Corporate Law System Research Articles

307Legal Transplants of Shareholder Voting Rights in the European Union – Evidence from the Past, Consequences for the Future

Abstract This article examines how shareholder voting rights can be transplanted from one jurisdiction to another within the European Union. In particular, it traces the spread of the right to vote on defence measures during takeovers, on directors’ remuneration, and on related party transactions, to assess whether the transplantation succeeded or failed. In doing so, this analysis highlights a dichotomy between a process of autonomous convergence undertaken by continental Member States, carried out through adaptive and circumscribed transplants, and a process of harmonisation promoted by the European Commission, that transplanted the rights in its proposals attempting to mandate them at the supra-national level. Eventually, this article sheds light on how corporate law-making can take place in the EU: in a multi-polar context where distinct corporate law systems coexist ‘horizontally’, Member States can borrow legal provisions spontaneously, while the European Commission can endorse country-specific provisions that considers to be the best corporate governance arrangements, disruptively seeking to extend them to all jurisdictions. As a consequence, the imitated Member State carries virtually no interest in exporting its rules, but is in turn interested in resisting any deviation from the Commission’s proposal to limit the changes that it will undergo in the implementation of the instrument. The other Member States, on the other hand, may actively engage within the Council of the EU to resist and water down the proposal, to avoid reforming their corporate law system and tilt their domestic allocation of corporate power towards a particular constituency.

The Right to Remedy Corporate Relations: A Question of Theoretical Certainty

Abstract Sometimes the interests of participants in corporate relations begin to contradict each other, corporate conflicts and corporate legal disputes arise, and often participants in the conflict abuse their rights, paralysing the company’s activities. In this case, it is necessary to find an appropriate solution for modifying the Ukrainian corporate law system and legislatively ensure effective remedies for the rights of participants in business companies. The following methods were used during the study: general scientific methods (concrete historical, Aristotelian, structural-functional, system-structural, etc.), special methods (comparative legal, modelling, system interpretation, legal technical), dialectical method of cognition, involvement of scientific tools of related humanities disciplines, a conceptual approach. The main steps to solve the problems of protecting the rights of participants and ensuring equal treatment were as follows: improving the legislation governing the activities of business companies; combining rules that ensure the rights of participants and guarantee their remedying under charters and internal documents. The judicial remedying of the company members’ rights on the territory of Ukraine remains ineffective, which, in turn, is attributed by researchers to the discretion of the judiciary and the inability of courts to interfere in certain issues within the framework of corporate conflicts. At the same time, in this context, it is advisable to adapt the positive practices legalised in Germany, which would allow modifying existing approaches to organising corporate relations and remedying the rights of participants. Moreover, the convergence of legal systems and legal regulation of corporate relations is one of the most noticeable trends in the development of corporate legislation around the world.

Editorial: New perspectives of corporate law and governance research

This issue of the journal covers prominent topics for effective corporate law and governance systems. The articles published in this issue have focused on the timely topics of sustainability, environmental social and governance (ESG) performance, gender pay equality, principles of sound global governance systems, labor law, criminal law, tax evasion, accountability in regional governments, auditors’ impact on public administration control, etc.

Making Corporate Social Responsibility Pay

Commentators inside and outside of legal academia have urged corporations to use their outsized power to benefit society. But this advocacy is unlikely to alter corporate decisionmaking to the desired extent because shareholder wealth-maximization has become ingrained in the corporation’s incentive structure. This Essay therefore charts a new course. It discusses developments in financial instruments that make funds available for prosocial corporate activity, and shows how such instruments, with a few alterations, could dramatically induce corporations to prioritize stakeholder goals. More specifically, the Essay proposes that individuals use “corporate social responsibility bonds” to offset costs associated with prosocial corporate decision-making. The intuition behind these instruments is grounded in law and economics theory: if it is welfare-maximizing for individuals to see corporations make public-interested choices that are not wealth-maximizing, there should be a possible Coasian bargain between those individuals and the corporation. In such situations, an issuer could create a bond to finance a predetermined public-interested corporate decision, thereby turning stakeholders into creditors with governance rights. Any individual who values the decision more than its cost could participate. To provide an incentive to depart from wealth-maximization, the bond would stipulate that their contribution would be forgiven if the decision was implemented—a key difference from existing prosocial financial instruments. More broadly, the insight that the individuals with the strongest interest in seeing corporations pursue corporate social responsibility goals are not always the company’s shareholders has consequences for corporate law and corporate governance. In particular, it cautions that we should recognize the limits of corporate law and shareholder activism to achieve socially optimal levels of corporate responsibility. The more difficult question is whether and how to reorient our corporate law system away from shareholders and toward other constituencies. As that project forges on, this Essay proposes action that could allow individuals to influence corporate behavior without any delay—one decision at a time.

