9.2 Putting our results into context

As the preceding Chapters have demonstrated, our analytical framework is comprehensive; we hope to have been able to analyze all the significant elements of corporate law in our five benchmark jurisdictions. This permits use to trace the underlying commonalities across national boundaries. To a surprising degree, jurisdictions pick from among the same handful of legal strategies (out of the ten possible ones) when addressing a specific agency issue or regulating a particular transaction. For example, jurisdictions protect creditors mainly through entry (mandatory disclosure), rules and standards strategies, with other strategies playing a minor role.10 Similarly, in all five jurisdictions, investors are protected through entry (mandatory disclosure), trusteeship, rules and standards strategies.11

Since this assertion of commonalty might seem controversial, we should establish some necessary qualifications at the outset. As an initial point, we do not assert that thete is no divergence among corporate law systems. Indeed, we describe numerous important differences and argue they, inter alia, reflect variations in shareholder structures, access to finance, regulatory interventionism. and attitudes towards litigation.

In addition, our analysis in this book is largely descriptive. We leave normative proposals for further research, which we may—or may not—undertake as a

8 See, e.g., the seminal work by Frank H. Easterbrook and Daniel R. Fische!, THE ECONOMIC STRUCTURE OF CORPORATE LAW (1991); Robert C. Clark, CORPORATE LAW (1986).

9 Generally speaking, traditional comparative analyses do not rate favorably when it comes to overcoming doctrinal parochialism. See the (critical) comments by Ugo Mattei, COMPARATIVE LAW AND ECONOMICS 77-8 (1997); John H. Merryman, THE OVTL LAW TRADITION (1985).

10 See supra 4.3.

11 SeesM/»ru8.5.

team.12 Put differently, in this book we have identified existing commonalities and divergences among the principal systems of corporate law, but do not hazard a judgment about whether or not they are optimal. We withhold an evaluation of this sort for two reasons. First, we ourselves do not agree. We have varying perceptions about the value of incentive payment systems, for example, and about the respective desirable roles of markets and regulation, the desirable degree of legal harmonization, or the costs and benefits of corporate law litigation. Second, a responsible evaluation of the merits of convergence in corporate law would require an overall economic and social analysis, including extensive empirical research. Unfortunately, empirical studies of the impact of corporate law are still in their infancy, and, when they do exist, are often based on survey results and other soft data, particularly in the all-important area of legal compliance.13 In addition, undertaking an overall analysis would require considering the interplay of tax, bankruptcy, antitrust, and other regulatory policies with corporate law strategies, a subject on which there are many controversies and few reliable studies.14

9.3 EXISTING COMMONALITIES

9.3.1 Robustness

Our analysis clearly establishes that corporate law has converged significantly across our benchmark jurisdictions over the past two decades. Jurisdictions are under pressure to adopt uniform 'best-practices' to facilitate the cross-border tapping of investors by their publicly-traded companies. In addition, national lawmakers have come to realize that a modernized framework of company law can provide even their closely held companies with a competitive advantage.15 We anticipate two criticisms of our claim of growing communalities in the corporate law. 16 One of these is that we employ an overly broad concept of

11 For (traditional) comparative analyses that are predominantly prescriptive, see, e.g., Ole Lando and Hugh Beale (eds.), PRINCIPLES OF EUROPEAN CONTRACT LAW, PART L, LI (2000) and Ole Lando, Eric Clive, Andre Prum, Reinhard Zimmermann (eds.), Part III (2003).

13 Sec Simean Djankov, Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer, Courts,

118 QUARTERLY JOURNAL OF ECONOMICS 453 (2003) (relying on surveys to evaluate judicial formal-

ism); Rafael La Porta, Horencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Visbny, Law and

Finance, 106 JOURNAL OP POLITICAL ECONOMY 1113 (1998) (partly relying on law and order

surveys). See also Sanjai Bhagat and Richard H. Jefferis, THE ECONOMETRICS OF CORPORATE

GOVERNANCE STUDIES (2002) (most of the existing empirical literature considers only two variables

at a time).

