Corporate Law Chapter
Tuyển tập nghiên cứu về pháp luật Công Ty
Dưới đây là tựa đề và tóm tắt các bài viết về pháp luật Công Ty của các tác giả khác mà Ngữ vô tình thấy được bắt đầu từ ngày hôm nay (24/3/2021) và sẽ được cập nhật dần theo thời gian. Nhiều bài Ngữ cũng chỉ đọc qua tóm tắt và đưa lên đây mà không đủ thời gian đọc hết. Mong hữu ích.
Có thể tìm đọc lại bài viết chính thức của Ngữ về luật kinh doanh trên Chanhngu.vn. Nhưng trước hết là phần giới thiệu về nguồn miễn phí để tìm hiểu từ căn bản đến chuyên sâu về luật công ty.
Có thể tìm hiểu cơ bản, có hệ thống, một cách tiện lợi về pháp luật Mỹ từ những nguồn sau đây:
The Business Professor (Business Entities, Corporate Governance & Agency Law)
Corporations in 100 Pages ("Corporations and Corporate Law" & "Fiduciary Duties")
Corporations (Prof. Spamann, Harvard) and many more on Opencasebook
Law Shelf (Business Law & Bankruptcy)
Entrepreneurship Law: Company Creation (Prof. Samantha Prince, Penn State University)
Free Online Course
Minority Business Development: The Lawyer’s Role in Helping Close the Minority-White Gap in Business Ownership (Prof. Sam Thompson, Penn State Law), including class recordings and a series of presentation on Business Planning 101, Limited Liability Company Law, The Incorporation Process, Federal Securities Law, Tax Considerations, Equity-Based Compensation, Intellectual Property Primer, Capital Raising and Overview of Venture Capital and Venture Capital Financing. The course syllabus is here.
Blog & Website
European Corporate Governance Institute (ECGI) & EUR-Lex (access to EU law)
The Purpose of the Corporation Project (Corporate Governance & ESG movement)
Corporate Practice Commentator Annual Poll of Best Corporate & Securities Articles (Prof. Robert B. Thompson)
Corporate Law and Governance (Global)
(9/2/2022)
This article also analyzes the clashes between the startups need for flexibility with the benefits and importance of adoption of RCGC. Lastly, the article presents various RCGC models, which have not yet been introduces in academic papers, which can be adopted in startups, inter alia, increasing the number of outside directors (both as a casting vote in even of founders-investors dead-locks as well as an impartial mentor for the founders), adopting procedures for board meetings and increasing their frequency, and amending the controlling and management rights in the company as a factor of the expected return on investment.
(4/1/2022)
Over the years, it has become common practice for some shareholders to use the limited liability of companies in such a way in order to cheat in pursuit of their personal interests. Various theories have been developed to address this issue, several of which give indication as to when judges should disregard shareholder’s limited liability - although recognized by law. These theories are known under the name of piercing the corporate veil.The present article will analyze some among the most relevant of these theories, taking into consideration the solutions adopted in various legal systems. In particular, the German, Italian, Chinese, English and US legal systems were taken into consideration due to the innovative nature of the theories they introduced. Moreover, the great disparities between these systems, facilitate the comparison between the solutions offered in order to deal with the issue of veil piercing. Finally, a reworked of veil piercing and the policy implications are proposed.
(27/11/2021)
This Essay, written for a symposium celebrating the work of Professor Margaret Blair, examines how corporate rights jurisprudence helped to shape the corporate form in the United States during the nineteenth century. It argues that as the corporate form became popular because of the way it facilitated capital lock-in, perpetual succession, and provided other favorable characteristics related to legal personality that separated the corporation from its participants, the Supreme Court provided crucial reinforcement of these entity features by recognizing corporations as right-bearing legal persons separate from the government. Although the legal personality of corporations is a distinct concept from their constitutional treatment, the Court’s nineteenth-century rulings bolstered key features created by corporate law and simultaneously situated the corporation as subordinate to the state in a system of federalism. And, finally, the Essay suggests that the balance of power struck in the first century of Supreme Court jurisprudence on corporate rights has been eroded in the modern era. The Supreme Court’s failure to develop a consistent approach to corporate rights questions and its tendency to reason based on views of corporations as associations of persons have exposed a significant flaw in the Court’s evolving corporate personhood jurisprudence: it lacks a limiting principle.
(26/11/2021)
This paper is an outcome of joint research by the authors on corporate governance codes focusing on Asian jurisdictions. The authors are lawyers from various countries, including Europe, who participated in Watanabe’s courses on company law and security law at the Waseda University L.L.M. program (Asian Region Course). The target jurisdictions are mainly in Asia: China (mainland), which has now been revived as a superpower in the world; Hong Kong and Singapore, which have been the financial centers in Asia; South Korea, which has an interesting regulatory structure for the Code; and Japan, which is drawing attention after the second Code revision in June 2021. In addition, this study adds Germany, which has its own regulatory structure for the Code, for a more in-depth analysis from a comparative legal perspective. We have been keenly aware of this work as there is very little literature in this field that briefly describes the latest status and characteristics of each country's corporate governance code. In this sense, we hope that this study has some significance.
(※Comparative law analysis will be added soon.)
(21/11/2021)
Family businesses have long been neglected as a research topic, both from a legal and economic perspective. They share this fate with closed companies in general, dominating the corporate landscape nearly everywhere in terms of numbers, but nonetheless outweighed by large listed stock corporations in terms of academic attention. From an economic point of view, the scholarly neglect of family firms is partly due to the paucity of readily available data that makes empirical research difficult. From a legal point of view, one of the main reasons lies in the significant dynamics of capital market regulation which have fascinated many business law professors over the last two decades, leaving them little time for supposedly old-fashioned corners of company law. However, there are signs that the academic tide is turning: Family firms are slowly, but steadily receiving more attention in law schools and business schools. This encouraged us to make them the focus of our German-Spanish Symposium, to take stock of the current state of legal research on family businesses and explore promising avenues for future research.
This introductory paper addresses four major topics which will be dealt with one after the other:First, it explains in detail why we should be interested in family firms (II.) Second, it points out what makes family businesses different from other businesses (III.). Third, it takes a closer look at the legal forms in which family firms are organized (IV.). Finally, it analyses the governance framework for family businesses through the lens of company law and contract law (V.).
(19/11/2021)
The paper begins with a comparative and historical examination of directors’ fiduciary duties in the United States, the United Kingdom and Australia, analyzing the extent to which the transfer of fiduciary law to these common law jurisdictions has resulted in a unified approach to directors’ duties, as is often assumed by studies such as the law matters hypothesis. The paper then moves on to discuss the modern phenomenon of codes, such as corporate governance codes and shareholder stewardship codes. Corporate codes originated in the United Kingdom in the early 1990s, but have subsequently spread throughout the world. The paper explores the global transmission of these codes, which constitute powerful “norm creators”. The rise of corporate codes epitomizes the fact that transnational legal ordering occurs “multi-directionally and recursively up from and down to the national and local levels”. It also demonstrates the importance of “who writes the rules”, because this can affect the substance of those rules and result in significant divergence between national codes.
The United States government and judiciary have long been trying to understand the state-backed or state-influenced actions behind Chinese enterprises that threaten US businesses and economy. Amidst the trade war between the US and China, the White House maintains that China has been using corporate governance tools, such as establishing party committees inside businesses, for achieving its industrial policy and national strategy. Specifically, ‘corporate governance has become a tool to advance China’s strategic goals, rather than simply, as is the custom of international rules, to advance the profit-maximizing goals of the enterprise.’
(11/11/2021)
OECD (2018), Ownership and Governance of State-Owned Enterprises: A Compendium of National Practices
State-owned enterprises (SOEs) are an important element of most economies, including many more advanced economies. SOEs are most prevalent in strategic sectors such as energy, minerals, infrastructure, other utilities and, in some countries, financial services. The presence of SOEs in the global economy has grown strongly in recent years. Today they account for over a fifth of the world's largest enterprises as opposed to ten years ago where only one or two SOEs could be found at the top of the league table. This means that high standards of corporate governance of SOEs are critical to ensure financial stability and sustain global growth.
(7/11/2021)
Góp vốn vào công ty là một hoạt động bình thường, theo các quy định của pháp luật. Tuy nhiên, trên thực tế có nhiều vụ tranh chấp về việc góp vốn của các thành viên công ty, việc xác định có hay không có việc góp vốn của các thành viên là một vấn đề còn nhiều quan điểm giải quyết khác nhau.
(21/10/2021)
Prepared for an upcoming issue of The University of Chicago Law Review on the most-cited legal scholars, this Essay discusses Lucian Bebchuk’s fundamental contributions to the field of corporate governance, as well as his major impact on scholarship, practice, and policy. Bebchuk is the author of more than one hundred corporate law and finance articles, and is ranked by SSRN as the most-cited corporate law scholar (as well as one of the most-cited among all law professors). However, this ranking only tells part of the story; this Essay seeks to provide a fuller picture.
(12/10/2021)
Over the years, it has become common practice for some shareholders to use the limited liability of companies in such a way in order to cheat in pursuit of their personal interests. Various theories have been developed to address this issue, several of which give indication as to when judges should disregard shareholder’s limited liability - although recognized by law. These theories are known under the name of piercing the corporate veil.The present article will analyze some among the most relevant of these theories, taking into consideration the solutions adopted in various legal systems. In particular, the German, Italian, Chinese, English and US legal systems were taken into consideration due to the innovative nature of the theories they introduced. Moreover, the great disparities between these systems, facilitate the comparison between the solutions offered in order to deal with the issue of veil piercing. Finally, a reworked of veil piercing and the policy implications are proposed.
(11/10/2021)
Singapore’s formal corporate law and governance rules normally meet or exceed global standards – which explains why it regularly tops prominent Asian and global rankings for good corporate governance.As such, Singapore’s outlier status, as the only leading economy in Asia that does not provide a specific mechanism for shareholders to access corporate information, is puzzling.