스마트계약에 의한 분산형 자율조직(DAOs)의 회사법제에의 포섭에 관한 시론

스마트계약에 의한 분산형 자율조직(DAOs)의 회사법제에의 포섭에 관한 시론

2018 Oxford Business Law Blog Round-Up: Top 20 Most Read Posts

This collection comprises twenty most-read posts published on the Oxford Business Law Blog in 2018. The individual contributions cover issues such as blockchain technology and cryptoassets, financial services, corporate law, and autonomous systems. In this context, and for reasons of coherence and consistency, the pieces included in this paper are arranged in a thematic order.

Toward a Horizontal Fiduciary Duty in Corporate Law

Fiduciary duty is arguably the single most important aspect of our corporate law system. It consists of two distinct sub-duties — a duty of care and a duty of loyalty — and it applies to all directors and corporate officers. Yet, under extant law, the duty only applies vertically, in the relationship between directors and corporate officers and the firm. At present, there exists no horizontal fiduciary duty: directors and corporate officers owe no fiduciary duty to each other. Consequently, if one of them fails her peers, they cannot seek direct legal recourse against her even when they stand to suffer significant reputational and financial losses. This state of affairs is undesirable not only from a fairness perspective, but also from an efficiency standpoint as it raises governance costs for firms and may undermine their ability to attract skillful officers and directors. In this Essay, we call for the introduction of a horizontal fiduciary duty among directors and corporate officers. The proposed duty would complement, rather than replace, the fiduciary duty that corporate officers owe the corporation and the shareholders. We argue that the institution of a horizontal fiduciary duty would (1) lead to improved decisionmaking and information sharing on boards; (2) enable board members to vindicate themselves in situations in which another board member is the one to breach the fiduciary duty; (3) attract more capable individuals to serve as directors; and (4) improve corporate management and governance.

中國 會社法制의 새로운 發展 傾向과 향후의 解決課題

中國 會社法制의 새로운 發展 傾向과 향후의 解決課題

Evolution of the Corporation and Shareholders' Role in China

While it seems that China’s corporate system lags far behind that of Western developed countries such as the UK, the US or Germany, as early as 1904 China’s first corporate law had been promulgated by the imperial government—the Qing Government—which included the rule of limited liability and equal treatment of shares, among others. So why has a mature corporate law system or a sound capital market failed to be established over a century later? This article focuses on the historical development of corporate forms in different stages and their respective features, as well as the main causes and effects. The modern and contemporary history will be divided into three distinctive periods: the late Qing Dynasty from 1860 to 1911; the Republican period from 1912 to 1948; and the People’s Republic of China since its establishment in 1949, each distinctive period having differing phases during its own time. This evolution will be tracked in the first three sections. Then the picture of current shareholder rights in China will be briefly highlighted. After that, the article discusses lessons that can be learned from the evolutionary history in order to avoid similar mistakes in later developments. Finally, a conclusion will be provided.

Regulating close companies in Corporate Law

Close companies are the majority constituency in the corporate population across the globe. Yet little attempt has been made by corporate law systems explicitly to legislate for them. This is particularly so in the United Kingdom, where the courts have assumed the role of providing a customized corporate law regime for such entities. The Duomatic principle of unanimous assent, which is used to whitewash procedural irregularity, is the paradigm in this respect. This article reviews judicial attitudes in the common law world in this regard and evaluates the pros and cons of converting a globally recognized common law principle into a statutory statement of the law. It also considers the wider merits/demerits of a discrete regulatory framework for close companies and private companies in general.

