note 36.

42 See, e.g., OECD, OECD Corporate Governance Factbook, supra Footnote note 13.

43 La Porta et al., supra Footnote note 27, at 1119.

44 See David A. Skeel, Jr., Corporate Anatomy Lessons, 113 Yale L.J. 1519, 1544–45 (2004).

45 See generally Cabrelli & Siems, supra Footnote note 35, at 118–20.

46 See, e.g., Henry Hansmann & Reinier Kraakman, The End of History for Corporate Law, 89 Geo. L.J. 439, 468 (2001) (famously stating “[t]he triumph of the shareholder-oriented model of the corporation over its principal competitors is now assured”).

47 See generally Convergence and Persistence in Corporate Governance (Jeffrey N. Gordon & Mark J. Roe eds., 2004).

48 For an overview of convergence theory and the convergence-divergence debate, see generally id.; Jeffrey N. Gordon, Convergence and Persistence in Corporate Law and Governance, in The Oxford Handbook of Corporate Law and Governance 28 (Jeffrey N. Gordon & Wolf-Georg Ringe eds., 2018).

49 See Jennifer G. Hill, The Persistent Debate About Convergence in Comparative Corporate Governance, 27 Syd. L. Rev. 743, 744 (2005).

50 See Stijn Claessens & Burcin Yurtoglu, Corporate Governance and Development – An Update, 10 Global Corporate Governance Forum Focus 1, 11 (2012); Cally Jordan, The Conundrum of Corporate Governance, 30 Brook. J. Int’l L. 983 (2005); Steve Kaplan & Luigi Zingales, How “Law and Finance” Transformed Scholarship, Debate, Chi. Booth Rev. (Mar. 5, 2014), https://review.chicagobooth.edu/magazine/spring-2014/how-law-and-finance-transformed-scholarship-debate (accessed June 14, 2022).

51 See, e.g., Org. for Econ. Co-operation and Dev., G20/OECD Principles of Corporate Governance 3 (2015); Jordan, supra Footnote note 50, at 986, n. 5. Cf. Amir N. Licht, Legal Plug-Ins: Cultural Distance, Cross-Listing, and Corporate Governance Reform, 22 Berkeley J. Int’l L. 195, 196 (2004) (arguing that, in the “long and checkered” history of legal transplantation, “direct transplantation efforts were largely futile in generating Western-like economic growth”).

52 See Cabrelli & Siems, supra Footnote note 35, at 120.

53 See Gilson, supra Footnote note 24, at 5; Timothy Lane et al., IMF-Supported Programs in Indonesia, Korea, and Thailand, 178 Int’l Monetary Fund Occasional Paper 1, 72–73 (1999); John M. Broder, Asia Pacific Talks Vow Tough Action on Economic Crisis, N.Y. Times, Nov. 26, 1997, at A1.

54 See Claessens & Yurtoglu, supra Footnote note 50, at 12. This included criticism of the study’s methodology. See, e.g., Holger Spamann, The “Antidirector Rights Index” Revisited, 23 Fin. Stud. 467 (2010). La Porta et al. responded to methodological criticism of their original study in several later papers. See Cabrelli & Siems, supra Footnote note 35, at 123.

55 See, e.g., Skeel, supra Footnote note 44, at 1546; Katharina Pistor et al., The Evolution of Corporate Law: A Cross-Country Comparison, 23 U. Pa. J. Int’l Econ. L. 791, 799 n.27 (2002); Cabrelli & Siems, supra Footnote note 35, at 117–18; Jordan, supra Footnote note 50, at 1005, nn. 66–68. See also Martin Gelter & Geneviève Helleringer, Fiduciary Principles in European Civil Law Jurisdictions, in The Oxford Handbook of Fiduciary Law 583 (Evan J. Criddle et al. eds., 2019). In the East Asian civil law context, see Zenichi Shishido, Japanese Corporate Governance: The Hidden Problems of Corporate Law and Their Solutions, 25 Del. J. Corp. L. 189 (2000).

56 See, e.g., Ruth V. Aguilera et al., Corporate Governance and Social Responsibility: A Comparative Analysis of the U.K. and U.S., 14 Corp. Governance: An Int’l Rev. 147, 147–48 (2006); Steven Toms & Mike Wright, Divergence and Convergence within Anglo-American Corporate Governance Systems: Evidence from the US and UK, 1950–2000, 47 Bus. Hist. 267, 267–68 (2005).

57 Jennifer G. Hill, Subverting Shareholder Rights: Lessons from News Corp.’s Migration to Delaware, 63 Vand. L. Rev. 1, 8–9 (2010).

58 See generally Jennifer G. Hill, The Trajectory of American Corporate Governance: Shareholder Empowerment and Private Ordering Combat, U. Ill. L. Rev. 507, 541–47 (2019).

59 See id. at 544–47; John Morley, The Common Law Corporation: The Power of the Trust in Anglo-American Business History, 116 Colum. L. Rev. 2145, 2157–66 (2016).

