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Company Groups in Transition Economies: A Case for Regulatory Intervention?

Published online by Cambridge University Press:  17 February 2009

Klaus J. Hopt  and
Katharina Pistor
Klaus J. Hopt
Affiliation:
Prof. Dr. iur. Dr. phil. Dres. h.c., Director, Max Planck Institute for Foreign Private and Private International Law, Hamburg.
Katharina Pistor
Affiliation:
Dr. jur., LL.M. (University of London), MPA (Harvard), Associate Professor of Law, Columbia Law School.
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Extract

The field of comparative corporate governance is currently undergoing what may amount to a paradigm shift. Since the seminal analysis of the modern corporation by Berle and Means in 1932, the large publicly held corporation with dispersed shareholders as owners unable to effectively control management has dominated the field not only in the United States, the origin country of the Berle & Means corporation, but also elsewhere. Recent empirical analyses, however, document that the corporation with dispersed owners is much less common than typically assumed. As a result, many of the assumptions that have driven the analysis of the corporate sector in the past are currently undergoing review. To a large extent, the fresh look at the corporation, its ownership structure and performance, and the legal framework in which it operates can be attributed to the recent experience of the transition economies. Reform strategies that were implemented in these countries over the past decade included the reorganization of state owned enterprises into marketable share companies and their subsequent privatization. Corporatization and privatization were expected to lead to enterprise restructuring and improved performance. In fact, these expectations materialized only slowly, if at all, and, as will be further discussed below, the emerging enterprise structures in these countries looks quite different from earlier predictions. Cynics may say that these countries became the testing ground for empirically unfounded corporate finance theories. In fact, many privatization programs in transition economies were designed and advised by US trained financial economists who have now taken the lead in challenging the very same assumptions on which their advice had been based. While they earlier predicted that institutions will follow the market, they now argue that institutions, in particular legal institutions, are determinants of the ownership structure of firms and the development of capital markets. In any event, the process of transforming centrally planned economies into market economies has revealed how little is understood about markets and firms or the role of law and legal institutions for their functioning.

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Articles
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European Business Organization Law Review (EBOR) , Volume 2 , Issue 1 , March 2001 , pp. 1 - 43
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Copyright © T.M.C. Asser Press and the Authors 2001

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References

1 Berle, and Means, , The Modern Corporation and Private Property (New York 1932).Google Scholar

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3 There has been a flood of analysis by economists of ownership structures both theoretically and empirically. See only the contributions in Morck, (ed.), Concentrated Corporate Ownership (Chicago, 2000)CrossRefGoogle Scholar. For a different perspective, which claims convergence on the Berle & Means corporation as a result of international financial market competition, see however Hansmann, and Kraakman, , “The End of History for Corporate Law”, 89 Georgetown Law Journal (2001) 439.Google Scholar

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6 Boycko, , Shleifer, and Vishny, , Privatizing Russia (Cambridge, Mass. 1995).Google Scholar

7 See La Porta et al. (1997) and (1998), supra n. 5.

8 The contributions by all participants will be published in book form (Hopt, , Jessel-Holst, and Pistor, (eds.), Emergence, Behavior, and Regulation of Company Groups in Transition Economies in Legal and Economic PerspectiveGoogle Scholar (forthcoming). We are grateful to the editors of EBOR for having accepted a selection of these contributions and for translating several into English to make them accessible to a broader audience.

9 See the contributions by Jessel-Holst, Hommelhoff and Wymeersch in this issue and the contributions by Petrović, , Sohysiński, / Szumanski, , Sándor, / Sárközy, , Dreher, and Fornalczyk, in 2 EBOR (2001) No. 2 (forthcoming).Google Scholar

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11 For an analysis of this and comparable reform strategies in other socialist countries, which went under the rubric of “market socialism”, compare Kornai, , The Road to a Free Economy – Shifting from a Socialist System (New York/London 1990) 57 with further referencesGoogle Scholar; and Kornai (1992), supra n. 10, at p. 383.

