The Global South in Comparative Corporate Governance

How does the Global South relate to the global debates on corporate governance? Studies in this area, like their counterparts in other areas of law, have traditionally focused on a handful of usual suspects from the Global North, thereby neglecting most of the world. The Global South, here understood as a synonym for developing countries, has been repeatedly overlooked. Since the late twentieth century, interest in the “emerging markets”—including those of Brazil, China, and India—has soared in view of their growing economic clout. Nevertheless, the corporate law and governance arrangements of these and other developing jurisdictions have often been examined based on the particular lenses and metrics conceived by the Global North.

In a chapter for the forthcoming Oxford Handbook on Corporate Law and Governance (Jeffrey N. Gordon & Wolf-Georg Ringe eds.), I explore both traditional and novel views on corporate governance in the Global South. The traditional view is that corporate laws in the Global South are antiquated, failed transplants of Global North institutions, or plagued by enforcement problems. Weaknesses in related institutions, such as poor contract enforcement and capital market failures, push for adaptations in ownership structures and governance arrangements. The result is that family ownership, business groups, and state ownership are particularly prevalent in the Global South. This view retains much descriptive and explanatory power, but it offers an incomplete portrayal of corporate law and governance in the Global South.

I also present a different perspective that conceives the Global South as a relevant site of innovation and experimentation in corporate law and governance in light of its particular economic, social, and institutional context. Specifically, I explore how high levels of inequality and issues of state capacity in addressing externalities and distribution through other areas of law have pushed corporate laws in the Global South to deviate from Global North standards in pursuing heterodox forms of stakeholder protection. Examples of such heterodox stakeholderism include the mitigation of limited liability for the benefit of workers, consumers, and the environment in Brazil, the adoption of mandatory corporate social responsibility spending in India, and the promotion of Black stock ownership and board representation and South Africa. Yet these institutional innovations in the Global South are often ignored due to the longstanding assumptions that these legal systems are fully derivative—or, worse, failed copies—of their “legal origins” in the Global North. In this limited, if influential view, Brazil, India, China, and South Africa are described as having French civil law, German civil law, and common law systems.

My analysis focuses primarily on the “BICS” countries—Brazil, India, China, and South Africa—as the jurisdictions that have attracted the lion’s share of attention in the corporate governance literature. I show that, in the last decades, the BICS have experienced both significant growth in local capital markets and greater integration with international stock markets. The stock markets of the BICS have more than doubled their initial ratio of capital market capitalization to GDP since the 2000s. By comparison, the largest four Global North economies (Germany, United States, Japan, and the United Kingdom) experienced more modest levels of capital market growth, with the exception of Japan, whose equity markets recovered from a previous crisis during this period.

Moreover, Global South firms are increasingly prevalent in Global North capital markets. A growing share of IPOs in the United States now comes from BICS countries, especially China and Brazil. As of January 2023, there were hundreds of Chinese companies listed on U.S. exchanges, and more than 40 Brazilian companies, including 16 through direct listings. The rise of direct listings in the United States by both China and Brazil through companies incorporated in the Cayman Islands and other small off-shore financial centers shows these countries’ contribution to “Delaware’s new competition,” or what I term “the Caymanization of global corporate governance.” The phenomenon is also not limited to public firms, as the venture capital industry in Latin America increasingly operates through Delaware and/or Cayman Islands vehicles.

The Global South has also directly influenced the direction of global policymaking on corporate governance in other ways. Concerns about poor corporate governance in Global South jurisdictions motivated the “rise of international corporate law”—the plethora of influential guidelines and best practices by the OECD, the IMF, the World Bank, and the United Nations, among others. Broader concerns about regulatory gaps in the Global South with respect to human rights and environmental protection have helped propel global trends in corporate governance such as the ESG movement and human rights due diligence, thus contributing to the resurgence of stakeholderist proposals and reforms also in the Global North. Interestingly, the growing interest in stakeholder-oriented approaches in the Global North can also be interpreted as a form of “reverse convergence” in comparative corporate governance, with institutions of the Global North coming to resemble their Global South counterparts.

It is time to pay greater attention to the Global South in the study of comparative corporate governance—including by covering a wider array of Global South jurisdictions. Their legal systems are not simply utter failures or mere copies of those in the Global North as is often assumed. This broader focus has the potential not only of enlarging our institutional imagination but also of enriching our understanding of the driving forces behind the evolution of corporate law around the world.

The working paper is available here.