Our second central claim is that despite the context-specificity of effective corporate law, there is a large class of emerging capitalist economies (including formerly Communist countries)that are sufficiently similar to permit generalization about the type of corporate law that will be useful for them. Russia is perhaps an extreme case, but it is hardly alone in having insider-controlled companies, malfunctioning courts, weak and sometimes corrupt regulators, and poorly developed capital markets. For example, an acute problem in Russia is protecting minority investors against exploitation by managers or controlling shareholders. Protection of minority investors has also emerged as a central political issue in the most successful post- Communist economy the Czech Republic. 4 and is at the core of recent reforms in Israeli corporate law 5 Our third claim is that our task is not impossible. Despite weak markets and institutions, one can design a company law that prevents a significant fraction of the corporate governance failures that would otherwise occur. Even developed country corporate governance systems fail with uncomfortable frequency. We can expect still more failures in emerging markets. Nonetheless, it is possible to design a law that works tolerably well -that vests substantial decisionmaking power in large outside shareholders, who have incentives to make good decisions; that reduces, though it cannot eliminate fraud and self-dealing by corporate insiders; that minimizes, though it cannot altogether avoid, the need for official enforcement through courts; that gives managers and controlling shareholders incentives to obey the rules even when they could often get away with ignoring them; that reinforces desirable cultural attitudes about proper managerial behavior; and that still leaves managers with the flexibility they need to take risks and make quick decisions. Such a law can add far more value than corporate law adds in developed economies, precisely because other institutions that could shape corporate behavior are weak in developing economies The central features of our"self-enforcing"model of corporate law are See Vincent Boland Kevin Done, Prague to Update Market Regulations, Fin. Times, Oct. 24, 1995 S See Uriel Procaccia, Crafting a Corporate Code from Scratch, Public Lecture at Cardozo Law School 12-14 (Oct. 18, 1995)(on file with the Harvard Law School Library) 6 See generally Jonathan P. Charkham, Keeping Good Company: A Study of Corporate Governance in Five Countries(1994)(detailing failures in the United States, Britain, Germany, Japan, and France); Mark J. Roe, Strong Managers, Weak Owners: The Political Roots of American Corporate Finance 149-230 (1994)(United States, Japan, Germany); Bernard S. Black John C Coffee, Jr, Hail Britannia?: Institutional Investor Behavior Under Limited Regulation, 92 Mich. L. Rev. 1997, 2007-77(1994)(Britain); Ronald J Gilson Reinier Kraakman, Imvestment Companies as Guardian Shareholders: The Place of the MSIC in the Corporate Governance Debate, 45 Stan. L Rev. 985, 992-97(1993)(Sweden ); Ronald J. Gilson Mark J Roe, Understanding the Japanese Keiretsu: Overlaps Between Corporate Governance and Industrial Organi=ation, 102 Yale LJ.871,874-82(1993)(Japan)4 See Vincent Boland & Kevin Done, Prague to Update Market Regulations, Fin. Times, Oct. 24, 1995, at 30. 5 See Uriel Procaccia, Crafting a Corporate Code from Scratch, Public Lecture at Cardozo Law School 12-14 (Oct. 18, 1995) (on file with the Harvard Law School Library). 6 See generally Jonathan P. Charkham, Keeping Good Company: A Study of Corporate Governance in Five Countries (1994) (detailing failures in the United States, Britain, Germany, Japan, and France); Mark J. Roe, Strong Managers, Weak Owners: The Political Roots of American Corporate Finance 149-230 (1994) (United States, Japan, Germany); Bernard S. Black & John C. Coffee, Jr., Hail Britannia?: Institutional Investor Behavior Under Limited Regulation, 92 Mich. L. Rev. 1997, 2007-77 (1994) (Britain); Ronald J. Gilson & Reinier Kraakman, Investment Companies as Guardian Shareholders: The Place of the MSIC in the Corporate Governance Debate, 45 Stan. L. Rev. 985, 992-97 (1993) (Sweden); Ronald J. Gilson & Mark J. Roe, Understanding the Japanese Keiretsu: Overlaps Between Corporate Governance and Industrial Organization, 102 Yale L.J. 871, 874-82 (1993) (Japan). 3 Our second central claim is that despite the context-specificity of effective corporate law, there is a large class of emerging capitalist economies (including formerly Communist countries) that are sufficiently similar to permit generalization about the type of corporate law that will be useful for them. Russia is perhaps an extreme case, but it is hardly alone in having insider-controlled companies, malfunctioning courts, weak and sometimes corrupt regulators, and poorly developed capital markets. For example, an acute problem in Russia is protecting minority investors against exploitation by managers or controlling shareholders. Protection of minority investors has also emerged as a central political issue in the most successful post￾Communist economy, the Czech Republic,4 and is at the core of recent reforms in Israeli corporate law.5 Our third claim is that our task is not impossible. Despite weak markets and institutions, one can design a company law that prevents a significant fraction of the corporate governance failures that would otherwise occur. Even developed country corporate governance systems fail with uncomfortable frequency.6 We can expect still more failures in emerging markets. Nonetheless, it is possible to design a law that works tolerably well -- that vests substantial decisionmaking power in large outside shareholders, who have incentives to make good decisions; that reduces, though it cannot eliminate, fraud and self-dealing by corporate insiders; that minimizes, though it cannot altogether avoid, the need for official enforcement through courts; that gives managers and controlling shareholders incentives to obey the rules even when they could often get away with ignoring them; that reinforces desirable cultural attitudes about proper managerial behavior; and that still leaves managers with the flexibility they need to take risks and make quick decisions. Such a law can add far more value than corporate law adds in developed economies, precisely because other institutions that could shape corporate behavior are weak in developing economies. The central features of our "self-enforcing" model of corporate law are: