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Abstract:
The struggle for efficient internal management control is the centre of the corporate governance debate in Europe since the incorporation of the Dutch Verenigde Oostindische Compagnie in 1602. Recent developments in Europe illustrate a trend towards specialised rules for listed companies and indicate growing convergence of internal control mechanisms independent of board structure.

The revised Combined Code in the United Kingdom and also the French revised Principles of Corporate Governance, both of 2003, strengthen the presence of independent directors on one-tier boards in Europe. Another systemic break-through for the two-tier board model is the growing tendency to separate the positions of CEO and board chairman. For the German two-tier structure, the strengthening of the strategic role of the supervisory board (Aufsichtsrat) by the new German Corporate Governance Code of 2002 means an attempt to incorporate a key advantage of the one-tier model. Similarly, the control duties of the Italian internal auditing committee (collegio sindacale) were extended by the Testo Unico of 1998 and bring the Italian second board closer to the German supervisory board.

The common trend to stricter standards of independence is challenged in Germany by its rigid concept of co-determination and, to a lesser extent, by the more flexible model of labour participation in France. Director's duties and liabilities and also derivative actions are a focus of the reform debate in Germany since 1998 and are currently under review in the United Kingdom. After the Enron debacle the interplay between internal control devices and independent external auditing has become a major focus of interest in all countries considered. Driven by Anglo-Saxon codes of conduct audit committees today serve as a common denominator for good corporate governance.

Though formal convergence is strong company organs in each country take on their own specific garment. Path dependent system development especially depends on shareholder structures and banking systems. The trend to greater structural flexibility on board level is strongly triggered by the introduction of a threefold board model choice under the French Loi Nouvelle Regulations Economique of 2001 and under the Italian Vietti-Reform that is in force since January 2004.

Auditing, Aufsichtsrat, banking system, board models, comply or explain, Corporate Governance Codes, directors' duties and liabilities, directors' independence, Higgs Report, internal control, labour co-determination, management and control, path dependency, shareholder activism, supervisory board

Abstract:
Improving European corporate governance after Enron requires rethinking company and capital market regulation and law reforms. This article - which is an updated version (footnotes and references only, summer 2006) of an earlier one published in (2003) 3 Journal of Corporate Law Studies 221-268 - discusses shareholder decision-making; the choice between the one-tier and the two-tier board system; appointment, compensation and audit committees with a majority of independent members; checks on exorbitant payments to the directors; a special investigation procedure and wrongful trading. As to capital markets a European framework rule on prospectus liabilty is proposed. A key problem is the need for loyal and competent intermediaries. Since the 13th Directive is only a compromise solution, the hopes are pinned on the Court to continue its golden share
case law. The German Volkswagen Act will be a test case.

European corporate governance, company law, board structure, corporate disclosure, control by shareholders and auditors, capital markets law, corporate control, Enron, European corporate governance, 13th Directive

Abstract:
The developments of company law in countries belonging to five legal families illustrate the principle-agent conflicts that company law faces and the range of solutions it offers to cope with them. Comparative company law is about learning from each other's experience in a competitive way, and solving together the cross-border problems arising for and from companies that are facing global competition. Comparative company law today is conceived and created equally by legislators, lawyers, academics, and courts. Examples include the influence of German, French, and U.S. law on company law codifications in Japan and other countries, the legal practice in regard to cross-border transactions, the worldwide growing presence of academic comparative research, and last but not least the decision-making of the European Court of Justice.

The driving forces of comparative company law can be traced back to the spread of the 1930s' U.S. securities regulation into European Union member states, Eastern European states, and also China; the harmonization efforts of the European Community since the late 1950s; and most recently, the international rise of the corporate governance and code movements in the 1990s that had some famous origins in the United Kingdom. This leads to modern challenges such as the pros and cons of self-regulation in company law and beyond.

