Tag: EU


Dodd-Frank Turns Five, What’s Next?

Daniel F.C. Crowley is a partner at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Crowley, Bruce J. HeimanSean P. Donovan-Smith, and Giovanni Campi.

The 2008 credit crisis was the beginning of an era of unprecedented government management of the capital markets. July 21, 2015 marked the fifth anniversary of the hallmark congressional response, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Dodd-Frank resulted in an extraordinary revamp of the regulatory regime that governs the U.S. financial system and, consequently, has significant implications for the U.S. economy and the international financial system.

Members of Congress recognized the fifth anniversary of Dodd-Frank in markedly different ways. House Financial Services Committee Chairman Jeb Hensarling (R-TX) has held two of a series of three hearings to examine whether the United States is more prosperous, free, and stable five years after enactment of the law. In contrast, Senator Elizabeth Warren (D-MA)—one of the leading proponents of the law—and other members of Congress have criticized the slow pace of implementation by the regulatory agencies. Meanwhile, Senate Banking Committee Chairman Richard Shelby (R-AL) is advancing the “Financial Regulatory Improvement Act of 2015,” which seeks to amend a number of provisions of Dodd-Frank.

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Corporate Governance and Diversity

Aaron A. Dhir is an Associate Professor of Law at Osgoode Hall Law School in Toronto, Canada. The post is based on Professor Dhir’s book, Challenging Boardroom Homogeneity: Corporate Law, Governance, and Diversity (Cambridge University Press, 2015).

Earlier this year, Germany joined the ranks of countries such as Norway, France, Italy, Belgium, and Iceland by enacting a quota to increase the number of women in its corporate boardrooms. Starting in 2016, both genders must make-up at least 30 percent of specified German companies’ supervisory boards.

The news from Germany provoked decidedly negative reactions in major media outlets. In the New York Times, the Washington Post, and the Economist, critics questioned the soundness of pursuing positive discrimination in the corporate governance arena. The reality, however, is that we actually know very little about how corporate quotas have worked in practice. Advocates and detractors each suggest that these measures will alter the effectiveness and dynamics of firms in some way—whether for better or worse. But the speculation remains largely uncorroborated and our knowledge is incomplete at best.
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Foreign Antitakeover Regimes

Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf. Related research from the Program on Corporate Governance includes The Case Against Board Veto in Corporate Takeovers by Lucian Bebchuk.

The confluence of a number of overlapping factors—including an uptick in global and cross-border M&A activity, a resurgence in unsolicited takeover offers, the continued flow of tax inversion transactions, and the growth of activism in non-U.S. markets—means that U.S. companies and investors are more often facing unfamiliar takeover (and antitakeover) regimes as they evaluate and pursue offers for foreign targets. While experienced dealmakers are often well-versed in the nuances of friendly transactions with a foreign seller, the defenses available, and sometimes unavailable, to foreign companies facing unsolicited or hostile offers occasionally come as a surprise and complicate the pursuit or defense of these bids.

While a comprehensive survey of antitakeover regimes in various foreign jurisdictions is well beyond the scope of this post, it is instructive to highlight a number of examples where the regime—mandatory or permissive—departs significantly from U.S. practices, even in countries with well-developed legal systems and capital markets.

In a number of jurisdictions, the applicable takeover rules can be seen to facilitate, or even encourage, offerors in taking rejected overtures to the public shareholders:

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Comparative Corporate Law Casebook

Marco Ventoruzzo is a comparative business law scholar with a joint appointment with the Pennsylvania State University, Dickinson School of Law and Bocconi University.

Comparative Corporate Law is at the center of the scholarly debate, has a growing practical importance, and has become a staple course offered by most law schools and universities around the world, often in English independently of their location. The theoretical and practical reasons for this development are too obvious and well-known to be listed here. Yet there are few teaching resources that offer a systematic, in-depth, but also enjoyable analysis of the subject.

With our new book, Comparative Corporate Law (West Academic Press, 2015), we have tried to fill this gap. The book has been designed to be used in different legal systems and for different courses, primarily for law students, but not only: also students of business administration, economics, political science and international relationships might benefit from it. The book can be used in the basic course on corporations, as a complement to add a comparative and international dimension, and it can—more likely—be used in an upper-division course specifically dedicated to Comparative Corporate Law, or similar courses (Comparative Corporate Governance, Comparative Business Law, Comparative Corporate Finance, etc.).

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The UK’s Final Bonus Compensation Rule

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Roozbeh Alavi, Mike Alix, Adam Gilbert, and Armen Meyer. Related research from the Program on Corporate Governance includes Regulating Bankers’ Pay by Lucian Bebchuk and Holger Spamann (discussed on the Forum here); The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008 by Lucian Bebchuk, Alma Cohen, and Holger Spamann; and How to Fix Bankers’ Pay by Lucian Bebchuk.

On June 23rd, the UK’s Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) [1] finalized a joint bonus compensation rule that was proposed last July. While the industry (including subsidiaries and branches of US banks in the UK) had hoped for a more lenient approach, the final rule generally retains the proposal’s stringent requirements, especially with respect to bonus deferral periods and clawbacks. [2]

The rule applies to “senior managers” [3] and other “material risk takers” [4] at UK banks and certain investment firms. As finalized, the rule establishes the toughest regulatory approach to bonus compensation of any major jurisdiction, going beyond the EU-wide CRD IV. [5] Therefore, unless regulators in other major jurisdictions take a similar approach, institutions that are active in the UK are placed at a competitive disadvantage compared to their peers elsewhere.

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Related Party Transactions: Policy Options and Real-world Challenges (with a Critique of the European Commission Proposal)

Luca Enriques is Allen & Overy Professor of Corporate Law at University of Oxford, Faculty of Law.