14 In particular, the availability of multiple policies may lead to multiple equilibria. See Alberto

Alesina and George-Marios Angeletos, Fairness and Redistribution: U.S. versus Europe (Working

Paper 2002, available at ssrn.com) (making this claim for tax policies}.

13 For a recent contribution on this topic, see Erik P.M. Vermeulen, THE EVOLUTION OF LEGAL BUSINESS FORMS IN EUROPE AND THE UNITED STATES 153 (2003).

16 See Luca Enriques, The Comparative Anatomy of Related Party Transactions Law (Working Paper 2003).

'legal strategy' to identify communalities, which de-emphasizes real and arguably important jurisdictional differences within strategies. For example, our conclusions that all our European jurisdictions rely on rules to protect creditors may gloss over variations in the nature and severity of these rules. A second possible criticism is that we fail to accord enough weight to divergences among jurisdictions in the enforcement of, and the compliance with, the norms of corporate law. Thus, fiduciary duties as law 'on the books' regulate self-dealing transactions in every jurisdiction, but there are major differences among jurisdictions in how energetically these duties are enforced.

Both of these possible criticisms, however, would be misplaced insofar as they exaggerate our claim and the ambitions of this book. Consider the issue of communalities first. To some extent similarities across jurisdictions depend on one's perspective. The preceding chapters establish major communalities across jurisdictions and also a broad trend toward convergence across all major aspects of corporate law on the assumption that our typology of legal strategies is, in fact, a meaningful functional description of corporate law. A finer typology of, say, 20 or 50 legal strategies might have led to different conclusions. But we stand by our typology because we believe that it is a useful heuristic that captures something real about the structure of organizational law, and because our aim has been to analyze corporate law systems comprehensively—to see the shape of the forest rather than outlines of individual trees.

As for the second criticism that we devote insufficient attention to differences in compliance and enforcement across jurisdictions, we plead guilty with extenuating circumstances. All of us accept that comparative functional analyses of law should not be limited to the law on the books.17 Indeed, at many points in the preceding Chapters, we have commented on institutional considerations that are relevant to understanding the operation of the 'law-in-practice.' For example, we show that although transparency requirements are more stringent for closely held firms in continental Europe than in the U.S., market requirements in the U.S. and compliance deficiencies in continental Europe reduce the gap and produce largely similar outcomes in both cases. Similarly, but with the opposite practical outcome, we point out that fiduciary duties are, at their core, similar in our five benchmark jurisdictions, but are more developed and more broadly enforced in the U.S. as a result of specialized courts and a range of specialized institutions that encourage frequent litigation.

Of course, we could have done more. In general, the degree of compliance is a function of access to justice {is it easy for shareholders to sue, are pre-trial discovery and collective action procedures available, etc?), sanction mechanisms (are civil, administrative, and criminal remedies available?), business culture (are

17 Compare Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer, What Works in Securities Laws? (Working Paper 2003, available at nber.org). There is some debate about the extent to which corporate law matters. See, e.g., Mark J. Roe, Corporate Law's Limits, 31 JOURNAL OF LEGAL STUDIES 233 (2002); Bernard S. Black, is Corporate Law Trivial?: A Political and Economic Analysis, 84 NORTHWESTERN UNIVERSITY LAW REVIEW 542 (1990).

there strong informal norms of honest business practices?), and bureaucratic or judicial activism (is there a significant risk of administrative action or criminal prosecution, is it a common occurrence to get a preliminary injunction, are liability awards likely to be large, etc?). Our attention to enforcement and, more generally, compliance is episodic; we do not attempt to explore each of these dimensions with respect to all major aspects of corporate law.