(10/10/2021)
In the landmark ruling Salzberg v. Sciabacucchi, the Delaware Supreme Court upheld the validity of a corporate charter provision restricting the rights of shareholders to bring federal securities law claims. Although rights arising under federal securities law lie beyond the internal affairs doctrine, which has traditionally defined the boundaries of state corporate law, the Salzberg court ruled that such rights may be regulated by the “corporate contract,” created by state corporate law and comprised of a corporation’s charter and bylaws. Embracing contractarian precepts, the Salzberg court thus rejected the lower Chancery Court’s concession theory of the corporate contract as inextricably bound by the internal affairs doctrine.
(2/10/2021)
Research Question: What is the purpose of the modern corporation? How is the rule of law related to the purpose of the modern corporation?
Research Insights: We study the role of rule of law in enabling corporations to enhance economic prosperity and diminish income inequality across the globe.
Theoretical/Academic Implications: […] Specifically, rule of law is necessary for a citizenry’s belief in secure private property rights, which gives the citizenry confidence to invest in physical capital, human capital, and innovation – the three catalysts of economic growth. Also, the rule of law allows for an effective judiciary that can enforce legal contracts. Shareholder reliance on limited liability, and debtholder rights originate from the legal contracts among shareholders, debtholders, and other stakeholders. This highlights the importance of rule of law in enabling companies to raise equity and debt financing, leading to financial development. Given this background on the role of the rule of law in the issuance of equity capital to provide financial resources to corporations, we analyze the current debate among policymakers, corporate leaders, institutional investors, and social activists on the purpose of the modern corporation. We conclude that the modern corporation should maximize long-term shareholder value, while conforming to the law of the land.
Practitioner/Policy Implications: At the national and international level, policymakers should focus on improving rule of law – this enhances economic prosperity and diminishes income inequality. At the individual country level, we suggest steps to align shareholder wealth maximization with stakeholder interests: First, antitrust public policies should be vigorously enforced to maintain and enhance competition in product markets and labor markets. Second, management and board compensation should be reformed to focus on creating and sustaining long-term shareholder value. Finally, for many of society’s more serious problems, corporations do not represent the appropriate level of action [.…]
(1/10/2021)
The starting point for reverse veil-piercing is the same as traditional veil-piercing: the alter ego factors of “insolvency, undercapitalization, commingling of corporate and personal funds, the absence of corporate formalities, and whether the subsidiary is simply a facade for the owner.” Id. at *13. The court should then ask whether the owner is using the corporate form “to perpetuate a fraud or injustice.” Id. The court provided eight illustrative factors in this inquiry, including impairment of shareholder expectations, public policy, harm to innocent third-party creditors, and the extent and severity of the wrongdoing. Id. In sum, reverse veil-piercing, “like traditional veil-piercing, is rooted in equity, and the court must consider all relevant factors . . . to reach an equitable result.” Id.
(25/9/2021)
Corporate Crime: An Introduction to the Law and its Enforcement [Open-Source Textbook (2021)] [Amazingly Generous. Big Thanks to Prof. SAMUEL W. BUELL, Duke University School of Law]
This download provides sample excerpts of a new flexible textbook in the field of corporate crime and enforcement. The materials are drawn from the intersection of corporate and criminal law and from contemporary developments in enforcement practice. The complete text and individual chapters are available for free in pdf at buelloncorporatecrime.com, which also provides links for ordering a low-cost bound hard copy. Coverage includes corporate liability, fraud, obstruction of justice and related offenses, FCPA, insider trading, health care crimes, securities enforcement, criminal procedure in the white-collar context, plea bargaining and settlements, sentencing, attorney-client privilege and ethics, and more. The website includes sample syllabi and exam questions. The text, up to date as of summer 2021, includes many documents drawn from enforcement actions that illustrate the field’s current practice and provide deep factual examples for analysis and discussion. In addition, most sections conclude with problems for students and other readers to discuss or work through independently. The textbook is published under a Creative Commons license through a self-publishing platform.
(22/9/2021)
The International Corporate Governance Network has recently published a new edition of its Global Governance Principles: see here (pdf). The new edition was approved earlier this month at the ICGN's annual general meeting, the accompanying documentation for which contains further information about the new edition and the changes it contains: see here (pdf).
(1/9/2021)
Comparative corporate governance has focused either on prevailing differences across legal systems or on spontaneous legal transplants of foreign institutions in response to global competition. This Essay argues that corporate law today is not only a product of the invisible hand of the market but also of the soft (and not-so-soft) hands of international organizations and standard setters. By tracing the emergence of international corporate law (ICL) since the Asian crisis of the late 1990s, it shows how the IMF, the OECD, the World Bank, and the United Nations, among several other international players, have helped shape legal reforms and corporate governance developments around the world. The observed influence of ICL ranges from the impulse for independent directors and the control of related-party transactions to the growth of ESG investment factors and human rights policies.
(31/8/2021)
The paper begins with a comparative and historical examination of directors’ fiduciary duties in the United States, the United Kingdom and Australia, analyzing the extent to which the transfer of fiduciary law to these common law jurisdictions has resulted in a unified approach to directors’ duties, as is often assumed by studies such as the law matters hypothesis. The paper then moves on to discuss the modern phenomenon of codes, such as corporate governance codes and shareholder stewardship codes. Corporate codes originated in the United Kingdom in the early 1990s, but have subsequently spread throughout the world. The paper explores the global transmission of these codes, which constitute powerful “norm creators”. The rise of corporate codes epitomizes the fact that transnational legal ordering occurs “multi-directionally and recursively up from and down to the national and local levels”. It also demonstrates the importance of “who writes the rules”, because this can affect the substance of those rules and result in significant divergence between national codes.
(30/8/2021)
The Personification of the Partnership
When we say a business association is a legal person we may simply be saying that the law treats the business as existing apart from its owners with the ability to, for instance, have property titled in its name, to enter into contracts, or to continue to exist even when the natural persons who are its members change. The claim can also entail more metaphysical assertions, as when in the late nineteenth century some argued that the corporation was a ‘real entity’ with a will and existence apart from its owners. In the United States, legal personhood has been tangled up with the question of whether corporations can claim some of the rights granted to natural persons under the US Constitution. Most recently, law and economics scholars have recast the issue as a question of whether a business’s assets are separated out from those of its owners, and the degree to which each are shielded from the others’ creditors.
My new article, The Personification of the Partnership, forthcoming in the Vanderbilt Law Review, provides a surprising new perspective on legal personhood by looking at an often-overlooked business form, the partnership, and at largely forgotten debates over whether the partnership should be viewed as a legal person separate from its partners.
(28/8/2021)
Harmonising Insolvency Law in the EU: New Thoughts on Old Ideas in the Wake of the COVID-19 Pandemic
The COVID-19 crisis, which hit the world with full force in 2020, represents one of the greatest health and economic crises in recent history. The pandemic paralysed the world economy, forcing many countries around the globe to take emergency measures. Countries’ emergency responses to the crisis uncovered a tension between the continuous phenomenon of global economic interdependence and the tendency for nation-state governance during the crisis. Although this dichotomy was quite acute in the European Union (EU) at the onset of the pandemic – reflected overall by Member States’ preferences for national solutions over common multilateral solutions – governments eventually converged towards similar responses to the spread of the virus. These responses to the crisis included partial or total isolation of populations, travel bans, and the temporary closure of non-essential businesses. This so-called phenomenon of ‘copycat coronavirus policies’ was the result of regulatory emulation, which occurred spontaneously, with limited direct impetus from the EU. Our paper investigates whether insolvency and restructuring laws, policies, and measures followed a similar pattern. The study focuses on six selected European countries: Denmark, France, Germany, Italy, the Netherlands and the United Kingdom (UK). From a methodological perspective, our contribution relies on a case study approach. Building on the findings of this case study, our paper, then, draws more general conclusions on the process of harmonisation across the EU.
(27/8/2021)
Let Lawyers Hunt for Covid’s Origin [It’s interesting, isn't it?]
China wouldn’t be able to ignore lawsuits in American courts, given its close commercial ties with the U.S. If it refused to participate, courts would enter enforceable default judgments. China would be hard-pressed to avoid complying with any court-ordered damages and injunctions. Successful plaintiffs could pursue collection actions against Chinese government-owned commercial property around the world. Corporations are not normally liable for their owners’ debts, but there is an exception when the owner is involved on a day-to-day basis in running the company. Given the Chinese Communist Party’s pervasive control over formally private Chinese companies, this shouldn’t be difficult to prove.
(23/8/2021)
The large American corporation faces ever-rising pressure to pursue a purpose beyond shareholder profit. This rising pressure interacts with changes in industrial organization in a way that has not been comprehensively analyzed and is generally ignored. It’s not just purpose pressure that is rising: firms’ capacities to accommodate that pressure for a wider purpose is rising as well.
Three changes in industrial organization are most relevant: the possibility of declining competition, the counter-possibility of increasing winner-take-all competition, and the possibility that the ownership of the big firms has concentrated (even if the firms themselves have not), thereby diluting competitive zeal. Consider competitive decline: In robustly competitive economies, firms cannot deviate much from profit maximization for expensive corporate purpose programs unless they bolster profitability (by branding the firm positively for consumers or by better motivating employees, for example). In economies with slack competition, in contrast, monopolistic and oligopolistic firms can accommodate purpose pressure from their excess profits, redirecting some or much excess profit from shareholders to stakeholders—to customers, employees, or the public good. By many accounts, competition has been declining in the United States. By some accounts, it has declined precipitously.
That decline suggests three possibilities: One—the central thesis of this Article— purpose pressure has greater potential to succeed if competition has declined or rents have otherwise grown; in competitive markets, the profit-oriented but purpose-pressured firm has no choice but to refuse the purpose pressure (or to give it only lip service), while in monopolistically-organized industries, the purpose-pressured firm has more room to maneuver. Two, the normative bases undergirding shareholder primacy, although still strong, are less powerful in monopolistic markets. Three, declining corporate competition and rising corporate profits create a lush field for social conflict inside the firm and the polity for shareholders and stakeholders each to seek a share of those profits. The result can infuse basic corporate governance with social conflict, contributing to or exacerbating our rising political and social instability. Expanding purpose pressure is one manifestation of this conflict.