12 For a comparison of pre-reform strategies and their affinity with post socialist reform agendas, compare Stark, and Brusz, , Postsocialist Pathways: Transforming Politics and Property in East Central Europe (The Hague, NL, 1998) p. 80Google Scholar. See also Elster, , Offe, and Preuss, , Institutional Design in Post-communist Societies: Rebuilding the Ship at Sea (The Hague, NL 1998) 35.CrossRefGoogle Scholar

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15 Lipton, and Sachs, , Creating a Market Economy in Eastern Europe: The Case of Poland, Brookings Papers on Economic Activity (1990) p. 75Google Scholar. This economic advice notwithstanding, it was Poland that established the strongest antitrust agency in the region. See Fornalczyk, in 2 EBOR (2001) No. 2 (forthcoming) for details.Google Scholar

16 For a discussion of the tensions between decentralization on the one hand, and depoliticization, which was thought to be achievable through privatization on the other, see Joskow, , Schmalensee and Tsukanova, Competition in Russia During and After Privatization, Brookings Papers: Microeconomics (1994) p. 335, and especially p. 343Google Scholar. They argue that privatization has ultimately benefited decentralization. This judgment, however, at least with hindsight appears to be premature. Certainly the privatization of the large natural resource companies in 1995, i.e., after the article had been published, resulted in a substantial concentration of economic power. See Johnson, , “Russia's Emerging Financial-Industrial Groups”, 13 Post-Soviet Affairs (1997) 333.Google Scholar

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18 Transnational or multinational enterprises (MNEs) have been around for a while. There is a vast amount of literature on them. However, the scale of transnational mergers, including mergers of which neither party is a firm from the United States is of more recent origin. Compare Black, , “The First international Merger Wave (and the Fifth and Last U.S. Wave)”, 54 University of Miami Law Review (2000) 799Google Scholar. A prominent example is the takeover of Mannesmann by Vodafone in 2000.

19 Many of the contributions at the symposium presented evidence of company groups from court cases or antitrust proceedings, but nobody had access to systematic data. Perhaps, this is not so surprising. Recall that it took a special effort by the European Corporate Governance Network (ECGN) to produce systematic data on ownership concentration in Western Europe. See Becht, and Roell, , “Blockholdings in Europe: An International Comparison”, 43 European Economic Review (1999) 1049.CrossRefGoogle Scholar

20 For evidence on the persistence of socialist and perestoika groups in Russia compare Broadman, , “Reducing Structural Dominance and Entry Barriers in Russian Industry”, 17 Review of Industrial Organization (2000) 155.CrossRefGoogle Scholar

21 For a more detailed analysis of the relationship between these two concepts, see infra 3.1.

22 See infra 5.

23 Data were obtained from Bloomberg L.P. (Princeton, NJ 1992) (series).

24 See La Porta et al. (1998) supra n. 2, Table 7. The sample average is 46% for the stock held by the largest three shareholders based on the largest ten non-financial firms listed on the stock exchange.

25 In part this can be attributed to the fact that utilities companies belong to the largest publicly traded companies in the Czech Republic.

26 See Pistor, , “Law as a Determinant for Stockmarket Development in Eastern Europe”, in: Murrell, (ed.), Assessing the Value of Law in Transition Economies (Ann Arbor 2001)Google Scholar ch. 8, for a comparative analysis of the development of capital markets and the relevant institutional framework in these three countries.

27 EBRD, , Transition Report – Employment, Skills and Transition (London 2000), country assessments, 124 at pp. 156, 172, and 196.Google Scholar

28 The state continues to be the most important parent of companies that have been privatized only partially. It may, however, be an exaggeration to label companies that are owned largely by the state and managed by an entity such as the National Property Fund in the Czech Republic, or State Holding Company (AVRt – Hungarian acronym for Hungarian State Property Management Agency) in Hungary as members of a company group. Having a single state management agency does not necessarily imply that firms are subjected to a single group management strategy. In fact, available evidence suggests that the state has by and large been a rather passive owner. See Pistor, and Turkewitz, , “Coping with Hydra – State Ownership After Privatization”, in: Frydman, et al. (eds.) Vol. 2Google Scholar, supra n. 17, at pp. 192 et seq. for an early assessment of the state as an owner in partly privatized companies.

29 Krifa, and Vermeire, , “L'intégration des Pays d'Europe Centrale dans les Réseaux de Production des Multinationales et ses Conséquences”, 29 Revue d'Études Comparatives Est-Ouest (1998) 77CrossRefGoogle Scholar. They attracted more than 24 billion US dollars.