60 See generally Hill, supra Footnote note 58, at 541–44; L. C. B. Gower, Some Contrasts between British and American Corporation Law, 69 Harv. L. Rev. 1369, 1370–72 (1956). British royal chartered companies reflected the theory that the corporate form was a body, approved by the state to act in “the national interest.” See C. A. Cooke, Corporation, Trust and Company: An Essay in Legal History 78 (1950).

61 See generally Hill, supra Footnote note 58, at 541–61.

62 See Morley, supra Footnote note 59, at 2163.

63 See generally Charles M. Yablon, The Historical Race – Competition for Corporate Charters and the Rise and Decline of New Jersey: 1880–1910, 32 J. Corp. L. 323 (2007).

64 Joel Seligman, A Brief History of Delaware’s General Corporation Law of 1899, 1 Del. J. Corp. L. 249, 258, 273 (1976).

65 Hill, supra Footnote note 58, at 549–53.

66 See generally Holland, supra Footnote note 38, at 678.

67 See generally Hill & Conaglen, supra Footnote note 28, at 309–12.

68 See Companies Act, 2006 c. 46, pt. 10 c. 2 (UK).

69 See Companies Act, 2006 c. 46, § 170(4) (UK).

70 See Corporations Act, 2001, §§ 180–84 (Austl.).

71 See G. F. K. Santow, Codification of Directors’ Duties, 73 Austl. L.J. 336 (1999).

72 Gelter & Helleringer, supra Footnote note 55, at 583.

73 See generally Hill & Conaglen, supra Footnote note 28, at 307–08.

74 See Companies Act, 2006 c. 46, § 172 (UK).

75 In spite of this apparently “public” focus in § 172(1), the duty remains firmly shareholder-oriented in practice, because the UK statutory directors’ duties are owed to the company, and enforceable only by the company, or its shareholders in derivative suit. See Companies Act, 2006 c. 46, § 170(1) (UK); Virginia Harper Ho, Enlightened Shareholder Value: Corporate Governance Beyond the Shareholder–Stakeholder Divide, 36 J. Corp. L. 59, 79 (2010).

76 See Companies Act, 2013, § 166(2) (India); Varottil, supra Footnote note 34, at 315.

77 See generally Hill & Conaglen, supra Footnote note 28.

78 See, e.g., Julian Velasco, The Role of Aspiration in Corporate Fiduciary Duties, 54 Wm. & Mary L. Rev. 519 (2012).

79 See, e.g., Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984); Gagliardi v. Trifoods International, Inc., 683 A.2d 1049, 1052–53 (Del. Ch. 1996).

80 See, e.g., Malpiede v. Townson, 780 A.2d 1075 (Del. 2001).

81 The breadth of protection for breach of the duty of care has attracted criticism in recent times. See, e.g., John Armour & Jeffrey N. Gordon, Systemic Harms and Shareholder Value, 6 J. Legal Analysis 35 (2014); Holger Spamann, Monetary Liability for Breach of the Duty of Care?, 8 J. Legal Analysis 337, 339 (2016).

82 See Holland, supra Footnote note 38, at 687.

83 See Del. Code tit. 8, § 122(17); Gabriel Rauterberg & Eric Talley, Contracting Out of the Fiduciary Duty of Loyalty: An Empirical Analysis of Corporate Opportunity Waivers, 117 Colum. L. Rev. 1075 (2017).

84 See Hill & Conaglen, supra Footnote note 28, at 326–29.

85 The United Kingdom does, however, include some aspects of public enforcement. See John Armour et al., Private Enforcement of Corporate Law: An Empirical Comparison of the United Kingdom and the United States, 6 J. Empirical Legal Stud. 687, 716–17 (2009). The United Kingdom is a considerably less hospitable jurisdiction for private corporate litigation than Delaware as a result of a number of key procedural differences between the two jurisdictions. See id. at 692–96.

86 See ASIC v. Cassimatis [No 8] [2016] FCA 1023, [455], [461], [503] (Austl.); Cassimatis v. ASIC [2020] FCAFC 52, [27], [240] (Austl.). See generally Hill, supra Footnote note 15, at 297; Michelle Welsh, Realising the Public Potential of Corporate Law: Twenty Years of Civil Penalty Enforcement in Australia, 42 Fed. L. Rev. 217, 223–28 (2014).

87 See OECD, OECD Corporate Governance Factbook, supra Footnote note 13 (classifying only six countries – namely, the United States, the United Kingdom, Australia, Canada, Finland, and Iceland – as having a “least concentrated” ownership structure for listed companies). See also Puchniak, supra Footnote note 13.

88 See generally Gordon & Roe, supra Footnote note 47; Gordon, supra Footnote note 48.

90 See, e.g., David A. Skeel, Jr., Governance in the Ruins, 122 Harv. L. Rev. 696, 697 (2008); Curtis J. Milhaupt & Katharina Pistor, Law and Capitalism: What Corporate Crises Reveal about Legal Systems and Economic Development Around the World (2008). For instance, statutory authorization of exculpation clauses in Delaware introduced in response to business community backlash and political pressure, following the decision in Smith v. Van Gorkom, Del.Supr., 488 A.2d. 858 (1985) (US).

