This article puts forward the idea that the creation of an online review facility where all market participants are able to review and rate all companies listed in a particular market would solve a number of problems that currently prevent shareholders, in particular institutional investors and the ultimate beneficiaries of investment vehicles such as pension funds, from engaging with companies. It would also allow shareholders and stakeholders with a long-term focus to engage with companies. It is suggested that all listed companies should be required to have a link to this review and rating facility on their website. Listed companies should have the ability to respond to the reviews and ratings on the site. Furthermore, the review facility should be regulated. The arrangement currently used for appointing and overseeing the operator of the UK securities settlement system could serve as a model.

This paper explores the shareholders' meeting's corporate governance role. We argue that the functions performed by the shareholders' meeting are highly dependent on companies' ownership structure, and we focus on the case of jurisdictions, like those in Continental Europe, with a majority of companies with concentrated ownership structures. In theory, the shareholders' meeting is the time and place where shareholders' property rights are protected and where shareholders aim, through, e.g., voting and litigation rights, to protect their investments in the firm. Consequently, attention should be drawn to the development of efficient tools to accomplish this objective. In this respect, the main corporate governance challenge is to combat expropriation and tunnelling by controlling shareholders. We attempt to contribute to the current debate on the shareholders' meeting's governance role by providing some basic regulatory guidelines that may inspire the legislative proposals that are now being drafted in Spain as well as in other parts of Continental Europe. On the one hand, we explore possible ways to empower (minority) shareholders through voting at the shareholders' meeting. On the other hand, we conduct an empirical study of rulings applying the section of the Spanish Public Companies Act governing challenges to shareholder resolutions. The data provide evidence that this litigation mechanism, as is often claimed, faces both under and over-enforcement problems and is therefore in need of reform. We offer a tentative roadmap for improvement, based on the idea of incentivising value-increasing litigation without favouring the development of opportunistic suits. We also highlight the importance of disclosure and information rights and their impact on the litigation strategy.

The Thirteenth Directive on Takeover Bids of 2006 has to be revised on the basis of experience gained in the five years of its application. This revision includes an examination of the control structures and barriers to takeover bids for those bids that do not fall within the scope of application of this Directive. On the basis of an examination carried out by Marccus Partners and the Centre for European Policy Studies, the Commission published an Application Report on 26 June 2012, to which the European Parliament responded favourably in its Resolution of 21 May 2013. This has provoked highly controversial discussions in various Member States and beyond. This article carries out a comparative, theoretical and policy analysis of European takeover law, incorporating not only the Thirteenth Directive but also commonalities and differences in takeover law in the Member States as regards the European market for corporate control, with an emphasis on the mandatory bid. While many economic opinions regard the mandatory bid as a mistake (it makes takeovers more expensive), the vast majority of academics and practitioners believe that the mandatory bid as an early exit option plays an irreplaceable role in the protection of minorities, and recent economic theory holds that mandatory bids are beneficial. The objection that the economic costs of the mandatory bid could be saved through improved protection of minorities after the takeover or in groups of companies is unrealistic. There is a whole range of special reform issues regarding the mandatory bid which fall partly within the remit of the European Commission and partly within that of the national legislatures. These issues include: the control threshold; opting up and opting out; low balling and creeping in; exercising control on the basis of a voting agreement; exemptions from the mandatory bid; and share price calculation.

This contribution sets out to establish whether, and if so to what extent, the Second Company Law Directive allows the EU Member States to introduce different means of creditor protection, as suggested by recent academic studies on the function of legal capital and by various existing proposals for alternative regimes. The conclusion is that the Second Company Law Directive is a flexible instrument in so far as it allows Member States to impose capital requirements that are as severe as they want and it allows Member States to adopt solvency-based systems similar to those existing outside the EU. The recent amendments introduced by Directive 2006/68/EC have already simplified the requirement of an expert evaluation of contributions in kind, relaxed the share buy-back provisions and eliminated the ban on financial assistance. Moreover, Member States are not obliged to require companies to prepare individual IAS/IFRS-based accounts for dividend distribution purposes, and Member States that decide to do so may (but are not obliged to) introduce various mechanisms that limit the possibility of distributing unrealised profits according to the realisation principle entrenched in the Fourth Company Law Directive. As far as no par value shares are concerned, the Second Company Law Directive already allows the introduction of de facto no par value shares in the form of accountable par shares.

The purpose of this article is to discuss the liability of multi-national corporations for the acts or defaults of their subsidiaries. Most frequently a corporation engaged in multi-national activities will operate in various countries through local subsidiaries incorporated there. Liability may be incurred because of hazards associated with the mining or manufacturing operations or the goods distributed through the subsidiary may cause harm to consumers or users. The subsidiary is clearly primarily responsible for its own acts or defaults. The question is: when can liability for such acts or defaults be sheeted home to the parent corporation?

