Prof. Junhai Liu

The globalization of corporate governance based on invisible soft law and visible hard law

Corporate Governance is extremely important not only for the sustainable growth of corporations, but also for the inclusive prosperity of global economy. With global financial crisis or European financial crises is not the result of the failures of governmental regulation. In contrary, it is the result of the failure of corporate governance. Weak or incompetent governmental regulation will not necessarily create corporate collapse or financial crisis, if the corporate governance of business firms in particular the financial institutions really works
In my opinion, good governance is a better alternative than government regulation. Good governance does not distort the free and rational market and the moral entrepreneurship. Instead, it could efficiently enhances freedom of contracts, financial and commercial innovations, free and fair competition, and inclusive social responsibility. Therefore, he international community should encourage the competition, interaction and partnership between good corporate governance and good governmental regulation.
Good governance is not only a philosophy, but also a set of institutional arrangements and voluntary commercial practice. Good institutional arrangements, good people and good culture are three equally important factors. However, good corporate law and corporate governance in any given jurisdiction is unable to be achieved without the higher level of mutual learning and transplanting of successful international and foreign experiences.
As the globalization and digitalization of national economies, the globalization of corporate governance is inevitable and irreversible. That is why OECD/G20 Principles of Corporate Governance was released in 2015 to recommend that Members and non-Members having adhered to this Recommendation take due account of the Principles.

This author argues that the OECD/G20 Principles of Corporate Governance need to be transformed into both soft law and hard law. Neither purely soft law approach, nor purely hard law approach is wise choice. Therefore, both invisible soft law and visible hard law need to be upgraded based on the best practices in different jurisdictions. To promote the compatible and balanced development of soft law and hard law, this author proposes several policies.

First, the autonomy or self-governance of market participants, including business corporations, directors, senior executives, gate keepers and professional intermediaries need to be strengthened by both soft law and hard law. Second, the self-regulation of stock exchanges and chambers of commerce including the association of listed corporations, the association of securities industry, the association of securities investment fund industry need to be supported by high level of soft law above hard law. Third, the governmental regulation, which is supposed to start to work only in case of market failure, should be based on hard law. Fourth, the judicial remedy and ADR is need to enforce both soft law and hard law. Fifth, the mass media has great role to play in improving corporate governance based on both soft law and hard law. Sixth, the advocates for public investors activism should promote the upgrading of soft law and hard law. Seventh, impartial and global academic research and criticism should play the leading role in facilitating the globalization of corporate governance.