Britishness… Limited – National identity and citizenship in Gilbert and Sullivan’s Utopia Limited

This paper aims at studying how national identity was put into words and music by Gilbert in Sullivan in Utopia Limited (1893). Whereas the libretto reads like a mild Horatian satire of British institutions – in particular the system of corporate law, music sounds like the classical sublime eulogy of a conquering nation – commercially, politically and militarily. Under the guise of a witty criticism relying on absurd, topsy-turvy situations and characters, Utopia Limited partakes of a vast national enterprise, building up and asserting the national identity of an imperialist kingdom.

Regulation and Corporate Governance of China's Top 100 Listed Companies: Whither the Rule of Law?

China has experienced dramatic developments in the growth of a rule-based approach to its securities market and the operation of corporate law since the early 1990s. These efforts sought to keep pace with the speed at which the market economy has grown in China over this time. However, the development of a sophisticated system of corporate law and corporate governance has tended to lag well behind rapid market developments, even in regard to the most advanced sector of China’s major stock exchange listed companies. This paper seeks to assess the nature of current patterns of law and regulation of this sector by reference to data derived from China’s top 100 listed companies. This paper was made possible by funding from the Australian Research Council of a project funded study led by Roman Tomasic, Neil Andrews and Jian Fu. This paper explores this theme by reference to findings from face to face interviews undertaken by the authors in China.

경제민주화의 재검토와 주식회사법상 실천제도의 고찰

경제민주화의 재검토와 주식회사법상 실천제도의 고찰

Convergence, Legal Origins, and Transplants in Comparative Corporate Law: A Case-Based and Quantitative Analysis

In this Article, we intend to fill a gap in the comparative law literature by adopting a case-based approach to comparative corporate law that highlights the important dimension of specific cases in corporate law matters and how identifiable, but limited issues arising from such case disputes are resolved in different jurisdictions. Our study is based on ten cases used in a wider research project and their solutions in ten countries: eight European countries, the United States, and Japan. We assess the solutions to these cases using quantitative methods of network and cluster analysis. We also seek to enquire whether conceptual differences exist between countries in terms of the source, form, style, and substance of the legal rules which comprise their corporate laws.The findings of this assessment are used to evaluate arguments developed in the academic comparative company literature which posit that the existence of fundamental differences in the protection of shareholders across countries reduces the scope for convergence in corporate law systems. The case-based evaluation is also applied to make a contribution towards other influential theories in comparative law, particularly the “legal origins” theorem and the “legal transplants” debate. For example, while we find some evidence of legal transplants, we will show that the notion of legal origins has only limited value in today’s corporate law. Furthermore, the research has a public policy dimension since the existence or absence of differences matters for the question of whether formal harmonization of corporate law in the EU, or further afield, is necessary, desirable, or at all possible.

Convergence, Legal Origins, and Transplants in Comparative Corporate Law: A Case-Based and Quantitative Analysis

In this Article, the authors intend to fill a gap in the comparative law literature by adopting a case-based approach to comparative corporate law that highlights the important dimension of specific cases in corporate law matters and how identifiable, but limited issues arising from such case disputes are resolved in different jurisdictions. Our study is based on ten cases used in a wider research project and their solutions in ten countries: eight European countries, the United States, and Japan. We assess the solutions to these cases using quantitative methods of network and cluster analysis. We also seek to enquire whether conceptual differences exist between the countries in terms of the source, form, style, and substance of the legal rules which comprise their corporate laws. The findings of this assessment are used to evaluate arguments developed in the academic comparative company literature which posit that the existence of fundamental differences in the protection of shareholders across countries reduces the scope for convergence in corporate law systems. The case-based evaluation is also applied to make a contribution towards other influential theories in comparative law, particularly the “legal origins” theorem and the “legal transplants” debate. For example, while we find some evidence of legal transplants, we show that the notion of legal origins has only limited value in today's corporate law. Furthermore, the research has a public policy dimension since the existence or absence of differences matters for the question of whether formal harmonization of corporate law in the EU, or further afield, is necessary, desirable, or at all possible.