However, in order to go beyond what we have done, we would have needed more than what is provided by current studies and data on enforcement and social norms.18 Empirical litigation studies remain subject to selection bias and other limitations.19 More importantly, there are few studies of other factors that bear on the acceptance of best practices and business ethics by managers and controlling shareholders. Legal science is in its infancy when it comes to psychological or cultural elements, such as the role of peer pressure and group dynamics (for example, to evaluate the effectiveness of rules on board structure and procedure), intrinsic motivation and reciprocity (for example, to calculate the effectiveness of compensation rules or liability standards) or irrationality (for example, to assess the effectiveness of investor protection mechanisms).20

In other words, a full-fledged discussion of compliance and enforcement would have been both extremely complex and largely speculative in its conclusions, given the paucity of robust empirical or experimental data. To avoid such speculation, we opted to address law-in-practice more modestly, by complementing statutory analysis with discussion of the relevant case law and by addressing institutional considerations only where their importance, as a matter of casual empiricism, seemed too great to ignore. This approach has weighted our discussion toward law-in-the-books. Yet, even a functional analysis that focused exclusively on law-in-the-books has considerable value, if it provides an account of the substantive law that is available to jurisdictions to enforce. And law-in-the-books, may be complied with even if it is unenforced,21 or may become active tomorrow if it is not enforced today. (A striking

18 See Bernard Black and Reinier Kraakman, A Self-Enforcing Model of Corporate Law, 109

HARVARD LAW REVIEW 1911 (1996); Symposium, Norms and Corporate Law, 149 UNIVERSITY OF

PENNSYLVANIA LAW REVIEW 1607 (2001).

19 Compare, e.g., Joni Hcrsch and W. Kip Viscusi, Punitive Damages: How judges and Juries

Perform (Working Paper 2002, available at ssm.com) (juries ate significandy more likely to award

punitive damages than judges); Theodore Eisenbetg, Neil LaFountain, Brian Ostrom, David Rottman

and Martin T. Wells, Junes, Judges, and Pumtwe Damages: An Empirical Study, 87 CORNELL LAW

REVIEW 743 (2002) (juries are not more prone to award punitive damages than judges).

26 Regarding psychological issues, see, e.g., Jennifer Arlen, Matthew Spitzer and Eric Talley, Endowment Effects Wtthm Corporate Agency Relationships, 31 JOURNAL OF LEGAL STUDIES 1 (2002); Robert J. Shiller, IRRATIONAL EXUBERANCE (2000); Bruno S. Frey, NOT JUST FOR THE MONEY (1997); Daniel Kahneman, Jack L. Knetsch and Richard H. Thaler, Anomalies. The Endowment Effect, Loss Aversion, and Status Quo Bias, 5 JOURNAL OF ECONOMIC PERSPECTIVES 193 (1991). Regarding cultural issues, see Amir N. Licht, The Mother of All Path Dependencies: Toward a Crass-Cultural Theory of Corporate Governance Systems, 26 DELAWARE JOURNAL OF CORPORATE LAW 147 (2001).

11 Sec, e.g., Robert Cooter, Expressive Law and Economics, 27 JOURNAL OF LEGAL STUDIES 585 [1998).

illustration of this point is addressed in Chapter 4: the recent explosion of liability suits in Japan to enforce the fiduciary duties of managers and auditors.22)

9.3.2 Causes of remaining divergence

Our analytical tools are designed to identify and characterize the legal strategies adopted by our benchmark jurisdictions. This legal strategy approach is more differentiated and has more explanatory power than the legal family approach developed by European comparatists23 which has recently proven popular with economists.24 Our methodology is more differentiated in that we focus on substantive results rather than on mere legal origin (common law vs. civil law or Germanic law vs. Roman law) 25 It has more explanatory power insofar as we generate specific conclusions rather than general observations about the superiority/inferiority of a given corporate law system. For example, a legal family approach would generally conclude that the UK and the U.S., two common law jurisdictions, provide better protection of shareholders in a hostile takeover context than a civil law system. Our approach permits us to point out that the UK and the U.S. differ significantly in their respective reliance on standards and decision-making strategies for dealing with the management-shareholder agency problem in hostile takeovers.26 Similarly, our approach is better suited to analyzing the ongoing breakdown of the common/civil law divide within EU, due to increased harmonization and integration. For example, EU regulation has resulted in UK public companies being subject to rather rigid 'civil law' capital rules rather than more flexible 'common law.'27 For this reason, the previous Chapters sometimes treat the UK together with continental European jurisdictions, and sometimes in contrast with them.