91 See generally Hill, supra Footnote note 18; Ferran et al., supra Footnote note 23.

92 See Halliday & Shaffer, supra Footnote note 3, at 7–8.

93 See Matthew Harding, Fiduciary Law and Social Norms, in Fiduciary Principles in Agency Law, 797, 797 (Evan J. Criddle et al. eds., 2018) (describing social norms as “norms that guide conduct with reference to social expectations”).

94 See generally John C. Coffee Jr., Do Norms Matter? A Cross-Country Evaluation, 149 U. Pa. L. Rev. 2151, 2154ff (2001).

95 See, e.g., Dionysia Katelouzou & Alice Klettner, Sustainable Finance and Stewardship: Unlocking Stewardship’s Sustainability Potential, in Global Shareholder Stewardship 549 (Dionysia Katelouzou & Dan W. Puchniak eds., 2022). Yet, in some respects it seems that stewardship codes may, in fact, be playing catch up with “on the ground” developments in shareholder activism. See Tim Bowley & Jennifer G. Hill, Stewardship Codes, ESG Activism and Transnational Ordering, in Research Handbook on Environmental, Social, and Corporate Governance (Thilo Kuntz ed., 2023).

96 Katelouzou & Zumbansen, supra Footnote note 10.

97 Id.

98 See Harding, supra Footnote note 93, at 797; Katelouzou & Zumbansen, supra Footnote note 10, at 73–74 (noting that “[a]s codes formulate new modes of accountability, transparency and compliance, doctrinal assessments of corporate and directors’ liability … change”).

99 See Iain MacNeil & Irene-Marie Esser, The Emergence of “Comply or Explain” as a Global Model for Corporate Governance Codes, 33 Eur. Bus. L. Rev. 1 (2022).

100 Gilson, supra Footnote note 24, at 5.

101 See Coffee, supra Footnote note 94.

102 See § 301 (3A) Sarbanes-Oxley Act of 2002, Pub. L. No. 107–204, 116 Stat. 745 (2002); N.Y. Stock Exchange, Listed Company Manual, § 303A (2003).

103 See, e.g., Hill, supra Footnote note 57 (discussing how News Corporation’s move from Australia to Delaware in 2004 resulted in reduced governance rights for shareholders).

104 The idea that US corporate law (specifically Delaware law) is “enabling” became an important feature of the nexus of contracts theory of the corporation. See generally Lucian Arye Bebchuk, Foreword: The Debate on Contractual Freedom in Corporate Law, 89 Colum. L. Rev. 1395 (1989). See also Elizabeth Pollman, Constitutionalizing Corporate Law, 69 Vand. L. Rev. 639, 651 (2016).

105 Cf. Robert B. Thompson, Why New Corporate Law Arises: Implications for the 21st Century, in The Corporate Contract in Changing Times: Is Law Keeping Up? 3, 9–11 (Steven Davidoff Solomon & Randall Stuart Thomas eds., 2019) (noting that, after the shift to permissive state laws, US federal law assumed the “mantle of regulation”).

106 See Michal Barzuza, Inefficient Tailoring: The Private Ordering Paradox in Corporate Law, 8 Harv. Bus. L. Rev. 131 (2018) (critiquing the widely held view that private ordering necessarily promotes efficiency).

107 This private ordering is typically effected by shareholder proposals and bylaw amendment. See generally Hill, supra Footnote note 58, at 524–29 (2019).

108 Footnote Id. at 523–24.

109 Footnote Id. at 541.

110 See Zumbansen, supra Footnote note 1, at 473.

111 This power struggle has resulted in each group seeking to control the content of corporate law rules via “private ordering combat.” See Hill, supra Footnote note 58, at 524–36.

112 See Sir Adrian Cadbury, Report of the Committee on the Financial Aspects of Corporate Governance (Dec. 1992). For background to the establishment of the Cadbury Committee, see generally Brian R. Cheffins, The Rise of Corporate Governance in the UK: When and Why, 68 Current Legal Probs. 387, 406–08 (2015). See, however, MacNeil & Esser, supra Footnote note 99 (noting that the “comply or explain” principle from the Cadbury Code is predated by a longer tradition of self-regulation in UK corporate governance).

113 Cheffins, supra Footnote note 112, at 389–91.

114 See Brian R. Cheffins, The History of Corporate Governance, in The Oxford Handbook of Corporate Governance 46, 57 (Douglas Michael Wright et al. eds., 2013); Henry Bosch, The Changing Face of Corporate Governance, 25 U.N.S.W. L.J. 270 (2002).

115 See Cheffins, supra Footnote note 112, at 388. In the Australian context, see Bosch, supra Footnote note 114, at 274; Working Group of the Australian Institute of Company Directors, Corporate Practices and Conduct (1991).