The Paradox at the Crossroads of US and OHADA Corporate Laws: A Comparative Study of Fiduciary Duties in Africa and the US.

From Africa to the United States of America (“US”), the people who invest money and other capital to create business ventures need protection against the people they entrust to manage and fructify their investments. The first category, known as shareholders for corporations, owns the business. The second category, known as management, has the expertise, and makes the day-to-day business decisions. As more US investors contemplate doing business in the continent of Africa, the legal protections they would be afforded there should be analyzed, and compared to the US corporate law with which they are, arguably, more familiar.In the US, the once beloved assumption that shareholders’ interests were ultimately aligned with management interests led to rather weak mechanisms designed to control management’s actions. High compensation of management combined with high profitability of companies were a testament, for proponents of that theory, that management and shareholders’ interests could only be aligned. However, repeated corporate management scandals including, recently, the Enron affair demonstrated that the ‘interest alignment’ principle is not sacred. Since then, US corporate law has refocused tremendously on protecting shareholders.In Africa, the multiplicity of laws, and, most importantly, their dissimilarities, made it very difficult to understand the legal environment as a whole and promote investments. To address this challenge, several African leaders, in the early 1990s, initiated an effort to coordinate business laws across the continent to achieve simplicity, predictability, and economic growth. This initiative, now known as the Organization for Harmonization of Business Law in Africa (“OHADA”), covers areas as diverse as corporate law, securities, bankruptcy, commercial law, and arbitration. OHADA is a multilateral treaty for business with an unprecedented pace of expansion across the continent. Both in the US and Africa, however, the main question remains how to protect investors, the people who risk money and property to create business ventures but do not necessarily possess the expertise or the time to oversee the day-to-day operations. The underlying issue is how to keep directors, or management in general, under control without harming the ability of the corporation to grow, expand, and give maximum returns. Both the US and OHADA corporate law systems rely heavily on the legal concept of fiduciary duties to achieve investor protection. However, neither the construct, nor the understanding, of fiduciary duties and the obligations thereunder are the same under US and OHADA laws. Despite the fact that both systems enunciate traditional duties such as loyalty and care, US and OHADA have fundamental differences, and their design of mechanisms to hold management accountable as fiduciaries are profoundly unalike.This paper will discuss similarities and specificities of the concept of fiduciary duties under the US and OHADA laws. The discussion of fiduciary duties under OHADA, alongside the more familiar construct of the concept under US law, will provide an easily understandable description of the legal framework. Additionally, this paper will equip all interested parties in general and investors specifically, with an added consideration in their investments decision-making process.

Comparative Corporate Law Theory and Harmonisation of EU Insolvency Law: Understanding the Impact of Path Dependency.

This paper explores path dependency theory in relation to the evolution of corporate law systems. It is accepted amongst corporate law theorists that significant differences in corporate law and governance systems across the globe can be explained by reference to path dependency scholarship. Insights provided by this scholarship raise questions regarding the continued harmonisation of insolvency law in the European Union. Path dependency scholarship provides us with a theoretical framework which might assist in understanding and addressing challenges to the goal of further harmonisation of insolvency laws in the European Union. The purpose of this paper is to illustrate that theoretical debates, such as those which have taken place between convergence theorists and path dependency theorists in corporate governance and company law scholarship, can i) provide analytical tools which give insight into current phenomenon existing in doctrinal law, ii) can provide predictive indicators for the likelihood of success for policy initiatives such as harmonisation and iii) can assist in the formation of future policy initiatives which have a direct impact over time in the development of doctrinal law.