(17/8/2021)
The liability regime of executive and non-executive directors in companies constitutes a necessary corollary to control issues within a company. It is based on the determination of specific duties, it establishes the limits of management behaviour and it provides stakeholders and third parties dealing with the company with legislative protection against management misconduct. In that respect, directors' liability is an important and effective compliance and risk-allocation mechanism. The European Commission has not, to date, considered directors' liability issues in a comprehensive way. It is the purpose of this study to provide the relevant information in a comprehensive manner, in order to support to European Commission to consider its future policy in this area. To this end, the analysis spans from national laws and case law to corporate practice in respect of companies’ directors duties in all 27 EU Member States and Croatia.1 The overarching goal is to provide for a better understanding of certain important drivers of directors' behaviour. This study shows the extent to which the content and extent of duties and the corresponding liabilities, as well as the understanding of the persons to whom they are owed, fluctuate over the life of a company, i.e. during the "normal" phase of operation, and in the so called "twilight zone", i.e. shortly before insolvency. The study is mainly a stocktaking one. However, its comparative analysis also identifies similarities and differences between national regimes and identifies relevant cross-border implications.
A series of accounting scandals and company failures led to a loss of trust by investors in an organization’s management, which triggered extensive debates regarding Corporate Governance. Eastern European countries require additional regulatory actions due to the privatization programs as a result of the transformation from the planned to market economy. The different corporate governance systems of the individual countries in terms of the monistic one-tier or the dualistic two-tier system resulted in distinctive contents of the corporate governance codes. Despite the differences, all codes have a common objective: to strengthen the confidence of investors through good corporate governance. The objective of this paper is to evaluate the similarities and differences of the Corporate Governance Codes (CGC) in various Central and Eastern European (CEE) countries. To do so, the CGCs of Romania, Slovakia, Slovenia, Hungary and Poland are illustrated and compared to the German Corporate Governance Code. On the basis of a broad theoretical model, the national characteristics of the CEE countries are linked to the respective code and the central components are evaluated in detail.
(9/8/2021)
Understanding the role of culture in corporate governance has become a subject of growing importance. Today, no institutional analysis of corporate governance systems would be complete without considering the cultural environment in which such systems are embedded. This paper provides an overview of different accounts on how culture interacts with the law - especially corporate law - to shape corporate governance and on how this may help explain diversity and persistence in corporate governance. Basic concepts in cultural analysis are first presented, together with prevalent theories of cultural dimensions and of social networks as social capital. Relying on this analytical framework, this paper reviews current research on culture’s consequences for corporate governance on issues such as legal transplants, the objectives of the corporation (corporate social responsibility), relations with investors and other stakeholders by way of disclosure and dividend distribution, executive compensation, and the operation, composition, and network structure of the board of directors.
(01/8/2021)
The extraordinary rise of China’s economy has made understanding Chinese corporate governance an issue of global importance. A rich literature has developed analyzing the Chinese Communist Party’s (CCP’s) role as China’s largest controlling shareholder and the impact that this has on Chinese corporate governance. However, the CCP’s role as the architect —and direct and indirect controller—of institutional investors in China has been largely overlooked in the legal literature.
(31/7/2021)
This study examines the impact of corporate governance, reflecting a wide spectrum of board characteristics and ownership structure on agency costs in 281 listed companies on Ho Chi Minh Stock Exchange (HOSE) in Vietnam in the period 2013–2018. For this purpose, three board characteristics were chosen: (1) the size of board of directors, (2) equilibrium between non-executive and executive members of the board of directors, (3) the CEO chair duality and three types of ownership structures were chosen: (1) management ownership, (2) government ownership, (3) foreign ownership. An inverse proxy of agency costs is used: asset utilization ratio (asset turnover), which reflects the managerial efficiency. The research methodology includes three statistical approaches: Ordinary least squares (OLS), fixed effects model (FEM) and random effects model (REM) are considered to employ to address econometric issues and to improve the accuracy of the regression coefficients. The results can create effective corporate governance mechanisms in controlling the managerial opportunistic behavior to lower agency conflicts, and hence lower agency costs.
(26/7/2021)
The Tokyo Stock Exchange, Inc. (TSE) revised Japan's Corporate Governance Code (Code) effective from 11 June 2021. The first version of the Code was compiled by TSE in March 2015. Originally the Code was inspired by the ‘Japan Revitalization Strategy’, and it had been formulated as part of Japan’s economic growth strategy. In the 2015 as in the 2021 version of the Code, ‘corporate governance’ indicates a structure under which companies should follow transparent, fair, timely and solid decision-making, while paying due attention to the needs and perspectives of shareholders, customers, employees, and local communities.
(24/7/2021)
The adoption of director’s duty of care in the 2005 revision of the PRC Company Law made significant progress in holding directors accountable for their wrongdoings. However, certain defects still exist, most importantly the lack of a specific standard for the duty of care in the legislation. Therefore, this article adopts an empirical and comparative approach in reviewing Chinese duty of care cases in comparison with major jurisdictions such as the United Kingdom and the United States. The 86 sample cases hand-collected from the ten-year period from 2011 to 2020 reveal that the number of duty of care litigation in China is still far lower than other types of company disputes, despite an increasing trend. This article finds a divergence in judicial practice concerning at least two different standards of the duty of care, with an array of non-uniform factors considered in the judgments. Accordingly, this article adopts a selective approach concerning best practices in major jurisdictions globally and proposes several solutions specifically catered to China’s legal and commercial context, including the unified adoption of the objective reasonable person standard, the suggestion that a wholesale transplant of the business judgment rule is undesirable while some of its elements could be borrowed for reference, the shifting of evidentiary burden to the defendants and the promotion of director’s liability insurance. By incorporating these changes, China’s company law stands to benefit from striking an appropriate balance between director’s authority to manage the companies and shareholder’s right to hold them accountable.
The nature of a fiduciary’s duty of care has been a contested one. Different jurisdictions characterise this duty differently. This article argues that the duty is not a tortious duty. In addition to being equitable in origin, it is properly conceived as a fiduciary duty. Recognising a fiduciary duty of care enhances the protection of a fiduciary relationship. This ensures that a principal’s vulnerability to both his fiduciary’s disloyalty and mismanagement is equally mitigated. It is also argued that a fiduciary duty of care would help resolve the overlap between a fiduciary’s duty to act bona fide in the best interests of his principal and a fiduciary’s duty of care – an overlap that courts have at times struggled to delineate persuasively. The article also addresses the ambit of such a fiduciary duty of care, given that not every duty of care owed by a fiduciary ought to be a fiduciary duty.
(23/7/2021)
A cardinal principle in corporate law is that shareholders of a company are not made liable for the obligations of such incorporation above the capital they invested in exchange for their subscribe shares. However, the greatest argument with UK’s approach to maintaining the sanctity of the doctrine has been whether or not courts should continue to uphold or disregard this principle of separate legal personality when called upon to do so and under what circumstances can this be equitably done? Since the SALOMON decision, the courts have time and again been called upon to either uphold the principle of separate legal personality or to have the veil of incorporations lifted in other to hold members personally liable for the debts of the company that they operate. Thus, this paper aims at examining the doctrine of corporate veil within the UK context and the attitude of the courts in upholding this principle of law. It will also pay specific attention to the circumstances under which the separate corporate personality can be disregarded.
(19/7/2021)
Chế định thành viên độc lập HĐQT theo Luật Doanh nghiệp 2020 và Luật Chứng khoán 2019 [By Duc Dang & Loc Ngo, Indochine Counsel]
Theo thông lệ quốc tế về quản trị công ty hiện đại, tính minh bạch được coi là tiêu chí hàng đầu để đảm bảo sự hiệu quả và bền vững trong hoạt động quản trị công ty cũng như bảo vệ quyền lợi hợp pháp các chủ thể tham gia vào hoạt động của công ty. Một trong những phương thức, cơ chế để nâng cao tính minh bạch trong hoạt động quản trị công ty là việc thiết lập và áp dụng chế định thành viên độc lập (TVĐL) hội đồng quản trị (HĐQT).
(17/7/2021)
My Thoughts on Cuba [By Marcia Narine Weldon]
I met with Black lawyers in bufetes in Santiago de Cuba during a visit with the National Bar Association and Ben Crump. I sat on a panel with Cuban judges and received a copy of their Constitution as a gift. I was careful to use “bloqueo” instead of “embargo” in my remarks and gently corrected the interpreter when she put a slant on my words about human rights. The Cuban government searched all of our luggage when we landed and unlike other colleagues, my materials weren't confiscated because I made sure not to have hard copies. I destroyed my online version of my presentation as soon as I concluded. This was not any different from my past visits to do business in China and prepared me for my trip to teach in Pakistan in 2019.
(16/7/2021)
Empirical studies in corporate law have proliferated in the last two decades, and have had a major impact on legal practice and policy relating to corporate governance. As a result, lawyers increasingly engage with these studies in order to understand their implications for legal practice and policy. This is often challenging because most lawyers are not trained in econometrics and statistical methods, and thus, there is a risk that they misinterpret these studies and their implications. These studies, while critical for evaluating different corporate governance regimes, suffer from well-known weaknesses. The purposes of this guide are to provide an overview of the key empirical strategies for evaluating the relationship between governance and shareholder value, and to demonstrate to lawyers how they can engage with their weaknesses. The main theme of the guide is that largely all empirical strategies are based on three key intuitive comparisons: (1) comparing firms with and without the governance provisions, (2) evaluating the value of firms before and after adoptions or removals of governance provisions, and (3) evaluating what happens to shareholder value after a legal change. By identifying these basic comparisons and the roles they play in the key methodologies for evaluating shareholder value, lawyers will be better positioned to assess empirical studies and evaluate their implications for legal policy.
