This page intentionally left blank CONVERGENCE IN SHAREHOLDER LAW On the one hand, it can be argued that the increasing economic and political interdependence of countries has led to the convergence of national legal systems On the other hand, advocates of the counterhypothesis maintain that this development is both unrealistic and unnecessary Mathias Siems examines the company law of the UK, the USA, Germany, France, Japan and China to see how this issue affects shareholder law The author subsequently analyses economic and political factors which may or may not lead to convergence, and assesses the extent of this development Thus, Convergence in Shareholder Law not only provides a thorough comparative legal analysis but also shows how company law interconnects with political forces and economic development and helps in evaluating whether harmonisation and shareholder protection should be enhanced mathias m siems is a Reader in Commercial Law at the University of Edinburgh and a Research Associate at the Centre for Business Research, University of Cambridge international corporate law and financial market regulation Recent years have seen an upsurge of change and reform in corporate law and financial market regulation internationally as the corporate and institutional investor sector increasingly turns to the international financial markets This follows large-scale institutional and regulatory reform after a series of international corporate governance and financial disclosure scandals exemplified by the collapse of Enron in the US There is now a great demand for analysis in this area from the academic, practitioner, regulatory and policy sectors The International Corporate Law and Financial Market Regulation series will respond to that demand by creating a critical mass of titles which will address the need for information and high quality analysis in this fast developing area Series Editors Professor Eilis Ferran, University of Cambridge Proessor Niamh Moloney, University of Nottingham Professor Howell Jackson, Harvard Law School Editorial Board Professor Marco Becht, Professor of Finance and Economics at Universit´e Libre de Bruxelles and Executive Director of the European Corporate Governance Institute (ECGI) Professor Brian Cheffins, S.J Berwin Professor of Corporate Law at the Faculty of Law, University of Cambridge Professor Paul Davies, Cassel Professor of Commercial Law at the London School of Economics and Political Science Professor Luca Enriques, Professor of Business Law in the Faculty of Law at the University of Bologna Professor Guido Ferrarini, Professor of Law at the University of Genoa and Honorary Professor, Faculty of Law, University College London Professor Jennifer Hill, Professor of Corporate Law at Sydney Law School Professor Klaus J Hopt, Director of the Max Planck Institute of Comparative and International Private Law, Hamburg, Germany Professor Hideki Kanda, Professor of Law at the University of Tokyo Professor Colin Mayer, Peter Moores Professor of Management Studies at the Saăd Business School and Director of the Oxford Financial Research Centre James Palmer, Partner of Herbert Smith, London Professor Michel Tison, Professor at the Financial Law Institute of the University of Ghent Andrew Whittaker, General Counsel to the Board at the UK Financial Services Authority Professor Eddy Wymeersch, Chairman of the Committee of European Securities Regulators (CESR), Co-Chair of the CESR-European Central Bank Working Group on Clearing and Settlement, and part time Professor of Commercial Law, University of Ghent, Belgium CONVERGENCE IN SHAREHOLDER LAW MATHIAS M SIEMS CAMBRIDGE UNIVERSITY PRESS Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521876759 © Mathias Siems 2008 This publication is in copyright Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press First published in print format 2007 ISBN-13 978-0-511-39307-5 eBook (EBL) ISBN-13 978-0-521-87675-9 hardback Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate CONTENTS Preface and acknowledgments List of abbreviations x Table of cases xix Table of legislation xxiii Introduction page ix part i The object and course of the investigation I II III IV V Dimensions of convergence in shareholder law The spatial