Cross-border forum shopping for a different insolvency law regime has become popular within the European Union in recent years. Yet legislators, courts and legal scholarship react with suspicion when debtors cross the border only to benefit from a different insolvency law system. The most prominent legal tool, the European Insolvency Regulation, is based on the assumption that forum shopping has a negative impact on the functioning of the European Internal Market. This paper questions the hostile attitude towards the phenomenon of forum shopping. It is argued that forum shopping can have beneficial effects both for the company and for its creditors, and that strong safeguards for creditors who oppose the migration are in place. Furthermore, the validity of the COMI approach of the Regulation under the fundamental freedoms of the Treaty is questioned; it is suggested that the current regime needs to be amended. The proposed new system would enable more corporate mobility within the European Union and create more legal certainty for all constituencies at the same time.

The four Framework Directives of the Lamfalussy Process constituted a further step towards guaranteeing an efficient and dynamic functioning of the EU's securities market. Since then, a number of implementing directives and regulations have been passed and further changes have already been suggested.

Regarding the existing system from a German point of view, this article focuses on the role of the Committee of European Securities Regulators (CESR) and the legal nature of its guidelines and recommendations. It establishes the claim that the CESR's statements have a binding effect despite their character set out in the Framework Directives and argues that the traditional dichotomy of legal sources needs to be substituted by a trichotomy of hard law, soft law and a third kind of secondary law. This so-called third kind of secondary law has three consequences: first of all, it needs to be recognised; secondly, it needs to be complied with; and thirdly, in case of non-compliance, extensive reasons must be given. This puts the third kind of secondary law in a position similar to that of persuasive authorities. Regulation (EC) No. 1060/2009, which was adopted following the financial crisis, confirms this notion by requiring that the national financial supervisors consider the CESR's advice but that they can deviate if they give full reasons for their decision.

Lastly, the creation of a European Securities and Markets Authority (ESMA), which has already been proposed, is discussed and compared with the existing system. The ESMA's expanded supervisory powers over national authorities are a step in the right direction. It remains to be seen, however, whether the Proposal for a Regulation creating the ESMA will achieve the goal of establishing a common supervisory culture for European financial markets.

The project “Corporate Group Law for Europe” is a joint effort of European specialists in company law, the “Forum Europaeum”. This Forum consists predominantly of legal scholars who, at the same time, enjoy close ties with corporate practice. We should welcome the initiative and appreciate the tremendous amount of careful work that went into producing this document.

Although mergers and acquisitions activity in Europe has reached unprecedented levels, almost doubling in the past year alone, hostile takeovers are still the exception, not the rule, especially in Germany. The British telecommunication concern Vodafone's 141 billion Euro takeover bid for its German counterpart, Mannesmann, in December 1999 was the first successful hostile bid for a major German company in post-war history.

Governments have bailed out banks that were considered too big to fail (TBTF). In an attempt to end these bail-outs, the European Commission has presented a proposal for a Directive for a European framework for the recovery and resolution of credit institutions and investment firms. This article analyses what insolvency law theory has to say about TBTF and vice versa. The dominant insolvency law theory, the creditors’ bargain theory (CBT), does not do well in explaining the problems presented by TBTF. The CBT frames insolvency law as a set of rules to overcome common pool problems, most notably to prevent a destructive race to the assets by individual creditors. The problems TBTF presents, however, do not primarily relate to a race to the assets. In order to understand the TBTF problem and key elements of the Directive's response (capital write-down and bail-in), the CBT needs to be supplemented with the property law theory of anticommons and its explanation of hold-out behaviour. Common pool problems and anticommons problems have different game-theoretical companions. Whereas common pool problems can be explained by the prisoners’ dilemma, anticommons can trigger a game of chicken. In the case of TBTF, shareholders and creditors can engage in this game of chicken with the state. The Directive sends out the message that states will no longer be drawn into playing this game.

In the fifteen year period to 2008, the private equity industry grew enormously in Europe, to the point where it began to be seen as a rival to the public markets. This gave rise to concerns and calls for the private equity industry to be regulated. The financial crisis, and in particular the contraction of the market for debt prompted by the collapse of Lehman Brothers in September 2008, has led to a significant reduction in the number and value of private equity deals. However, if anything, the financial crisis has led to increased calls for regulation of the industry. This paper examines the development of private equity transactions in Europe, and analyses the nature of these transactions. It then considers whether the concerns raised in relation to private equity are justified. Broadly, the arguments in favour of regulation of private equity may be divided into two kinds: the need to increase transparency in the industry by imposing disclosure obligations, and systemic risk concerns. These arguments are considered, and the terms of the Alternative Investment Fund Managers Directive (AIFMD) are examined in the light of these issues. It is argued that the arguments in favour of regulation of private equity are weaker than has been suggested and that this Directive does not adequately differentiate between hedge funds and private equity when imposing this regulatory regime.