From a broader perspective, there is a need for the adjustment of company and capital market law in all the legal families considered. In this respect, comparative company law is a highly promising source for exploring the key issues, including convergence and divergence in company and capital market law, harmonization versus regulatory competition, and the means and institutions that provide for operative enforcement. Comparative research, together with economic and empirical analysis, will thus contribute to an understanding of the real functioning of company law - a core task for the future of the European internal market, but also beyond in a globalized world.

capital market law, code movement, Company Law Action Plan, comparative law, corporate governance, enforcement, European company law, European Court of Justice, groups of companies, harmonization, investor protection, Konzernrecht, legal families, principal-agent, regulatory competition

Abstract:
The EU Company Law Action Plan of May 21, 2003, is one of the most important documents issued by the European Commission in this field in a long time. It tells what the Commission intends to regulate and not regulate within the next five to ten years. This article explains the background of the Action Plan and its connections with securities, auditing, and takeover regulation and discusses the list of actions in two parts: topics other than corporate governance (inter alia capital maintenance, groups of companies and pyramids, restructuring, and new European company law forms) and corporate governance in particular. Key problems of European corporate governance include better disclosure by an annual corporate governance statement, helping shareholders to exercise their rights, independent directors and committee work, directors' remuneration, responsibility of board members to investors for financial statements, voting policy disclosure by institutional investors, choice between the one-tier and the two-tier board, and generally more shareholder democracy. In 2004 and 2005 the Commission came up with a number of concrete steps to address these problems, especially regarding independent directors and directors' remuneration. The debate this has spawned in the member states is colorful and occasionally highly controversial.

EU Company Law Action Plan, Corporate Governance, board members liability, directors remuneration, investor protection

Abstract:
The German Takeover Act on public securities offers and takeovers of December 20, 2001, in force since January 1st, 2002, does not solve important problems of secrecy and conflicts of interest of boards and banks. Secrecy before the offer does not follow from the Takeover Act, but from insider law and the general company law secrecy. The conflict between insider and takeover law might involve European law and the European Court of Justice. Instant disclosure of takeover plans is mandated under takeover law as well as securities law and presents a number of legal problems. The involvement of advisers and banks by the offeror is safe except for warehousing. It is less clear whether the offeror can freely approach various banks for financing or potential purchasers or offerors for forming a takeover offer consortium. Takeover plans made before final approval by the supervisory board present a special problem of the German two-tier board. It is highly controversial at what moment instant disclosure must be made of a decision that has been reached. Instant disclosure is usually a question for the offeror and not for the offeree. However, in rare cases, the offeree company may have its own duty of instant disclosure. Instant disclosure in group situations is highly controversial. Two fact patterns should be distinguished. In the first, the relevant information has an impact on the price of the securities of the group member. In the second, the parent had or could have had an influence on the nondisclosure by the subsidiary. Insider law should not prevent defensive measures by the offeree that are allowed under takeover law, i.e., working together with shareholders and banks in anticipation of a hostile bid as well as searching for a white knight. The European insider trading directive is not clear on this. If a prospective white knight has been allowed to inspect the books of the offeree company in a due diligence exercise, it is unclear under German law whether the same information must be given to the offeror. In Germany, inducement fees are not yet commonly known or discussed. The legal treatment is ambiguous.

The best way of dealing with conflicts of interest is to prevent them from coming into existence. This can be done by Chinese walls, the principle of general incompatibility, or rules of special incompatibility. Under German law and possibly also under UK law, at least after Bolkiah, establishing Chinese walls is not considered a safe haven in itself for the bank or another party subject to conflicts of interest. General and special incompatibility rules are problematic. It remains to try to solve the conflict of interests in a takeover when the offer is prepared or has already been made and questions arises as to how the bank and the bank deputy in the offeree company should behave. There seem to be at least four possibilities: abstaining from voting, exclusion from deliberation, stepping down, and revocation of office. As to the choice between rule of law and self-regulation, there are major differences in history, corporate governance, and financial culture between the UK and Germany. They are related to history or, as one says today, they are path-dependent.