dimension: the legal systems covered The objective dimension: the shareholder of a joint stock company The temporal dimension 17 The methodological dimension 23 Summary 26 part ii The status quo of convergence Legal bases 31 I II III IV V International and regional law 31 Statute law and case law 34 Company and securities law 37 Self-regulation and state regulation Conclusion 59 Bases for a shareholder typology I II III The shareholder in the theoretical debate Real types of shareholder 64 Conclusions 66 v 45 60 60 10 vi contents I II III IV V The ‘shareholder as such’ 68 The profit-oriented shareholder 68 The active shareholder 87 The informed shareholder 120 The anonymous shareholder 136 Conclusions to this chapter 147 The shareholder in the power structure of the company I II III IV The deciding shareholder The protected shareholder The litigating shareholder Conclusions to this chapter 150 174 210 222 Conclusions to Part II 224 I II III Divergence and convergence 224 Globalization and Americanization Convergence and artificial convergence 149 226 228 part iii Developmental trends and patterns I II III IV I II III IV V I II III IV V VI Bases 231 The dependency of shareholder law Regulatory levels of shareholder law Regulatory forms at the national level Conclusions to this chapter 248 Convergence through congruence 231 239 244 250 General cultural and economic-policy approximation The convergence of legal cultures 255 Internationalization of the economy 263 Approximation of shareholder structures 277 Legislative responses 290 Convergence through pressure 250 297 Pressure from company founders 297 Pressure from management 307 Pressure from shareholders 310 Pressure from other interest groups 314 Pressure from international organizations and foreign states Legislative responses 317 316 contents 10 I II vii Future convergences in shareholder law 336 The ‘shareholder as such’ 336 The shareholder in the power structure of the company 11 Conclusions to Part III I II III Re-regulation 366 Convergence forces 367 Changes in future law 368 366 part iv Conclusion 12 Convergence as a model for the future I II III IV Convergence ‘from above’ 373 Convergence ‘from below’ 381 The object of convergence in shareholder law Conclusion 395 13 Summary of principal findings References 401 Index 451 396 373 391 353 index disruption of meetings 110–12, 346 dividends 26 decisions on 155 kind, dividends paid in 76 legal bases for profit distribution 71–2 practice 75–7 provisions on amount of 72–5 division of companies, decisions on 164–5 Dodd, Peter 179 Downs, Anthony 234 duration of directors’ appointments 157–9 East India Companies (British/Dutch) 18 economic analysis of law 46 efficiency competition for shareholders and 329–32 efficient market hypothesis 46, 47 employees 15, 48, 279, 315, 325, 383 empowered shareholders 3, 26, 393–5, 400 Enron 135, 235 enterprise culture 276 equal treatment rights 26, 65 ethical globalization 324 European Company see Societas Europaea (European Company, SE) European System of Central Banks (ESCB) 83 European Union (EU) 7, 35, 242–3, 255, 263, 270, 377, 378 auditing and 135–47 choice of law (regulatory competition) and 300–3, 304, 305, 306, 383 clearing and settlement systems and 83 company law in 32–4 financial reporting and 131–3 mergers/acquisitions/takeovers and 184, 205, 208, 269, 359 pensions and 290 share buybacks and 85 457 shareholder agreements in 54 stock exchanges and 274 families of law 2, 8, 29, 396 financial crises 265 financial reporting 130–5 convergence 131–3 regulatory philosophies 130–1 Financial Reporting Council (FRC, United Kingdom) 57 Financial Reporting Review Panel (FRRP, United Kingdom) 134 Financial Services Agency (FSA, Japan) 41 Financial Services Authority (FSA, United Kingdom) 40 forced saving 73 foreign investment 270–1 formal convergence 23 France 2, 7, 224, 396 articles of association in 50 choice of law (regulatory competition) and 300 company law in 35, 50, 233 corporate governance codes 57 culture 252, 257 changes in legal culture 257 dividends in legal bases for profit distribution 71 provisions on amount of 73, 74 historical development of companies 18, 19 interest groups in 326 ‘lifting corporate veil’ 70 mergers/acquisitions/takeovers in 