Sovereign wealth funds have been investing governments' foreign assets for decades, although it is only in recent times that such funds have emerged as managers of large ‘excess reserves’. Since the crisis however, the sources of funding for sovereign wealth funds have evaporated, while advanced economies are competing for capital injections from these funds. At the same time, the concerns about excessive investment of sovereign wealth funds in advanced economies that were widespread prior to the crisis, are now being voiced less frequently. Against this background, this article provides a reassessment of the growth prospects of sovereign wealth funds. Although the growth path for these funds indeed needs to be revised substantially, there are no grounds to believe that sovereign wealth funds will become less important players in global financial markets over the future, as the structural drivers behind the accumulation of large foreign assets in emerging economies remain in place. Hence, sovereign wealth funds are likely to continue growing and increase their relative importance in global financial markets. Therefore, it remains imperative to resume the efforts – that seem to be partly halted by the current economic and financial crisis – to build a global governance framework for sovereign wealth funds.

Employee involvement in a very general sense is by and large an accepted policy goal in the European Union. Its forms nonetheless vary considerably among Member States and sometimes include boardroom representation. Board composition, performance and incentive structures are core areas of the ongoing corporate governance debate in Europe and most other parts of the world. These two discourses are rather disparate. Recent EC legislation and jurisprudence do not proactively pursue an integrated approach. The following paper maps out overlapping areas of employee participation and corporate structure, explores some theoretical underpinnings for employee involvement from a contract-theory perspective and analyses issues specific to internationally engaged corporate groups. Finally, a transaction-based approach for modernisation of employee involvement is suggested. Preference is given to default rules that do not require employees to be represented at board level yet leave room for agreements to that effect. The plasticity of private law, the resilience of the corporate form and the governance-assisted employment relationship can defy petrification. Transaction-based employee involvement promotes a productive conjunction of corporate governance components consonant with the specific character of the employment relationship. An evolutionary approach to reform requires flexible legislation instead of deference to existing models. However, consensual model building needs proper enabling tools. Academic groundwork in private international law, contract, labour and corporate law is called for.

Economists are showing an increasing interest in alternative organizational arrangements for delivering public interest services. More specifically, the involvement of private operators has been called into question in light of market failures. Following the UK privatization program in the 1980s, one might look there for a model for transferring ownership of infrastructure utilities from the public to the private sector. Such transfer of ownership is based on the idea that market forces and private ownership can lead to better performance, for instance by insulating management from political interference (see Boyco-Shleifer 1995 for a specific model and Vickers-Yarrow 1991 and Vining-Boardman 1992 for a more general discussion on this issue). This increased control is believed to favour reduction of costs (and prices if competition exists), and improvement in quality and innovation. Solutions other than full privatization are also proposed, such as delegation contracts.

The European Commission's May 2003 Action Plan ‘Modernising Company Law and Enhancing Corporate Governance in the European Union – A Plan to Move Forward’ includes a proposal for new legislation on wrongful trading with a view to strengthening the personal accountability of directors in the case of a company's failure. The proposal builds on expert opinions that the existing law on wrongful trading in Great Britain is better capable of activating an early managerial response to a financial crisis than the German Insolvenzverschleppungshaftung (liability for delaying insolvency). This article challenges the alleged superiority of wrongful trading over Insolvenzverschleppungshaftung. It provides a detailed analysis of the case law under section 214 of the British Insolvency Act, which does not support the fundamental assumption underpinning the European endeavour, namely, that wrongful trading routinely imposes duties on the directors ahead of the onset of insolvency. Furthermore, the protection afforded to creditors under British law is less extensive than under German law as regards the amount of compensation for the creditors and, correspondingly, the financial risk incurred by the directors. Finally, the article looks at the special treatment of new creditors (Neugläubiger) under German law, which has the advantage of giving creditors a strong incentive to pursue delinquent directors.

This paper traces the financial-institution crisis of 2007–2008 to a breakdown in the incentives of regulators, supervisors, managers and investors to perform adequate due diligence on securitised investments. Investors allowed their trust in the reputations of credit-rating firms and the giant financial firms that manufactured highly rated tranches of securitised loan pools to blind them to the casino ethics of these firms' managers and line employees.

Government credit-allocation schemes generate incentive conflicts that undermine the effectiveness of government supervision and eventually produce financial crisis. For political reasons, most countries establish regulatory arrangements that embrace three contradictory elements: (1) politically directed subsidies for selected borrowers (US beneficiaries have included homeowners and builders); (2) subsidised provision of explicit or implicit repayment guarantees for the creditors of financial institutions that participate in the credit allocation scheme; and (3) defective government monitoring and control of the subsidies to leveraged risk-taking that the other two elements produce. The competition encouraged incentive-conflicted supervisors to outsource much of their due discipline to credit-rating firms and accountants. This outsourcing encouraged institutions to leverage and securitise their loans in ways that pushed credit risks on poorly underwritten loans into corners of the market where supervisors and credit-rating firms were not obliged to look for them and in fact failed to discern the dangers posed until it was too late. That taxpayers are forced to pay the bill for this regulatory failure is a scandal of the highest order.

