Showing papers on "Corporate group published in 2003"

Foreign and Domestic Ownership, Business Groups and Firm Performance: Evidence from a Large Emerging Market

Abstract: We adopt a multi-theoretic approach to investigate a previously unexplored phenomenon in extant literature, namely the differential impact of foreign institutional and foreign corporate shareholders on the performance of emerging market firms. We show that the previously documented positive effect of foreign ownership on firm performance is substantially attributable to foreign corporations that have, on average, larger shareholding, higher commitment and longer-term involvement. We document the positive influence of corporations vis a vis financial institutions with respect to domestic shareholdings as well. We also find an interesting dichotomy in the impact of these shareholders depending on the business group affiliation of firms.

Experience, imitation, and the sequence of foreign entry: wholly owned and joint-venture manufacturing by South Korean firms and business groups in China, 1987–1995

Abstract: The evolution of foreign entry in the form of joint ventures and wholly owned manufacturing operations is examined as a staged process shaped by experience and imitation dynamics at the firm, group, and industry levels of analysis. The expansion of South Korean firms into China between 1987 and 1995 lends support to the staged view of foreign entry. Over time, technology-intensive firms are more likely to abandon joint-venture entry modes, owing to contractual hazards. Firms in the same business group are found to imitate each other's choice of joint ventures and wholly owned plants. Firms in the same industry mimic each other's choice of wholly owned plants, though not of joint ventures.

Earnings management and tunneling through related party transactions : evidence form Chinese corporate groups

Abstract: From the U.S. accounting scandals to the emerging markets crisis of 1997-1998, there have been numerous examples of managers or large shareholders using related party transactions to manipulate earnings or divert resources away from their companies. This paper attempts to provide large sample evidence of these transactions in China where the corporate structure, economic institutions and weak legal system are conducive to the related party dealings. Using a sample of 131 Chinese listed firms in the basic materials industries such as mining, lumber, chemicals and building materials, we have found that firms that are controlled by a corporate group engage in more related party transactions than firms that are not. Among the group-controlled listed firms, the results show that they report abnormally high levels of related party sales, mainly to their controlling shareholders and other member firms in the group, when they have incentives to inflate earnings to avoid being delisted or prior to issuing new equity. Once the group-controlled listed firms have generated more free cash flows, they divert resources back to the group through providing other member firms generous trade credits. Our stock return results also confirm the conjectures that at least part of the related party transactions is perceived by the market as opportunistic. Investors view the reported sales figures to be less credible when they are generated from related party dealings than through arm's length transactions. Related party lending is negatively correlated with firm value, as measured by Tobin's Q and market-to-book equity.

Corporate Social Responsibility, Corporate Citizenship and the Global Compact: A New Approach to Regulating Corporate Social Power?

Abstract: This article addresses the apparent demise of the concept of corporate social responsibility and its usurpation within academic literature, managerial practice and policy debate, by the concept of corporate citizenship. Having failed in its attempt to compel companies to behave responsibly, corporate social responsibility has been superseded by a more consensual approach that seeks to encourage companies to behaveas good corporate citizens. To view these two concepts as alternatives, however, fails to recognize the value to be gained in using them in combination. The role envisaged for corporate citizenship by this article is illustrated by an account of the United Nations Global Compact and concerns the establishment, through consensual means, of the norms necessary for an effective regime of corporate social responsibility.To this extent therefore, corporate citizenship should be viewed, not as a replacement for corporate social responsibility, but as a complement to it.

Agency problems and performance of Korean companies during the Asian financial crisis: Chaebol vs. non-chaebol firms

Abstract: Agency problems can become more serious during an economy-wide financial crisis and they can have different roles depending on the corporate governance structure of a company. This paper examines whether agency problems explain the performance of Korean companies during the Asian financial crisis and whether agency problems explain the performance differently for chaebol vs. non-chaebol firms. Korean business groups, chaebols, are known to have weaker corporate governance structures than non-chaebol firms. The results show that the performance during the crisis is somewhat closely related to agency problems. In addition, the paper presents some evidences that the role of agency problems depends on corporate governance structures.