116 Sir Adrian Cadbury, supra Footnote note 112.

117 Interestingly, the Cadbury Committee did not actually use the now-familiar term “comply or explain.” See Donald Norberg and Terry McNulty, Creating Better Boards Through Codification: Possibilities and Limitations in UK Corporate Governance, 1992–2010, 55 Bus. Hist. 348, 362 (2013). For discussion of the concept of “comply or explain” regulation and what is expected in terms of an explanation for divergence from the Principles in the governance code, see Fin. Reporting Council, The U.K. Corporate Governance Code 2 (July 2018).

118 See Cheffins, supra Footnote note 112, at 407; Bosch, supra Footnote note 114, at 274.

119 See Fin. Reporting Council, supra Footnote note 117. See also Brian R. Cheffins & Bobby V. Reddy, Thirty Years and Done – Time to Abolish the UK Corporate Governance Code (Working Paper, June 2022) (arguing that the UK Corporate Governance Code has now outlived its usefulness).

120 See Alice Klettner, Corporate Governance Codes and Gender Diversity: Management-Based Regulation in Action, 39 U.N.S.W. L.J. 715, 715 (2016).

122 See Org. for Econ. Co-operation and Dev. (OECD), Corporate Governance Factbook 9, 41ff (2019).

123 Footnote Id. at 29. A list of current international codes is available on the European Corporate Governance Institute (ECGI) website at https://ecgi.global/content/codes (accessed June 14, 2022).

124 Org. for Econ. Co-operation and Dev. (OECD), supra Footnote note 122, at 29. See also Footnote id. at 30.

125 According to the OECD, the United States and India rely instead on “laws, regulations and listing rules as their legal corporate governance framework.” Footnote Id. at 29.

127 China Securities Regulatory Commission (CSRC), Code of Corporate Governance for Listed Companies (2018) (China).

128 Moira Conoley, Moves to Halt Another Decade of Excess, Fin. Times, Aug. 5, 1999, 10 (cited in Cheffins, supra Footnote note 114).

129 MacNeil & Esser, supra Footnote note 99.

130 Klettner, supra Footnote note 120, at 715.

131 Org. for Econ. Co-operation and Dev. (OECD), Principles of Corporate Governance (1999). The current version of these Principles is Org. for Econ. Co-operation and Dev., supra Footnote note 51 (though note that, in June 2023, revised Principles were adopted by OECD Ministers for possible approval).

132 Jordan, supra Footnote note 50, at 990.

133 Footnote Id. at 990–91.

134 MacNeil & Esser, supra Footnote note 99.

135 Other prominent networks of financial regulators during the global financial crisis included the Financial Stability Board (FSB), the Basel Committee on Banking Supervision, and IOSCO. These networks operated vertically during the crisis, by promulgating informal, nonbinding soft law standards, which were subsequently transformed into hard law at a national level. See, e.g., Eric Helleiner, Regulating the Regulators: The Emergence and Limits of the Transnational Financial Legal Order, in Halliday & Shaffer, at 244–49; Jennifer G. Hill, Regulatory Cooperation in Securities Market Regulation: The Australian Experience, 17 Eur. Co. Fin. L. Rev. 11, 13–17 (2020).

136 See generally Helleiner, supra Footnote note 135; Hill, supra Footnote note 135.

137 Halliday & Shaffer, supra Footnote note 3, at 5.

138 See generally Cheffins, supra Footnote note 112, at 409–11. See also Stephen Bates, How Polly Peck Went from Hero to Villain in the City, The Guardian, Aug. 27, 2010; Roger Cohen, Maxwell’s Empire: How It Grew, How It Fell – A Special Report; Charming the Big Bankers out of Billions, N.Y. Times, Dec. 20, 1991, at A1.

139 See Fin. Reporting Council, The UK Stewardship Code (July 2010).

140 See Walker Review, A Review of Corporate Governance in U.K. Banks and Other Financial Industry Entities: Final Recommendations, Nov. 26, 2009, Recommendations 16–18. The 2010 UK Stewardship Code was based on an earlier Statement of Principles on the Responsibilities of Institutional Investors, which was prepared by the UK Institutional Shareholders’ Committee (ISC) in June 2007 and subsequently transformed into a code in November 2009. See Walker Review, supra Footnote note 140, at ¶ 5.13, Annex 8.

141 See Fin. Reporting Council, supra Footnote note 139.

142 Fin. Reporting Council, The UK Stewardship Code (Sept. 2012).

143 Fin. Reporting Council, The UK Stewardship Code (2020).

144 See generally Jennifer G. Hill, Good Activist/Bad Activist: The Rise of International Stewardship Codes, 41 Seattle U. L. Rev. 497 (2018); Tim Bowley & Jennifer G. Hill, Stewardship and Collective Action: The Australian Experience, in Global Shareholder Stewardship 417 (Dionysia Katelouzou & Dan W. Puchniak eds., 2022).

145 See, e.g., John C. Coffee, Jr., Systemic Risk after Dodd-Frank: Contingent Capital and the Need for Regulatory Strategies beyond Oversight, 111 Colum. L. Rev. 795, 799 (2011).

