ONNIG H. DOMBALAGIAN, Tulane University School of Law
Email: odombala@tulane.edu

“Best execution” is among the more quixotic duties brokers owe retail investors in the canon of investor protection. The SEC and self-regulatory organizations such as FINRA have tools at their disposal to audit retail order handling, though proving breach is often a contrafactual exercise and any injury is often imperceptible to the retail investor. The SEC has also sought to impose order on competition among automated exchanges, alternative trading systems, and market makers to discover “best prices;” efforts to coordinate trading by rule may nevertheless warp routing or execution practices in a manner that erodes the efficiency of markets.

This chapter proceeds in five sections. The first section generally considers how the duty of best execution is defined and measured. The second section discusses the tools regulators traditionally use to promote “best execution” compliance as well as the limitations of those tools. The third section explores efforts to improve execution opportunities through reforms to market structure. The fourth section briefly visits the desirability of new Congressional mandates for organizing markets around better execution, while the fifth section asks whether it may be possible to reframe “best execution” as an aspirational goal that, perhaps paradoxically, reminds investors how rarely “best execution” is attainable in practice.

JENNIFER TRINKS, Max Planck Institute for Comparative and International Private Law
Email: trinks@mpipriv.de

Decisions on profit distribution can easily become a tantalizing matter in family firms. In many jurisdictions, the decision to distribute or retain a corporation’s profits stands or falls on the votes of the majority shareholders. Thus, the majority can turn a corporation’s dividend policy into an oppression strategy against minority shareholders, cutting off the minority from any source of income from their corporation and leaving financial profits dangling in sight, but out of the minority’s reach. Especially in family firms, where the corporation is the main source of income for its shareholders, the retention of profits can threaten the financial subsistence of the minority. German scholars have even coined the term starvation dividends (Hungerdividende) for this phenomenon. At the same time, majority shareholders remain largely unaffected as they can secure their liquidity through other ways of profit extraction from the corporate firm, e.g. by granting themselves a generous salary or substantial payments for services provided.
Like other jurisdictions, German law is struggling to rein in such behavior and to protect minority shareholders. The author outlines the statutory and contractual framework for the distribution of a corporation’s profits in German Limited Liability Corporations (Gesellschaft mit beschränkter Haftung – GmbH). She then presents the shareholders’ Treuepflicht, i.e. the shareholders’ fiduciary duty towards the corporation and each other, as a powerful tool on which scholars and courts draw in order to police shareholder resolutions on the application of profits. However, even where a shareholder resolution to retain profits has been found to violate the law, providing an adequate remedy may prove difficult. The article concludes with a discussion of these difficulties and potential solutions.

EWAN MCGAUGHEY, School of Law, King's College, London; Centre for Business Research, University of Cambridge, University of California, Berkeley - Berkeley Center on Comparative Equality & Anti-Discrimination Law
Email: ewan.mcgaughey@kcl.ac.uk

The quality of democracy in our economy depends on the governance of capital, but Europeans are still deprived of real voice over their retirement money: the single biggest source of capital in the 21st century. This paper outlines three major problems facing EU pensions: precarious retirement, escalating inequality, and mounting climate damage. These problems start with the places where we work, the institutions that control our retirement savings, and the votes on shares that come with them. The central argument is that pensions will only be sustainable once they are democratically, prudently and loyally governed. First, member states have wide experience with co-determination in capital funds, which can inform the basis of minimum standards in EU law for ‘pension fund democracy’. Second, a growing number of investment rules draw upon member states’ fiduciary duties, and standards for prudence or care, but these do not yet codify the requirement that beneficiaries’ environmental, social and governance preferences are followed. Third, votes on shares, bought with pension fund assets, are still being cast by banks and asset managers who manage ‘other people’s money’. This is a serious problem because banks and asset managers have interests that systematically conflict with the ultimate investors: they vote in companies on other people’s money, and at the same time sell financial products, like pensions, to those companies. The problems are soluble with careful amendments to existing policy, to ensure elected representatives of pension beneficiaries are the sole determinants of voting policies, with prudence, and no conflicts of interest. A draft EU Directive, based upon emerging best practice, is proposed.

JOHN SHERMAN, Corporate Responsibility Initiative
Email: johnsherman3@mac.com

To meet its responsibility to respect human rights under the 2011 UN Guiding Principles and Business and Human Rights, a corporation must conduct human rights due diligence. To be effective, human rights due diligence must be embedded into corporate culture through effective leadership that is firmly grounded in corporate governance. Even in the most shareholder-protective jurisdiction (the U.S. State of Delaware), corporate fiduciaries have a duty of loyalty to act affirmatively in good faith to promote the best interests of the corporation.

Meeting this fiduciary duty means applying recognized corporate governance management systems to identify and address the strong business case for respecting human rights, as well as the wide ranging mixture of legal risks of corporate involvement in business in human rights abuse. Legal risks are increasingly arising from the evolution of human rights due diligence from soft law to hard law, and include mandatory human rights due diligence laws, evolving legal standards of duty of care, and private law.

As corporate fiduciaries, corporate legal officers play key roles in integrating human rights due diligence into corporate governance, not only by advising the board and senior management on their legal duties, but also by exercising their leadership roles within the company. Examples of leadership by corporate legal officers include going beyond advising on how to avoid legal liability, taking the organizational lead in avoiding involvement in gross human rights abuse, and not abusing legal privilege to chill open discussion of human rights problems.

Going forward, two issues to watch closely are the fate EU directors’ duties reform initiative, and the use of human rights due diligence as a defense to legal liability.

JULIAN VELASCO, Notre Dame Law School
Email: JVELASCO@ND.EDU

Because of the strong moral rhetoric and robust equitable remedies available in fiduciary law, it
is not surprising to find lawyers and legal scholars seeking to expand the reach of fiduciary law principles into new relationships and new areas of law. However, expansion often does not work very well because of the demanding and pervasive nature of fiduciary duties. Thus, jurists often turn to the business judgment rule and its policy of underenforcement of fiduciary duties as a way to fit fiduciary law principles into other areas of law. The problem with this approach is that it is based on a deficient understanding of the corporate law model. The business judgment rule is not an arbitrary abstention policy but rather a