Business groups, financing constraints and investment : The case of India

Abstract: We examine the effect of business group affiliation on corporate investment behaviour in India. More specifically, we test whether group affiliation reduces financing constraints for the affiliated firms. We use a data set containing 694 listed Indian companies for the 1989–97 period. We estimate a simple investment equation and find evidence that the investment-cash flow sensitivity is much lower for group affiliates. This suggests that business group affiliates have better access to external funds than stand-alone firms.

The evolution of corporate governance and its impact on modern corporate America

Abstract: History shows a repetitive cycle of corporations over‐reaching their boundaries and causing social turmoil. Governments are faced with the task of reining them in by enacting regulations. Investors are faced with the task of preserving their individual assets. Corporate governance remains the core issue in these battles. This paper examines the origins of corporate governance and the events during the twentieth century that have failed to align the interests of management and shareholders.

Workforce diversity initiatives of U.S. multinational corporations in Europe

Abstract: Although most U.S. multinational corporations have substantial workforce diversity management programs in their U.S. operations, they are only beginning to consider parallel efforts in their overseas subsidiaries and affiliates. The internationalization issue is particularly prominent in the European Union, where competitive, demographic, legal, and political developments make workforce diversity issues unavoidable within the next few years. Instead of simply replicating U.S. programs, however, diversity initiatives in Europe need to adapt to each employer's strategic objectives, degree of organizational integration, and local needs. The experiences of Lucent Technologies Inc. and The Royal Dutch/Shell Group of Companies illustrate two contrasting approaches. The former has adopted a strongly multidomestic strategy, while the latter has a more global approach. © 2003 Wiley Periodicals, Inc.

Pyramid Business Groups in East Asia: Insurance or Tunneling?

Abstract: A business group with a pyramid ownership structure is a prevalent form in developing countries. I show that the propping up function of pyramid groups exists only in countries without good investor protection where minority shareholders could be expropriated with low cost. A pyramid business group is not insurance mechanism for all group firms. My predictions are supported by the data on East Asian firms in 1990s. Additionally, I find that the pyramid ownership does not affect the valuation of non-distressed firms. This might be the reason that the outsider invested in the group bottom firms before the Asian Crisis.

Do Corporate Law Judges Matter? Some Evidence From Milan

Abstract: If corporate law matters to corporate governance and finance, then in order to assess its quality in any given country, one must look at corporate law off the books, i.e., the characteristics of corporate law as applied by judges and other relevant public officials. This paper, after speculating about the interaction between corporate law on the books and corporate law off the books and accounting for recent corporate governance developments in Italy, provides an assessment of Italian corporate law based on analysis of a sample of 106 decisions by the Milan Tribunal, Italy's most specialized court in corporate law. The judges' quality is evaluated by looking at: (1) how deferential they are to corporate insiders; (2) how keen they are to understand, and possibly take into account, the real rights and wrongs underlying the case before them; (3) how antiformalistic their legal reasoning is; (4) how concerned they are about the effects of their decisions on the generality of corporate actors. The analysis casts a negative light on Milanese (and by extension, Italian) corporate law judges. It highlights egregious cases of deference to corporate insiders, especially with regard to parent-subsidiary relationships. Furthermore, only recently, and in any event still sporadically, have at least a few court's opinions been so drafted as to let the reader understand what the real dispute was and which party had really acted opportunistically. In any case, it appears to be rare for the court to take the substantive reasons for the dispute into any account. Cases are described, in which the court has adduced very formalistic arguments. And finally, there is no sign that the judges care about what signals they send to corporate actors: they appear to be quite unconcerned about whether their decisions provide the right incentives for directors and shareholders.

The Mad Hatter's corporate tea party

Abstract: This paper aims to provide an insight into the corporate greed and consequent corporate collapses of companies such as HIH, One.Tel and Harris Scarfe in Australia, while concurrently, Enron, WorldCom and other companies were attracting the attention of the accounting profession, the regulators and the general public in the USA. It is argued that the rise in economic rationalism and the related increased materialism of both the public and company directors and managers, fed the corporate excesses that resulted in spectacular corporate collapses, including one of the world’s largest accounting firms. The opportunistic behaviour of directors, and managers and the lack of transparency and integrity in corporations, was compounded by the failure of the corporate watch‐dogs, such as auditors and regulators, to protect the public interest. If the history of bad corporate behaviour is not to be repeated, the religion of materialism needs to be recognised and addressed, to ensure any corporate governance reforms proposed for the future will be effective.