30 Ibid., at p. 106.

31 See also Khanna, , “Business Groups and Social Welfare in Emerging Markets: Existing Evidence and Unanswered Questions”, 44 European Economic Review (2000) 748.CrossRefGoogle Scholar

32 The theory that is most closely associated with explaining the boundaries of the firm is the property rights theory. For a good overview of this theory and its comparison with other theories of the firm, compare Hart, , “An Economist's Perspective on the Theory of the Firm”, 89 Columbia Law Review (1989) 1757CrossRefGoogle Scholar. For a more recent overview compare Hart, , Firms, Contracts, and Financial Structure (Oxford 1995) 228.CrossRefGoogle Scholar

33 See Jensen, and Meckling, , “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure”, 3 Journal of Financial Economics (1976) 305CrossRefGoogle Scholar on the nature of agency costs in firms. On the benefits of concentrated ownership see Roe, , “A Political Theory of American Corporate Finance”, 91 Columbia Law Review (1991) 10CrossRefGoogle Scholar and Roe, , Strong Managers, Weak Owners: The Political Roots of American Corporate Finance (Princeton, N.J. 1994)Google Scholar. For an analysis of the tradeoffs between liquidity and control compare Coffee, , “Liquidity Versus Control: The Institutional Investor as Corporate Monitor”, 91 Columbia Law Review (1991) 1277CrossRefGoogle Scholar. Empirical data on management ownership in the United States also suggest that there may be some benefits to ownership concentration in the hands of management. Compare Morck, , Shleifer, and Vishny, , “Management Ownership and Market Valuation: An Empirical Analysis”, 20 Journal of Financial Economics (1988) 293.CrossRefGoogle Scholar

34 See Daniels, and Iacobucci, , “Some of the Causes and Consequences of Corporate Ownership Concentration in Canada”, in: Morck, (ed.), Concentrated Corporate Ownership (Chicago 2000) 81Google Scholar at p. 83 for a useful summary of this argument.

35 See in particular Shleifer, and Vishny, , “A Survey of Corporate Governance”, 52 The Journal of Finance (1997) 737CrossRefGoogle Scholar and the studies by La Porta et al., supra n. 5.

36 Hansmann and Kraakman, supra n. 3.

37 See Carlin, and Mayer, , “Finance, Investment and Growth”Google Scholar, available on <www.ssrn.com> (viewed 2000).

38 Claessens, and Djankov, , “Ownership Concentration and Corporate Performance in the Czech Republic”, 27 Journal of Comparative Economics (1999) 498CrossRefGoogle Scholar. The analysis is based on 1,782 firms listed on the Prague stock exchange. Performance indicators used are accounting data, including profitability and labor productivity. Note that this result may be driven by the fact that many blockholders are foreign strategic investors. Thus, firms may benefit not only from better corporate governance, but also greater access to capital and managerial expertise. See also id. at p. 507.

39 See Granovetter, , “Business Groups”, in: Smelser, and Swedberg, (eds.), The Handbook of Economic Sociology (Princeton, N.J. 1994) 453 for this definition.Google Scholar

40 Some authors would also include informal ties, such as kinship relations. See ibid.

41 Coase, , “The Nature of the Firm”, Economica (1937) 386.Google Scholar

42 See also Williamson, , Markets, and Hierarchies, , Analysis and Antitrust Implications: A Study in the Economics of Internal Organization (New York 1975)Google Scholar; for a summary of the key arguments relevant for the theory of the firm see Williamson, , “Transaction-Cost Economics: The Governance of Contractual Relations”, 22 Journal of Law and Economics (1979) 233.CrossRefGoogle Scholar

43 See Granovetter, supra n. 39.

44 Wymeersch, , Groups of Companies in the EEC (Berlin/New York 1993).CrossRefGoogle Scholar

45 See in particular Kali, , “Endogenous Business Groups”, 15 The Journal of Law, Economics and Organization (1999) 615 for this view of company groups.Google Scholar

46 The expected sell off of large equity stakes by German banks and other companies in response to the expected change in tax law is ample evidence of the impact of tax considerations on the ownership structure of enterprises. See “Germany's Quiet Tax Reform”, The Wall Street Journal, 28 December 1999, A 18:1.Google Scholar

47 For a detailed analysis of the economic rational of company groups see Kalfass, , “Ökonomische Analyse der Konzernbildung”, in: Mestmacker, and Behrens, (eds.), Das Gesellschaftsrecht der Konzerne im internationalen Vergleich (Baden-Baden 1991)Google Scholar. The subsequent analysis draws heavily on his work.

