Approaches to Teaching Comparative Corporate Governance
Natalia D. McKinstry[1]
Abstract
The paper focuses on emergence and challenges of teaching new customized courses in legal studies at the business programs at the University of Phoenix. The paper reflects on experiences and techniques in teaching comparative corporate governance for business students. The paper addresses the vitality of legal transplants in the areas of law and corporate compliance, the models of corporate governance and other key concepts in the convergence-divergence debate. The paper raises issues of changes in modern law school curriculum toward conceptualized and problem-oriented courses and customization of courses offered in the business programs. The author maintains that business students should master understanding of basic legal terms and concepts before proceeding to situational and problem-solving tasks. New curriculum calls for improvement of facilitation techniques and materials, including quizzes and multiple choice questions, hypotheticals and interactive activities. This will improve quality of education and ensure that student acquire key competences in corporate governance, including the doctrine of separation of ownership and control, agency theory, types of legal persons, models of corporate governance, shareholders’ rights, duties and liabilities of the boards and managers, insider control, codes of ethics, mechanisms and costs of governance, and those of regulatory compliance. The University of Phoenix actively includes faculty into the curriculum revisions and discussions of teaching techniques, which make faculty feel appreciated and involved. Even though customization of business courses poses many challenges for facilitators in legal studies, the systematic focus on the comparative legal systems and business processes should be consistently implemented.
1. Background
The purpose of this paper is to reflect on some unique experiences in teaching comparative aspects of law, corporate governance in particular. The undersigned received first formal education in law through a five-year graduate program at Rostov University School of Law in the former Soviet Union. Having graduated in 1987, at the onset of Gorbachev’s reforms known as perestroika, and having initially chosen a teaching career in Russia, this educator taught elective courses and seminars, including one in Constitutional Law and Regulatory Regimes in the Capitalist Countries. Yet, ironically, her own education at the time lacked formal training in modern corporate structures in the developed countries.[2]
By the time of admission to Harvard Law School in 1992, I worked for over two years as an in-house counsel for a commercial firm in Moscow, mostly in such industries as construction and foreign trade, and was interning at the committees and working groups at the Supreme Soviet of the U.S.S.R. (due to the fact that I was a postgraduate student at the Institute of Legislation and Comparative Law attached to Russia’s Parliament). This first-hand exposure to the realities of initial post-perestroika redistribution of resources, and reshuffling of power within new Russia’s government structures, left me starved for learning about “error-prove” ways the outside world is dealing with complex issues of private property and governance. One result of this thirst for knowledge was my enrollment in a fourteen-month course in American Law taught by prominent U.S. professors in Moscow under the auspices of Emory Law School. Upon graduation and receipt of a degree of “consultant” in various areas of American law which included Corporations and Securities Transactions, I was invited to visit the United States along with other six best graduates of the program.
During my year at Harvard, I predictably took any and all comparative law courses and seminars related to Russia, including Emergence of Business Law in Russia taught by an Austrian professor and a seminar taught by an American doctoral candidate on Law and Transformations in the Commonwealth of Independent States (the transitional name for the successor of the U.S.S.R.). While the latter was a piecemeal covering a variety of transitional law areas; the former was intended to enrich me on my quest for learning about how business structures and corporate governance processes are supposed to work in Russia. Instead, I found it rather frustrating that readings for several long weeks focused on traditions of pre-revolutionary peasant household in Russia prior to 1917. I understood it was one of the techniques for introducing American law students into the Russian culture. However, to me they appeared just an outdated slices of life, as odd and irrelevant as to the majority urban-for-generations Russians in the 1990s. Having lived in that society and culture for twenty-six years, I had no doubt that Soviet totalitarian regime and absence of the rule of law was the roots for certain behavior patterns, rather than the peculiarities of pre-1917 peasant households. In all fairness, we discussed interesting hypothetical situations, and my Austrian professor was in retrospective right blaming the “shock therapy,” widely believed to be masterminded by American advisors, for shortcomings in my country of origin. Meanwhile, I still felt hunger for filling gaps in my understanding of the balance of power between shareholders, directors, stakeholders, etc., an understanding that my American classmates grew up with and my non-Russian professors may be did not even know I need to learn.