Superior differentiation and explanatory power also permit us to identify levels of convergence and divergence in our benchmark jurisdictions. Notwithstanding our broader conclusions about commonality and convergence, we also attempt to explain continuing divergences among our five principal jurisdictions. At various points in the preceding Chapters, we have argued that jurisdictional differences reflect, inter alia, variations in shareholder ownership structures, access to finance, regulatory interventionism, and attitudes towards litigation.

However, we have limited ourselves to sketching possible explanations. This is because our contribution to the emerging research on the relationship between market size or structure (micro- and ownership structures), politics, culture, and

12 See supra 4.2.3. 23 See Zweigert and Kotz, supra note 7.

14 See supra note 13.

25 Compare Katharina Pistor and Cheng-Gang Xu, Fiduciary Duty in Transitional Civil Law Jurisdictions (Working Paper 2002, available at ssrn.com); Dennis C. Mueller and B. Burcin Yurtoglu, Country Legal Environments and Corporate Investment Performance, 1 GERMAN ECONOMIC REVIEW 187 (2000); Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny, Law and Finance, 106 JOURNAL OF POLITICAL ECONOMY 1113 (1998).

u See supra 7.2.1 and 7.3. 27 See supra 4.2.2.1.

corporate law has been to clarify the questions that still need to be answered. In particular, we have shown that increased attention should be paid to the causes and determinants of regulatory interventionism. For example, it is unclear why the U.S. is litigation-oriented when it comes to shareholder protection, but agency-oriented when it comes to investor protection, whereas Germany is interventionist when it comes to board structure or substantive group law, but adopts a laissez-faire approach when it comes to enforcement.

As with the empirical determinants of compliance, existing research28 on the relationship between corporate law and market size, structure, politics, or culture provides no clear-cut or generally accepted explanations. For example, most theoreticians seem to agree that, while controlling shareholders may mitigate managerial opportunism, they are also the beneficiaries of significant rents—the so-called 'private benefits of control'—and are therefore a potential source of large inefficiencies in corporate governance. However, the empirical evidence on this point is mixed, and sometimes cuts the other way. For example, studies of takeover premiums seem to indicate that minority shareholders are often exploited by controlling shareholders,29 but recent studies on the performance of family-owned firms seem to establish that their minority shareholders enjoy higher returns than their counterparts in non-family owned firms.30

9.4 ROADMAP FOR FURTHER RESEARCH

This book provides a platform for a wide-ranging program of multi-disciplinary research on corporate law, both law-in-the-books and law-in-practice.

A first avenue of research is to explore further the fundamental issue of how far corporate law successfully complements or supplements market institutions. For example, an empirical investigation of the performance of credit-rating agencies in the U.S. and EU might help to put the role of legally mandated disclosure for small businesses in perspective. Does mandatory creditor-oriented

28 See Krishna B. Kumar, Raghuram G. Rajan and Luigi Zingales, What Determines Firm Size (Working Paper 2000, available at ssrn.com); Harold Demsetz and Kenneth Lehn, The Structure of Ownership and the Theory of the Firm; Causes and Consequences, 93 JOURNAL OF POLITICAL ECONOMY 1155 (1985); Mark J. Roe, POLITICAL DETERMINANTS OF CORPORATE GOVERNANCE (2003); Chanan Goldschmidt, Amir N. Licht, Shalom H. Schwartz, Culture, Law, and Corporate Governance (Working Paper 2002, available at ssrn.com).

19 See Alexander Dyck and Luigi Zingales, Private Benefits of Control: An International Compan-son (Working Paper 2002, available atssm.com) (pointing out that media and tax policies may play as much a role than minority protection in curbing private benefits); Rafael La Porta, Horencio Lopez-de-Silanes, Andrei Shleifer and Robert Vishny, Investor Protection and Corporate Valuation, 57 JOURNAL OF FINANCE 1147 (2002) (finding evidence of higher valuation in firms with better protection of minority shareholders—but also in firms with higher cash-flow ownership by controlling shareholders).