48 Legal systems have found solutions to deal with this problem of shifting liability. See infra 3.2 (protection of shareholders rights).

49 This is the policy implication that Kali draws from his analysis of company groups. See Kali, supra n. 45.

50 Compare the typology of company groups we developed supra 2.

51 See also Khanna, supra n. 31.

52 North, , Institutions, Institutional Change, and Economic Performance (Cambridge/New York 1990)CrossRefGoogle Scholar for a basic exposition of the path dependency theory and Roe, , “Chaos and Evolution in Law and Economics”, 109 Harvard Law Review (1996) 641 for its application to legal evolution.CrossRefGoogle Scholar

53 On the fall-out of the Asian financial crisis on the enterprise sector in Asia compare Rajan, and Zingales, , Which Capitalism? Lessons from the East Asian Crisis, Working Paper, Chicago University (1998).Google Scholar

54 See also Khanna, and Palepu, , “Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups”, 55 Journal of Finance (2000) 867CrossRefGoogle Scholar. Based on their analysis of company groups in India, however, they conclude that overall affiliation with highly diversified groups has a positive impact on affiliates.

55 There is a huge amount of literature on company groups (concerns) in Germany. See the references in Emmerich, and Sonnenschein, , Konzernrecht, 6th ed. (Munich 1997)Google Scholar. We focus here only on comparative studies. See, for example, Mestmacker and Behrens (eds.), supra n. 47; Schmitthoff, and Wooldridge, (eds.), Groups of Companies (London 1991)Google Scholar; Wymeersch (ed.), supra n. 44; Lutter, (ed.), Konzernrecht im Ausland (Berlin 1994)CrossRefGoogle Scholar, and most recently Forum Europaeum, Konzernrecht, “Konzernrecht für Europa” [Corporate Group Law for Europe], Zeitschrift für Unternehmens- und Gesellschaftsrecht (1998) 672Google Scholar. For the English language version of the principles developed by the Forum Europaeum see 1 EBOR (2000) 165.Google Scholar

56 Detailed propositions have already been developed by a group of legal experts from different European countries. See Forum Europaeum, supra n. 55. For a critical assessment of these propositions, see Fleischer, , “Neue Entwicklungen im englischen Konzernrecht, Vergleichende Notizen im Lichte der Empfehlungen des Forum Europaeum Konzernrecht”, Die Aktiengesellschaft (1999) 350Google Scholar; Kluver, , “European and Australian proposals for corporate group law: a comparative analysis”, 1 EBOR (2000) 287Google Scholar; Schoen, , “Das Bild des Gesellschafters im Europaischen Gesellschaftsrecht” [The Concept of the Shareholder in European Law], Rabels Zeitung (1999) 1Google Scholar, English language version: 1 EBOR (2000) 3Google Scholar; Windbichler, , “Corporate Group Law for Europe: Comments on the Forum Europaeum's Principles and Proposals for a European Corporate Group Law”, 1 EBOR (2000) 265.Google Scholar

57 For details see Jessel-Holst, in EBOR 2 (2001) 45.Google Scholar

58 Clark, , Corporate Law (Boston/Toronto, 1986)Google Scholar ch. 2 (duties to creditors), ch. 7.8 (parents and subsidiaries), ch. 10 et seq.; Brudney, and Clark, , “A New Look at Corporate Opportunities”, 94 Harvard Law Review (1981) 1044CrossRefGoogle Scholar. Blumberg has made substantial efforts to develop principles of group law for American law, but they have not found widespread acceptance. Blumberg, , The Law of Corporate Groups (Boston 1987)Google Scholar. Cf. the survey by Blumberg, , “The Increasing Recognition of Enterprise Principles”, 28 Connecticut Law Review (1996) 296.Google Scholar