Leveraged buy-outs (‘LBOs’) are often perceived as an indirect and fraudulent instance of financial assistance and, as such, are not immune to the ban imposed by Article 23 of Directive 77/91/EEC. In several LBO cases, Italian courts have enforced this type of financial assistance prohibition under Article 2358 Cod. civ. This treatment still largely applies to those leveraged transactions that lie outside the scope of the recently enacted Article 2501 bis Cod. civ., which de facto legitimises merger leveraged buy-outs (‘MLBOs’) subject to the fulfilment of additional information disclosure requirements. In this respect, Italian LBO regulation is broadly similar to that of other European countries. In contrast, US law, which largely relies on fraudulent conveyance statutes, stands at the opposite end of the spectrum. American courts acknowledge the social utility of LBOs and are reluctant to take a negative prejudicial stance against this acquisition method. The US legal treatment draws an ex post distinction between ‘illegal’ and ‘legal’ LBOs on the basis of whether or not such transfers are intentionally fraudulent.

In light of the remarkable differences existing between these two regulatory approaches, we resort to economic analysis in order to understand which legal strategy, if any, is more efficient and why. Our analysis suggests that an outright prohibition on LBOs is an undesirable legal measure. This type of rule has numerous social costs. It reduces efficiency by weakening the market for corporate control and imposes monitoring and administrative expenses. Despite its disadvantages, we show that the prohibition does not mitigate any of the principal-agency problems that characterise an LBO. This task is often better performed by alternative market, contractual and legal strategies.

On balance, the ex post legal strategy seems to be more desirable. However, this type of intervention is faced with a shortcoming that an ex ante prohibition does not have: the problem of ‘hindsight’ bias in the adjudication process. We therefore recommend the adoption of some additional information disclosure requirements along the lines of those required under Article 2501 bis Cod. civ. as a suitable way to mitigate this bias.

The two constitutional principles of subsidiarity and integration in the European Union clearly force the system to be one of jurisdictional competition. The text books still do not start from the assumption that diversity, and the tools for making it compatible with integration, are just as important an element of European company law as harmonisation. This paper argues that they should. This would then lead them to discuss in which areas there should be such competition, to identify the conditions for functioning competition and to try to suggest where and how to enhance it. Diversity clearly requires information. Therefore, the second core element of the structure of European company law consists of disclosure rules. These rules are indeed clearly dominant in European company law, be it in accounting law, the law of capital markets or in traditional EU Company Law Directives. On this basis, other important features – pairs of concepts – can also be explained: (1) the fact that European company law focuses on limited liability companies and sometimes exclusively on PLCs; (2) the fact that European company law is so extroverted, that is to say, the regulation of the third-party relationship is so dominant, that shareholders' rights are really regulated only insofar as the proportionate share is ‘constitutionally’ guaranteed; and (3) the fact that capital markets must clearly be seen as an integral part of European company law and may not be disregarded in any description.

Private equity has become a multi-trillion dollar business in recent years, but its rapid growth has been accompanied by public controversy and calls for regulation. I review the policy debate, from voluntary best practice codes of UK private equity firms to proposals for supervision and control by continental European socialists, and analyse the economic case for regulation. I find little evidence of market failure and strong arguments for private ordering by investors, banks and labour unions, who appear to have both the ability and the incentives to safeguard against managerial conflicts of interest, excessive debt and other maladies. In contrast, it is doubtful whether politicians have sufficient information to fine-tune activity in this area, and more or less unpredictable policy changes may cause significant harm to business confidence. Altogether, the case for regulation is weak. However, if political pressures to ‘do something’ are overwhelming, as they currently appear to be, greater disclosure and transparency may be the least costly alternative.

This article presents some evidence concerning the nature of co-determination using a sample of Danish employee-appointed board members. Even though Danish employee representatives only occupy one third of the seats and by design are always in a minority, they argue that they have a relatively high degree of influence on the decision-making process. This is especially profound in listed firms, where nearly 30 per cent state that they have much influence on the decision-making process, compared to 7 per cent who argue that they have no influence at all. For reasons that remain unclear, the results also document that male employee representatives claim a higher degree of influence than their female colleagues. It is shown that employee representatives have a dispersed educational background and that their occupations vary greatly in both listed and non-listed firms. The many different legal faces of European co-determination are also described. Finally, the article demonstrates that Danish employee representatives say that they care less about shareholder value compared to the supervisory board as a whole.