30 See Ronald C. Anderson and David M. Reeb, Founding-Family Ownership and Firm Performance: Evidence from the S&P 500, 58 JOURNAL OF FINANCE 1301 (2003); see also Jeremy Edwards and Alfons Weichenrieder, Ownership Concentration and Share Valuation: Evidence from Germany (Working Paper 2003, available at ssrn.com).

disclosure support the market for information about credit risks, or is it largely redundant in light of the operation of this private market? Similarly, it would be worthwhile to have a fresh look at the need for capital requirements or investor protection provisions in a post-bubble economy.

A second, and possibly most promising avenue of research, is to investigate the trade-offs in legal strategies faced in different jurisdictions, taking into account economic and social differences (market size, access to finance, ownership, business ethics, etc.). A regulatory burden analysis would be one form of trade-off analysis. Here, one would subtract the disadvantages of a given corporate law regime (e.g., transactions costs resulting from capital maintenance or co-determination requirements) from its advantages (e.g., more credible commitments vis-a-vis creditors or employees) to decide whether and how to enact corporate law provisions.

A third promising avenue of research is to investigate the drivers of regulatory change in different environments. Starting at one extreme, it is well-known that major changes in corporate law often result from external shocks such as crises and scandals. Reforms brought about by the Enron cohort of financial debacles are the most recent examples. However, despite the considerable attention devoted to these scandals by public commentators and specialists alike, we lack a detailed analysis of the worldwide reforms that have followed in their wake. At the other extreme of the continuum, we lack analyses of recent evolutionary changes in corporate laws and practices.31 Global studies of long-term historical developments32 need to be supplemented by systematic analyses of recent legal changes, we suspect that the recent attention accorded to the path dependence of legal phenomena (i.e., to structural and behavioral barriers to departures from the existing 'legal path') has led scholars to underestimate low-key modern channels of legal change, such as law reform movements and pressure exerted by institutional investors. Finally, between the extremes of analyzing the legal effects of financial shock and orderly evolution, much room remains for investigation of legal change at the level of the state, whether such change occurs through harmonization, regulatory arbitrage, or inter-jurisdic-tional competition.

In the U.S., the only country where there is a substantial literature on regulatory competition, there is no consensus on its drivers and impact. In the EU, where harmonization and regulatory arbitrage are hot topics, research remains limited, especially on the empirical side. More generally, scant attention is paid to the extent to which convergence and divergence reflect business cycles, fads, or mere chance.

31 But see Mark D. West, Tfoe Puzzling Divergence of Corporate Law, Evidence and Explanations from Japan and the United States, 150 UNIVERSITY OF PENNSYLVANIA LAW REVIEW 527 (2001) (showing diverging development of U.S. and Japanese corporate law, even though the later is based on the former); William J. Carney, The Production of Corporate Law, 71 SOUTHERN CALIFORNIA LAW REVIEW 715 (1998) (analyzing the diffusion of new provisions in state corporate laws).

31 See, e.g., Edward L. Glaeser and Andrei Shleifer, Legal Origins, 117 QUARTERLY JOURNAL OF ECONOMICS 1193 (2002) (analyzing the source of legal differences between France and England).

A fourth avenue of research concerns regulatory technique. It remains unclear why some jurisdictions rely more heavily than others on mandatory provisions in corporate law. For example, Germany has traditionally favored mandatory provisions while, at the same time, eschewing aggressive legal enforcement mechanisms. An obvious question is whether these two aspects of regulatory style are related, and, if so, whether they are both tied to broader societal features such as political institutions, path-dependent legal tradition, or self-enforcing social norms. To take another example, the U.S. has traditionally avoided mandatory rules in corporate law except in the area of transparency and disclosure, but has nevertheless recently chosen to adopt mandatory rules to govern matters such as audit committee responsibilities and corporate loans to directors rather than opt for a 'comply or explain' approach that is becoming more common in the EU.