185, 205, 209 non-voting preference shares 116 powers of general meeting decisions on conduct of business 153 duration of appointments 158 fundamental changes to companies 166 legal bases 151 remuneration of directors 159 pressure from management in 308 sale of shares in 458 index France (cont.) agreed selling restrictions 81 practical difficulties 82 statutory provisions 79 securities law in 35, 38–9 share buybacks in 85 shareholders in actions against management conduct 214 actions against resolutions of general meeting 220 active participation by 90 agenda setting 94, 95 anonymous 141, 142, 144, 145 convocation rights 93 information rights 123, 124, 125 institutional investors 117 modes of voting 91 necessary majority in meetings 170, 171, 172 oversight of management 192, 193, 194, 196, 197 participation in meetings 109 protection of minority interests 203, 204, 207 proxy voting 106 ranking of shareholder interests 176, 177, 178, 181 shareholder agreements 55 structure of holdings 282, 286, 287, 289 timely information on general meeting 97, 100 typology 66 voting rights 114 stock exchanges in 280 stock options in 188, 191–3 types of companies in 10, 11, 13, 14, 39 free registration system 18, 20, 21 free rider problem 89, 103, 345 freeze-out see squeeze-out Fukuyama, Francis 17, 253 functional convergence 23 fundamental changes to companies 160–6 amendment to articles of association 160–6 capital measures 163 de facto changes 165–6 decisions on mergers and divisions 164–5 future convergences 336–7, 368–9 model 373, 395 convergence from above 373–80 convergence from below 381–91 object of convergence 391–5 modern shareholders 338–53, 368 delegating shareholders 343–6 information-seeking shareholders 346–8 international shareholders 339–43 postmodern shareholders 348–52 profit-oriented shareholder 337–8 shareholder in power structure of company 353–65, 368 deciding shareholder 354–5 litigating shareholders 362–4 protected shareholder 356–62 General Agreement on Trade in Services (GATS) 264, 267 general meetings 340, 355 actions against resolutions of general meeting 218–21 agenda 93–5, 98–101 anticipation of shareholder decisions 101–7 counter-models 104–6 different types of shareholders 102–3 US model 103–4 convocation rights 92–3 disruption of 110–12, 346 institutional investors 117–19 involvement in run-up to general meeting 92–108, 340 modes of voting 91 necessary majority of shareholders 169–73 cumulative voting rights 172–3 relative, absolute and qualified majorities 169–71 oversight of management 188, 190–8, 359–60 index duties of care, loyalty and good faith 188, 191–3 functional equivalents to private law duties 193–6 protective mechanisms by securities law 196–7 participation in 108–19 powers of general meeting 150–68 fundamental changes 160–6 legal bases 150–2 regular decisions 155–60 special situations 167 protection of minority interests 198–210, 360–2 actions against resolutions of general meeting 218–21 leaving the company 205–9 substantive control of decisions 201–4 voting in case of special interests 199–201 purpose of shareholder participation 87–90 different types of shareholders 87–9 rational apathy 89–90 right to demand information 121–3 timely information on general meeting 96–101, 340 content of meeting 98–101 form of communication 96–7, 340 time limits 97–8 virtual 348–52 voting rights see voting, rights of shareholders Germany 2, 7, 224, 328, 396 arbitration in 363 articles of association in 49 banking in 280, 282, 286, 344 choice of law (regulatory competition) and 300, 306, 321 company law in 35, 49 corporate governance codes 57, 58, 247, 248 culture 257 changes in legal culture 257 dividends in 459 legal bases for profit distribution 71 provisions on amount of 73–4 historical development of companies 18, 19 interest groups in 326 ‘lifting corporate veil’ 70 mergers/acquisitions/takeovers in 185–6, 205, 209 non-voting preference shares 116 powers of general meeting 168 appointments 156 decisions on conduct of business 152, 153 duration of appointments 157, 158, 159 fundamental changes to companies 166 legal bases 151 remuneration of directors 159 pressure from management in 308 sale of shares in agreed selling restrictions 81, 82 practical difficulties 82 statutory