(14/7/2021)
Directors' independence at controlled companies is an intriguing corporate governance conundrum. Recently, Bebchuk and Hamdani have shed new light on it by providing an analytical framework which seeks to make independent directors more effective in performing their oversight role. They convincingly argue that some independent directors should be accountable to public investors who, in order to achieve this aim, should have the power to influence the election or retention of several "enhanced-independence" directors. Starting from this persuasive outcome, and adopting a comparative and functional analysis, this Article will further extend the Bebchuk and Hamdani framework in several directions, with the aim of rendering it more effective and adaptable to different jurisdictions around the world. First, reliance only on the initiative of activist hedge funds might raise some concerns with regard to the effectiveness of enhanced-independence directors as monitors as well as to the cohesiveness of the board. This Article will therefore argue that the involvement of non-activist institutional investors in the selection and election of enhanced-independence directors should be enhanced. It will further argue that the refinement of the election and retention process for independent directors might not be enough in order to tangibly enhance their independence, as the "human nature" of corporate boards must be taken into consideration as well. Pursuing this line of thought, it will develop an in-depth analysis of strategies available in order to limit the distorting effects of the board’s relational dimension and to induce enhanced-independence directors to perform their oversight role in a truly independent way.
(8/7/2021)
In Sevilleja v Marex Financial Ltd the Supreme Court considered the ambit of the prohibition on a shareholder recovering losses from third parties for the reduction in the value of their shares or loss of dividend income arising from a wrong suffered by the company. This prohibition on ‘reflective loss’ had been growing in scope in recent years, leading to a lack of clarity as to whether it is taxonomically situated in company law or in private law. The majority in this case situated the prohibition firmly within company law. This note argues that the majority judgment did not go far enough and explores the impact of this case on company law more broadly.
(5/7/2021)
Corporate law changed regularly in the first half of our country’s history. A series of innovations followed one after another during the nineteenth century—limited liability; general incorporation statutes; a strong shift to director-centric corporate governance; authorization of corporations holding stock in other corporations; and the disappearance of ultra vires and other limits on corporate behavior. By the arrival of the twentieth century all the key economic elements of the modern corporation were in view and corporate law settled into a stable pattern we still see today. State law abandoned its prior regulatory approach and its continual change in favor of a director-centric structure with expansive room for private ordering that has remained remarkably stable. Federal law stepped in to restrain economic concentration (antitrust law), to protect employees and consumers against corporate power (done by industry regulation, employment and consumer laws not corporate governance), to limit corporate political contributions, and to make recurring, if sporadic and non-comprehensive, efforts to enhance the role of shareholders against managers. This chapter examines this history of change in corporate law in America, the dramatic and abrupt shift in the focus of state corporate law visible in last decade or so of the nineteenth century, the interactive pattern of state and federal law that has grown up over the second half of the country’s history and prominent theories explaining what leads to corporate law change. Together these various strands suggest there will be no fundamental change in corporate law even in this time of visible stress to the now classic structure.
(4/7/2021)
Under the “contemporaneous ownership rule,” to have standing to bring derivative claims, stockholders in a Delaware corporation must own stock at the time of a challenged transaction. The general rule is that the time of the transaction is when the terms were established, but there are narrow exceptions, such as where the terms were modified and not disclosed, in which case a court may look to when the transaction was consummated. In In re SmileDirectClub, Inc., 2021 WL 2182827 (Del. Ch. May 28, 2021), the Delaware Court of Chancery found that the general rule applied where plaintiffs challenged the terms of a transaction related to an IPO through which they became stockholders.
(1/7/2021)
This report provides an evidence-based overview of developments in capital markets globally leading up to the COVID-19 crisis. It then documents the impact of the crisis on the use of capital markets and the introduction of temporary corporate governance measures. Although the structural effects of the crisis on capital markets and its interplay with corporate governance remain to be fully understood, this report presents trends that can be used to shape policies that will support the recovery and formulates key policy messages that will guide the upcoming review of the G20/OECD Principles of Corporate Governance. The report emphasises that the road to recovery will require well-functioning capital markets that can allocate substantial financial resources for long-term investments. It also highlights the need to adapt corporate governance rules and practices to the post-COVID-19 reality, particularly in areas such as increased ownership concentration; environmental, social and governance (ESG) risk management; digitalisation; insolvency; audit quality and creditor rights.
The OECD Corporate Governance Factbook provides easily accessible and up-to-date information about the institutional, legal and regulatory frameworks for corporate governance across 50 jurisdictions worldwide. The Factbook complements the G20/OECD Principles of Corporate Governance and can be used by governments, regulators and the private sector to compare their own frameworks with those of other countries and also to get information on practices in specific jurisdictions. The 2021 edition of the Factbook will be an important reference for the upcoming review of the G20/OECD Principles of Corporate Governance.
The Factbook is divided into four main areas that are crucial for understanding how corporate governance functions in different jurisdictions:
the global market and corporate ownership landscape
the corporate governance and institutional framework
the rights of shareholders and key ownership functions
the corporate board of directors
The 2021 edition includes new material on global market landscape, including how capital markets have evolved during the COVID-19 pandemic, new coverage of the oversight of audit, proxy advisory services, gender balance on boards, as well as significant updates across many other issue areas, reflecting dynamic changes to regulatory and institutional frameworks around the world.
A cardinal principle in corporate law is that shareholders of a company are not made liable for the obligations of such incorporation above the capital they invested in exchange for their subscribe shares. However, the greatest argument with UK’s approach to maintaining the sanctity of the doctrine has been whether or not courts should continue to uphold or disregard this principle of separate legal personality when called upon to do so and under what circumstances can this be equitably done? Since the SALOMON decision, the courts have time and again been called upon to either uphold the principle of separate legal personality or to have the veil of incorporations lifted in other to hold members personally liable for the debts of the company that they operate. Thus, this paper aims at examining the doctrine of corporate veil within the UK context and the attitude of the courts in upholding this principle of law. It will also pay specific attention to the circumstances under which the separate corporate personality can be disregarded.
(27/6/2021)
Corporate Groups: Corporate Law, Private Contracting and Equal Ownership [The orders of the following excerpts have been rearranged a bit.]
[W]e define a corporate group as the linkage between two or more companies where one of these companies (the parent) is both a shareholder—most commonly, exercising control—and a significant business stakeholder of the other companies (the subsidiaries). The unique problems arising from this dual nature of the parent explain the prevalence of the extreme ownership structures we observe in the real world.
Ownership structures close to 100% are effectively placing part of the parent’s assets in a separate legal entity. This produces regulatory arbitrage gains for the parent by insulating these assets from creditors, tax authorities and other stakeholders. Regulatory arbitrage gives rise to conflicts between shareholders and other stakeholders which have been studied in depth by the legal literature. However, stakes equal to 50% are more difficult to justify and tend to be ignored by the prevailing legal literature on group structures. This is the case of joint ventures, where two shareholders hold each 50% shares, but also, more generally of groups where the parent owns 50% and a group of minority shareholders jointly own another 50%. In our paper we try to explain the prevalence of these ownership arrangements where the parent’s stake is 50%, forcing it to share control with other shareholder(s).
Why is legal protection surprisingly inefficient in the group context? Corporate law allocates control according to ownership stakes and sets (i) prophylactic ex-ante measures to reassign control power when there is a high risk of expropriation and/or (ii) ex-post sanctions and compensation when the value of the subsidiary has been reduced by the conflicted decisions of the parent. Nevertheless, corporate law typically ignores the stakeholder nature of the parent and, because of this, legal rules that may serve well to curtail expropriation in stand-alone firms may prove ineffective or undesirable when dealing with corporate groups. Strict anti-expropriation rules disincentivize the parent from cooperating and lax anti-expropriation rules disincentivize the minority partner from doing so. Additionally, specific laws and regulations dealing with corporate groups, while acknowledging the stakeholder nature of the parent, commonly also fail to offer a workable legal solution to expropriation through business dealings.
Shareholders’ agreements offer an alternative protection mechanism for the minority partner in the subsidiary. These contractual arrangements provide protection from conflicts of interest by decoupling ownership rights from control rights: the minority can be granted control rights over some specific decisions even with a reduced stake (for instance through veto rights or the appointment of a given number of minority directors). The advantage of this decoupling solution is that it prevents expropriation while preserving both the parent’s and the minority’s incentives for cooperation as determined by the ownership stake that each party holds. Nevertheless, the efficiency of shareholders agreements will be critically determined by the balance between the bargaining power of the shareholders drafting the contract, and, more importantly in terms of policy implications, by the quality of contract enforcement in each jurisdiction.
Equal ownership arrangements offer a strong solution to expropriation because they give both parties veto power. However, this is a solution of last resort because it comes with high cost in terms of deadlocks and a very inefficient decision-making process. Moreover, 50-50% structures distort cooperation incentives: both parties are given the same cash flow rights irrespective of their contribution to the joint production process in the subsidiary, which is very unlikely to be equal. Therefore, we argue that these ownership structures are used when alternative cheaper solutions to expropriation—legal protection and shareholders’ agreements—are ineffective.
(22/6/2021)
Comparative Corporate Governance [Free chapter]
This research handbook provides a state-of-the-art perspective on how corporate governance differs between countries around the world. It covers highly topical issues including corporate purpose, corporate social responsibility and shareholder activism.
There is no single predominant definition of corporate governance. Notably, the Cadbury Committee defined corporate governance as “the system by which companies are directed and controlled.”1 Much more narrowly, Shleifer and Vishny have stated that “[c]orporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.”2 On the broad end of the definitional spectrum, Jonathan Macey suggested that corporate governance includes “[a]nything and everything that influences the way that a corporation is actually run.”3
(21/6/2021)
Corporate law provides shareholders with key legal protections and rights – including voting and fiduciary duties – by virtue of their status as residual claimants of corporations. This status stems from the observation that shareholders are the parties who receive the residual profits of the corporation. This Article argues that this conventional view of residual claimancy is incomplete because it considers only one of the multiple criteria that should be relevant to the residual claimant analysis. The rationale behind residual claimant analysis is that it seeks to identify the party whose interests are aligned with the corporation’s collective interest, and collective interest should be understood to include not only shareholder profit but also other stakeholders’ interests. And indeed, a review of the history and development of residual claimant theory shows that the residual claimant theory originally contemplated a broad array of stakeholders being the residual claimants of corporations. Depending on which of the theories of rent, interest, wages, or profit was adopted, each of landlord, capitalist, laborer, and entrepreneur have been considered to be the residual claimants of the corporation over time. It was only rather recently that residual claimant analysis hardened into the shareholder primacy norm in corporate law, bolstered by the ascendancy of a single-criterion approach to residual claimancy that focuses only on residual profit. Both the history and the rationale of residual claimant analysis support a more diverse conception of the residual claimant, which strives not only for profit maximization, but also for the other goals underlying the recognition of residual claims, including rewarding effective monitors, preserving firm-specific investments, and protecting undiversified risk bearers.
