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SEMINAR V : CORPORATE GOVERNANCE

Introduction to the Seminar

The debate on corporate governance is a central concern in Company Law. It tackles the issue of how management is to be controlled and held to account and raises questions about the role and input of various stakeholders in the company and the use of markets, litigation or company structures to achieve this.

The topic is broad and our discussion is likely to deal with only certain areas. However, I have provided comprehensive reading divided according to the overview below.

The Seminar addresses three areas:

1. An Introduction or "Overview" of the Issues

2. An Examination of approaches and techniques for tackling the issue:

(a) by "Internal Governance"

(b) by "External" Pressures

In each case I have recommended some literature on the various solutions and some material on the nature of the legal rules involved in each case.

3. Broad International Comparisons of Techniques for Dealing with These Issues.

The reading and suggested discussion topics are divided according to this scheme in the rest of this sheet.

Everyone should read as much as they can and spread their attention across the different sections of the handout. Smaller groups in each seminar will look at various aspects of the topic and feed their insights into the larger Seminar Group. The better informed you all are the better the discussion will be. However, I know how busy you are, so at least do the "overview" reading - especially Wheeler and then select other areas.

1. Introductory Overview of the Issues

Required Reading for all Group members:

Either:

  1. Sally Wheeler, The Business Enterprise: A Socio-Legal Introduction (pp 1 to 30 only) from Sally Wheeler (ed.) A Reader in The Law of the Business Enterprise Oxford Readings in Socio-Legal Studies, 1994, Oxford University Press

And/Or

  1. Thomas Clarke, Theories of Governance: Reconceptualising corporate governance theory after the Enron experience in Thomas Clarke (ed), Theories of corporate governance : the philosophical foundations of corporate governance pub. London ; New York : Routledge, 2004

And

  1. Peter A Gourevitch, "The Politics of Corporate Governance Regulation" a Book Review Article in (2003) 112 Yale Law Journal 1829 - Westlaw. This reviews the book by Mark J Roe: Political Determinants of Corporate Governance: Political Context, Corporate Impact, Oxford University Press, 2003. The review by Gourevitch gives you a good overview of developments in the Corporate Governance debate after Wheeler wrote.
  2. Brian Cheffins, "Putting Britain on the Roe Map: the Emergence of the Berle-Means Corporation in the United Kingdom" in McCahery, Moerland, Raajmakers & Renneboog (eds) Corporate Governance Regimes, 2002, Oxford University Press.
  3. Klaus J Hopt, "Common Principles of Corporate Governance in Europe?" in McCahery, Moerland, Raajmakers & Renneboog (eds) Corporate Governance Regimes, 2002, Oxford University Press.

In Discussion of these readings we will consider:

(a) the relationship between theories of the company and the corporate governance debate - which "solution" is suggested by which theory of the company?

(b) Broadly, how does the approach to corporate governance differ between the USA and UK and states in Continental Europe?

(c) The main outline of the debate so far on corporate governance.

2. Approaches to Governance

(a) Internal Governance

(i) Structuresand Audits

On UK practice:

  1. See Combined Code Principles of Good Governance and Code of Best Practice (2003) from UKLA
  2. Visit: http://www.dti.gov.uk/cld/other_information.htm#e for the research input on corporate governance re the UK and other issues to the DTI Company Law Review.

On US Issues:

  1. William W. Bratton The New Corporate Social Responsibility Enron and the Dark Side of Shareholder Value (2002) 76 Tulane Law Review 1275
  2. Editorial Corporations and Society II: "And now, the Independent Director! have congress, the NYSE, and NASDAQ finally figured out how to make the independent director actually work?" (2004) 117 Harvard Law Review 2181 - Westlaw - for an up to date and optimistic view on the role of independent directors in the US. You might wish to also read the 1982 Bratton article to which this responds.
  3. Bernard S. Sharfman, Steven J. Toll, "Dysfunctional Deference and Board Comp[osition: Lessons from Enron" (2008) 103 Northwestern University Law Review Colloquy 153 makes an interesting point briefly and comes out with recommendations about non-executive directors

