Showing papers in "European Business Organization Law Review in 2008"
TL;DR: In this paper, the authors consider the buyout's implications for agency theory, pointing to three lessons: three-way association among control transfers, governance discipline and hostile takeovers, suggesting that this triptych needs to be unbundled and reconsidered.
Abstract: It is time to consider the lessons to be learned from the recent boom in private equity buyouts, not least in view of its abrupt termination in the wake of tightened credit. In the past, such inquiries have been undertaken in the context of agency theory and have focused on the buyout’s implications for solving the problem of separation of ownership and control. This article reverses the pattern of inquiry to consider the buyout’s implications for agency theory, pointing to three lessons. The first lesson addresses agency theory’s three-way association among control transfers, governance discipline and hostile takeovers, suggesting that this triptych needs to be unbundled and reconsidered. The buyout’s recent salience implies that we need no longer assume that hostility is the acquisition mode best suited to post-merger disciplinary governance. The second lesson concerns agency theory’s account of buyout motivations. The theory posits a world where agency cost reduction determines control outcomes at the transactional margin. On first inspection, private equity buyouts neatly fit this picture. But a deeper examination shows that buyouts are driven by the economics of leverage, with agency cost reduction taking only a secondary motivational role. The third lesson follows from financial returns. Even as buyouts ameliorate the agency costs of separated ownership and control, buyout structures implicate their own agency costs in the form of fees paid to buyout firms. Studies show that buyout firms take so much of the gain that the institutions investing in buyout funds would be better off investing in market indices. There result questions for the line of agency theory that looks to institutional investors as agency cost-reducing monitors. There also result questions respecting buyouts’ incentive compatibility, questions raising doubts as to whether buyout governance structures hold out a template for improving corporate governance generally, even as a matter of agency theory.
16 citations
TL;DR: In this article, the authors show that Islamic finance has a much longer history than expected and is applying similar principles as debated by the Greek philosophers as well as early theologians, and the main product types such as partnership contracts, predictable return products, leasing and investment certificates are explained.
Abstract: One of the areas of the financial industry that appears to be the least harmed by the current market turmoil is the Islamic finance industry. Generally, it is accepted that the history of Islamic finance started in the early 1960s, but is that really where it all began? This article shows that Islamic finance has a much longer history than expected and is applying similar principles as debated by the Greek philosophers as well as early theologians. In addition, the main product types such as partnership contracts, predictable return products, leasing and investment certificates are explained.
15 citations
TL;DR: In this paper, the authors present some evidence concerning the nature of co-determination using a sample of Danish employee-appointed board members, showing that even though Danish employee representatives only occupy one third of the seats and by design are always in a minority, they argue that they have a relatively high degree of influence on the decision-making process.
Abstract: This article presents some evidence concerning the nature of co-determination using a sample of Danish employee-appointed board members. Even though Danish employee representatives only occupy one third of the seats and by design are always in a minority, they argue that they have a relatively high degree of influence on the decision-making process. This is especially profound in listed firms, where nearly 30 per cent state that they have much influence on the decision-making process, compared to 7 per cent who argue that they have no influence at all. For reasons that remain unclear, the results also document that male employee representatives claim a higher degree of influence than their female colleagues. It is shown that employee representatives have a dispersed educational background and that their occupations vary greatly in both listed and non-listed firms. The many different legal faces of European co-determination are also described. Finally, the article demonstrates that Danish employee representatives say that they care less about shareholder value compared to the supervisory board as a whole.
15 citations
TL;DR: Based on twenty-five semi-structured interviews with company chairmen, they were able to establish that there is resounding support for the split of the positions of chairman and CEO as discussed by the authors.
Abstract: Based on twenty-five semi-structured interviews with company chairmen, we were able to establish that there is resounding support for the split of the positions of chairman and CEO. In addition, chairmen play a key role in making the board a success, partly by establishing the right tone and procedure at the top. The chairmen we interviewed believe that the quality of boards has improved over the last ten years and that directors take their responsibilities more seriously. However, the drive for better corporate governance, though generally welcome, has in some respects become counterproductive.
14 citations
TL;DR: In this article, two perspectives are underrepre-sented in the discussion: firstly, an analysis from a regulatory perspective, i.e., from the government's point of view; secondly, analysis that draws on the recent literature on behavioral economics, experimental economics, and psychology.