It is also unclear why and to what effect jurisdictions adopt default provisions. The traditional contractarian explanation for default provisions in corporate law may be undermined when behavioral and political factors are taken into consideration.33 For example, recent discussions about EU harmonization in the takeover area have shown that it may not be a matter of indifference whether companies are allowed to opt in, or opt out, of a given regime. Similarly, there is debate about how much pressure to comply is actually exerted by the media, peers, investors, and supervisory authorities under a 'comply or explain' approach to regulation.

A fifth, and possibly most surprising, avenue of research is an analysis of how boards function. The board may be one of the most researched areas of corporate law. However, the focus has generally been on the structure, size, composition, and procedures of the board. More fundamental issues, such as the impact of peer pressure and group dynamics on board behavior, and the trade-off between monitoring and implementation activities in the board's operations, have been largely ignored by corporate law experts. Indeed, we have very little idea of precisely what the board's agenda includes in many public corporations. For example, how large must an investment decision be before it is brought to the board's attention for a vote? How often does the board participate in strategic planning or interact with senior executives? Or how active is the board's role in hiring decisions below the level of the CEO?

A sixth avenue of research relates to controlling shareholders and groups of companies. As already mentioned, it is nowadays conventional wisdom to castigate controllers for extracting private rents and otherwise behaving opportunistically. There are, however, strong indications that the private benefits of

33 See Colin Camercr, Samuel Issacharoff, George Loewenstein, Ted O'Donoghue and Matthew Rabin, Regulation for Conservatives: Behavioral Economics and the Case for 'Asymmetric Paternalism', 151 UNIVERSITY OF PENNSYLVANIA LAW REVIEW 1211 (2003); Cass R. Sunstein, Swttehmg the Default Rule, 77 NEW YORK UNIVERSITY LAW REVIEW 106 (2002); Lucian A. Bebchuk and Assaf Hamdani, Optimal Defaults for Corporate Law Evolution, 96 NORTHWESTERN UNIVERSITY LAW REVIEW 489 (2002).

control are often non-financial in nature (and therefore not necessarily costly for other owners) and that synergy and monitoring advantages are under-estimated.

A seventh avenue of research is to examine the role of interest groups, for example the corporate law shaping influence of the bar in Europe, Japan, and the U.S. The public choice literature is well developed on the theoretical level, but lacking in empirical studies, especially in Europe and Japan. In particular, it would be interesting to have data on the weight of major companies, small business, auditors, lawyers, bankers, and investors at the EU level.

An eighth and related avenue of research would be to analyze the impact of regulators and administrators on the development of corporate law. Indeed, the corporate law role of supervisory bodies (for example the SEC in the U.S.) and regulatory committees (for example the committees set-up in the EU under the so-called Lamfalussy Process)34 is a topic of increasing importance. In particular, one would like to know if and to what extent the preference of regulators and administrators shape corporate law or distort administrative and criminal pros-ecutions.

A ninth avenue of research concerns the disparate role played by litigation across jurisdictions. Here, there are two possible levels of investigation. One is why some jurisdictions are litigation-averse and others not.3-5 The second, closely related area is why specialized courts, pre-trial discovery, collective action mechanisms (derivative actions and class actions), and damage awards enjoy different degrees of popularity and institutional support in different juris-dictions. These investigations are likely to be of special importance to minority shareholders and stakeholders for whom, especially in Europe, access to courts is often difficult to obtain.

A tenth avenue of research is to compare the regulation of publicly traded and closely held corporations across jurisdictions. In particular, it would be worthwhile to examine whether and, if so, why there is a tendency to increase regulation for larger publicly traded firms, while decreasing regulation for closely held firms (for example, by reducing red-tape and favoring flexibility36). For example, one could analyze whether controlling shareholders play similar roles in listed, public (not listed but widely held) and private (closely held) companies and, if so, if and why they are regulated differently.

As mentioned at the outset, we have mainly compared five major jurisdictions: France, Germany, Japan, the U.S., and the UK. This does not prevent our analytical framework transcending particular jurisdictions, not least because our major jurisdictions also happen to be those having spearheaded the develop-

34 See Final Report of the Committee of Wise Men on the Regulation of European Securities Markets (Lamfalussy Report) (2001, available at europa.eu.int).