German takeover act, takeover law, information disclosure, conflicts of interests in takeovers, board structure, inducement fee, Chinese walls, all-purpose banks, self-regulation

Abstract:
This document constitutes the High Level Group of Company Law Experts' first report, in conformity with the Group's terms of reference which were defined by the European Commission on 4 September 2001.

The Group has been set up by the European Commission to provide independent advice in the first instance on issues related to pan-European rules for takeover bids and subsequently on key priorities for modernising company law in the European Union.

The Group has been asked to consider the following three issues:

- How to ensure the existence of a level playing field in the European Union concerning the equal treatment of shareholders across Member States;

- The definition of the notion of an "equitable price" to be paid to minority shareholders;

- The right for a majority shareholder to buy out minority shareholders ("squeeze-out right").

An important goal of the European Union is to create an integrated capital market in the Union by 2005. The regulation of takeover bids is a key element of such an integrated market.
Currently there are many differences between the various Member States, in terms of such general and company specific factors. Annex [4] gives an overview of company specific barriers to takeover bids which are lawful or actually applied in the Member States and which the Group has reviewed.... This is what is generally referred to as the 'lack of level playing field' in the area of takeover bids in the European Union.

In the light of available economic evidence the Group holds the view that the availability of a mechanism for takeover bids is basically beneficial. Takeovers are a means to create wealth by exploiting synergies and to discipline the management of listed companies with dispersed ownership, which in the long term is in the best interests of all stakeholders, and society at large. These views also form the basis for the Directive. This is not to say that takeover bids are always beneficial for all (or indeed any) of the parties involved.

The mandate of the Group is to review whether and to what extent a level playing field for takeover bids should be created under company law in Member States. The Group acknowledges that any approach on this basis would leave the various general differences existing in Member States untouched. It believes, however, that its recommendations with respect to company law mechanisms and structures would, in addition to market driven changes, mark an important step forward in developing a general level playing field for takeover bids in the European Union.

The Group believes that any European company law regulation aimed at creating a level playing field for takeover bids should be guided by two principles:

1. Shareholder decision-making

In the event of a takeover bid the ultimate decision must be with the shareholders. They should always be able to decide whether to tender their shares to a bidder and for what price. It is not for the board of a company to decide whether a takeover bid for the shares in the company should be successful or not. This is not to say that the board has no responsibility at all in the context of a takeover bid.

It is sometimes argued that allowing the board to frustrate a takeover bid can be justified as a means to help take into consideration the interests of shareholders and other stakeholders in the company, notably the employees. The Group rejects these views. Defensive mechanisms are often costly. Most importantly, managers are faced with a significant conflict of interests. Shareholders should be able to decide for themselves and stakeholders should be protected by specific rules (e.g. on labour law or environmental law).

2. Proportionality between risk-bearing capital and control

In the Group's view, proportionality between ultimate economic risk and control means that share capital which has an unlimited right to participate in the profits of the company or in the residue on liquidation, and only such share capital, should normally carry control rights, in proportion to the risk carried. The holders of these rights to the residual profits and assets of the company are best equipped to decide on the affairs of the company as the ultimate effects of their decisions will be borne by them. This report will use the term 'risk-bearing capital' to refer to this concept.

The holder of the majority of risk-bearing capital should be able to exercise control. Capital and control structures in a company which grant disproportionate control rights to some shareholder(s) should not operate to frustrate an otherwise successful bid for the risk-bearing capital of the company. The concept of risk-bearing capital used here does not include those preference shares which have no exposure to the surplus but only carry a limited right to distributions of profits and on liquidation.