(20/6/2021)
The Theories of Corporate Governance and Suggested Solutions to Its Legislation Completion in Vietnam (by Ho Ngoc Hien & Phan Dang Hai)
Currently, there are three popular theories of corporate governance widely applied in the field of jurisprudence worldwide. They are Agency Theory, Stewardship Theory, and Stakeholder Theory. Based on these theories, the article focuses on clarifying legal issues about corporate governance, thereby suggesting solutions to the improvement of corporate governance legislation in Vietnam at present time.
Agency Theory refers to a contract under which one or several principals (shareholders) hire other agents (company executives) to perform certain services on their behalf, including the decision-making authority. In some cases, if both parties want to maximize the benefits, there is reason to believe that the agents will not act in the priorities of the owners.
(18/6/2021)
To meet its responsibility to respect human rights under the 2011 UN Guiding Principles and Business and Human Rights, a corporation must conduct human rights due diligence. To be effective, human rights due diligence must be embedded into corporate culture through effective leadership that is firmly grounded in corporate governance. Even in the most shareholder-protective jurisdiction (the U.S. State of Delaware), corporate fiduciaries have a duty of loyalty to act affirmatively in good faith to promote the best interests of the corporation.
Recent LLC acts impose upon LLCs the corporate rule that most owner claims against managers or other owners are merely “derivative” rather than “direct.” These acts give LLCs the right to appoint special litigation committees (“SLCs”) to decide how to dispose of derivative claims. As in the corporate area, SLCs present the risk that insiders are deciding what to do about claims brought against “one of their own.” This article first reviews the two basic paradigms of judicial review of SLCs that emerged in corporate law: New York applies the deferential business judgment rule to SLCs whereas Delaware offers enhanced scrutiny even if the technical requirements of the business judgment rule are met. The article then considers LLCs directly, beginning with recent LLC acts that limit the standing of members to bring direct actions. The imposition of the machinery of derivative litigation on closely held firms imposes significant transaction costs that serve no purpose and is contrary to the presumptive intent of the members. Legislatures should permit LLCs to “opt in” to the complexities of derivative litigation rather than force them to “opt out” of it. They should consider the Texas approach of exempting closely held LLCs from the machinery of derivative litigation. In this way, members may once again directly sue one another or their firm. At the very least, legislatures should amend the statutory rule that permits a majority of derivative defendants to appoint the SLC that resolves the claims against them. Even in the absence of legislative change, courts should adopt the Delaware approach that subjects the composition, work and recommendations of SLCs to enhanced scrutiny. In particular, courts should require SLC members to be financially, socially, and personally independent.
(13/6/2021)
The Soviet Constitution Problem in Comparative Corporate Law: Testing the Proposition that European Corporate Law is More Stockholder Focused than U.S. Corporate Law (Leo Strine, 2016)
This article addresses the proposition advanced by academic and press commentators that European corporation law promotes stockholder welfare better than its U.S. counterpart. Those who express that view often point to the stronger rights afforded to stockholders under the laws of the European member states, including the non frustration rule, the ability of stockholders to take direct action by calling a special meeting and replacing directors, and rules that aim to provide equal treatment for all target stockholders. But, claiming that stockholders are economically better off as a result of the literal law on the books is akin to judging the Soviet Union’s protection of human freedom by reading its Constitution. That is, if one looks only at the Soviet Constitution on paper, one might conclude that it was a model of liberalism because it provided for separation between church and state, freedom of speech, freedom of the press, and freedom of assembly. But in reality, the Soviet citizens were unable to exercise any of those rights. In an admittedly far less extreme way, the claim that European corporate law better advances stockholder welfare than the U.S. approach relies upon a similar misplaced emphasis on paper rights. This article proposes that scholars who tout Europe as a stockholder paradise slight the social and regulatory context in which laws operate, and elide the fact that American corporate law creates a system where directors have an intense focus on generating stockholder profits. Available empirical evidence suggests that U.S. stockholders use their rights to influence corporate policies more effectively than their European counterparts, that there is more M&A activity in the United States than in Europe, and that U.S. stockholders receive higher takeover premiums. By highlighting the practical ways in which American corporate laws operate compared to those in Europe and observing how that operation affects stockholder value, this article is intended to contribute to the increasingly global debate about corporate governance. Because policy advocates have argued that EU corporate law should inform U.S. policymaking and vice versa, it is critical that there be a clear eyed understanding of how each system works in actual practice, not just in theory, lest we make policy mistakes.
Minority Investor Protection Mechanisms and Agency Costs: An Empirical Study Using the World Bank-Developed Approach (by Hoang N. Pham, Victoria University, Australia and Minh C. Nguyen, Doimoi.org, Vietnam) [Thank you to the authors, this is what I’m looking for.]
This study examines the impacts of minority investor protection mechanisms on agency costs in Vietnam. All relevant indicators of minority investor protection developed by the World Bank are employed with a panel data sample of 135 Vietnamese listed firms during the period from 2014-2018. It is found that the following mechanisms are effective in mitigating agency costs and hence agency problems at the firm level: i) extent of disclosure; ii) extent of director liability; iii) ease of shareholder suit; iv) shareholders’ rights in major corporate decisions; and v) corporate transparency. Interestingly, it is found that the board independence and controlling government shareholder do not play significant roles in addressing agency problems. To the best of the authors’ knowledge, this is one of the first attempts at testing for the impact of minority investor protection mechanisms developed by the World Bank on agency costs at the firm level. This study also provides policy implications for selecting effective mechanisms to mitigate agency conflicts between controlling shareholders and minority investors in order to promote the financial performance of the firm in an Asian emerging market.
(11/6/2021)
In 2018, the Trump Administration claimed for the first time that the United States erred in supporting China’s accession to the World Trade Organization because China has failed to fulfill its commitments to dismantle its state-led economy and adopt open market-oriented reforms. Instead, China has maintained a mercantilist state-led economy in which China provides preferential treatment to its state-owned enterprises and supports their exports while it discriminates against U.S. companies in China and creates barriers to U.S. imports. Frustrated with being unable to effect change through dialogue, the United States is now using punitive trade sanctions against China in disregard of the WTO. China has retaliated in kind, igniting a potential global trade war. A review of the background of China’s accession to the WTO indicates, however, that China never made any commitments to dismantle the state sector of its economy and is not otherwise legally bound to do so under the WTO. The claim that China agreed to adopt open markets is a myth created by President Bill Clinton due to wishful thinking or political expediency when he sought congressional support for China’s accession to the WTO in 2001. Clinton argued that China’s WTO entry would lead to the adoption of economic freedoms that in turn would lead to political freedoms and greater protection for human rights. Clinton even dangled the possibility China could shed the shackles of communism and embrace democracy. In response to Clinton’s grandiose vision, China remained cautious and made no extravagant promises. China promised only to adopt a hybrid system in which some free markets would operate within an overall state-led economy. Rather than dismantling its state-led economy after its WTO accession, China has incessantly strengthened it. Tightening the state’s grip over the economy serves important goals of the Communist Party, including further entrenching its power, whereas loosening its grip would be tantamount to relinquishing power, a prospect that the Party will never accept. This Article argues that the United States must finally reject the Clinton myth and accept that China has no intention of dismantling its state-led economy. Only with this sober realization can the United States deal effectively in the future with China in the WTO, in bilateral trade negotiations outside of the WTO, and beyond.
(8/6/2021)
[C]orporate governance is concerned – first and foremost – with the problem of power. In particular, corporate governance is essentially an enquiry into the causes and consequences of the allocation of decision-making power within large, socially significant business organizations.
[S]ome other aspects of company law undoubtedly do have a direct bearing on the allocation of corporate decision-making power, and therefore are of immediate concern to us here. Included within this latter category are shareholders’ rights of intervention in corporate decision-making, and also the key rules and principles relating to the monitoring responsibilities of directors, internal financial control, executive remuneration and takeovers. Meanwhile, certain important elements of securities law, such as the periodic financial reporting requirements applicable to publicly listed companies, likewise fall within the purview of this book on account of their centrality to prevailing corporate power dynamics.
(6/6/2021)
Today the doctrine of limited liability has become so proliferated and at first glance such a self-evident phenomenon, that often even people without any law degree, can explain what it is about, and sometimes even dispute over its rationality.
Columbia University President Nicholas Murray Butler […] in 1911 that ‘...even steam and electricity are far less important than the limited liability corporation, and they would be reduced to comparative impotence without it’ claim became axiomatic and were repeatedly quoted.[…] Today scholars still have little consensus over limited liability doctrine, although we also have a number of arguments that are commonly used for justification of limited liability. At the same time externalities associated with limited liability sometimes are excessive and unfair, especially for involuntary creditors, which is a significant problem. In the first part of this article we will briefly trace the evolution of limited liability doctrine from antiquity till [the] present day. In the second part we will examine the rationales that justify limited liability.
Law students in business associations and people starting businesses often think the only choice for forming a business entity is a limited liability entity like a corporation or a limited liability company (LLC). Although seeking a limited liability entity is usually justifiable, and usually wise, this Article addresses some of the burdens that come from making that decision. We often focus only on the benefits. This Article ponders limited liability as a default rule for contracts with a named business and considers circumstances when choosing a limited liability entity might not communicate what a business owner intends. The Article notes also that when choosing an entity, you get benefits, like limited liability, but burdens (such as need for counsel or tax consequences) also attach. It's not a one-way street. The Article closes by urging courts to consider both the benefits and burdens of an entity choice, especially in considering whether to uphold or disregard an entity, to help parties achieve some measure of certainty and equity.
