3 Methodology
3.1 Methodological Approach
The rest of this article empirically examines whether participants are adopting the
Model Articles as the articles of association for private companies, as a way to evaluate whether the Model Articles achieve the UK government’s aims by representing
a majoritarian default approach. We achieve this by exploring whether the majority
of companies are, in fact, using the Model Articles. To do so, we adopt a quantitative, or leximetric, methodology. The term ‘leximetrics’ was coined in 2003 by
Cooter and Ginsburg54 to describe a quantitative analytical style that developed in
the late 1990s. Leximetrics is a ‘quantitative form of empirical methodology’.55 Lele
and Siems state that: ‘“Leximetrics” can be understood as every quantitative measurement of law’.56 The pioneers of this approach were La Porta, Lopez-de-Silanes,
Shleifer and Vishny, who in two articles in the late 1990s began the methodological school.57 La Porta and others applied scores to laws within various jurisdictions.
When comparing these to various fnancial metrics applicable to that jurisdiction,
they were able to draw lines of correlation between aggregate scores for certain legal
norms and fnancial metrics. They therefore selected a series of variables in legal
norms and applied coding to allow them to establish correlations between diferent
scores and fnancial metrics. It is important to note that such correlation does not
imply causation.
58
The approach of La Porta and others, ‘has been and is still cited frequently and
usually uncritically, in legal as well as economic journals’.59 Two key strands of criticism emerge: those of variable selection; and those of coding. On the selection of
variables, Lele and Siems have stated:
[T]he selection of variables must be intelligible and wide enough to function
as a proxy for shareholder protection in general, which is not the case with La Porta et al’s eight variables. They do not fully capture the most signifcant
aspects of the law.60
It is therefore important to select the variables used within a leximetric data set
correctly, especially when trying to use the data (as La Porta et al did) to make more
general statements about the legal landscape. Sometimes more variables are required
in order to provide a more complete understanding of the issue.61 Lele and Siems
emphasise the importance of ‘functionality’ within variables—that legal rules may
achieve the same function in ways which appear very diferent. It is therefore important to ensure that variables are tested functionally rather than by formal appearance. There have been issues raised with how La Porta and others coded their scores
within variables.
Spamman has found that re-coded data varies greatly from the ofcial La Porta data set.62 Similarly, Cools found that the coding ignored various other
legal devices to achieve the same ends.63 It is therefore important to ensure that the
coding is consistently and accurately performed on a functional basis when undertaking leximetric research.
Leximetrics began as a method by which to analyse diferent legal approaches to
shareholder protection and their efects, but has developed considerably. It is widely
used in comparative law from testing whether corporate laws converge over time,64
to comparisons of collateral and bankruptcy law,65 to comparing labour law between
jurisdictions.66 Such studies have also become more sophisticated in their analysis.
Thus, studies have commenced comparing jurisdictions over time67 and phenomena
within a single jurisdiction over time.68 This approach shows the fexibility of a leximetric model: rather than a traditional qualitative analysis, any laws can be subject
to a leximetric, quantitative analysis provided that the variables and the coding are
correct.
For application to this article, the most important recent development of leximetric methodology occurred in the context of strategic reporting. Esser, MacNeil and
Chalaczkiewicz applied a leximetric approach to establish whether companies were
complying with strategic reporting requirements.69 Rather than variables as to ‘law’
being coded, variables as to ‘compliance’ were coded. This approach shows that
leximetrics can be extended beyond coding laws to establish whether market participants are complying with statutory requirements of non-fnancial reporting. In other
words, we can use the leximetric approach to measure what is actually taking place in the market. We therefore use a leximetric approach to establish whether market
participants are diverging from the default position contained in the Model Articles or not. Other empirical studies have reviewed whether market participants use
default rules in corporate governance.70 Using leximetric techniques, we therefore
establish whether market participants conform to the default regime across a number
of variables, showing that these variables have met the aims of the UK government,
or diverge from the default regime.
We establish whether market participants are using the Model Articles using public fling systems. A company’s constitution, together with any changes to it, must
be publicly fled.71 There have been recent reforms to the public register which
increases its utility for empirical research.72 Whilst this register has always been
publicly searchable, the search methods have been very cumbersome. A searcher
was able to review data on ‘microfche’
,73 but this was particularly time consuming.
This prevented the primary gathering of data, but more importantly, prevented the
verifcation of any data collected which undermined the value of the quantitative
research. This data was eventually uploaded online, and was accessible in exchange
for payment for each document reviewed. On 22 June 2015 information became easier to access with the launch of a new website which ofers a free ‘beta’ search of the
Companies House data.74 The free data enables easier data gathering and verifcation, however, it does not contain all (especially historical) records of companies,
and accordingly when faced with the two options the paid service is more reliable.
Nonetheless, the beta service is especially useful for research, enabling free access
to data for the primary data gatherer and any subsequent verifcation of that dataset
by third parties.
This is key to ensuring that the often stark results of leximetric
analysis are, in fact, accurate.75 Between January 2018 and March 2018 there were
167,717 companies incorporated in the UK.76 If the rate of incorporation was constant then this implies over 6,000,000 companies have been incorporated since 1
October 2009. Reviewing all of these articles to establish whether they converge to
or diverge from the Model Articles is impractical. Accordingly, we selected a sample of these companies
