Corporate law, as we define it above, is generally understood to have a largely economic function in developed economies. This function might be characterized as maximizing the value of corporate enterprises to investors and therefore (on the whole)to society, or as minimizing the sum of the transaction and agency costs of contracting through the corporate form. From this perspective, corporate law provides a set of rules(often default rules that can be varied in the corporate charter)that encourage profit-maximizing business decisions, provide professional managers with adequate discretion and authority, and protect shareholders (and to some extent creditors)against opportunism by managers and other corporate insiders But no one imagines that corporate law accomplishes these objectives by itself. Many other control mechanisms also limit departures from the profit-maximization norm. In the United States, for example, a competitive product market, a reasonably efficient capital market an active market for corporate control, incentive compensation for managers, and at least occasional oversight by large outside shareholders all exert pressures on corporate managers to enhance firm value. Sophisticated professional accountants, elaborate financial disclosure, an active financial press, and strict antifraud provisions assure shareholders of reliable information about company performance. Sophisticated courts(such as the Delaware Chancery Court), administrative agencies(such as the Securities and Exchange Commission ), and self-regulatory organizations(such as the New York Stock Exchange)keep sharp eyes out for corporate skullduggery These multiple private and legal controls shoulder much of the burden of protecting investors in public companies, so that the corporate law itself can tilt far in the direction of providing managerial discretion and enhancing transactional flexibility. Most American state corporate statutes(typified by Delaware's) have evolved into"enabling"laws, many of whose major provisions are default rules. Moreover, many of the mandatory rules in American corporate codes have survived because they are either unimportant, avoidable through advance planning, or match reasonably well what the parties would have chosen anyway. The statutes are accompanied by fiduciary doctrines that give the courts wide latitude to review opportunistic behavior ex post, but the courts generally punish only the most egregious instances of self-dealing or recklessness. All else is left to private institutions and the market B. The Goals of Corporate Law in Emerging Economies B See, e. g, American Law Inst, Principles of Corporate Governance: Analysis and Recommendations S2.01(a)(1994)hereinafter Principles of Corporate Governance](stating that, subject to certain constraints, a corporation should have as its objective the conduct of business activities with a view to enhancing corporate profit and shareholder gain"(citation omitted). There are important departures from this norm, such as German codetermination or the antitakeover provisions in some American state corporate laws. But these are seen as just that --departures from an overall efficiency norm. We do not enter here the debate over whethe corporate law can or should encourage companies to pursue goals other than profit maximization 4 See black, Is Corporate Law Trivial?, supra note 3, at 551-6213 See, e.g., American Law Inst., Principles of Corporate Governance: Analysis and Recommendations § 2.01(a) (1994) [hereinafterPrinciples of Corporate Governance] (stating that, subject to certain constraints, "a corporation should have as its objective the conduct of business activities with a view to enhancing corporate profit and shareholder gain" (citation omitted)). There are important departures from this norm, such as German codetermination or the antitakeover provisions in some American state corporate laws. But these are seen as just that -- departures from an overall efficiency norm. We do not enter here the debate over whether corporate law can or should encourage companies to pursue goals other than profit maximization. 14 See Black, Is Corporate Law Trivial?, supra note 3, at 551-62. 8 Corporate law, as we define it above, is generally understood to have a largely economic function in developed economies. This function might be characterized as maximizing the value of corporate enterprises to investors and therefore (on the whole) to society, or as minimizing the sum of the transaction and agency costs of contracting through the corporate form.13 From this perspective, corporate law provides a set of rules (often default rules that can be varied in the corporate charter) that encourage profit-maximizing business decisions, provide professional managers with adequate discretion and authority, and protect shareholders (and to some extent creditors) against opportunism by managers and other corporate insiders. But no one imagines that corporate law accomplishes these objectives by itself. Many other control mechanisms also limit departures from the profit-maximization norm. In the United States, for example, a competitive product market, a reasonably efficient capital market, an active market for corporate control, incentive compensation for managers, and at least occasional oversight by large outside shareholders all exert pressures on corporate managers to enhance firm value. Sophisticated professional accountants, elaborate financial disclosure, an active financial press, and strict antifraud provisions assure shareholders of reliable information about company performance. Sophisticated courts (such as the Delaware Chancery Court), administrative agencies (such as the Securities and Exchange Commission), and self-regulatory organizations (such as the New York Stock Exchange) keep sharp eyes out for corporate skullduggery. These multiple private and legal controls shoulder much of the burden of protecting investors in public companies, so that the corporate law itself can tilt far in the direction of providing managerial discretion and enhancing transactional flexibility. Most American state corporate statutes (typified by Delaware's) have evolved into "enabling" laws, many of whose major provisions are default rules. Moreover, many of the mandatory rules in American corporate codes have survived because they are either unimportant, avoidable through advance planning, or match reasonably well what the parties would have chosen anyway.14 The statutes are accompanied by fiduciary doctrines that give the courts wide latitude to review opportunistic behavior ex post, but the courts generally punish only the most egregious instances of self-dealing or recklessness. All else is left to private institutions and the market. B. The Goals of Corporate Law in Emerging Economies