Abstract: Usually, reflections on corporate governance take an inside perspective, i. e., a shareholder’s or a director’s point of view. Two perspectives are underrepre-sented in the discussion: firstly, an analysis from a regulatory perspective, i. e., from the government’s point of view; secondly, an analysis that draws on the recent literature on behavioral economics, experimental economics, and psychology. This paper tries to compensate for this gap in the literature.
12 citations
TL;DR: The European Private Company (EPC) as discussed by the authors is a vehicle for a wide group of companies that can operate in and move to any part of Europe under a single set of regulations.
Abstract: The European Private Company (EPC) is best understood as part of the effort of providing a uniform statute for a wide group of companies that can operate in and move to any part of Europe under a single set of regulations. Starting from the suggestion that the EPC might increase the level of trade overall, the author goes on to point out that this vehicle may produce distinct advantages for a wide group of companies. The author points to the key role the EPC could play in the development of inward investment in the European Union, particularly in stimulating cooperative joint ventures. Importantly, the EPC may be useful to countries that have recently entered or are planning to join the European Union. The article explores the two types of companies that are likely to adopt the EPC and examines the set of model articles of association for the draft statute, which include a wide range of company law elements, including fiduciary duties, a business judgment rule, pre-emption rights, voting rules and valuation rules on share transfer.
12 citations
Eni1
TL;DR: The Second Company Law Directive allows the EU Member States to introduce different means of creditor protection, as suggested by recent academic studies on the function of legal capital and by various existing proposals for alternative regimes.
Abstract: This contribution sets out to establish whether, and if so to what extent, the Second Company Law Directive allows the EU Member States to introduce different means of creditor protection, as suggested by recent academic studies on the function of legal capital and by various existing proposals for alternative regimes The conclusion is that the Second Company Law Directive is a flexible instrument in so far as it allows Member States to impose capital requirements that are as severe as they want and it allows Member States to adopt solvency-based systems similar to those existing outside the EU The recent amendments introduced by Directive 2006/68/EC have already simplified the requirement of an expert evaluation of contributions in kind, relaxed the share buy-back provisions and eliminated the ban on financial assistance Moreover, Member States are not obliged to require companies to prepare individual IAS/IFRS-based accounts for dividend distribution purposes, and Member States that decide to do so may (but are not obliged to) introduce various mechanisms that limit the possibility of distributing unrealised profits according to the realisation principle entrenched in the Fourth Company Law Directive As far as no par value shares are concerned, the Second Company Law Directive already allows the introduction of de facto no par value shares in the form of accountable par shares
10 citations
TL;DR: In this paper, the authors provide a more critical framework of the reforms and identify the shortcomings of what has been incorrectly perceived as economic reasoning, which is the major criticism of these reforms is that they are excessively oriented by economic reasoning.
Abstract: Many governments, as well as the European Commission, have engaged in active reforms of the legal profession (namely with regard to lawyers). This paper analyses the relevant dimensions of these reforms (access, fees, marketing, organisation and conduct). One of the major criticisms of these reforms is that they are excessively oriented by economic reasoning. This paper provides a more critical framework of the reforms and identifies the shortcomings of what has been incorrectly perceived as economic reasoning.
10 citations
TL;DR: Even though the GmbH is an established legal entity that has remained (largely) unchanged for over a century, recent abuses and the pressure of foreign competition has caused the German government to propose significant changes as mentioned in this paper.
Abstract: Even though the GmbH is an established legal entity that has remained (largely) unchanged for over a century, recent abuses and the pressure of foreign competition has caused the German government to propose significant changes. While not opting for a fundamental and groundbreaking reform, it has put forward a number of smaller modifications that will change the face of the GmbH.
9 citations
TL;DR: In this paper, it is argued that forum shopping can have beneficial effects both for the company and for its creditors, and that strong safeguards for creditors who oppose the migration are in place.
Abstract: Cross-border forum shopping for a different insolvency law regime has become popular within the European Union in recent years. Yet legislators, courts and legal scholarship react with suspicion when debtors cross the border only to benefit from a different insolvency law system. The most prominent legal tool, the European Insolvency Regulation, is based on the assumption that forum shopping has a negative impact on the functioning of the European Internal Market.This paper questions the hostile attitude towards the phenomenon of forum shopping. It is argued that forum shopping can have beneficial effects both for the company and for its creditors, and that strong safeguards for creditors who oppose the migration are in place. Furthermore, the validity of the COMI approach of the Regulation under the fundamental freedoms of the Treaty is questioned; it is suggested that the current regime needs to be amended. The proposed new system would enable more corporate mobility within the European Union and create more legal certainty for all constituencies at the same time.