33 In particular, one would have to investigate the interactions with the role recognized to market institutions and the influence of interest groups, regulators, and administrators. See, e.g., Edward L. Glaeserand Andrei Shleifer, The Rise of the Regulatory State, 61 JOURNAL OF ECONOMIC LITERATURE 401 (2003).

36 Compare supra 6.2.1 and 7.1.2 (mergers, control transactions, or the ability to switch from one company form to another may facilitate management entrenching).

merit of corporate law.37 The extent to which our analysis applies to emerging jurisdictions, however, remains to be established.38 An eleventh and final area of research is thus to examine to what extent and with which amendments our analytical framework can be used to deal with emerging jurisdictions issues.

This roadmap underscores the commonality point made throughout the book. Our 'avenues for research' list was drafted by the European contributors to this book, but their U.S. and Japanese colleagues have had no difficulty accepting it. More generally, while responsibility for writing individual chapters was assigned to those whose names appear in the table of contents, the end product represent collective work throughout the book and divergence of views on certain issues did not prove irreconcilable. This result not only reflects the fact that corporate laws share a common core. It shows that our methodology permits us to minimize the analytical distortions resulting from intellectual and cultural particularism.

37 See Katharina Pistor, Yoram Keinan, Jan Kleinheisterkamp and Mark West, The Evolution of

Corporate Law: A Cross-Country Comparison, 23 UNIVERSITY OF PENNSYLVANIA JOURNAL OF

INTERNATIONAL LAW 791 (2002).

38 This point has been eloquently made by David A. Skeel, Corporate Anatomy Lessons, YALE LAW

JOURNAL (forthcoming 2004).

Index

director independence 38-9, 50-1, 58, 121, 129-30

director liability 12, 52, 66-7, 73-1, 88-91,

95-6,114-18,129 fiduciary duties 66-7,114-18,171 and insolvency 73-4

limits on board authority 109-10,121-2,

131-3, 139-40,146-7, 164-8 and operational managers 11-12,40-1,49 removal of directors 37-8 self-selecting 36, 45-6, 65-6 and shareholder interests 67-9 size 38, 39-41

structure 11-12, 34-5, 38^11 see also agency problems, appointment rights, control transactions, delegated management, judicial review business judgment rule 52,106-7,108-9

capital

see legal capital capital markets

and capital maintenance 87-8

and issuer regulation 193-4,213-14

and takeover regulation 189-91 centralized management

see delegated management charter amendments 138-9 class actions 154,211-12

see also enforcement close corporation

see corporate form closely held firms 1, 5-6, 34, 79-81, 99, 105,

120, 124,158-9,194-5, 225 codetermination 14-15, 16, 36, 45, 62-5, 69-70

and takeovers 52—3 collective action issues 41—4

see also enfotcement committees 38-40

see also board of directors common language 4-5, 88,216 common law/ civil law 87,116, 130,154,172,

190,221-2 commonalities 1, 67, 97, 128-9,153,197,

217-21 company

see corporate comparative law 3-4, 221-2 compensation 27, 51-2, 67-8,102,114,118

approval 107

compensation (cont.): disclosure 103-4 loans 111-12

see also managers, reward strategy-compliance

see enforcement, social norms conflicted transactions see control transactions, related party transactions consolidations see mergers constraints strategy 23-4, 66-7

see also rules, standards contracts

see corporate law and contracts control transactions 157-91 agency issues 159-63 competing bids 181-3 decision rights 163-73 defensive measures 52-3, 164-73 definition 157-9 disclosure 174—6 closely held firms 158-9 equal treatment 176-8, 184-7 mandatory bid 178-81, 184-7 and non shareholders 187-9 organic change 141-4 takeover regulation 162-3, 189-91 target with controlling shareholder 184-7 target with dispersed shareholders 163-84 and transferability of shares 25, 172-3 controlling shareholder 224-5 conflicted transactions 118-28,141-4 control arrangements 10-11 definition of control 13,75-6 fiduciary duties 126-7,141,148-51 liability 92-4, 96, 126, 128, 141-2,150-1 subordination of debt 93 see also agency problems, control