European Corporate Governance, Takeovers, Board of Directors, Company Law, Corporate Law, European Union, Break-through Rule

Abstract:
Statutory auditors serve as an integral device to safeguard confidence in European financial markets. The market for corporate auditing is highly concentrated. A collapse of one of the top four auditing firms could cause a severe lack in the availability of auditing services. In a 2007 Staff Working Paper the European Commission proposed to reform auditor liability and to protect auditing firms from catastrophic liability claims. This paper analyses the reform options suggested by the European Commission and pleads, in essence, for the following liability rules:

1. The company and its auditor may enter into an agreement limiting the amount of liability of the auditor in respect of any negligence occurring in the course of the audit, subject to approval by the general meeting of the audited company.

2. This limitation may not be set below a fair and reasonable amount. The definition of fair and reasonable should be laid down in a European framework, providing a set of basic criteria, including the sum of fees paid to the auditor and the size of the company.

3. If the amount of liability significantly deviates from what would be fair and reasonable, the court which decides on a damage claim against the auditor declares the agreement void.

4. In the assessment of the validity of the agreement, the court shall take into account the European framework basic criteria to be considered by the parties and additional factors such as auditor independence and the applicability of institutional and individual insurance excesses.

auditor liability, liability cap, general meeting, auditor independence

Abstract:
Nonprofit organizations have been called the '0neglected stepchildren of modern organization law.' Deficits of control in nonprofit organizations are widespread. This is due to the absence of shareholders who could monitor and of the discipline by takeover markets. This article focuses on the board of nonprofit organizations as the center of nonprofit governance and tries to see what an be learned from the corporate governance discussion. The differences between the United States and Europe as to the board of nonprofit organizations is discussed at the outset. Then the organization and functioning of the board of nonprofit organizations and board responsibility are analyzed. Key problems of organization and functioning are the board structure (one-tier/two-tier), composition and size, committees, remuneration and audit. As to responsibility the duties of the board and its liability must be distinguished. At the end much can be learned from the corporate governance movement, but everything depends on enforcement, legal or non-legal.

Audit, board, business judgment rule, comparative nonprofit law, corporate, governance, deficit of control, independence of directors, labor codetermination, monitoring, nonprofit organization, one-tier/two-tier board, professionalization, remuneration, standard of conduct.

Abstract:
The financial crisis has ignited bank bailouts around the financial globe. The German legislator has responded with a number of new and modified statutes, most notably the Financial Market Stabilisation Act and the Supplementary Financial Market Stabilisation Act. These Acts allow the state to gain unlimited control over banks of high systemic relevance. To achieve unlimited control the public authorities can make use of two different approaches. The first one relies upon company and takeover law measures which are considerably simplified by the Acts during rescue attempts by the government, i.e. state-initiated takeovers. The second approach allows for the expropriation of shareholders and the nationalisation of ailing banks. While the first approach is formally less intrusive, some of its mechanisms raise doubts regarding compliance with EU and German constitutional law. The second approach avoids legal pitfalls; however, it relies on expropriation which causes widespread concerns. This paper introduces and explains the new laws, analyses them from an economic, European as well as constitutional perspective and develops a context for further research on bank rescue.

Bank rescue, constitution, expropriation, financial crisis, insolvency, Financial Market Stabilisation Act, takeover

Abstract:
The role of the two-tier board of the German type in corporate governance cannot be assessed without an analysis of its roots and systemic embedding in the 19th century. This explains also its different types in practice. The main function of the supervisory board (Aufsichtsrat) was to organize networks which included banks and later also labor (co-determination). The impact on cartelization is problematic. Economic research on the Aufsichtsrat is emerging, though the legal environment is not favorable to it. The findings concern the structure, composition, and functions of the board. Bank and labor representation on the board are characteristic for Germany. The latter is the cause for not reforming the outdated size requirements. Open questions concern the incidence and possible role of independent outside directors as distinguished from affiliated directors. The boards in corporate groups are still a black box. The role of the board may change swiftly together with the economic and legal environment in Germany. A relatively modest board reform has taken place in 1998. Broader market reforms are very necessary. On the whole, one should be very prudent in assessing and reforming the supervisory board and related corporate governance schemes.