146 See, e.g., John Plender, Shut Out, Fin. Times, Oct. 18, 2008 (asking “where were the shareholders?”); Walker Review, supra Footnote note 140, at ¶ 5.11 (stating that “[w]ith hindsight it seems clear that the board and director shortcomings … would have been tackled more effectively had there been more vigorous scrutiny and engagement by major investors acting as owners”); Andrew G. Haldane, Chief Economist, Bank of England, Who Owns A Company?, speech given at University of Edinburgh Corporate Finance Conference, 8, 11 (May 22, 2015), https://www.bis.org/review/r150811a.pdf (accessed June 14, 2022) (stating that “companies tend to have higher valuations when institutional investors are a large share of cashflow, perhaps reflecting their stewardship role in protecting the firm from excessive risk-taking”).

147 A later version of the code made large claims, stating that “[e]ffective stewardship benefits companies, investors and the economy as a whole.” See Fin. Reporting Council, supra Footnote note 142, at 1.

148 For a list of jurisdictions that have to date adopted stewardship code or analogous initiatives, see Alice Klettner, Stewardship Codes and Shareholder Participation in Governance, 70 Governance Directions 227, 228–29, Table 1 (2018). See also Dionysia Katelouzou and Mathias Siems, The Global Diffusion of Stewardship Codes, in Global Shareholder Stewardship 631 (Dionysia Katelouzou & Dan W. Puchniak eds., 2022).

149 Katelouzou & Klettner, supra Footnote note 95.

150 Jurisdictions in Asia that have adopted a form of stewardship code to date include Japan, Malaysia, Hong Kong, Taiwan, Singapore, South Korea, and Thailand. Id.

151 See, e.g., Paul Davies, Shareholders in the United Kingdom, in Research Handbook on Shareholder Power 355, 356 (Jennifer G. Hill & Randall S. Thomas eds., 2015); House of Commons Business, Energy and Industrial Strategy Committee, Corporate Governance: Fourth Report of Session 2016–17, Mar. 30 2017 at §§ 13–16.

152 See Puchniak, supra Footnote note 13; OECD, Owners of the World’s Listed Companies, supra Footnote note 13 (Average ownership by category of investor, end-2017). In a controlling blockholder context, increasing shareholder rights or responsibilities may be irrelevant, or indeed counterproductive, as an accountability device. See Luh Luh Lan & Umakanth Varottil, Shareholder Empowerment in Controlled Companies: The Case of Singapore, in Hill & Thomas, supra Footnote note 151, at 572; Kon Sik Kim, Dynamics of Shareholder Power in Korea in Hill & Thomas, supra Footnote note 151, at 535.

153 See Puchniak, supra Footnote note 13; Gen Goto et al., Diversity of Shareholder Stewardship in Asia: Faux Convergence, 53 Vand. J. Transnat’l L. 829 (2020).

154 Dan W. Puchniak & Samantha S. Tang, Singapore’s Puzzling Embrace of Shareholder Stewardship: A Successful Secret, 53 Vand. J. Transnat’l L. 989 (2020).

155 Footnote Id.; Ernest Lim, Sustainability and Corporate Mechanisms in Asia 188–96 (2020).

156 See generally MacNeil & Esser, supra Footnote note 99.

157 For discussion of the significance of authorship of rules in the M&A context, see John Armour & David A. Skeel, Jr., Who Writes the Rules for Hostile Takeovers and Why? The Peculiar Divergence of U.S. and U.K. Takeover Regulation, 95 Geo. L.J. 1727 (2007). See generally Hill, supra Footnote note 144, at 507–13.

158 See Katelouzou & Klettner, supra Footnote note 95; Bowley & Hill, supra Footnote note 95.

159 See generally Klaus J. Hopt, Comparative Corporate Governance: The State of the Art and International Regulation, 59 Am. J. Comp. L. 1, 8 (2011).

160 Footnote Id. at 8–10.

161 See MacNeil & Esser, supra Footnote note 99.

162 See ISG, About the Investor Stewardship Group and the Framework for US Stewardship and Corporate Governance, https://isgframework.org/ (accessed June 14, 2022).

163 ISG, Corporate Governance Principles for U.S. Listed Companies (Jan. 2017), https://www.isgframework.org/corporate-governance-principles/ (accessed June 14, 2022).

164 Signatories to the principles include, for example, BlackRock, Vanguard, and State Street Global Advisers. For the full list of signatories to the ISG Corporate Governance Principles and Stewardship Principles, see https://isgframework.org/signatories-and-endorsers/ (accessed June 14, 2022).

165 Activist hedge fund signatories include Value Act Capital and Trian Partners. Id.

166 See, e.g., ISG, supra Footnote note 163, Principles 1, 2 and 3.

167 See Fin. Reporting Council, About the FRC, https://www.frc.org.uk/about-the-frc, https://www.isgframework.org/corporate-governance-principles/ (accessed June 14, 2022).