A Market-Power Based Model of Business Groups

Abstract: We propose an model of vertically and horizontally-integrated business groups that allows the number and size of each group to be determined endogenously. We find that more than one configuration of groups can arise in equilibrium: several different types of business groups can occur, each of which are consistent with profit-maximization and are stable. We suggest that the strongly-integrated groups arising in the model characterize the chaebol found in South Korea, whereas the less-integrated groups describe those found in Taiwan.

A Lost Decade for Japanese Corporate Governance Reform?: What’s Changed, What Hasn’t, and Why

Abstract: Analysis of Japanese corporate law reveals a striking amount of formal institutional change in the past ten years, occurring at an ever-accelerating pace. This feature of law reform can be traced to a heightened awareness of the organizational straightjacket imposed on Japanese firms by the Commercial Code, and to a more competitive and market-responsive environment for the production of corporate law. It has been a "sea change decade" for Japanese corporate law. Yet it has been an ambiguous decade for Japanese corporate practices. Signs of change in response to the new institutional environment can be found in the areas of shareholder activism, corporate mergers and acquisitions and other organizational changes, board structure, and corporate finance. At the same time, however, domestic institutional investors remain passive, management remains largely insulated from the market for corporate control, and "lifetime" employment practices, while covering a shrinking subset of the Japanese workforce, remain firmly in place. This paper accounts for the observed pattern of change and non-change by analyzing the political economy of corporate law reform, the complementarities at work between corporate law and other institutions, and the relationship between corporate law and corporate governance. Japanese corporate law has become more adaptable and responsive to "demand-side" impulses, but it also increasingly reflects the interests of Japanese management, an organized group potentially threatened by corporate law reform. Without external pressures, Japanese managers are able to use the newfound flexibility of the corporate law to entrench themselves as well as to improve returns to shareholders. Moreover, while the corporate law has improved, several complementary institutions needed to complete the institutional package are still incomplete. Ultimately, corporate law bears only a limited relationship to corporate governance. Changes in corporate practices are brought about by dynamics external to the formal corporate governance institutions. Thus, the sea change in Japanese corporate governance must await further changes in the distribution of shareholders, in the capital markets, and in the incentive structures for management, and the further erosion of corporate norms that promote employee and managerial interests over shareholder interests.

Shareholder Value, Corporate Governance and Corporate Performance: A Post-Enron Reassessment of the Conventional Wisdom

Abstract: The notion that the primary, or in extreme versions, the only legitimate goals of corporate management and governance should be to maximize the value of the shareholders' interest in the company is based on a series of elegant and facile, but deeply flawed assumptions about the nature of the relationships among corporate participants, about how financial markets work, about how human beings work together in groups, and about what the law requires. Contrary to these assumptions, shareholders are neither the "owners" of corporations, nor the only claimants with investments at risk; stock prices do not always accurately reflect the true underlying value of equity securities; managers will not necessarily do a better job of running corporations if they focus solely on share value, or if they are heavily incentivized with stock options, or if they are constantly vulnerable to being ousted in a hostile takeover; and corporate law does not require shareholder primacy. Instead, this essay suggests that, once basic societal and business institutions are in place, such as rule of law, sophisticated and uncorrupted courts, an independent accounting profession, liquid financial markets and an adequate securities regulation system, the principle element needed to foster wealth creating productive activity may be a powerful set of cultural norms emphasizing personal and group integrity, cooperative behavior among team members, and responsibility in the team's relationships to the larger communities in which it operates.

Global markets, domestic institutions : corporate law and governance in a new era of cross-border deals