The vitality of legal transplants was in the foreground of my doctorate dissertation at Washington University School of Law; it focused on the U.S. sunshine laws and whether and how they may be applicable for Russia. Along with my academic pursuits, I worked as a contractor for seven years facilitating training programs for Russian lawyers and executives in the U.S. run by the Center for Citizen Initiatives. Module-based brainstorming sessions which I led at the end of the training day, often produced heated debates, the essence of which was how, if ever, the Russian trainees would use the presentation material in their law practice and businesses in Russia.
2. Reflections on Comparative Law and Corporate Governance
Whether legal concepts can be successfully transplanted onto foreign soil has been debated in a variety of disciplines in the 1990s. Thereafter, globalization has invigorated the complexity of comparativism dilemma. In essence, modern societies are sometimes tempted, sometimes pressured into the seeming ease of “borrowing” legal concepts from other systems that seem to work there. The dangers arise, of course, when such transplants clash with the legal cultures, sabotaged by interest groups, or get rejected by regulatory environment in the borrowing country.
The differences between American and Russian systems of law are rooted, beyond ideological and developmental divergence, in the distinction between common law and civil (continental) law systems. Similarly, what is referred to in comparative corporate governance as the “convergence-divergence debate” derives from the division between the American and European models of ownership systems. The former is known as the “outsider system” with dispersed shareholders’ ownership, whereas the latter, the “insider system,” represents a concentrated model of corporate governance oriented towards the stakeholders, not just shareholders.[3]
Corporate governance theorists use the term “path dependence” to describe the inter-connection between corporate governance systems, on the one hand, and historical and cultural traditions in respective countries.[4] This view is laden with skepticism as to the transplant’s vitality in the soil of the receiving country. By contrast, the supporters of the convergence theory[5] maintain an approach which can be reduced to something along the following lines: “borrow if it costs you nothing and worked for others.” The lending country’s desire to “feed” its concepts, sometimes regardless of their suitability, and the borrowing government’s greed to binge on them virtually “for free” are some of the potential side effects of ignorance and/or greed in the field of legal transplants.
Having basic foundation is crucial for both versions of corporate governance developments. One of recurring questions in my years of module-based facilitating for the Russian businessmen was concentrated on the fact that Russian society has been overregulated. Where the United States produced a combination of self-regulation, industry regulations and various legal mechanisms within the system of checks and balances, Russian businesses were still dependent on, and suffering from state policing and ineffectiveness of enforcement of amassed and frequently changing rules. One implication for the Russian interns in the U.S. was that instead of typical accountability systems in corporate world they focused on anti-bribery, basic transparency, and overcoming societal inertia or sabotage. They still had to create, and learn to live with, risk assessment, reporting mechanisms, auditing guidelines, leadership oversight, internal control standards and policies, and reporting and remedial systems. Countering bribery and advising Russia’s parliamentarians on desirable changes in laws were in the foreground. Codes of ethics and rules of professional conduct were perceived as almost unnecessary luxury in the overregulated environment. As a result of privatization, state-controlled by apparatchiki and fixed by the insiders (referred to as oligarchs), any ideas of dispersed ownership remain just that, utopian ideas. Needless to say, Russian would be hard pressed to find applicable such concepts as consensus-based accountability systems or shareholders as rule-makers, common in the United States and elsewhere.
3. Challenges of Teaching Law to Business Students
Being a faculty member at the University of Phoenix in St. Louis for five years, the undersigned had encountered specific challenges of teaching law to undergraduate and graduate students enrolled in business programs. Legal curriculum for business students, also referred to as “legal studies,” is (and has to be) different from that for law students. Besides regular issues which facilitating classes for working adults posses, such as time constrains, law often seems counter-intuitive to laymen. Thus, it is essential to convey some foundation before getting into specificity of, say, employment law or corporate compliance. These conceptual bases include such topics as understanding of the U.S. court system, the division between civil and criminal law, ADR (alternative dispute resolution) processes, contracts, torts, and other fundamentals.