168 ASX Corp. Governance Council, Australian Securities Exchange (ASX) Corporate Governance Council, Corporate Governance Principles and Recommendations, 4th ed. (Feb. 2019), https://www.asx.com.au/documents/regulation/cgc-principles-and-recommendations-fourth-edn.pdf (accessed June 14, 2022). The ASX Corporate Governance Council comprises a group of industry stakeholders. See About the Council, Footnote id. at 1.

169 See generally Hill, supra Footnote note 15, at 289 (discussing the ongoing tension between public and private conceptions of the corporation).

170 Fin. Reporting Council, supra Footnote note 117, at 4, Principle A.

171 See generally Jennifer G. Hill, Shifting Contours of Directors’ Fiduciary Duties and Norms in Comparative Corporate Governance, 5 U.C. Irvine J. Int’l Transnat’l & Comp. L. 163, 178–80 (2020). See also Cheffins & Reddy, supra Footnote note 119 (arguing that a “comply or explain” approach is ill-suited to the increased focus on stakeholder interests in the most recent iteration of the UK governance code).

172 See, e.g., Katelouzou & Zumbansen, supra Footnote note 10; Bowley & Hill, supra Footnote note 24; Ringe, supra Footnote note 24; Pollman, supra Footnote note 24, at 668–70.

173 See generally Hill, supra Footnote note 144, at 507–08.

174 Footnote Id. at 508–09.

175 Footnote Id. at 509–13.

176 See generally Bowley & Hill, supra Footnote note 144. See also Gaia Balp & Giovanni Strampelli, Institutional Investor Collective Engagements: Non-Activist Cooperation vs Activist Wolf Packs, 14 Ohio St. Bus. L.J. 135 (2020).

177 See Ben McLannahan, Japanese Reformists Face Challenge over Shake-Up of Corporate Governance Laws, Fin. Times, May 25, 2014.

178 See Gen Goto, The Japanese Stewardship Code: Its Resemblance and Non-resemblance to the UK Code, in Global Shareholder Stewardship 222 (Dionysia Katelouzou & Dan W. Puchniak eds., 2022); Gen Goto, The Logic and Limits of Stewardship Codes: The Case of Japan, 15 Berkeley Bus. L.J. 365 (2019).

179 See generally Hill, supra Footnote note 144, at 513–24.

180 See supra Footnote note 178.

181 See Lim, supra Footnote note 155, at 174.

182 John Kingman, Independent Review of the Financial Reporting Council (“Kingman Review”) (2018).

183 According to the Kingman Review, the 2012 UK Stewardship Code, which it considered in its review, “whilst a major and well-intentioned intervention, is not effective in practice.” Footnote Id. at 8.

184 See Fin. Reporting Council, supra Footnote note 143. See also Fin. Reporting Council, Revised and Strengthened UK Stewardship Code Sets New World-Leading Benchmark (Oct. 24, 2019), https://www.frc.org.uk/news/october-2019/revised-and-strengthened-uk-stewardship-code-sets (accessed June 14, 2022).

185 See Fin. Reporting Council, supra Footnote note 143, at 11, 13. The 2020 UK Stewardship Code followed the recommendations of the Kingman Review in this regard. See Kingman, supra Footnote note 182, at 10.

186 See Fin. Reporting Council, supra Footnote note 143, at 15, 27; Paul Davies, The UK Stewardship Code 2010–2020: From Saving the Company to Saving the Planet?, in Global Shareholder Stewardship 44 (Dionysia Katelouzou & Dan W. Puchniak eds., 2022). ESG has become an increasingly important issue in many stewardship codes in recent times. See Katelouzou & Klettner, supra Footnote note 95 (discussing the interplay between hard law and soft law, in the form of stewardship codes, in relation to ESG and sustainability issues).

187 See generally Hill & Conaglen, supra Footnote note 28.

188 See Hill, supra Footnote note 15, at 290–91; Davies, supra Footnote note 186 (highlighting the enlarged objectives of the revised UK Code); Bobby V. Reddy, The Emperor’s New Code? Time to Re-Evaluate the Nature of Stewardship Engagement under the UK’s Stewardship Code 84 Mod. L. Rev. 842, 849 (2021); Katelouzou & Klettner, supra Footnote note 95.

10 Empire and the Political Economy of Fiduciary Law

1 See Gertrude Bonnin et al., Oklahoma’s Poor Rich Indians: An Orgy of Graft and Exploitation of the Five Civilized Tribes – Legalized Robbery (1924). Zitkala-Ŝa was the name that Gertrude Bonnin, then Gertrude Simmons, chose for herself. Cathy N. Davidson & Ada Norris, Introduction, in Zitkala-ša, American Indian Stories, Legends, and Other Writings xi, xv (Cathy N. Davidson & Ada Norris eds. 2003).

2 See Davidson & Norris, supra Footnote note 1, at xxv.

3 Bonnin et al., supra Footnote note 1, at 26. Zitkala-Ŝa’s coauthors were Charles Fabens, a representative of the Indian Defense Association, and Matthew Sniffen, of the Indian Rights Association. See Footnote id. at 1.

