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University of New South Wales Law Journal. Volume 32, Number 2 (2009), p. 390-415.


capital market regulation; corporate governance; Financial Crisis; market fundamentalism; stakeholder governance


Much has been written about the current crisis in the global financial system, and many thoughtful analyses have examined the causes and consequences of that crisis. This paper joins those analyses that argue that the crisis reveals flaws in the theoretical underpinnings of capital market regulation, particularly in those markets that had relied upon the assumptions of ‘market fundamentalism’ as a regulatory philosophy. We suggest a more Northern European approach to market regulation better accommodates the social values necessary to ensure stable, equitable economies. In these approaches, economic actors make decisions after having consulted relevant stakeholders. By taking this view, we challenge the tendency in Anglo-American regulatory theory to rely on the self-interest of market participants as an adequate substitute for external constraints on risk-creating activity, and we challenge the perspective that suggests that the financial system can be thought of as properly separate from social values and considerations. In various Northern European countries corporate governance systems have been developed in which the management has legal requirements to interact with various stakeholder groups, enabling broader social values than shareholder wealth maximizing to be considered within the market sphere. We argue that these systems offer inspiration for market reform. In making this argument we do not idealise the legal systems of these countries, which also have their weaknesses. Our argument is that there are aspects of Northern European stakeholder governance, specifically Dutch corporate governance, that represent means by which the law can be used to allow markets to better incorporate social values. We conclude with a number of policy suggestions for incorporating such corporate governance values into capital market regulation.

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