(3/6/2021)
OECD publishes new standard: transparency and disclosure by internationally active state owned enterprises [It will lead you to “OECD Guidelines on Corporate Governance of State-Owned Enterprises, 2015 Edition”]
Under the banner of "Maintaining competitive neutrality", the OECD has published a voluntary standard containing a set of best practices for transparency and disclosure by internationally active state owned enterprises and their owners: see here (pdf).
(1/6/2021)
The idea behind the limited liability company is that people will be encouraged to be associated in a business enterprise if they are able to limit their personal liability for the debts of the enterprise. The way in which this is achieved is by the creation of a corporation with limited liability. What that means is that the personal liability of the members of the company is limited to the amount that they have subscribed or agreed to subscribe to the capital of the company. The capital in this instance is the company's nominal share capital. It is part of the very definition of a limited company in section 3 of the Companies Act 2006. That provides that a company is a company limited by shares if the liability of its members "is limited to the amount, if any, unpaid on the shares held by them." This fundamental feature of corporate liability has been recognised for a very long time. It was introduced by the Joint Stock Companies Act 1856; and repeated in the Companies Act 1862".
(31/5/2021)
Corporations increasingly assert the right to discriminate, based either on free speech claims, religious freedom claims, or statutory claims arising from the Religious Freedom Restoration Act. Such claims have been considered by the Supreme Court in Hobby Lobby (RFRA) and Masterpiece Cakeshop (First Amendment), and in both cases the Court held in favor of the business.
In neither case, however, did the Court address a fundamental flaw with the arguments of the company asserting the speech and religion claims: that the claims depend on the rejection of corporate personhood. The putative religious and speech claims arose not from the beliefs of the companies but of their dominant shareholders. But corporate “personhood” means the interests of the firm are distinct from those of the shareholders. Allowing companies to assert the beliefs of shareholders as their own contradicts established doctrine and risks corporate manipulation of regulations designed to be generally applicable.
The authors have been active as amici in various cases in which corporations have asserted right to discriminate. This chapter marks the first time that these arguments have appeared in a scholarly format.
(29/5/2021)
The Corporate Transparency Act – Preparing for the Federal Database of Beneficial Ownership Information [Any lessons may Vietnam learn from this? My previous article “Xử lý hoạt động đầu tư dựa trên giao dịch giả tạo” is somehow relevant.]
The definition of “beneficial owner” in federal legislation providing for the reporting of beneficial ownership information has been a topic of significant debate. The 2008 Incorporation Transparency and Law Enforcement Assistance Act defined a beneficial owner as “an individual who has a level of control over, or entitlement to, the funds or assets of a corporation or limited liability company that, as a practical matter, enables the individual, directly or indirectly, to control, manage, or direct the corporation or limited liability company.”[30] Subsequent definitions of beneficial owner in proposed federal legislation and rules providing for the reporting of beneficial ownership information have been drafted in a manner that provides greater clarity for an entity in identifying its beneficial owners. For example, the FinCEN CDD Requirements define a beneficial owner as (i) each individual, if any, who directly or indirectly owns 25% or more of the equity interests of a legal entity customer (the ownership prong); and (ii) a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager or any other individual who regularly performs similar functions (the control prong). Even more specific is the definition of beneficial owner in the geographic targeting orders, which includes “each individual who, directly or indirectly, owns 25% or more of the equity interests” of the purchaser.[31]
Corporate governance research has been shaped by the Berle and Means model that focuses on publicly-traded corporations characterized by the separation between ownership and control. Yet, a look at the ownership structure of public corporations around the world shows that this model is the exception rather than the norm. Indeed, the majority of public corporations across countries have a dominant or controlling shareholder.[1] Ownership concentration generates different governance problems than ownership dispersion, the most important of which is the appropriation of private benefits of control namely through a related party transaction (RPT). Hence, over the last few years, the regulation of RPT has attracted increasing attention on the part of academics, lawmakers and regulators.
(28/6/2020)
China spent 12 years reforming its corporate insolvency law. When the Enterprise Bankruptcy Law was finally implemented in June 2007, many hoped that it would make the resolution of corporate financial distress more efficient, which would in turn help remove China’s protectionism and improve its business environment. The government saw the new law as promising more prosperity and financial stability, while investors and other stakeholders hoped that it would enable a better allocation of resources and facilitate the realisation of more worthy projects thanks to a greater amount and lower cost of credit to non-state companies. Ten years on, domestic and foreign companies are still waiting for the changes that they hoped the reformed law would bring. To understand what happened, this article examines the historical development of insolvency law in China, the reasons why the law was reformed, and its implementation in practice over the last decade. It concludes that, although relatively well written, China’s Enterprise Bankruptcy Law remains poorly enforced due to a number of flaws in the surrounding practices and rules, and due to the biases and limitations of the enforcers.
(26/5/2021)
Corporate law contains two contradictory stories about the role of shareholders. In one, the shareholders are a useful countervailing force against the self-interested behaviour of corporate agents. In the other, shareholders lack the motivation, information, and proper incentives to contribute to the good governance of business corporations. Both stories are true on occasion, but is one more true than the other?
(24/5/2021)
A Hybrid Approach to Sunsetting Dual-class Shares [also offering a look back on the history of dual-class shares in the US]
Tech company leaders nowadays increasingly employ dual-class stock to retain absolute control when they bring their companies public. While theoretically dual-class shares can insulate an innovative founder’s idiosyncratic vision from public investors’ short-termist pressures, they can also lead to inefficient governance by preventing shareholders from selling corporate control to outsiders who can manage the company better than the incumbents. This way, dual-class shares harm a company’s long-term prospect, and ultimately may jeopardize the very innovative power that tech visionaries intend to protect…This Article proposes an approach that gradually phases out a company’s dual-class structure after it matures to the extent that it no longer needs special protection from short-termist activism. The approach combines two popular solutions to the dual-class problem: time-based sunset clause and tenure-based voting. It respects the founder-manager’s need for independence to fulfill her innovative vision, aligns the founder’s incentives with those of the long-term shareholders by strengthening shareholder oversight, and minimizes the impact of potentially value-destroying activism to the company’s long-term competitiveness.
(22/5/2021)
Directors' Duties and Liabilities in China
It’s a doctoral dissertation.
(20/5/2021)
Letting Companies Choose between Board Models: An Empirical Analysis of Country Variations [Who will be the first one doing the same research in Vietnam?]
This paper has a dual aim: it aims to contribute to the substance of comparative corporate law and it aims to advance the methodology of comparative legal research. In substantive terms, the paper addresses the key question about the design of a suitable board structure. It notes that today many countries [including Vietnam] not only allow modifications of the default structure, but provide two separate legal templates by giving firms a choice between a one-tier and a two-tier board model. Yet, information on the actual choices made by companies is rare. This paper aims to fill this gap. It presents original data about the choice of board models from 14 European jurisdictions, analyzing variations of popularity of these models at the country level.
The Dynamism of Partially State-Owned Enterprises in East Asia (the authors include PHONG T. H. NGO, Australian National University (ANU) but Vietnam doesn't seem to be one of the reported countries.)
We examine the nature of state blockholding across publicly listed firms in East Asia by assembling a unique dataset spanning 16 years and 9 economies. Our newly compiled data identifies ultimate owners for each firm annually between 1997 and 2012, totaling 2,984 firm-year observations. Three findings stand out. First, large changes (>5%) to state blockholdings – both investments and divestments – are quite prevalent. Second, the identity of the largest shareholder frequently changes over time between state, family, and widely-held entities. Third, sovereign wealth funds are far more likely to acquire rather than sell large stakes in publicly traded firms.
In recent years much attention has focused on identifying or creating legal forms for business associations that enable and promote social enterprises and socially responsible behavior. One strategy in enterprise governance that has received renewed attention is formal legal definitions of the purpose of a business association. This chapter examines two questions. First, what do current legal rules and norms applicable to most business organizations say about the proper purpose of a company, and how much do those rules constrain businesses from pursuing social missions that do not prioritize, and may sometimes reduce, profit? The chapter considers statutory and case law for corporations and LLCs, and argues that Delaware corporate law does create a presumption that corporate purpose is to maximize shareholder wealth, but this does little to constrain corporate social responsibility or social enterprise. Second, how effectively can companies use statements of purpose to help them behave responsibly and pursue social missions? The chapter looks at four forms of business association that attempt to encourage social enterprise: L3Cs, benefit corporations, nonprofit corporations, and cooperatives. All four use purpose as a governance tool in some fashion, suggesting that purpose has some use in promoting social responsibility. However, the forms of association which use varied strategies beyond purpose achieve much stronger commitment to desired social goals.
(19/5/2021)
As this analysis suggests to U.S. readers, veil piercing in the U.K. is quite different from that in the U.S. Todd Henderson and I discuss the differences between the two in our book Limited Liability: A Legal and Economic Analysis.
Although there are many reported cases, the reasoning is even more typically ad hoc than the American experience. Commentators attribute this approach to the fact that the English courts were reluctant to invent a new doctrine from whole cloth, preferring instead to use existing precedents from agency law or the law of trusts to fashion remedies for frustrated creditors. ...
The case of Adams v. Cape Industries plc (1990) is widely cited as the death of expansive enterprise liability and veil piercing in Britain. ... The end result has been that veil piercing is now “a rarity under English law,” especially in tort cases, “[e]ven where the case for applying the doctrine may seem strong, as in the undercapitalized one-person company.”
As a U.S. court noted, there is a “key distinction in English law between using the corporate form to evade or conceal existing legal obligations or wrongs on the one hand, and using it to insulate oneself from future or contingent liabilities on the other.” In re Tyson, 433 B.R. 68, 94 (S.D.N.Y. 2010). Only the former could justify veil piercing.