4 Footnote Id. at cover page.

5 Footnote Id. at 5.

6 Footnote Id. at 6.

7 Footnote Id. at 15.

8 To be sure, the report’s findings were questioned, sometimes with bigoted disdain, and the report’s tone was criticized, including by the Commissioner of Indian Affairs at a hearing of the Committee on Indian Affairs shortly after the report’s publication. See House of Representatives, 68th Cong., Hearing before the Committee on Indian Affairs on H.J. Res. 181, at 28 (Feb. 21, 1924) (Rep. Sproul) (criticizing proposal to fund further “investigation based upon a report of some women folks”); Footnote id. at 24–25 (statement of Comm’r of Indian Affairs Charles H. Burke) (stating that “I deplore propaganda”). But the Commissioner agreed with the substance of the report, which has been reaffirmed by subsequent studies. See Footnote id. at 25 (statement of Comm’r of Indian Affairs Charles H. Burke); see also Andrea Seielstad, The Disturbing History of How Conservatorships Were Used to Exploit, Swindle Native Americans, Univ. of Dayton Magazine (Aug. 20, 2021), at https://udayton.edu/magazine/2021/08/conservatorship.php.

9 See, e.g., Robert H. Sitkoff, The Economic Structure of Fiduciary Law, 91 B.U. L. Rev. 1039, 1040–45 (2011) (arguing that fiduciary law is a solution to an agency problem that stems from incomplete contracting due to transaction costs); Frank H. Easterbrook & Daniel R. Fischel, Contract and Fiduciary Duty, 36 J.L. Econ. 425, 426 (1993) (describing fiduciary duty of loyalty as legal rule that “promote[s] the benefit of contractual endeavors in a world of scarce information and high transaction costs”).

10 Tamar Frankel, Fiduciary Law, 71 Calif. L. Rev. 795, 802 (1983). For a qualified autonomy-enhancing account, see Hanoch Dagan, Fiduciary Law and Pluralism, in The Oxford Handbook of Fiduciary Law 832, 839 (Evan J. Criddle et al. eds. 2019) (“fiduciary types are not always autonomy enhancing, but many fiduciary types are”).

11 In stopping with the 1960s, I do not mean to imply that international trusteeship has disappeared altogether as a concept or practice. See Ralph Wilde, International Territorial Administration: How Trusteeship and the Civilizing Mission Never Went Away (2008).

12 On law and political economy, see, e.g., Jedediah Britton-Purdy et al., Building a Law-and-Political-Economy Framework: Beyond the Twentieth-Century Synthesis, 129 Yale L.J. 1784 (2020); David Kennedy, Law and the Political Economy of the World, 26 Leiden J. Int’l L. 7 (2013).

13 This chapter builds upon prior studies by bringing both fiduciary legal theory and TLO theory to bear upon questions about not only the ideological roles but also the institutional roles that public and private fiduciary law played in imperialism. See Wilde, supra Footnote note 11; Antony Anghie, Imperialism, Sovereignty, and the Making of International Law (2005); William Bain, Between Anarchy and Society: Trusteeship and the Obligations of Power (2003); Robert A. Williams, Jr., The American Indian in Western Legal Thought (1992); Andrew Fitzmaurice, Sovereign Trusteeship and Empire, 16 Theoretical Inq. L. 447 (2015).

14 See Joshua Getzler, Rumford Market and the Genesis of Fiduciary Obligations, in Mapping the Law: Essays in Memory of Peter Birks 577, 590–93 (Andrew Burrows & Alan Rodger eds. 2006); R. M. Helmholz, The Roman Law of Guardianship in England, 1300–1600, 52 Tul. L. Rev. 223, 224 (1978).

15 See Lauren Benton, A Search for Sovereignty: Law and Geography in European Empires, 1400–1900, at 226–27 (2010) (discussing works by international lawyers and colonial officials who “argued for the limits of applying international law to systems of quasi-sovereignty [within imperial contexts] and at times imagined imperial power as trending irreversibly toward a unified system of sovereignty”).

16 Treaty of Peace between the Allied and Associated Powers and Germany art. 22, June 28, 1919, 2 Bevans 43, 56.

17 See Terence C. Halliday & Gregory Shaffer, Transnational Legal Orders, in Transnational Legal Orders 3, 5 (Terence C. Halliday & Gregory Shaffer eds. 2015) (defining a “transnational legal order,” or TLO, as “a collection of formalized legal norms and associated organizations and actors that authoritatively order the understanding and practice of law across national jurisdictions”).

18 It is worth stressing the point that fiduciary law played an institutional role in framing relations among imperialists and not just a role in framing relations between imperial powers and those subject to their rule. See infra Footnote notes 68Footnote 71 (making this point with respect to role of trusteeship in controversies between Parliament and English East India Company); Footnote id. at 108–10 (same with respect to Berlin Conference of 1884–85 and the Congo Free State).