Transactions between a corporation and a “related party” (a director, the dominant shareholder, or an affiliate of theirs) are a common instrument for those in control to divert value from a corporation, especially in countries with concentrated ownership. While direct evidence of value diversion via related party transactions (RPTs) is obviously hard to obtain, widespread use of RPTs has been observed for example in China (in the form of inter-company loans) and South Korea (also as a tool to transfer wealth from one generation of controllers to the next in avoidance of inheritance taxes), has been vividly reported for post-privatization Russia and Italy (where corporate scandals, such as Parmalat and, more recently, Fondiaria-Sai, often go together with significant RPT activity). Anecdotal evidence of value extraction via RPTs also exists with regard to the US (think of the Hollinger case and those reported in Atanasov et al.’s paper on law and tunneling, available here). Their (ab)use at Russian and East-Asian companies listed in the UK has recently prompted the UK Listing Authority to stiffen its already strict provisions on RPTs (see here; for a news report on RPTs at one of these East-Asian companies—Bumi, now renamed Asia Mineral Resources—see here).

In my article Related Party Transactions: Policy Options and Real-world Challenges (with a Critique of the European Commission Proposal), published in 16 European Business Organization Law Review 1 (2015), and available here (and here as a working paper), I provide a comparative and functional overview of how laws deal with RPTs and criticize a recent European Commission proposal for a harmonized EU regime on RPTs (see Article 9c of the Proposal for a Directive of the European Parliament and of the Council amending Directives 2007/36/EC and 2013/34/EU, available here).

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Multiple Voting Shares and Private Ordering: Should Old Taboos Be Abolished? The Recent Italian Reform

The following post comes to us from Marco Ventoruzzo of Pennsylvania State University, Dickinson School of Law, and Bocconi University.

Italian Law No. 116 of 2014 introduced several rules designed to make corporate law more flexible, create incentives to corporations to go public, and might also allow controlling shareholders and directors to entrench themselves more effectively, limiting the risk of hostile acquisitions. The new rules, which became effective a few weeks ago, are both interesting and controversial. They can be seen as a response to the increase of regulatory competition in Europe, epitomized by the reincorporation of Chrysler-Fiat, which last year moved its registered seat from Italy to The Netherlands, thus becoming subject to Dutch law.

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Conduct of Business Regulation: A Survey and Comparative Analysis

Andrew Tuch is Associate Professor of Law at Washington University School of Law.

Although recent regulation and scholarship has focused on the financial stability and solvency of financial institutions, the business conduct of these institutions remains an issue of abiding regulatory concern. In a my chapter “Conduct of Business Regulation,” which is in the forthcoming Oxford Handbook of Financial Regulation, I provide a survey and comparative analysis of conduct of business (COB) regulation in the US, the EU, and Australia. COB regulation governs financial intermediaries’ conduct toward their clients; that is, toward the actors—whether individuals or institutions—with whom financial intermediaries transact in providing financial products and services. While the expression “conduct of business regulation” is not widely employed in the US, it is commonly used by international financial regulatory bodies and by financial regulators in many jurisdictions, including the Member States of the EU. In the US, COB regulation encompasses the regulation of broker-dealers and investment advisors under state and federal law; in the EU, the regulation of investment firms under MiFID I and the proposed MiFID II/ MiFIR regime; and in Australia, the regulation of financial services licensees and individual advisors under federal law. Generally speaking, these various financial intermediaries are in the business of providing securities-related services, including advice and recommendations.

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Freedom of Establishment for Companies

The following post comes to us from Martin Gelter, Associate Professor of Law at Fordham University.

I recently posted my forthcoming book chapter, Centros, the Freedom of Establishment for Companies, and the Court’s Accidental Vision for Corporate Law (forthcoming in EU Law Stories, Fernanda Nicola & Bill Davies eds., Cambridge University Press 2015) on SSRN.

This chapter attempts to tell a short intellectual history of the debate about free choice in corporate law in the EU. In contrast to the United States, in many EU Member States it was traditionally not permissible to set up a corporation in one Member State in order to run the company with its head office (meaning the center of its actual commercial and financial operations) in another. This changed with three cases of the European Court of Justice (ECJ), namely Centros (1999), Überseering (2002), and Inspire Art (2003). Consequently, EU member states can no longer effectively deny the legal capacity to pseudo-foreign corporations, or apply key provisions of their own corporate law to them. At least in principle, founders can now exercise the freedom of establishment for companies to “pick and choose” the best national legal form.

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A European Prospectus Revolution?

David M. Lynn is a partner and co-chair of the Corporate Finance practice at Morrison & Foerster LLP. The following post is based on a Morrison & Foerster publication by Jeremy C. Jennings-Mares and Peter J. Green.

The EU prospectus regime, based on Directive 2003/71/EC (the “Prospective Directive”) as amended, has been in place now for nearly 10 years and was due to be reviewed by the European Commission by 1 January 2016. However, the European Commission has moved forward its review, and on 18 February 2015 released a consultation [1] on possible reform of the current regime, in conjunction with its Green Paper on a possible EU Capital Markets Union, released on the same date.

The main focus of the proposed EU Capital Markets Union is on improving the access to capital markets for smaller business entities (“SMEs”), in order to broaden the range of funding without the need for bank intermediation. The European Commission considers that the review of the EU prospectus regime is a vital part of developing a Capital Markets Union and, as such, has accelerated the timing of the review by launching its consultation now.

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  • Programs Faculty & Senior Fellows

    Lucian Bebchuk
    Alon Brav
    Robert Charles Clark
    John Coates
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    Ben W. Heineman, Jr.
    Scott Hirst
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