Choice of Jurisdiction in European Corporate Law: Perspectives of European Corporate Governance

Abstract

This paper addresses the question what will be the impact of the recently admitted choice of corporate law in Europe and how regulators can and should react. Drawing upon the empirical evidence and theoretical insights produced in the abundant debate on charter competition in the United States, this paper argues that the European scenario differs significantly from the American. A look at the most relevant differences and the analysis of European incorporators incentives allows the conclusion, that at the outset no Member State neither occupies at present, nor has proper incentives and political maneuvering space to assume in the future a similarly preponderant position like the winner in the historical American competition for corporate charters. The key to success in the franchise fee-driven American race lay in the easily cognizable edge successful States' corporate law had from an incorporator's perspective as well as these States' ability to commit themselves credibly to maintaining their advantage. At the crack of dawn of a potential European race, no Member State provides a clearly superior corporate law. Franchise fees as a motivation to excel are banned by European law and could, if at all, only induce the smallest Member States to shape their corporate law with regard to incorporator's needs. However, even this faint prospect is further attenuated. Without a wave of re-incorporations, comparable to the rush from New Jersey to Delaware in early 20th century, the timeframe during which the relatively high entering cost to the market for corporate charter would finally amortize probably exceeds the maximum period the Union's tiny States are willing and able to wait. Hence, although individual preferences of decision-makers may motivate some cross-border (re-)incorporations, no dominant state of incorporation will emerge in the European Union in medium-term. Synthesized with the possible restraints Member States can put on corporate law arbitrage, the important conclusion to be drawn from a public policy perspective is that in the European context some monopoly related forces arguably accountable for a socially undesirable pro-managerial tilt in the American market for corporate charter are not present. Thus, the case for remedying centralized legislation is harder to make in the EU. Some of the prospective and existing harmonization are reassessed under this perspective.