8 citations
TL;DR: In this paper, the authors explore the extent to which the fair trade and ethical trading movements can be a way of influencing trading policies and, more specifically, to what extent that influence can be said to be democratic in nature.
Abstract: This paper explores the extent to which the fair trade and ethical trading movements can be a way of influencing trading policies and, more specifically, to what extent that influence can be said to be democratic in nature. It is argued that the ethical trading movements have the potential to assist in democratisation and that the debate should concentrate on the extent to which they should be recognised as part of mainstream political thinking and legitimated by affording them a role in political decision making. Adopting a relational approach to democracy, the authors ask whether a failure to integrate social movements as significant trust networks has contributed to a process of de-democratisation in developed states. The paper goes on to reconsider the parameters of democracy theory (i) by reconsidering the central role of the state in democracy to suggest an evolving interpretation of democracy that focuses on processes between civil society and centres of power, and not necessarily processes between civil society and the state, and (ii) by examining the evolution of #x2018;democracy’ theorisation to question the marginalisation of ‘socio-economic’ democracy in favour of institutional democracy. The authors suggest that the insistence on institutional democracy derives from a nationalist, state-centric conception of democracy and that the socio-economic element of democracy is now determined by global governance as opposed to state governance. On this basis, the paper considers whether the fair trade movement and other ethical trading movements may hold democratic value as a form of mediation between civil society and corporations as today’s ‘centres of power’.
TL;DR: In order to attract investment, States commit themselves to treaties that restrict their regulatory sovereignty in ways that are sometimes unpredictable, owing to vague terms in the treaties and the broad use by investment tribunals of their delegated discretion as discussed by the authors.
Abstract: Foreign direct investment forms an ever more important part of globalised market structures, and international investment law has become one of the most successful and judicialised areas of public international law. In order to attract investment, States commit themselves to treaties that restrict their regulatory sovereignty in ways that are sometimes unpredictable, owing to vague terms in the treaties and the broad use by investment tribunals of their delegated discretion.
TL;DR: In this article, the question of whether EC freedom of establishment really allows Member States to place any limit on the "emigration" of nationally registered companies is addressed. And the question whether a new Directive is needed to allow the transfer of a company's registered office and the identity-preserving company law changes.
Abstract: Following the ECJ’s recent case law on EC freedom of establishment (the Centros, Uberseering and Inspire Art cases), regulatory competition for corporate law within the European Union takes place at an early stage of the incorporation of new companies. In contrast, as regards the ‘moving out’ of companies from the country of incorporation, the ECJ once considered a tax law restriction against the transfer abroad of a company’s administrative seat as compatible with EC freedom of establishment (the Daily Mail case). For years, this decision has been regarded as applicable to all restrictions imposed by countries of incorporation, even the forced liquidation of the ‘emigrating’ company. This paper addresses the question whether EC freedom of establishment really allows Member States to place any limit on the ‘emigration’ of nationally registered companies. It argues that EC freedom of establishment covers the transfer of the administrative seat as well as the transfer of the registered office and, therefore, that the country of incorporation cannot liquidate ‘emigrating’ companies. In addition, it addresses the question whether a new Directive is needed to allow the transfer of a company’s registered office and the identity-preserving company law changes. It argues that such a Directive is necessary to avoid legal uncertainty and to protect the interests of employees, creditors and minority shareholders, among others, who could be detrimentally affected by the ‘emigration’ of national companies.
TL;DR: In this article, the authors examine the circumstances where direct government regulation could be supplemented with a mix of self-regulatory and coregulatory strategies, and assess whether the reforms will have practical significance.
Abstract: Hedge funds and private equity increasingly play an important role in the financial services industry and corporate governance in Europe and the United States. Activist hedge funds and private equity firms have developed similar investment strategies that are designed to influence the corporate governance and organisational structure of publicly listed companies. A large number of hedge funds, for example, have adopted an investment strategy to accumulate large positions in publicly listed companies, using their ownership positions to engage in monitoring of management. Activist hedge funds often make direct interventions in the corporate governance of target firms, confronting management teams by demanding specific actions, such as changes in management, company capital structure, dividend policy and company strategy, in order to increase shareholder value. The investment strategy of private equity buyout funds is to target publicly listed companies which they can take private for a period of restructuring and governance changes. Eventually, the firm will either be returned as a publicly listed company or be sold to a strategic buyer or another investor. Activist hedge funds and private equity firms have recently come under scrutiny by regulators who are concerned about the effect of the strategies used by these funds on the companies in which they invest and the capital markets in which they operate. Existing accounts focus on the mechanisms in corporate law, taxation and labour law to address current practices of hedge fund and private equity firm managers. We examine the circumstances where direct government regulation could be supplemented with a mix of self-regulatory and co-regulatory strategies. We conclude by analysing the various regulatory responses to the propensity of activist hedge funds and private equity firms to act in concert and assess whether the reforms will have practical significance.