59 For a detailed analysis of the relation between corporate and antitrust law in the US and its impact on the development of the corporate sector, see Hovenkamp, , Enterprise and American Law, 1836-1937 (Cambridge, Mass, 1991)CrossRefGoogle Scholar. For an analysis of the relation between merger waves and changes in antitrust law, see Kovacic, , “Failed Expectations: The Troubled Past and Uncertain Future of the Sherman Act as a Tool for Deconcentration”, 74 Iowa Law Review (1989) 1105.Google Scholar

60 See Commander, Dutz, and Stern, , “Restructuring in Transition Economies: Ownership, Competition and Regulation”, Proceedings of the Annual Bank Conference on Development Economics (Washington, D.C. 1999)Google Scholar for an assessment of the competitiveness of markets in transition economies. See also EBRD, , Transition report – Ten years of transition (London 1999) ch. 7.Google Scholar

61 For a detailed account of these tools, compare Dreher, in EBOR (2001) Issue 2.Google Scholar

62 For a critical assessment of these policies and their implications for transition economies, compare Kirchner's contribution to the symposium, forthcoming in Hopt et al., supra n. 8.

63 See Dreher, supra n. 61.

64 A similar point was made by Fornalczyk at the symposium.

65 For a similar argument see Soltysinski, , “Transfer of Legal Systems as Seen by the ‘Import Countries’: A View from Warsaw”, in: Drobnig, , Hopt, , Kötz, , Mestmäcker, (eds.), Systemtrans-formation in Mittel- und Osteuropa und ihre Folgen für Banken, Börsen und Kreditsicherheiten (Tubingen 1998) 69Google Scholar. Cf. also § 37 (3) of the German Anticartel Act 1998. This provision exempts financial intermediaries from merger control if they do not vote their shares and resell them within one year.

66 On takeover transactions as a control device and their impact on management behavior, see Coffee, , “Shareholders Versus Managers: The Strain in the Corporate Web”, in: Lowenstein, and Ackerman, (eds.), Knights, Raiders and Targets, The Impact of the Hostile Takeover (Oxford 1988)Google Scholar; Romano, , “A Guide to Takeovers: Theory, Evidence, and Regulation”, 9 Yale Journal on Regulation (1992) 119Google Scholar, also in Hopt, and Wymeersch, (eds.), European Takeovers (London 1992) 3Google Scholar. Cf. also Hopt, , Kanda, , Roe, , Wymeersch, and Prigge, (eds.), Comparative Corporate Governance (Oxford 1998) ch. 8.Google Scholar

67 Cf. Mülbert, , “In Defense of Passivity – on the Proper Role of a Target's Management in Response to a Hostile Tender Offer”, 1 EBOR (2000) 445Google Scholar. The Thirteenth EU Directive (see n. 82 infra) contains such a rule; cf. Hopt, , “The Duties of the Directors of the Target Company in Hostile Takeovers – German and European Perspectives”, in: Ferrarini, , Hopt, and Wymeersch, (eds.), Capital Markets in the Age of the Euro (London: Kluwer 2001)Google Scholar (forthcoming). See also Bebchuk, and Ferrel, , “Federalism and Corporate Law: The Race to Protect Managers from Takeovers”, 99 Columbia Law Review (1999) 1168.CrossRefGoogle Scholar

68 The German antitrust reform after many years has done away with exemptions for export cartels.

69 For a vigorous argument against any exemptions of this kind, compare Fornalczyk, in EBOR (2001) No. 2.Google Scholar

70 The debate has received renewed attention with the proposal of Judge Jackson to force Microsoft to legally separate its software and operation system production lines. See Hahn, , U.S. v. Microsoft: Breaking Up Should be Hard to Do (Washington, D.C. 2000).Google Scholar

71 Obviously, divestiture as part of privatization also requires substantial expertise. Yet, the monitoring problem is less severe when the state can order particular outcomes as the owner of assets. Even then, it can hardly prevent the reassembling of enterprises into company groups subsequent to privatization.

72 Most recently the point has been made by Sanio, the president of the German Bank Supervisory Agency, as to supervising large multinational banks, in particular in the context of checking bank internal risk models under the Basle II reform.