Abstract: Introduction: The Dynamic Tension in Corporate Governance, by Curtis J. MilhauptPart I Fiduciary Duties and Corporate Governance Controlling Corporate Self-Dealing: Convergence or Path-Dependency?, by Zohar GoshenOn The Export of U.S.- Style Corporate Fiduciary Duties to Other Cultures: Can A Transplant Take?, by Lynn A. StoutTransplanting the Concept of "Fiduciary Duty": Evidence from Transition Economies, by Katharina Pistor and Chenggang XuWhat Corporate Law Cannot Do, by Mark J. RoePart II Convergence and Reform, Europe and Asia Regulation and the Globalization (Americanization) of Executive Pay, by Brian R. Cheffins and Randall S. ThomasCorporate Governance, Employees and the Focus on Core Competencies in France and Germany, by Michel GoyerConvergence on Shareholder Capitalism: An Internationalist Perspective, by Jeffrey N. GordonOff the Books, But on the Record: Evidence from Italy on the Relevance of Judges to the Quality of Corporate Law, by Luca EnriquesInstitutional Change and M&A in Japan: Diversity Through Deals, by Curtis J. Milhaupt and Mark D. WestFinancial Malaise and the Myth of the Misgoverned Bank, by Yoshiro Miwa and J. Mark RamseyerRevamping Fiduciary Duties in Korea: Does Law Matter to Corporate Governance?, by Kon-Sik Kim and Joongi KimGlobal Markets and Parochial Institutions: The Transformation of Taiwan's Corporate Law System, by Lawrence S. LiuPart III Globalization and Capital Markets The Impact of Cross-Listings and Stock Market Competition on International Corporate Governance, by John C. Coffee, Jr.Coming to America?: Venture Capital, Corporate Identity, and U.S. Securities Law, by Edward RockEngineering a Venture Capital Market: Replicating the U.S. Template, by Ronald J. Gilson

The Creeping Federalization of Corporate Law

Abstract: The collapse of Enron and WorldCom, along with only slightly less high profile scandals at numerous other U.S. corporations, has reinvigorated the debate over state regulation of corporate governance. Post-Enron, politicians and pundits called for federal regulation not just of the securities markets but also of internal corporate governance. As Congress and market regulators began implementing some of those ideas, there has been a creeping - but steady - federalization of corporate governance law. The NYSE'S new listing standards regulating director independence is one example of that phenomenon. Other examples appeared to little public debate in the sweeping Sarbanes-Oxley legislation. Taken individually, each of Sarbanes-Oxley's provisions constitutes a significant preemption of state corporate law. Taken together, they constitute the most dramatic expansion of federal regulatory power over corporate governance since the New Deal. No one seriously doubts that Congress has the power under the Commerce Clause to create a federal law of corporations if it chooses. The question of who gets to regulate public corporations thus is not one of constitutional law but rather of prudence and federalism. In this essay, I advance both economic and non-economic arguments against federal preemption of state corporation law. Competitive federalism promotes liberty as well as shareholder wealth. When firms may freely select among multiple competing regulators, oppressive regulation becomes impractical. If one regulator overreaches, firms will exit its jurisdiction and move to one that is more laissez-faire. In contrast, when there is but a single regulator, exit is no longer an option and an essential check on excessive regulation is lost.

From Stakeholders to Shareholders. Corporate Governance Networks in The Netherlands 1976-1996

Abstract: In this paper we analyse the networks of interlocking directorates among the 250 largest Dutch corporations in 1976 and 1996. In 1976 there was a relatively dense and centralised network in which the banks were the central hubs. Twenty years later the network had become much thinner and financials played a less prominent role in the network even though they remained important hubs. Overall the number of interlocks decreased well nigh 25%, the interlocks between finance and industry even with almost 40%. The number of multiple interlocks of the financial institutions with industry decreased substantially. Even though the Dutch network had become sparser, it remains compact and connected. Apparently the network did become more efficient as a communication network, while corporate control through personal interlocks has diminished. Thus a Rhineland type of industrial/financial business group system, still visible in 1976, had evolved by 1996 into a wider business community network of autonomous holdings. These changes could also indicate a shift towards a more shareholder-oriented regime of corporate governance.

The Role of the Shareholder in Internal Corporate Governance: Enabling Shareholders to Make Better-Informed Decisions

Abstract: Europe has historically lagged behind the United States in viewing the primary role of company law as being to facilitate the operation of businesses in corporate form. In this respect, the report of the High Level Group of Company Law Experts (HLG) to the European Commission of November 2002 marks a distinct break with the past.