19 See, e.g., Anghie, supra Footnote note 13; Williams, supra Footnote note 13. My own contribution is Seth Davis, American Colonialism and Constitutional Redemption, 105 Calif. L. Rev. 1751 (2017).

20 An important exception is Antony Anghie’s argument that the Mandate System of the League of Nations’ Mandate System established “an intricate and far-reaching network of economic relationships” involving the exploitation of the labor and resources of peoples in the mandate territories. Anghie, supra Footnote note 13, at 180.

21 See Andrew Phillips & J. C. Sharman, Outsourcing Empire: How Company-States Made the Modern World (2020); Philip J. Stern, The Company-State: Corporate Sovereignty and the Early Modern Foundations of the British Empire in India (2012).

22 See, e.g., Nick Robins, The Corporation That Changed the World (2012).

23 See Claudio Saunt, Financing Dispossession: Stocks, Bonds, and the Deportation of Native Peoples in the Antebellum United States, 106 J. Am. Hist. 315, 318 (2019).

24 Bonnin et al., supra Footnote note 1.

25 See Tamar Frankel, Fiduciary Law xviii (2011).

26 See, e.g., Sitkoff, supra Footnote note 9, at 1040.

27 See, e.g., Easterbrook & Fischel, supra Footnote note 9, at 426.

28 Frankel, supra Footnote note 10, at 802. Frankel’s description of a fiduciary society as one that does not emphasize domination is echoed by Evan Criddle’s account, which links fiduciary law and republican political theory to argue that fiduciary law “safeguard[s] individuals from ‘domination,’ understood as subjection to another’s alien control.” Evan J. Criddle, Liberty in Loyalty: A Republican Theory of Fiduciary Law, 95 Texas L. Rev. 993, 995 (2017).

29 Frankel, supra Footnote note 25, at 6–7. Not everyone concurs in the autonomy-enhancing account, of course. Lionel Smith has argued that “[i]n every fiduciary relationship, the fiduciary acquires control over a part (or in some cases, all) of another person’s autonomy.” Lionel Smith, Fiduciary Relationships: Ensuring the Loyal Exercise of Judgement on Behalf of Another, 130 LQR 608, 613 (2014). In arguing to the contrary that trust and autonomy are not necessarily at odds, Carolyn McLeod & Emma Ryman have argued that “fiduciaries can, and should, act as relational supports for their beneficiaries’ (relational) autonomy.” Carolyn McLeod & Emma Ryman, Trust, Autonomy, and the Fiduciary Relationship, in Fiduciaries and Trust: Ethics, Politics, Economics, and Law 74, 86 (Paul Miller & Matthew Harding eds. 2020). Qualifying the autonomy-enhancing account even further, Hanoch Dagan has argued that fiduciary law is a “heterogeneous” legal category, one within which some, but not all, types of fiduciary relationships “enhance autonomy.” Dagan, supra Footnote note 10, at 832.

30 Michael Halberstam & Justin Simard, Lawyers as Trusted Agents in Nineteenth-Century American Commerce, 45 L. & Soc. Inquiry 132 (2020).

31 Footnote Id. at 135–36.

32 Footnote Id. at 134.

33 Footnote Id. at 139. On Aaron Burr and John C. Calhoun, see Catherine R. Blondel-Libardi, Rediscovering the Litchfield Law School Notebooks, 46 Conn. Hist. Rev. 70, 70 (2007).

34 Halberstam & Simard, supra Footnote note 30, at 140.

35 Twelfth Annual Address Delivered before the Mahoning County Agricultural Society, at Canfield, Ohio (Oct. 1858).

36 Footnote Id. at 4.

37 Footnote Id. at 16.

38 H. F. Raup, An Overview of Ohio Place Names, 30 Names: A Journal of Onomastics 49, 49 (1982).

39 Not every transfer of land from Native peoples was coerced or obtained through fraud. But not every transfer was free and fair, either. See generally Stuart Banner, How the Indians Lost Their Land (2005).

40 Camilla Townsend, Fifth Sun: A New History of the Aztecs 103 (2019). “Tlatoani” may be translated as “king.” Footnote Id. at x. For much of its history, however, Tlaxcala was more like what political theorists would today call a “republic” than a “monarchy.” David Stasavage, The Decline and Rise of Democracy: A Global History from Antiquity to Today 41 (2020).

41 Townsend, supra Footnote note 40, at 103.

42 Footnote Id. at 85, 103.

43 Footnote Id. at 103–04.

45 See Ayşe Zarakol, Before the West: The Rise and Fall of Eastern World Orders 176 (2022).

46 Townsend, supra Footnote note 40, at 100.

47 On Charles V’s piety, see, e.g., Martti Koskenniemi, To the Uttermost Parts of the Earth: Legal Imagination and International Power 1300–1870, at 119 (2021) (explaining that royal confessor’s “influence on Charles V … was pervasive” and that “for Charles hardly any matter lacked … a [spiritual] dimension”).

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