73 See the latest ranking of the corruption perception index compiled by transparency international available at <www.transparency.de/documents/cpi/>. The index includes 99 countries ranked higher the lower the level the corruption. Hungary ranks as 31, the Czech Republic as 39, and Poland as 44.

74 A (partial) retransfer of jurisdiction to the Member States of the European Union is now taking place despite some severe criticisms, cf. Mestmacker, , “The EC Commission's Modernization of Competition Policy: A Challenge to the Community's Constitutional Order”, 1 EBOR (2000) 401.Google Scholar

75 For a similar argument see Broadman, supra n. 20. He shows that Russian industry structure differs from the one in the US not so much in size, but in the rate of new entries.

76 The notion of stakeholder is often used in a more narrow sense comprising only those who are not shareholders.

77 Cf. the prominent German Holzmueller case, BGHZ 83, 122 (1982). This case dealt with the possible dilution of shareholder rights in the parent when parts of its operations were spun off to a subsidiary.

78 Cf. Forum Europaeum, supra n. 55, at p. 174. On the function of corporate law as organizational law, compare Hansmann, and Kraakman, , “The Essential Role of Organizational Law”, 110 Yale L.J. (2000) 387.CrossRefGoogle Scholar

79 The nexus of contracts theory goes back to the seminal paper by Jensen and Meckling, supra n. 33. From a legal perspective, see Easterbrook, and Fischel, , The Economic Structure of Corporate Law (Cambridge, Mass. 1991)Google Scholar. For a comparison of various theories of the firm written by a leading economist of the property rights theory for a legal audience compare Hart, supra n. 32.

80 The directive is available in Hopt, and Wymeersch, , European Company and Financial Law, 2nd ed. (1994) 232Google Scholar. Note that the EU will move away from the present Seventh Directive towards mandatory application of the International Accounting Standards (IAS) for consolidated accounts by 2005 at the latest (Proposed Regulation concerning the application of international accounting principles as of Feb. 13, 2001).

81 The issue of changes in midstream was first raised by Bebchuk in his contribution to the debate about mandatory versus optional corporate law: Bebchuk, , “Limiting Contractual Freedom in Corporate Law: The Desirable Constraints on Charter Amendments”, 102 Harvard Law Review (1989) 1820CrossRefGoogle Scholar. See also Bebchuk, , “Federalims and the Corporation: The Desireable Limits on State Competition and the Corporation”, 105 Harvard Law Review (1992) 1437.CrossRefGoogle Scholar

82 Note as to the Thirteenth Directive: The Council had reached a Common Standpoint as of June 2000. The European Parliament had rejected it and made 15 far-reaching amendments, in particular as to the controversial prohibition of frustrating action by the board of the target. German Chancellor Schroeder himself made an unexpected and very unfortunate volte-face and intervened in the Council for keeping national post-bid defenses. This drew harsh criticism by German financial circles including the German Takeover Commission. At the end, on June 5, 2001 just before the legal lapse of the draft directive, Germany was clearly outvoted in the Conciliation Committee. It seems that the Directive is now out of the woods including the antifrustration which is modeled after the British City Code.

83 Art. 5 of the directive requires that the acquirer offers either liquid shares or cash. A reprint of the directive can be found in the German language in Neye, , “Der gemeinsame Standpunkt des Rates zur 13. Richtlinie – ein entscheidender Schritt auf dem Weg zu einem europäischen Übernahmerecht”, 45 Die Aktiengesellschaft (2000) 289Google Scholar at p. 296. The English version is available at <www.europa.eu.int/search/s97.vts>.

84 Compare Art. 305 of the German Marketable Share Companies Act according to which the merger agreement or a contract that transfers control rights to another company in the group must include provisions to compensate shareholders wishing to leave the company. See the still very informative contribution by Wiedemann, , “The German Experience with the Law of Affiliated Enterprises”, in: Hopt, (ed.), Groups of Companies in European Laws (Berlin/New York: de Gruyter 1982) 21Google Scholar; cf. also Hommelhoff, , “Konzerneingangsschutz durch Takeover-Recht?”, in: Bierich, , Hommelhoff, and Kropff, (eds.), Festschrift Sender (Berlin/New York 1993) 455Google Scholar

85 Compare Art. 315 of the German Marketable Share Companies Act.

86 Based on interviews of practitioners and legal experts Hommelhoff, , “Praktische Erfahrungen mit dem Abhängigkeitsbericht”, 156 Zeitschrift für das gesamte Handelsrecht und Wirtschaftsrecht (1992) 295Google Scholar concludes that German group law offers a viable framework that should be promoted within the European Union. A more sceptical and nuanced view is presented by the Forum Europaeum Konzernrecht, supra n. 55.