Is There a Role for Lawyers in Preventing Future Enrons

Abstract: Following the collapse of Enron Corporation, the ethical obligations of corporate attorneys have received increased scrutiny. The Sarbanes-Oxley Act of 2002, enacted in response to calls for corporate reform, specifically requires the Securities and Exchange Commission to address the lawyer's role by requiring covered attorneys to report up evidence of corporate wrongdoing to key corporate officers, and, in some circumstances, to the board of directors. Failure to report up subjects a lawyer to liability under federal law. This article argues that the reporting up requirement reflects a second-best approach to corporate governance reform. Rather than focusing on the actors that traditionally control a corporation's activities, the statute attempts to solve governance problems indirectly by assigning to the lawyer the role of corporate gatekeeper and information intermediary. We demonstrate that the reporting up requirement fails to address the incentives that motivate corporate attorneys, directors, and managers. At the same time, the provision threatens to undermine the flow of information between lawyers and corporate actors. As a consequence, we suggest that the requirement is unlikely to achieve its objective of providing key corporate decisionmakers with early information about potential misconduct. Moreover, attorney and manager responses to the reporting up requirement are likely to reduce the quality of legal services provided to the corporation. Based on this cost-benefit analysis, we conclude that the Sarbanes-Oxley approach to corporate governance reform is flawed. Instead, we argue that a demand side approach is most likely to realign corporate attorney incentives and to reinvigorate the business lawyer's important role in promoting good corporate governance. Toward that end, we identify specific reforms tailored to increasing the incentives for corporate officers and directors to demand and obtain better legal advice.

Essential Speech: Why Corporate Speech is Not Free

Abstract: In a democracy, the citizens are the only legitimate sources of law. It follows inexorably that corporations, not being citizens, cannot be legitimate political actors. The problem of corporate speech is further complicated by the internal rules of corporate governance. When corporations "speak," they do so by decision of their managers, who are constrained by fiduciary duties and economic pressure of the stock market to advocate for a single value: maximum profit for shares. In a multifaceted culture of manifold and various values, it is inevitable that the pursuit of profit, valuable as it is, will conflict with other important goals. But role-constrained corporate managers may not consider those other values, even in circumstances where they, or any other corporate participant, would view them as important. Because corporate speakers are barred from considering the full range of values critical to any citizen's analysis, corporate speech cannot reflect the actual views of any citizen or human being with a claim on corporate assets. Instead, it is legally constrained advocacy, using corporate resources, on behalf of a purely imaginary principal, reflecting only one side of the conflicts around which our politics revolves. It follows that current First Amendment doctrine is backwards. The speaker matters; instead of corporate speech being protected, it should be suspect. To grant a tool a right against the citizens who use it is a form of political idolatry that ought to be abhorrent to any democratic regime.

Mergers and the Evolution of Patterns of Corporate Ownership and Control: The British Experience

Abstract: An intense academic debate has arisen recently concerning the crucial "bedrock" that underpins a corporate governance regime where widely-held public companies dominate. In the discourse, little has been said about the contribution of merger activity. The paper seeks to address this gap by considering developments in the United Kingdom during the 20th century. The British experience suggests that mergers matter with respect to the evolution of systems of ownership and control and that the manner in which anti-competitive behaviour is regulated influences the extent to which "transformative" merger activity takes place. The paper acknowledges that the competitive advantages associated with operating on a large scale and the buoyancy of the stock market can influence the pace of corporate amalgamation but argues that in the UK neither factor had a decisive influence on the evolution of share ownership arrangements.

Revitalising Group Accounting: Improving Accountability

Abstract: This article questions conventional consolidation accounting's effectiveness as a governance mechanism. Disclosure of the aggregate financial outcomes of a set of related business entities is of commercial importance. Currently that information is disseminated through financial statements underpinned by assumptions contradicting fundamental principles of corporate law and contestable propositions of commercial fact. Corporate accountability could be improved if the traditional approach to consolidation accounting were supplanted by reporting on an individual company basis, with assets marked to market, augmented with a statistical annexure of assets and liabilities of all related entities and a related companies' cross-claims matrix. Recent revelations related to Enron's collapse reinforce the need for improved corporate group accountability mechanisms.

Corporate Responsibility and Sustainable Development

Abstract: Corporate responsibility marks a historical turnaround in corporate culture because it attributes to it a role in which many costs externalised by the company to society and to the planet, but in fact produced directly or indirectly by it. A correct cultural approach and greater familiarity, particularly with the issues of manufacturing processes and products that have no impact on the environment, can make companies truly responsible and conscious of their role. Corporate Responsibility differs from Corporate Social Responsibility. The former represents the corporate ‘system’ (capital, human resources, suppliers, processes, products, communication, customers, etc.), while the latter refers to the ‘system’ of stakeholders (the community, institutions, associations, etc.).