transactions, minority shareholder(s), shareholder(s), ownership structure convergence 5, 99

see also commonalities corporate charters 79, 138-9 corporate distributions 83-4, 123-4,149-51 corporate finance 83-8, 149-51, 151-3 corporate form 1,215 basic characteristics 5-15 close 5-6, 11,15-16, 34 n.3, 48-9 function 2,17-19 non profit firms 15 open 10, 34 n.3, 47, 49,193 and other forms 6,13-14,15 corporate group

see group of companies corporate law definition 15-17 goal 17-19

and contracts 8,17, 29-31, 71-2, 99, 128, 222-3

and insolvency law 17, 73-4, 97

and labor law 17

and securities law 16,193-4

and tort law 17 corporate opportunity 102, 116

see also related party transactions credit rating agency 80, 99 creditors 71-99

access to debtor data 80, 82-3

corporate law protection: how 77-8, 82-3,

87- 8, 95-9

corporate law protection: why 71-3, 97-8 creditor friendliness 78-9, 80-1, 97-8, 118

and directors' fiduciary duties 66-7, 73-4,

88- 9

involuntary creditors 76-7 and limited liability 8-10 organic change safeguards 144 priority rule 7-8

see also group of companies, insolvency

decision rights decision rights strategy 26, 46-9, 57,109-11,

121-3,163-73 see also appointment rights strategy, delegated management, shareholderfs) default terms 30-1 defensive asset partitioning 9 defensive measures 52-3,164-73

see also control transactions delegated management 11-13,46-7, 137, 139-40, 151-3,168-73 limits on board authority 109-10,121-2, 131-3, 145-7, 164-8 derivative action 116-17

see also enforcement directors

see board of directors disclosure conflicted transactions 103-5,119-21 as entry strategy 24—5 exiting disclosure requirements 202-3 function 195-6 policies 79-83,212-13 scope 199-201 thresholds 197-9 why mandatory 204-7 see also accounting distributions

see corporate distributions divergence 67-70, 97-9, 128-130, 153-5,

189-91,212-14,221-2 dividends

see corporate distributions divisions 136-7

duty of care 52,89-90, 108-9

see also fiduciary duties duty of loyalty 114-18

see also fiduciary duties

emerging jurisdictions 3, 225-6 employee 61, 69-70

and control transactions 187-9

information 61n.ll8,144

representation 16, 35-6, 40, 62-5

see also codetermination enforcement vi-vii, 219-22, 225

antifraud provisions 211-13

collective action 116-17, 130,154, 211-12, 225

directorial liability 90-1, 98-9, 109 disclosure requirements 80,97-8,195-6 discovery 116,122 insider trading 113-14 rules and standards 23-4, 115-18 Standing to sue 90-1, 116-17 entry 24-5

entry strategy 59-60, 79-83, 103-5, 119-21, 195-207 ex ante strategy 27-8 ex post strategy 27-8 executives

see managers exit 24-5

compulsory buy-out 142-4, 183-4

exit strategy 60, 140-1, 178-81, 184-7

mandatory bid 178-81, 184-7

right to transfer shares 10-11,25

right to withdraw 25, 123-4, 140-1

fairness

see fiduciary duties, judicial review fiduciary duties auditors 91—2

directors and other managers 88-91,114-18, 127

shareholders 92-4,123-27, 128

third parties 94-5 financial intermediaries

proxy management 43-4

see also bank-centered environment, credit rating agency fraudulent conveyance 95 functional approach v-vi, 4, 216

going private 202-3 governance strategies 26-7, 33-66 see also appointment rights, decision rights, reward, trusteeship governance structure 33-70 group of companies 6, 9, 16, 74-6, 99, 119, 124-6, 224-5 accounting 82-3

approval of conflicted transactions 121-22, 129-30

disclosure of conflicted transactions 120-21 piercing the corporate veil 93-4, 98 regulation of 6, 75-6, 85-7 subsidiary indemnification 86-7, 96 n.144, 124-6