87 See § 23 (5) of the German Marketable Share Companies Act, according to which deviations from the letter of the law are permissible, if the law explicitly allows for them. This provision is criticized in the literature. Cf. Hopt, , “Gestaltungsfreiheit im Gesellschaftsrecht in Europa – Generalbericht –”, in: Lutter, and Wiedemann, (eds.), Gestaltungsfreiheit im Gesellschaftrecht (Berlin/New York: de Gruyter 1998) 123.Google Scholar

88 Cf. Hopt, , “Europäisches und deutsches Übernahmerecht”, 161 Zeitschrift für das gesamte Handelsrecht und Wirtschaftsrecht (1997) 368 at pp. 387 et seq.Google Scholar

89 Forum Europaeum, supra n. 55.

90 Compare in particular proposals 5, 6, and 7 at pp. 261-262 in the English version.

91 Bailey, , “Accounting in Transition in the Transitional Economy”, 4 The European Accounting Review (1995) 595CrossRefGoogle Scholar offers an interesting discussion of accounting reforms in transition economies and the impediments to such reform efforts.

92 For an overview of the number of firms listed on stock exchanges in transition economies and the liquidity of firms measured by the value traded and the turnover ratio, compare Standard, and Poors, , Emerging Stock Markets Factbook (New York 2000).Google Scholar

93 A good example of an attempt to provide such alternative standards, which demonstrates how difficult this is, is the Russian Marketable Share Companies Act, which provides in s. 77: “The market value of property, including the value of a company's shares and other securities, is the price at which a seller having full information about the value of [the property] and not obliged to sell the property, would agree to sell it, and a buyer having full information about the value of the property and not obliged to acquire [the property] would agree to acquire it.” English translation by Bernard Black and Anna Tarassova (1996).

94 S. 56 Delaware Corporate Law 1899, in: Laws of Delaware 1899, p. 445.

95 See Forum Europaeum, supra n. 55, at pp. 197 et seq. See also Fleischer, supra n. 56; Wymeersch, , “Financial Institutions as Members of Company Groups in the Law of the European Union”, 2 EBOR (2001) 81Google Scholar who clarifies that this doctrine was developed in criminal law.

96 See § 311 German Marketable Share Companies Act.

97 For a comparative analysis of bankruptcy regimes in transition economies see Mizsei, , “Bankruptcy and the Postcommunist Economies of East-Central Europe”, 30 Russian and East European Finance and Trade (1994) 34Google Scholar and the contributions in Balcerowicz, , Gray, and Hoshi, (eds.), Enterprise Exit Processes in Transition Economies: Downsizing, Workouts, and Liquidation (Budapest/ Ithaka, NY 1998).Google Scholar

98 Cf. most recently Haar, , “Piercing the Corporate Veil and Shareholders' Product and Environmental Liability in American Law as Remedies for Capital Market Failures – New Developments and Implications for European and German Law after ‘Centres’”, 1 EBOR (2000) 317.Google Scholar

99 For a useful overview of the historical development, compare Blumberg, , The Multinational Challenge to Corporation Law (New York/Oxford, 1993) 316Google Scholar; and Horn, , “Aktienrechtliche Unternehmensorganisation in der Hochindustrialisierung (1860-1920), Deutschland, England, Frankreich und die USA im Vergleich”, in: Horn, and Kocka, (eds.), Recht und Entwicklung der Groβunternehmen im neunzehnten und frühen zwanzigsten Jahrhundert [Law and the Formation of Major Enterprise in the 19th and early 20th century] (Göttingen 1979) 123.Google Scholar