On Development of Current Systems:

  1. C.A. Riley, Controlling Corporate Management: UK and US Initiatives (1994) 14 Legal Studies 244-265
  2. Oliver E. Williamson, Corporate Boards of Directors in Principles and in Practice (2008) 24 Journal of Law, Economics, & Organization 247. Gives an interesting analysis of the role of boards and the evidence about this for those wanting to look at this in more depth

Questions

  1. Why did Corporate Governance become an issue in the 1990's?
  2. What are the main differences identified by Riley between UK and US proposals and approaches to reform?
  3. Where does the advantage lie between self regulation and a more prescriptive approach?

(ii) Representation of Stakeholders

  1. K.J. Hopt, New Ways in Corporate Governance: European Experiments with Labor Representation on Corporate Boards (1984) 82 Michigan Law Review 1338 and in Chap 8 of Sally Wheeler (ed) Company Law, 1993, Dartmouth (On Short Term Loan) still remains useful on the Continental European Model
  2. Brishen Rogers, "The Complexities of Shareholder Primacy: A response to Sanford Jacoby " (2008) 30 Comparative Labor Law and Policy Journal 95 and the piece it replies to illustrate a current US debate on the role of trade unions as institutional shareholders in the US Stock Market - how far should they support constraints on directors under current corporate governance ideas in the interests of shareholder primacy?
  3. Alan C. Neal, "Corporate Social Responsibility: Governance Gain or Laissez Faire Figleaf?" (2008) 29 Comparative Labor Law and Policy Journal 459 debates CSR as a way of conceding moral obligations to a range of "stakeholders".

Questions

  1. What are the arguments for the representation of employees on the board?
  2. Is this likely to improve the effectiveness of governance?
  3. Do two tier boards stand a better chance of effectively policing management behaviour?

(iii) Litigation and Legal Duties

  1. Gower and Davies' Principles of Modern Company Law (8th Edition 2008), browse Chapter 16 on Directors' Duties in UK and read chaps 17 and 18 on enforcement when they are breached (Multiple Copies available in the library).
  2. Romano, The Shareholder Suit: Litigation Without Foundation? in Roberta Romano (ed.), Foundations of Corporate Law, 1993, New York Oxford University Press, pp170-180 (Short term Loan)
  3. D. Gordon Smith, "The Critical Resource Theory of Fiduciary Duty" (2002) 55 Vanderbilt Law Review 1399 - on Westlaw. This deals with the approaches and problems of the US Courts on this.

(b) External Governance

(i) The Market in Corporate Control

This is the solution envisaged in the 1980's by the Economic Analysis of Law School to the problem of management shirking and high agency costs or low efficiency in the use of assets.

Reading:

  1. R. Romano (ed), Foundations of Corporate Law (above) Chapter VI provides extracts summarising the theoretical background and some key US issues.
  2. C. Bradley , Corporate Control: Markets and Rules (1990) 53 MLR 170 - a UK treatment of this issue
  3. Klaus J. Hopt, European Takeover Regulation: Barriers to and Problems of Harmonising Takeover Law in the European Community Chapter 6 in Hopt and Wymeersch (eds) European Takeovers: Law and Practice, 1992, Butterworths (Short Term Loan) - gives a European perspective
  4. Katharina Pistor, "Corporate Control Transactions in Continental Europe" American Law Institute - American Bar Association Continuing Legal Education May 9-10, 2002 Ninth Annual Corporate Governance Institute at page 531 - from Westlaw - is a really useful outline of the problems of "transition" when systems such as the German one deal with changes of corporate control US/UK style.

Questions

  1. Is the market in corporate control an effective discipline?
  2. Compare the approach of the various jurisdictions to regulating takeovers - why is the regulation of defensive tactics an important issue?