TL;DR: In this article, the authors present results of an ongoing research project on corporate financing patterns in Central and Eastern Europe (CEE) since 1999, and analyze the interactions between country institutional differences, firm ownership structures, other firm-specific characteristics and corporate financial patterns in both the EU-15 and NMS.
Abstract: The paper presents results of an ongoing research project on corporate financing patterns in Central and Eastern Europe (CEE) since 1999. It addresses three broad issues. What are the specifics of corporate financing in CEE compared to countries in Western Europe? What country institutional and company factors may explain the similarities and differences between capital structures in the EU-15 and New Member States (NMS)? What are the major convergence and divergence trends in corporate financing patterns in an enlarged Europe? The study analyses the interactions between country institutional differences, firm ownership structures, other firm-specific characteristics and corporate financial patterns in both the EU-15 and NMS. It summarises the firm-level evidence and outlines several unresolved questions and major dimensions for further research.
TL;DR: In this article, the authors give an account of the proceedings and resolutions of the 67th German Jurists Forum in Erfurt in September 2008 and analyses their significance within the broader context of German company law and other current reform proposals.
Abstract: The paper gives an account of the proceedings and resolutions of the 67th German Jurists Forum in Erfurt in September 2008 and analyses their significance within the broader context of German company law and other current reform proposals. The first part of the paper is devoted to the fundamental policy question that was the main topic of the 67th German Jurists Forum: are specific legal provisions for listed and non-listed companies advisable? After sketching the historical background and the status quo of German law, the paper briefly outlines the reform concept presented by Professor Bayer in his expert report and then summarises the gist of the debates and resolutions on this issue. The second part of the paper focuses on the vast range of other topical issues discussed during the debates, most notably the intense discussion on the reform of the legal regime governing shareholder suits in order to tackle the persisting problem of ‘marauding shareholders’ [‘rauberische Aktionare’]. Other prominent issues included the calculation of compensation payments to shareholders, the proposal to give German stock corporations the freedom to choose between a one-tier and a two-tier system of management, and various proposals to provide more flexibility for non-listed companies. The paper concludes that although the German Jurists Forum in general took a rather conservative stance, it also made powerful and well-reasoned reform recommendations with respect to the important issues of compensation payments and the legal regime regarding shareholder suits.
TL;DR: In this paper, the authors argue that the Greek corporate governance framework is fragile not only because investor protection standards are inconsistent and insufficient, but also because institutional inefficiencies undermine the effectiveness of enforcement mechanisms.
Abstract: The paper employs law and finance analysis to critically discuss the quality of corporate governance and investor protection in Greece. The paper argues that the Greek corporate governance framework is fragile not only because investor protection standards are inconsistent and insufficient, but also because institutional inefficiencies undermine the effectiveness of enforcement mechanisms. The paper recognises that institutional reform should proceed in tandem with regulatory and supervisory modernisation. Nonetheless, acknowledging that the former requires significant political commitment and takes time, several proposals with a more immediate and direct effect on improving the investor protection regime are made. In particular, the paper: (a) favours the streamlining of minimum, legally binding, bright-line corporate governance norms reflecting internationally accepted standards in conjunction with a ‘comply or explain’ approach, while also considering the upgrading of corporate gatekeepers’ liability — especially that of accountants and lawyers; (b) argues for the enhancement of private enforcement as a supplement to public enforcement mechanisms; and (c) supports the shifting of supervisory and enforcement attention to corporate managers’ liability.
TL;DR: In this article, the general characteristics of limited liability principles and exemptions to limited liability introduced for creditor protection in Turkish Law are examined and the future of the limited liability in Turkish law by examining the Draft Commercial Reform Bill.