100 For an account of the founders' boom in Germany after the liberalization of the law in 1870 see Hommelhoff, , “Eigenkontrolle statt Staatskontrolle – Rechtsdogmatischer Überblick zur Aktienrechtsreform 1884”, in: Schubert, and Hommelhoff, (eds.), Hundert Jahre modernes Aktienrecht (Berlin/New York 1985) 53.Google Scholar

101 Art. 105 (2) Russian Civil Code.

102 The only other transition economies that adopted a similar provision are Albania, Kazakhstan and Kyrgyzstan. See Pistor, , “Patterns of Legal Change: Shareholder and Creditor Rights in Transition Economies”, 1 EBOR (2000) 59.Google Scholar

103 Art. 6 (3) of the Russian Marketable Share Companies Act states that “(…) a principal society (partnership) is considered to have the right to give mandatory instructions to a subsidiary company only if this right is established in a contract with the subsidiary company or the charter of the subsidiary company”. English translation by Bernard Black and Anna Tarassova (1996).

104 See the contribution by Sáandor, and Sárközy, , 2 EBOR (2001) No. 2.Google Scholar

105 Advocates of a more gradual approach to economic reforms strongly argued for a reform of the financial sector prior to privatization and price liberalization. See Brainard, , “Reform in Eastern Europe: Creating a Capital Market”, Economic Re view (1991) 49Google Scholar. On banking reform in transition economies more general compare Buch, , Creating Efficient Banking Systems (Tübingen 1996)Google Scholar and Rostowski, , “The Banking System, Credit and the Real Sector in Transition Economies”, in: Rostowski, (ed.), Banking Reform in Central Europe and the Former Soviet Union (Budapest 1995) 16Google Scholar. A more recent assessment of the financial sector can be found in EBRD, , Transition Report – Financial Sector in Transition (London 1998).Google Scholar

106 For an overview of the debate compare Dittus, and Prowse, , “Corporate Control in Central Europe and Russia: Should Banks Own Shares?” in: Frydman, et al. (eds.), Vol. 1, supra n. 17, at p. 20.Google Scholar

107 Aoki, and Patrick, , The Japanese Main Bank System: Its Relevance for Developing and Transforming Economies (Oxford/New York 1994).Google Scholar

108 Rostowski, supra n. 105.

109 Most recently this Act has been repealed after having been sternly defended by lobbyists for decades. Cf. Gramm-Leach-Bliley Act (GLBA) 12 November 1999.

110 See “Financial Regulation in Japan: In with the Old…”, The Economist, 6-12 Jauary 2001, 68.

111 Second Council Directive 89/646/EEC of 15 December 1989 on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions and amending Directive 77/780/EEC, OJ [1989] L 386/1 (30 December 1989). Most recently the EU bank supervisory directives have been consolidated in one single directive 2000/12/EC as of 20 March 2000, OJ [2000] L 126/1 (26 May 2000).

112 Bonin, and Leven, , “Polish Bank Consolidation and Foreign Competition: Creating a Market-Orientated Banking Sector”, 23 Journal of Comparative Economics (1996) 52 at p. 58.CrossRefGoogle Scholar

113 This is the case, for example, in Poland, which has adopted special rules on banking groups, even though company groups in general have not been regulated. See the contribution by Szumanski at the symposium in: Hopt et al. (eds.), supra n. 8.

114 For details see Wymeersch, supra n. 95.

115 Expertengruppe Finanzmarktaufsicht, , Finanzmarktregulierung und -aufsicht in der Schweiz (Banken, Versicherungen, Allfinanz und Finanzkonglomerate, andere Finanzdienst-leistungen), Schlussbericht (Zufferey-Kommission) (Bern 2000) pp. 63 et seq.Google Scholar

116 “Eichel plant Super-Finanzaufsichtsbehörde”, Frankfurter Allgemeine Zeitung, 26 January 2001, No. 22 p. 13Google Scholar. In the meantime a draft act concerning the creation of an integrated financial market supervision has been issued by the German Ministry of Finance. It is available on the Ministry's webside. See also the Ministry's draft 7th central bank act modification act as of April 2001.

117 A slightly shorter set of propositions was presented to the participants at the symposium.

118 The propositions in this section draw on a set of propositions developed by Professor Dreher. For details see his contribution to the symposium, forthcoming in EBOR (2001) No. 2.

119 Data source: Bloomberg L.P.