The Next 'Great Transformation' of Markets and States in the Transnational Space: Global Assemblages of Corporate Governance & Financial Market Regulation

It is a well-known and much explored fact that capital market regulation has had a larger share of activity and visible success within the process of European integration than the long-standing efforts towards the establishment of harmonized rules in the area of corporate governance. While a unified, harmonized or effective market-wide corporate governance regime was identified early on as one of the building blocks of the European project, the historically grown, path-dependent varieties in national corporate law systems proved - for the longest time - resistant to ambitious Europeanization efforts. This paper argues that precisely at the time when companies' financing structures were being adapted to globally available and moveable capital, corporate governance rules came under immense pressure to address the interests of world-wide operating investors, and that this development resulted in a dis-embedding of the corporation. The corporation at the end of the 20th century was no longer primarily seen as an organizational entity, but had become a financial vehicle, operating in a regulatory framework largely out of control of domestic company law legislation. This emerging regulatory environment consists of supra-national legislation directed at increased efficiency of regional and global financial markets on the one hand and increasingly incentive-oriented, indirect regulation of corporate governance rules, placed to a large degree within the discretion of market actors. The financialization of corporate governance and the emergence of a transnational legal pluralist regime of applicable rules and standards provides a particular challenge to Karl Polanyi's identified 'double movement' in the regulation of increasingly disembedded markets. And, yet, this is only the first of two analytical steps that must be made to understand the present regulatory challenge. As the study of capital market law and corporate governance in the European Union illustrates, the emerging regimes cannot adequately be represented as either national or international. As they are both and yet neither exclusively, the represent examples of what Saskia Sassen calls 'global assemblages' and what I shall here study as transnational legal pluralism. While Sassen's concept provides for a powerful illustration of the autonomy of self-constituting spaces that comprise human, institutional and technological, digital elements, this framework needs to be complemented by a specifically legal perspective on the evolving forms of regulatory approaches and instruments that are present here.

What is the Optimal Balance in the Relative Roles of Management, Directors, and Investors in the Governance of Public Coroporations?

American economic success depends on establishing an effective system of corporate governance. Collaboration between the three traditional actors in corporate governance — boards of directors, management, and shareholders — is fundamental to identifying the corporate governance policies and practices that will be most conducive to producing economic growth while reducing attendant financial and legal risk. This white paper provides an overview of the evolution of US corporate governance, the current balance of responsibilities among directors and shareholders and the principal issues in corporate governance today. The trends analyzed include the effects of increased influence of institutional investors resulting from concentration of ownership in institutional investment and savings vehicles, changes in voting rules and practices, and more assertive shareholder activism; shifting conceptions about the purpose of the corporation and the duty to maximize corporate value; decreased public trust of business leaders following the corporate scandals and the financial crisis; Federal regulations intended to enhance the influence of shareholders and increase board and management accountability, continuing efforts to address executive compensation; and the growth in importance of proxy advisory firms in the shareholder voting process. Continuing issues examined include whether: federal mandates undermine the benefits of a historically state-driven corporate law system; further changes to board processes and composition are desirable; shareholders should assume a more active role in corporate governance; proxy advisory firms replace, rather than augment, the shareholder voice, and whether the proxy advisory industry should be subject to greater regulation and oversight; changes in voting mechanics can improve the effectiveness of corporate governance; short-termism is a cause for concern, and if so, its causes and remedies; and new challenges are presented by vote decoupling, high-speed trading, and hyper portfolio diversification.

The Dividing Line Between Shareholder Democracy and Board Autonomy: Inherent Conflicts of Interest as Normative Criterion

In the past decades, shareholder democracy has been the center of attention in corporate governance research. Academic commentators have lined up on both sides of the debate and have fiercely advocated either increasing or limiting shareholder power. Yet, the scope of many of these arguments has so far been unclear, so that they could in fact always be used again for even more, or even less, shareholder democracy, until the board or the shareholder meeting is entirely depleted of authority. This article explores the dividing line between shareholder say and board autonomy in public companies and puts forward a normative criterion that can be consistently applied to the various subject matters of corporate decision-making. A criterion based on “inherent” conflicts of interest of directors, I argue, is economically efficient and meets the underlying rationale of existing corporate law systems in Europe and the United States. Specifically, shareholder power should comprise, but also be limited to, matters in which directors face an inherent conflict of interest. The problems of shareholder passivity, short-termism and empty voting and the concern about stakeholder interests do not call for a further reduction of shareholder power beyond this limitation.