If these weaknesses are present in an extreme form, judicial enforcement of corporate law will collapse -- as it largely has in Russia. But total breakdown is merely one end of a continuum. Courts may be able to enforce simple rules and resolve easy cases, at least some of the time. Just as the criminal law deters as long as the police catch some criminals, the corporate law can deter misbehavior as long as some misdeeds are remedied in the courts. 3 Enforcement will be easier if courts can often resolve disputes by applying bright-line rules rather than broad standards addition to having weak courts, emerging markets are unlikely to have administrative agencies that can handle issues, such as financial disclosure that benefit from detailed rulemaking and administrative enforcement. Moreover, these markets lack the nonleg enforcement resources found in developed economies, including self-regulatory institutions (such as the New York and London Stock Exchanges and the British Panel on Takeovers and Mergers) and private firms that protect clients against abuse and reduce informational asymmetries(such as investment banking, law, and accounting firms). Accounting rules in emerging economies are likely to be weak or nonexistent and administered by a commensurately undeveloped profession. Russia, for example, has rudimentary and sometimes bizarre accounting rules that were developed for state enterprises, and virtually no accountants with training comparable to that of American certified public accountants In developed economies, disclosure is an important constraint on management behavior Disclosure of management self-dealing can lead to formal enforcement. Disclosure of self- alary by ten times or more by returning to the private sector as a lawyer-- leaving the incompetent and the corrupt to staff the judiciary For example, Russia's dematerialized system of shareholding, in which the company register is the only official record of share ownership, creates a risk that company managers will simply erase an unwanted shareholder from the shareholder register. The Russian lawyers whom we asked about this risk expressed confidence that such an effort would fail -- the shareholder could go to court and get her ownership interest restored. An important test of this belief involves Krasnoyarsk Aluminum. In late 1994, the managers of this reputedly mafia-controlled firm canceled the register entry for a foreign investor(also with some unsavory connections)who claimed to own 20% of the companys shares, and forcibly barred the investor's representatives from attending a shareholder meeting. See Russian Aluminum: King of the Castle?, Economist Jan. 21, 1995, at 62. The subsequent lawsuit by the shareholder has not yet been resolved 32 For example, the Russian Securities Commission was formally created by presidential decree only in November 1994. The Commission has a tiny budget and an almost nonexistent staff. See, e.g, Steve Liesman, Roiling Stock: Shareholders Meetings in Russia Set Stage for Free-Market Fight, Wall St J. Eur., Apr. 20 1995, at I [hereinafter Liesman, Roiling Stock]. Its members include representatives of the Ministry of Finance and the Central Bank, both of which opposed the Commission s creation and continue to lobby for limits on its power. See, e.g., id. Steve Liesman, Russia's Central Bank Appears to Call for Removal of Top Securities Regulator, Wall St. J, Sept. 8, 1995, at A6 33 For an extreme example, the Russian Ministry of Finance, which issues accounting rules, requires companies to account for as profit(and pay taxes on) the excess of the sale price of shares over the nomina par )value of the sharessalary by ten times or more by returning to the private sector as a lawyer -- leaving the incompetent and the corrupt to staff the judiciary. 31 For example, Russia's dematerialized system of shareholding, in which the company register is the only official record of share ownership, creates a risk that company managers will simply erase an unwanted shareholder from the shareholder register. The Russian lawyers whom we asked about this risk expressed confidence that such an effort would fail -- the shareholder could go to court and get her ownership interest restored. An important test of this belief involves Krasnoyarsk Aluminum. In late 1994, the managers of this reputedly mafia-controlled firm canceled the register entry for a foreign investor (also with some unsavory connections) who claimed to own 20% of the company's shares, and forcibly barred the investor's representatives from attending a shareholder meeting. See Russian Aluminum: King of the Castle?, Economist, Jan. 21, 1995, at 62. The subsequent lawsuit by the shareholder has not yet been resolved. 32 For example, the Russian Securities Commission was formally created by presidential decree only in November 1994. The Commission has a tiny budget and an almost nonexistent staff. See, e.g., Steve Liesman, Roiling Stock: Shareholders Meetings in Russia Set Stage for Free-Market Fight, Wall St. J. Eur., Apr. 20, 1995, at 1 [hereinafter Liesman, Roiling Stock]. Its members include representatives of the Ministry of Finance and the Central Bank, both of which opposed the Commission's creation and continue to lobby for limits on its power. See, e.g., id.; Steve Liesman, Russia's Central Bank Appears to Call for Removal of Top Securities Regulator, Wall St. J., Sept. 8, 1995, at A6. 33 For an extreme example, the Russian Ministry of Finance, which issues accounting rules, requires companies to account for as profit (and pay taxes on) the excess of the sale price of shares over the nominal (par) value of the shares. 14 If these weaknesses are present in an extreme form, judicial enforcement of corporate law will collapse -- as it largely has in Russia. But total breakdown is merely one end of a continuum. Courts may be able to enforce simple rules and resolve easy cases, at least some of the time. Just as the criminal law deters as long as the police catch some criminals, the corporate law can deter misbehavior as long as some misdeeds are remedied in the courts.31 Enforcement will be easier if courts can often resolve disputes by applying bright-line rules rather than broad standards. In addition to having weak courts, emerging markets are unlikely to have administrative agencies that can handle issues, such as financial disclosure, that benefit from detailed rulemaking and administrative enforcement.32 Moreover, these markets lack the nonlegal enforcement resources found in developed economies, including self-regulatory institutions (such as the New York and London Stock Exchanges and the British Panel on Takeovers and Mergers) and private firms that protect clients against abuse and reduce informational asymmetries (such as investment banking, law, and accounting firms). Accounting rules in emerging economies are likely to be weak or nonexistent and administered by a commensurately undeveloped profession. Russia, for example, has rudimentary and sometimes bizarre accounting rules that were developed for state enterprises, and virtually no accountants with training comparable to that of American certified public accountants.33 In developed economies, disclosure is an important constraint on management behavior. Disclosure of management self-dealing can lead to formal enforcement. Disclosure of self-