Abstract: This article examines the general characteristics of limited liability principles and exemptions to limited liability introduced for creditor protection in Turkish Law. In the first section, it examines the general application of limited liability in the Turkish Commercial Code. In the second section, it examines the exemptions to limited liability introduced by case law and statutory laws. This work concentrates on recent developments that might attract interest at international level by broadening the discussion in the area of limited liability. Thus, this article does not cover every exemption. The chosen examples introduce fundamental and controversial exemptions to the limited liability principle. The third section of the article examines the future of limited liability in Turkish law by examining the Draft Commercial Reform Bill. As the Draft Bill introduces some exemptions to limited liability in corporate groups, the issue is examined in detail as a special concern.
TL;DR: In this paper, the main features of the SE as a legal entity under French law facilitating the formation of European groups are reviewed, as well as reasons for choosing the French SE regime from the point of view of corporate and employment law.
Abstract: The Regulation and the Directive on the Statute for a European company introduce a new corporate structure under French law justifying the inclusion of new chapters in both the Commercial Code and Labour Code of France. In order to assess the merits of this new alternative, the benefits offered by the SE structure and regime need to be examined in comparison with existing corporate structures under French law, in particular the SA, which is the structure that the SE most resembles. This article reviews the main features of the SE as a legal entity under French law facilitating the formation of European groups. It also looks at reasons for choosing the French SE regime from the point of view of corporate and employment law. The SE is clearly most valuable in cases where the scope of business is European, in which context it can facilitate transnational mergers and joint operations, make the transfer of registered offices possible and serve as a model for streamlining the corporate governance of European groups. If, on the whole, the French legislator has proved conservative with regard to the SE, even in implementing the Directive on labour side, he has nevertheless granted the ‘French’ SE plenty of freedom in the statutes regarding the definition of relationships among shareholders.
TL;DR: The judgment of the Court of First Instance in Microsoft represents a major success for the European Commission in its fight against abuses of a dominant position as discussed by the authors, and the Court upheld the Commission's findings that Microsoft abused its dominant position by refusing to supply interoperability information that is indispensable for competitors to be able to viably compete in the work group server operating system market.
Abstract: The judgment of the Court of First Instance in Microsoft represents a major success for the European Commission in its fight against abuses of a dominant position. The Court upholds the Commission's findings that Microsoft abused its dominant position by refusing to supply interoperability information that is indispensable for competitors to be able to viably compete in the work group server operating system market. Moreover, the Court upholds the recordfine of approximately EUR 497 million. According to the Court, the judgment does not contain any legal novelty, as it simply applies earlier Magill/IMS Health case law. However, it may be argued that thejudgment does contain a legal novelty as to the scope of the so-called new product condition. Specifically, it may be argued that the J. udgment considerably diminishes the scope for a dominantfirm to rely on intellectual property rights as a defence in antitrust proceedings concerning the abuse ofa dominant position. (Less)
TL;DR: In this paper, the authors compare and contrast two solutions to these problems that are being developed: the first by the Nordic-Baltic countries for handling Nordea, which wishes to take advantage of the European Company Statute in the legal framework of the EU/EEA, and the second by New Zealand, where most of the banks are Australian-owned.
Abstract: The growth of banks operating across national borders through branches poses problems for the regulatory and supervisory authorities, which are historically organised on a national basis, particularly in relation to their responsibility for financial stability, crisis resolution, deposit insurance and other aspects of the safety net. This article compares and contrasts two solutions to these problems that are being developed: the first by the Nordic-Baltic countries for handling Nordea, which wishes to take advantage of the European Company Statute in the legal framework of the EU/EEA, and the second by New Zealand, where most of the banks are Australian-owned. The first case reflects an attempt at a joint approach and a universalist solution that seeks greater harmonisation, while the second case reflects a territorial approach and the recognition of differences. Both show that there is already a much wider problem that needs to be addressed, even when banks operate across borders through subsidiaries. Halfway houses between internationalisation and renationalisation of responsibility seem rather less plausible routes to success, even if they are couched in terms of careful memoranda of understanding.
TL;DR: In 2008, the Ronald Coase Institute conducted the First Asia Workshop on Institutional Analysis, in partnership with the Lee Kuan Yew School of Public Policy and the Asia Competitiveness Institute of the National University of Singapore.
Abstract: In January 2008, the Ronald Coase Institute conducted the First Asia Workshop on Institutional Analysis, in partnership with the Lee Kuan Yew School of Public Policy and the Asia Competitiveness Institute of the National University of Singapore. This report highlights the general theme of the workshop: that well-functioning institutions are fundamental to development. This is shown by summarising two studies presented at the workshop and by contrasting two countries from Southeast Asia, i.e., the Philippines and Singapore.