SOCIETÀ ITALIANA DI DIRITTO ED ECONOMIA
Casimiro A. Nigro (Goethe Universität)
Luca Enriques (University of Oxford)
Abstract
Private ordering is key to enabling investors to design firm-specific governance arrangements. Sophisticated contracting parties, possibly aided by specialized lawyers, can engage in complex private ordering exercises with the potential to yield agency cost-minimizing governance structures. Venture capital (‘VC’) contracting is a notable example. Through decades-long iterations, US VC contracts have emerged as the best real-world solutions to the challenges bedevilling the financing of high-tech firms, thus informing transactional practice globally.
Legal regimes, including corporate law, can stand in the way of the “transplant” of US VC contracts. In previous work, we have refined the argument that corporate law matters because its inflexibility may stand in the way. We have provided systematic evidence that German and Italian corporate laws in action hinder the transplant of nearly all the individual components of US VC contracts and the adoption of functionally equivalent solutions, compelling contracting parties to adopt less functional alternative arrangements. We have incidentally spotlighted that the ultimate reason for this outcome is much less often blackletter corporate law than its interpretations by scholars, concerned as they are with ensuring the consistency of the system as a whole. This eventually results in the ‘über-mandatory’ structure of Italian (and German) corporate law(s), which results in a labyrinth of rules and standards that then penetrate everyday transactional practice with the intermediation of legal advisors, notaries, courts, and arbitrators.
After summarizing the results of our research, this Essay now complements it by inquiring into the proximate and ultimate reasons why Italian corporate law exhibits such an über-mandatory structure. It sheds light on the larger framework that ultimately determines Italian corporate law in action, namely the internal and external legal culture of Italian (corporate) law scholars. It shows that those scholars widely share an almost unfettered inclination to ‘find’ new legal principles with little to no explicit basis in the relevant legislation, almost invariably of a mandatory nature. Therefore, corporate players find themselves trapped within a corporate law regime that looks like a labyrinth of restrictions that makes it extremely difficult for parties to resort to private ordering solutions even when no plausible economic rationale exists for curtailing their contractual freedom. At a higher level, a combination of economic, ideological, and academic forces contributes to this outcome. First, legal professionals’ inclination to extend the domain of mandatory corporate law is consistent with their self-interest: the more expansive the net of rules and principles that (are deemed to) exist, the higher the demand for legal services and, hence, the higher their rents. Second, a political culture favourable to private ordering is largely alien to Italian legal elites, who are largely keen on distrusting decentralized law-making and purely market-based outcomes. Finally, Italian legal academics have strong incentives to find new mandatory rules and principles if they aim to establish themselves as well-respected scholars among their peers: a finding that no implicit rule or standard trumps contractual freedom requires little, if any, sophistication and virtually no deployment of the articulate toolkit of doctrinal legal scholarship.