As a result, we concluded that "British courts are more reluctant to pierce the veil or combine a corporate group than American courts."
I'm inclined to think it would be fun to revisit this issue and compare US and UK law in more detail.
Read also “The Corporate Veil Doctrine Revisited: A Comparative Study of the English and the U.S. Corporate Veil Doctrines” (2011)
(18/5/2021)
The paper offers a comparative perspective on the duty of loyalty – encompassing both rules that govern self-dealing and corporate opportunity transactions. It compares the evolution of these two sets of rules in several European jurisdictions and in US Delaware law. Corradi and Helleringer note tensions between the evolution of the law governing self-dealing transactions at the European level, and the lack of harmonization on rules addressing corporate opportunities and continuing divergences in corporate opportunities doctrine across EU jurisdictions. They observe a relaxation of the duty of loyalty in US Delaware law, while there is an asymmetric evolution of its two components, self-dealing and corporate opportunities, in the European context. On the one hand, self-dealing rules have existed in European corporate laws for a long time and have been substantially relaxed in Europe in recent times as they have in the US. On the other hand, corporate opportunities rules have been introduced in most European jurisdictions only throughout the last two decades – without an express possibility of a waiver such as the one granted by DGCL s. 122(17).
(15/5/2021)
Golden Shares and Social Enterprise [This reminds me of my own old article “Cổ Phần Vàng” in which I wrote “cổ đông sáng lập của doanh nghiệp xã hội muốn giữ vững sứ mệnh phục vụ cộng đồng cũng có thể nắm cổ phần vàng.”]
Social enterprises—for-profit companies with public-interest missions—are now ubiquitous, yet few have emerged from the realm of small business. The main obstacle to their growth is a gap in trust between managers and investors, with each side lacking any legal assurance that the other will pursue both profits and purpose. Too often, these misgivings limit businesses’ access to capital.
Beyond new legal forms created to accommodate this sector, some social entrepreneurs have adopted inventive organizational structures as part of a growing global movement called steward ownership. In the United States, the leading form is the golden share model, in which a Delaware public benefit corporation with dual-class stock grants all voting rights to managers, all economic rights to investors, and critical veto rights to an independent foundation.
This Article is the first to address this movement and its potential to advance social enterprise. The golden share model begins to close this sector’s trust gap from one side, by assuring managers that investors cannot divert a company from its mission. But from the other side, the gap may widen even further, as investors worry that managers will ignore that mission and abuse their unchecked authority. To bridge this gap, novel applications of established industry practices and familiar legal concepts, like impact metrics and voting trusts, could vastly improve the model. With these practical proposals, social entrepreneurs could retain independence in pursuing their missions, while attracting the capital needed to achieve them at scale.
What does it mean to say a business association is a legal person? The question has shadowed the law of business organizations for at least two centuries. When we say a business is a legal person we may be claiming that the law distinguishes its assets, liabilities, and obligations from those of its owners; or that it has a “real will” and personality apart from its owners; or that it in some way can carry or assert rights generally ascribed to natural persons. This Article sheds new light on these old questions by looking at an oft-overlooked business form, the partnership, and at once-fierce debates over just what the partnership is. In the decades around the turn of the twentieth century scholars and practitioners hotly debated whether the partnership was an “aggregate” or “entity” and whether the law should treat it as a separate legal person, debates which culminated in the drafting of the Uniform Partnership Act (1914). Central to these debates was a now-forgotten facet of the legal personhood debates: the moral consequences of treating a business association as a distinct legal person.
Dual class shares is an evergreen subject for discussion among corporate governance scholars, policymakers and practitioners. Without going back too much, one can recall that, at a time when deviations from ‘one share, one vote’ were relatively common across Europe, the European Union considered whether one-share-one-vote should become the EU norm. A study by ECGI, ISS and Shearman & Sterling on behalf of the European Commission highlighted the pros and cons of mandating one-share-one-vote and made clear how one-share-one-vote was nowhere imposed as a matter of law in the EU. The Commission then decided to retreat from the idea of mandating one-share-one-vote.
You might also be interested in “The Rise of Dual-Class Stock IPOs”.
Alibaba, the NYSE-traded Chinese ecommerce giant, is currently valued at over $700 billion. But Alibaba’s governance is opaque, obscuring who controls the firm. We show that Jack Ma, who now owns only about 5%, can effectively control Alibaba by controlling an entirely different firm: Ant Group. We demonstrate how control of Ant Group enables Ma to dominate Alibaba’s board. We also explain how this control gives Ma the indirect ability to disable (and perhaps seize) VIE-held licenses critical to Alibaba, providing him with substantial additional leverage. Alibaba is a case study of how corporate control can be created synthetically with little or no equity ownership via a web of employment and contractual arrangements.
Corporate law contains two contradictory stories about the role of shareholders. In one, the shareholders are a useful countervailing force against the self-interested behaviour of corporate agents. In the other, shareholders lack the motivation, information, and proper incentives to contribute to the good governance of business corporations. Both stories are true on occasion, but is one more true than the other? Currently, developments in corporate and securities law are predicated on the idea that shareholders are, generally, a positive force in corporate governance. This seems to be a corollary of agency cost theory, the dominant paradigm for understanding the relationships between corporate actors.
This article reviews the body of empirical research on the outcomes of the various forms of shareholder activism. Proposals, proxy campaigns, and takeovers represent the most impactful and costly forms of shareholder engagement with corporations. As it happens, the empirical evidence does tend to strongly support one of the two stories about the role of shareholders, but it is not the one currently dominating law reform efforts. If the character of shareholder interventions generally supports the story that shareholders lack the proper incentives and information to contribute to positive business outcomes, then much about the current regulatory scene needs to be re-evaluated.
In English law, legal organizations start out as simple creatures. The common-law world can trace its basic organizational structures to three separate developments—the rise of general partnerships through the common law of agency, the invention of the trust, and the introduction and increased flexibility of chartered corporations. The further modern American landscape of organizational law builds on these structures and borrows some, such as the limited partnership (based specifically on the French société en commandite simple—“basic sponsorship company”) and the LLC (based more loosely, and more debatably, on the German GmbH, or Gesellschaft mit beschränkter Haftung—“company with limited liability”), from civil-law systems. Importantly, as a matter of classical common law, partnerships were not legal entities—they were descriptions of relationships among people and between people and property. It was not until the 1900s that a partnership could act legally in its own name; instead, a “partnership,” much like a “friendship,” was just the description of a relationship. That is, a classical common-law partnership did not act for itself or enter contracts as a principal; individual partners, who were in private agreement, acted on behalf of each other, and a partnership was said to be the result. As a non-entity, the partnership could not sue or be sued except through clunky procedural techniques: all partners could sue or be joined as defendants, pursuing or defending an action in their own names…
(15/4/2021)
Based on case studies of Chinese business organisation law - the law of corporations, business trusts and limited partnerships - this article aims, first, to reveal how the economic function of business organisations in the common law world has been deeply changed by strong state power in China, and, second, to explore a political economic theory for improving the performance of enterprise law in transitional economies. It proposes an economic model illustrating how the way transaction costs are distributed inside and outside enterprises for protecting investors may impact economic efficiency and social justice. This article concludes that different forms of enterprises serve as specified legal vehicles of wealth management for different social classes, therefore, the artificial convergence of business organisations will erode equality of opportunity in wealth management for society as a whole.
(14/4/2021)
This Article discusses the puzzling allure of Chinese public firms to external suppliers of capital while illuminating the functions of illiberal governance through the Chinese state’s and Communist Party capacities within firms. It argues that Chinese public firms were able to grow and expand, attracting external finance, not despite the function of “bad” corporate governance institutions but because of them. The Article shows how alongside its many obstructions, China’s illiberal governance system plays an important role in promoting market regularity, providing investors with the assurances necessary to secure the flow of external finance.
Against the backdrop of the U.S.-China trade war and calls for economic decoupling, policymakers are trying to comprehend the various implications of China’s rising powers while considering appropriate regulatory and policy responses. Yet while aspects of trade, national security, and labor carry the headlines, corporate governance is largely missing from the discussion. Only now, as a result of escalating geopolitical wariness, Congress and the SEC (Securities and Exchange Commission) have extended efforts to grapple with corporate governance aspects as well. This Article supports such recent intentions. It examines the implications of China’s illiberal corporate governance for global investors and assesses recent policy developments while pointing to the potential fallacies of adhering to conventional notions of corporate ownership and control.
The contractarian theory of the corporation holds that a business corporation is a creature of contract and, more specifically, a nexus of incomplete contracts between directors, shareholders, employees, suppliers, customers and other parties (see here). This draws attention to the express or implied consent of all the participants and suggests that the role of corporate law and the courts is to enable and support private ordering: corporate law supplies the transaction-cost reducing standard-form terms the parties would have agreed to had they addressed them explicitly, and courts settle disagreements by filling the contractual gaps using the same hypothetical bargain logic. Much of the existing critique has focused on showing that the contractarian account downplays or ignores the mandatory or public features of corporate law (see here, for example). In our recent paper, we articulate a critique that targets the role contractarians assign to courts.
(13/4/2021)
One major proposal [for remedy of stock-market short-termism] is…corporate “loyalty shares,” whereby stockholders who own their stock for longer periods would get more voting power than those who trade their stock quickly. That voting boost would, it’s hoped, support stability and sound long-term planning.
(12/4/2021)
Board models like the one-tier board, as used in the US and the UK, or the two-tier board, as used in Germany, provide a basic governance structure that enables the use of specific governance strategies. It is the use of specific governance strategies, not the choice of a board model, which determines the role of the board in alleviating agency problems between owners and managers, controlling and non-controlling shareholders, and shareholder and stakeholder constituencies. Based on this finding, the choice of the suitable board model should be left to private parties.