Interestingly, it appears that law schools just recently recognized this importance of basic concepts and problem-solving for the first-year law students. This year, Harvard Law School changed its 1L curriculum to include, in addition to traditional first-year curriculum (including Criminal Law, Civil Law, Torts, Contracts), courses in public international law, international economic law, and comparative law; a new course in legislation and regulation; and another new course called “Problems and Theories,” enabling students to learn complex problem solving.[6]
Undoubtedly, learning objectives are different for first-year law students and for business students taking their first (and sometimes the only) course in law. However, both contingents need to gain conceptual strength to proceed to more specific legal topics or to be able to identify and deal with legal risk in their business environment. This approach to legal issues as an “environment” and “risks” is specific for graduate courses at the UoP’s business programs. Whereas undergraduate courses (such as BUS415, Business Law, or MGT434, Employment Law) focus on specific area of law, this “environmental/risk-containment” approach is evident in graduate courses, such as LAW529, Legal and Regulatory Environment of Business, or MBA560, Enterprise Risk.
It is presumed that students should master understanding of basic legal terms and concepts before proceeding to situational and problem-solving tasks. Quizzes or true/false questions reminding previous week’s milestones and multiple choice activities can not be underestimated. These exercises are useful in helping to draw clear distinctions, for example, between guilt and liability, implied-in-fact and implied-in-law contracts, types of the agents’ authority vis-à-vis the principals and the third parties.
One serious challenge in learning law for laymen is the fact that court rulings and legal solutions frequently have little to do with common sense. Therefore, it is essential that legal studies for business students emphasize the rationales for the general direction in the ruling precedent or statutory law. Evidently, even the leading law schools are taking this approach, significantly reducing time traditionally spent dissecting case law or focusing on the technicalities which led the case to end up at one or another level of the court system in favor of problem-oriented and conceptualized approaches.
4. Reflections on Emerging Customized Course(s) in Comparative Corporate Governance
Similar approaches should be prevalent when contemplating new customized courses for business program at the University of Phoenix (UoP). This new strategy is built on the theory articulated by Chris Anderson in his 2006 book titled “The Long Tail.”[7] The UoP is aiming at expanding and detailing its course offerings. Comparative aspects of law and corporate compliance should become one of the “emphases” within this new vision of business curriculum. This would allow offering specializations and competencies in complex, fast-paced and inter-disciplinary areas.
Recently, a number of the University of Phoenix’s business programs have been accredited by the ACBSP (the Association of Collegiate Business Schools and Programs), one of the two CHEA-recognized organizations (the Council for Higher Education Accreditation) accrediting business programs (along with the AACSB). The University of Phoenix emphasizes interactive facilitative processes and experience-bases student learning. This accreditation is one significant step in empowering law faculty to teach legal frameworks to business students.
A recent survey aimed at identifying usefulness of business law topics to graduates in their jobs demonstrates that “laws concerning partnerships and corporations were… reported to be either very useful or somewhat useful by 70.8 percent, while only 47.8 percent reported frequent or sometimes encounters with this law.”[8] Topics such as corporations and other business entities were reported to be useful by 35.2 percent of the respondents, following very close after such topics as contracts found traditionally useful (48.1 percent).[9] In their work, business students would have to learn to recognize and deal with regulatory and transactional risks of business world.
The key competences which business students have to master include, but are not limited to, such central doctrines as separation of ownership and control, agency theory, types of legal persons, models of corporate governance, shareholders’ rights, duties and liabilities of the boards and managers, insider control, codes of ethics, mechanisms and costs of governance, and those of regulatory compliance. Courses in comparative corporate governance are offered by variety of American and foreign educational institutions, such as Duke University School of Law and Vanderbilt University Law School.
It is important that the UoP actively includes faculty into the curriculum revisions and discussions of teaching techniques. This is being done both on-ground, through faculty workshops and discussions of classroom assessment techniques (CAT) at faculty meetings. The University of Phoenix also encourages faculty input in newsgroups and discussion forums. The faculty is made feel a valuable force in implementing education strategies. At the same time, watching faculty exchange teaching tips such as borrowing each other’s quizzes make you question whether instruction materials are up to the current requirements. After all, if all kinds of activities have been in abundance for every week of every course, perhaps the facilitators would not need to swap each other’s tests or adapt those they used in other courses.