The 2002 Reform of the Management of Large Corporations in Japan: A Race to Somewhere?

Abstract: Japan's 2002 reforms to the Commercial Code have been widely touted as introducing US-style corporate governance to Japan in the form of corporate officers and committee structures for large corporations. This article argues that these reforms have three apparent problems: (i) they are optional and do not provide the managerial or market incentives necessary to make managers choose the new corporate model; (ii) they fail to provide clear direction for corporate managers because they offer two new, conflicting, corporate models; and (iii) even if adopted, the new corporate models are changes in form, rather than in corporate governance practice. Nevertheless, the article argues that if we compare the Japanese reforms with their English, rather than US, counterparts, we can see that the optional nature of the reform may cause Japanese managers to 'run the race': although the reforms may lack a clear direction, the market may unify around one corporate model that does not depend on independent directors.

Speeding up the Crawl to the Top

Abstract: The literature on competition in corporate law has debated whether competition is a "race to the bottom" or a "race to the top” This Article endorses the increasing scholarly consensus that competition improves corporate law but argues that the pace of innovation in corporate law is likely to be slow Because benefits of corporate law innovation are not internalized, neither states nor firms will have sufficient incentives to innovate That competitive federalism is "to the top" suggests that the model could be applied beyond the corporate charter context, for example to areas such as bankruptcy, but that benefits from such competition would accrue only gradually This Article concludes by considering several means of stimulating competition in corporate law, including allowing firms to select different states for different aspects of corporate law and permitting private provision of law Perhaps the most promising of these possibilities is the use of intellectual property law to protect corporate law innovations Although recent decisions allowing patents for business methods make this approach feasible, the fit with existing patent law is imperfect The scarcity in corporate law that leads to innovation is not a lack of ideas, but a lack of firms and states willing to accept the risks of being the first to innovate

The Sarbanes-Oxley Act and the Reinvention of Corporate Governance?

Abstract: The Sarbanes-Oxley Act (the Act), signed into law by President Bush in July 2002, creates the need to re-think the way we approach our study of corporate governance in two ways and has the potential (depending upon the results of, and actions taken in response to, various studies that are required to be completed under that Act during the next year) dramatically to change the way we think about, write about and teach corporate law. The Act makes three specific changes in the way we think about corporate governance: first, it brings into the realm of internal governance the gatekeepers that once stood outside the box, including auditors, analysts and lawyers. Second, it significantly enhances the legal status of, and centrality of corporate governance to, the chief executive officer and the audit committee, two constituents that have received very little recognition in the law and its literature. Third, both in doing this and in other respects (like the prohibition of loans to officers and certain other conflict of interest transactions), it federalizes an important dimension of the internal laws of corporate governance, creating a new (albeit arguably narrow) duty of care for the CEO and audit committee and reintroducing serious prohibitions on conflict of interest transactions that have eroded to nothingness in the hands of the Delaware judiciary and legislature. In Part I, I set the background of the traditional roles of the gatekeepers now to be brought within the gates. Part II explains how the Act and the regulations link up these gatekeepers with aspects of corporate governance traditionally treated as internal to the corporation and their potential effects on corporate governance. The message is that it is finally time for scholars of corporate governance to look inside the corporate box, not just at the structure, in order to understand and evaluate the important linkages between outside parties, corporate structure and actual corporate behavior. Part III concludes with a more detailed examination of the ways in which the Act has the potential to defeat the hegemony of finance over business and, in the process, reverse the ethic of stock price shorttermism to long-run business management, as well as the ways in which this not only will benefit corporations and their shareholders but their constellation of constituents as well. These insights are necessarily speculative. The Act is new. Regulations are in the process of being adopted. We have hardly begun to sort through the various causes of the corporate crisis of 2002. Moreover, corporate managers, investment bankers, accountants and lawyers have shown themselves to be enormously adept at evading the substance of regulation even as they may comply with its form. In the absence of detailed regulation and vigorous enforcement, the Act could turn out to be so much sound and fury signifying nothing. I therefore present these observations in the spirit of suggesting what the Sarbanes-Oxley Act can be at its best. Whether in practice it achieves these results remains to be seen.