For the Post Enron USA Changes see:


  1. E. Norman Veasey, (2003) "The Changing Role of Directors in Corporate Governance: corporate governance and ethics in the post-Enron Worldcom environment" 38 Wake Forest Law Review 839 - Westlaw - a useful summary from a practising lawyer's viewpoint.

Also, for an academic perspective:

  1. William W. Bratton The New Corporate Social Responsibility Enron and the Dark Side of Shareholder Value (2002) 76 Tulane Law Review 1275
  2. John Armour and Joseph A McCahery (eds.), After Enron : improving corporate law and modernising securities regulation in Europe and the US. Pub. Oxford : Hart, 2006 - debates the issues arising for the Anglo-US system from the events surrounding Enron..

(ii) Institutional Investors

Try to read either:

  1. B.S. Black and J.C. Coffee, Hail Britannia?: Institutional Investor Behavior Under Limited Regulation (1994) 92 Michigan Law Review 1997 - draw out main features of UK system (especially the organisations of institutional investors) and conclusions on its operation.

or

  1. J.C. Coffee, Institutional investors as Corporate Monitors: Are Takeovers Obsolete?, Chapter 2 in J Farrar (ed) Takeovers, Institutional Investors and the Modernization of Corporate Laws, 1993, Oxford University Press, Auckland (Short Term Loan).
  2. T. Baums, Takeovers versus Institutions in Corporate Governance in Germany, Chapter 10 in D.D. Prentice and P.R.J. Holland (eds), Contemporary Issues in Corporate Governance, 1993, Clarendon Press, Oxford. (Available on Short Term Loan)..

And see:

  1. G.P. Stapledon, Institutional Shareholders and Corporate Governance Oxford ; Clarendon Press, 1996 Short Loan in Library

Questions

  1. How different are institutional investors in their behaviour from other shareholders?
  2. How are they themselves constrained by the regulations to which they are subjected and their legal obligations as fiduciaries?
  3. How different is the German system from those considered by Coffee?

3. A Comparison of Systems

  1. Alan Dignam "Corporate Governance and the Importance of Macroeconomic Context" (2008) 28 Oxford Journal of Legal Studies 201 gicves a good outline of the imoportance of "insider" (continental European and e.g. Japanese systems) and "outsider (US and UK systems) in this context.
  2. We have already looked at aspects of the UK, German and US systems. For an interesting look at the Japanese system see:
  3. R.J. Gilson and M.J. Roe, Understanding the Japanese Keiretsu: Overlaps between Corporate Governance and Industrial Organisation (1993) 102 Yale Law Journal 871-906 also to be found in Wheeler, The Law of The Business Enterprise Chapter at pp287-329.

For Future Reference:

Anyone planning a paper on aspects covered by this Seminar might consult other parts of the books referred to above. In addition,

  1. Jonathan P. Charkham, Keeping better company : corporate governance ten years on, Oxford University Press, 2008- is an excellent account of the issues in an international perspective.
  2. Mark J. Roe, "Corporate Law's Limits" (2002) 31 Journal of Legal Studies 233 - on Westlaw - for a critique of assumptions about how for the law deals with these issues at all and an interesting look at the wide political and economic preconditions for a Stock Market based market economy.
  3. Katharina Pistor, "The Standardization of Law and Its effect on Developing Economies" (2002) 50 American Journal of Comparative Law 97 - Westlaw - is an interesting critique of the whole idea of "exporting" or standardising US/UK style laws on securities markets.
  4. Edward S Adams, "Corporate Governance After Enron and Global crossing: Comparative Lessons for Cross National Improvement" (2003) 78 Indiana Law Journal 723 - Westlaw gives an excellent insight into the systems in USA, Japan, Germany and France.

The texts referred to above are useful on the detail of directors' legal duties, enforcement problems and voting rights and methods available to shareholders.

See also:

  1. Arad Reisberg (ed), Derivative Actions and Corporate Governance: Theory and Operation, Oxford University Press, 2007 for a comparative analysis of the issues surrounding the use of legal process to enforce corporate governance duties.