The market for corporate control is known as a removal strategy that alleviates the agency problem between owners and managers of potential target companies. To achieve this effect, it must be ensured that takeover defenses are adopted in the interest of shareholders rather than as a means to shield the incumbent board from removal by the acquirer. The governance options include focusing the board structure through the allocation of decision-making power to independent directors (US) or to the supervisory board (Germany), and, as an alternative, reinstalling shareholder decision-making and thus removing the board from its coordination task (UK). Counter-intuitively, one might group US and German law together, despite differences in their basic board structures and despite the European Union’s adoption of UK-style control shift regulation.
The three sample jurisdictions follow a similar pattern for securing fairness of related party transactions (RPTs). The UK relies on a structuring of the shareholder body, requiring ex-ante approval of the disinterested shareholders (MOM approval)... In the US, the predominant choice seems to be structuring the board so as to leave the decision to independent directors... Germany also relies on board structuring in that it requires supervisory board approval of RPTs...
(8/4/2021)
A good start to get to know about LLCs in the US. It also explains what the term “Berle-Means corporation” means. See more here.
Attribution: A Rule-Based Framework
I read “Attribution: A Rule-Based Framework” and didn’t know what corporate attribution was. I Googled this term, and it led me to the following explanation by Norton Rose Fulbright:
As a matter of English law, it is generally the case that a company will be responsible for the actions of its directors and, in many cases, its employees. In contract, this manifests itself through the rules of agency; in tort, through the doctrine of vicarious liability.
However, the fact that a company is responsible to third parties for the actions of its directors, is not the same as the question of whether the knowledge or actions or a director should be attributed to the company – for example, vicarious liability does not involve the attribution of wrongdoing by a director (or employee) to the company, but rather imposes strict liability on the company for acts done in the course of employment.
There are many circumstances in which the court must determine whether the knowledge or actions of an officer should be attributed to the company and the question has arisen in several recent cases.
The general position is that knowledge and actions of a director will be attributed to the company, although questions of attribution are sensitive to the particular facts and this principle has been held not to apply in circumstances where what is in issue is the company’s knowledge of wrongdoing by a particular director.
For example, what is the position where the claim is brought on behalf of the company itself, for example by a liquidator, for losses caused to the company as a result of the (former) employee or officer’s conduct? Should the knowledge or conduct of the director/employee be attributed to the company, thereby providing the director or employee with a defence to the company’s claim on the grounds of ex turpi causa* – in other words that the company should be precluded from claiming as a result of its own illegality?…
[In Jetivia v Bilta] A claim was brought by liquidators against (amongst others) directors of the insolvent company alleging a conspiracy to defraud the company. The allegation was that there had been a carousel fraud relating to European Emissions Trading Scheme Allowances. The defendants applied to strike out the claim on the ground of ex turpi causa and in particular, it was argued that the knowledge of the directors should be attributed to the company.
*This means “no action can be based on a disreputable cause” which is “The principle that the courts may refuse to enforce a claim arising out of the claimant's own illegal or immoral conduct or transactions. Hence parties who have knowingly entered into an illegal contract may not be able to enforce it and a person injured by a fellow-criminal while they are jointly committing a serious crime may not be able to sue for damages for the injury”. (Oxford Reference)
(7/4/2021)
By looking at national company law regimes and EU harmonising directives, this work has isolated only two principles that seem sufficiently general, common, and fundamental. The first principle is the unrestricted powers of directors to act on behalf of the company: this principle is based upon the German tradition and has been extended to public companies of all Member States by the First Company Law Directive of 1968. The second principle is equal treatment of shareholders who are in the same condition: this is a general duty that all companies’ bodies should respect when they make decisions that affect shareholders. Such a principle, however, is not a rigid equality rule, as differentiated treatment might still be justified in the interest of the company. However, its status within case-law of the European Court of Justice it is still unclear: on the one hand, the Court has denied that this duty is a general principle of EU law, with the consequence that it only applies within the scope of the specific provisions entailing this rule; on the other hand, other decisions of the Court seem to follow an opposite logic.
Insolvency proceedings are country-specific, as most of their rules have a re-distributive impact on a broad range of stakeholders of the company, such as employees, creditors, and customers. Therefore, insolvency regimes are strictly related to political balances and national social security policies. The only common denominator of Member States insolvency regimes seems to be the duty to treat creditors equally and respect pre-insolvency entitlement and creditor ranking.
Fiduciary duties encourage loyalty, but too much loyalty can be harmful. For decades scholars have made the case that corporate managers’ singular focus on maximizing the share price is harmful to society more broadly. The law enforces this focus by imposing fiduciary duties on directors and officers owed to the shareholders. This article uses current research from behavioral ethics to show that eliminating the fiduciary duty owed by corporate officers to shareholders would (1) revitalize the internal incentives for moral corporate behavior and (2) shift corporate culture away from a moral obligation to maximize profits…Officer fiduciary duties have never been fully reasoned through by courts, and they do not fit into the current theories of fiduciary duty law. Protection against rogue executives is better maintained through power dynamics and better enforced through the other legal theories examined in this paper.
(6/4/2021)
This book advances an entity theory of company law. It builds on the insight that organizations or firms are autonomous actors in their own right. They are more than the sum of the contributions of their participants. They also act independently of the views and interests of their participants. This occurs because human beings change their behavior when they act as members of a group or an organization. In a group we tend to develop and conform to a shared standard. When we act in organizations routines and procedures form and a culture emerges. These over time take on a life of their own affecting the behavior of the participants. Participants can themselves affect organizational behavior and modify routines, procedures and culture but this takes time and effort.
The traditional focus of corporate law is on aligning managers’ preferences to the interests of shareholders. This view is premised on two assumptions that are no longer true: first, the idea that all shareholders want to maximize the net present value of the firm’s earnings per dollar invested; and, second, the view that microeconomic shocks do not produce macroeconomic consequences. The rise of institutional investors undermines the first assumption...” At the same time, the increasingly interconnectedness of the economy, and society more broadly, undermines the second assumption…We argue that corporate law should reflect these features of contemporary economies, and hence change its fundamental purpose…We develop a framework to guide policymakers in the pursuit of this new fundamental conception of corporate law and provide concrete examples of how changes in the rules on dual class shares, tenure voting, and ownership disclosure could account for these changes.
(4/4/2021)
This post by Wachtel Lipton on the Harvard forum will lead you to, among others: (1) the World Economic Forum’s 2020 draft discussion paper and final version on ESG metrics, (2) Toward Fair and Sustainable Capitalism (Leo Strine), and (3) The Road to Glasgow (Mark Carney).
*Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. (Investopedia)
(3/4/2021)
Signals indicate that [retail investors use technologies, online forums, and gaming dynamics to coordinate their actions and obtain unprecedented results], whom we can dub wireless investors, are currently expanding their actions to corporate governance. Wireless investors’ generational characteristics suggest that they will use corporate governance to pursue social and environmental causes….This article discusses premises, architecture, and characteristics of the movement that would cause business corporations to re-marry their partly-private-partly-public purpose. If such a movement proves successful, the paradigm shift that finally makes corporations serve the welfare of a broader range of stakeholders would happen at the hands of shareholders.
(30/3/2021)
The conventional view of corporate governance is that it is a neutral set of processes and practices that govern how a company is managed. We demonstrate that this view is profoundly mistaken: in the United States, corporate governance has become a “system” composed of an array of institutional players, with a powerful shareholder orientation. Our original account of this “corporate governance machine” generates insights about the past, present, and future of corporate governance.
(29/3/2021)
To frame specific policy recommendations that align the responsibilities of institutional investors with the best interests of their human investors in sustainable wealth creation, environmental responsibility, the respectful treatment of stakeholders, and, in particular, the fair pay and treatment of workers, the essay: 1) explains how the corporate governance system we now have is fundamentally different than the system we had when the regulatory structures governing institutional investors were put in place; 2) identifies the suboptimal results that have ensued by increasing the power of institutional investors, and thus the stock market, over public companies, while diminishing the protections for other stakeholders and society generally; 3) discusses why leaving needed change to the industry itself is not an adequate answer; and 4) sets forth a series of specific, measured public policy changes for mutual funds, pension funds, and hedge funds. In sum, the essay explains and addresses the reality that companies that make products and deliver services cannot focus more on sustainable profitability, respectful treatment of stakeholders, and social responsibility than the powerful investors that control them permit.
Using mutual funds' voting behaviors and outcomes in close votes and contentious proposals, I identify influential mutual funds and examine their determinants and effects on portfolio firms. Influential mutual funds are funds that seem to make independent voting decisions and are effective in swaying other investors to obtain desired outcomes. I find that mutual funds' private information and communication abilities are key determinants of investor influence.
(27/3/2021)
The Modern Corporation Statement on Company Law [and statements on other topics]
The authors of this Summary are experts versed in a variety of national legal systems, including those of the U.S. and U.K. as well as the E.U. We provide this simple Summary of certain fundamentals of corporate law, applicable in almost all jurisdictions, in an effort to help prevent analytical errors which can have severe and damaging effects on corporations and corporate governance.
(24/3/2021)
Corporate Governance
Although empirical scholarship dominates the field of law and finance, much of it shares a common vulnerability: an abiding faith in the accuracy and integrity of a small, specialized collection of corporate governance data. In this paper, we unveil a novel collection of three decades’ worth of corporate charters for thousands of public companies, which shows that this faith is misplaced.
The corporate purpose debate is experiencing a renaissance. The contours of the modern debate are relatively well developed and typically focus on whether corporations should pursue shareholder value maximization or broader social aims. A related subject that has received much less scholarly attention, however, is the formal legal mechanism by which a corporation expresses its purpose—the purpose clause of the corporate charter. This Article examines corporate purpose through the evolution of corporate charters. Starting with historic examples ranging from the Dutch East India Company to early American corporations and their modern 21st century parallels, the discussion illuminates how corporate purpose has been expressed within the charter in a changing series of practices.
European Law
This article is a contribution to the discourse on how to regulate European business so that it contributes to a sustainable future for all, including for European business itself. The article briefly outlines the basis in the EU treaties for reform of EU company law and the risks of continued unsustainability, moving on to the argument for including company law in the legislative toolbox, and outlining ideas for how such a reform could be shaped.