Reform of Corporate Governance in the EU. CEPS Policy Brief No. 38, October 2003

Abstract: [From the Introduction]. This paper analyses the European corporate governance debate and examines both the report entitled A Modern Regulatory Framework for Company Law in Europe prepared by the High Level Group of Company Law Experts (2002a) (hereinafter referred as HLG Report II) and the European Commission’s Communications on the subject. It is structured as follows. Section 2 frames the debate on corporate governance in the context of the broader discussion in corporate finance circles on market vs. bank finance and the subsequent regulatory response. The paper builds upon the fact that the European system is largely bank-dominated, which is characterised by a structure of concentrated ownership and differentiated voting rights. Although such a system might be inefficient from a corporate finance perspective, its regulation is less cumbersome and less costly. Section 3 briefly addresses the corporate governance discussions in the EU member states. In particular, it points out that a variety of initiatives and studies in the area of corporate governance have all reached the same conclusion that there is no need for an EU corporate governance code, advocating instead a soft-law and best-practices approach. Section 4 discusses the recommendations put forward in the HLG Report II in the area of corporate governance. It argues that the High Level Group and subsequently the Commission failed to demonstrate that the proposed measures will rebuild investor confidence or foster business competitiveness and efficiency. Moreover, the proposed recommendations are in line with measures aimed at mitigating agency problems with dispersed non-controlling shareholders and managers. These measures are in fundamental disequilibrium with control and ownership structures in the EU and would therefore at best a negligible impact on EU companies and possibly at the worst, a damaging effect. A final section puts forward conclusions.

Off the Books, but on the Record: Some Evidence from Italy on the Relevance of Judges to the “Quality of Corporate Law” Debate

Abstract: If corporate law matters to corporate governance and finance, then in order to assess its quality in any given country, one must look at corporate law "off the books," i.e., corporate law as applied by judges and other relevant public officials. This paper provides an assessment of Italian corporate law off the books based on analysis of a sample of 106 decisions by the Milan Tribunal, Italy's most specialized court in corporate law. The judges' quality is evaluated by looking at: (1) how deferential they are to corporate insiders; (2) how keen they are to understand, and possibly take into account, the real rights and wrongs underlying the case before them; (3) how antiformalistic their legal reasoning is; (4) how concerned they are about the effects their decisions may have on the generality of corporate actors. The analysis casts a negative light on Milanese (and by extension, Italian) corporate law judges. It highlights egregious cases of deference to corporate insiders, especially with regard to parent-subsidiary relationships. Furthermore, only recently, and in any case still sporadically, have at least a few court's opinions been so drafted as to let the reader understand what the real dispute was and which party had really acted opportunistically. In any case, it appears to be rare for the court to take the substantive reasons for the dispute into any account. Cases are described, in which the court has adduced very casuistic arguments. And finally, there is no sign that the judges care what signals they send to corporate actors. Apparently, they are quite unconcerned about whether their decisions provide the right incentives for directors and shareholders.

Enterprise Boundaries and Employee Representation: Deutsche Telekom and NTT Compared

Abstract: This paper investigates how employee representation affects, and is affected by, the way corporations structure themselves. In the analytical framework employed in the paper, the structure of the corporation and national labour institutions constitute key constraints on the goals of unions and management, but their strategic choices and interactions also alter and transform those structures. This perspective attempts to reconcile classical approaches to strategy (e.g. by Chandler) with institutional or systemic accounts (e.g. by Hall and Soskice) by examining industrial relations as structured interaction. The interaction between corporate strategy and labour strategy, for instance, may give rise to an outcome other than what is predicted on the basis of existing national institutional arrangements. Our approach is therefore a less deterministic version of institutionalism, allowing scope for strategy that is rooted in the contested nature of institutional and organisational boundaries. Empirical analysis of the telecommunications sector - Deutche Telekom in Germany and NTT in Japan -- reveals that such structured interaction has led to markedly different outcomes, despite a broadly similar corporate strategy of diversification. In particular, we find that a relatively centralised managerial structure within the DT Group is matched with a decentralised works council structure and a declining presence of the unions (Verdi and IG Metall) at the DT companies, leading to a great diversity of human resource systems within the corporate group. By contrast, in Japan, despite a relatively weak position of the holding company in the NTT Group, the presence of a highly centralised NTT Union resulted in the application of a uniform human resource system for the whole corporate group.