provisions 78, 80 securities law in 35, 40 share buybacks in 85 shareholders in actions against management conduct 214–15 actions against resolutions of general meeting 218–19 active participation by 90 agenda setting 95 anonymous 138, 140, 141, 142 convocation rights 93 information rights 121, 123, 124, 125 institutional investors 117 modes of voting 91 necessary majority in meetings 170, 171, 172 oversight of management 192, 193, 194, 196, 197 protection of minority interests 200, 203, 207 proxy voting 105, 106 460 index Germany (cont.) ranking of shareholder interests 176, 178, 181, 182 shareholder agreements 54 structure of holdings 282, 285, 287, 288, 289 timely information on general meeting 97, 99, 100 typology 62, 63, 65, 66 voting rights 114 speculation in 78 stock options in 188, 191–3 types of companies in 10, 13, 14 Gierke, Otto von 64 Gilson, Ronald 23 globalization 1, 23, 226–7, 240 ‘alternatives’ 253–5 ethical 324 good faith 188, 191–3 governance see corporate governance government and the state 29, 280, 281, 283 nationalization 22 see also regulation Greece, choice of law (regulatory competition) and 300 Großfeld, Bernhard 60 groups of companies, consolidated accounts 132, 133 Hansmann, Henry 17 Hay, Colin 23 Hegel, Georg 229 Hill, Jennifer 15, 60, 67 historical perspective 17–18, 27, 231, 232 China 22–3 ‘End of History’ for corporate law 17–18 Europe 18–19 ‘history matters’ thesis 232 Japan 20–2 United Kingdom 18, 19, 232 United States 20, 232 historicism 229 Hong Kong 42 corporate governance codes 57 Huntington, Samuel 250, 252 hybrid investments 16 IBM 251, 252 individualism 280–1 induction problem 229 industrialization 19 influential shareholders, anonymity of 145–6 information rights of shareholders 26, 32, 342, 344, 394 financial reporting 130–5 convergence 131–3 prospects 133–5 regulatory philosophies 130–1 individual rights 121–6 right to demand information 121–3 rights of inspection 26, 124–5 information-seeking shareholders 346–8 securities law and 126–30 convergence in law 126–8 reservations 128–9 timely information on general meeting 96–101, 340 content of meeting 98–101 form of communication 96–7, 340 time limits 97–8 information technology 3, 266–7, 341, 346–52, 399 informed shareholders 3, 120–36, 338, 394, 397 financial reporting 130–5 convergence 131–3 prospects 133–5 regulatory philosophies 130–1 individual information rights 121–6 right to demand information 121–3 rights of inspection 26, 124–5 information-seeking shareholders 346–8 securities law and 126–30 convergence in law 126–8 reservations 128–9 innovation, legal 376 insider dealing 196, 261 index insider model 29 insider trading see insider dealing inspection rights of shareholders 26, 124–5 institutions institutional convergence 24 institutional investors 117–19, 288–90, 339, 393 internationalization of private institutions 267–8 interest groups 3, 231, 236–8, 247, 398 convergence from below and 384–5 legislative responses 317–35 competition for seat of companies 318–23, 367 competition for shareholders 3, 327–35, 367, 398 effect of lobbying 323–7 lobbying by 323–7, 384–5 international 323–4 national 324–7 pressure from company founders 297–307 choice of law (regulatory competition) 297–307 other forms of pressure 307 pressure from international organizations and foreign states 316–17, 357, 379 pressure from management 307–10 pressure from other interest groups 314–16 pressure from shareholders 3, 310–14, 399 choice of law (regulatory competition) 310–13 other forms of pressure 313–14 interim dividends 76 International Accounting Standards Board (IASB) 32, 131 International Corporate Governance Network (ICGN), Global Corporate Governance Principles 340 International Financial Reporting Standards (IFRS) 131–3, 342 international law 31–2, 240–2 international economic law 263–6 461 International Monetary Fund (IMF) 241, 263, 317 International Organization of Securities Commissions (IOSCO) 32, 82 internationalization 1, 3, 240–2, 263–76, 309, 399 international economic law 263–6 private institutions 267–8 through ‘new media’ 3, 266–7, 341, 346–52, 399 undertakings 268–76 exchange listing abroad 271–6 foreign investment 270–1 international mergers 268–70 Internet 3, 266–7, 341, 346–52, 399 investment foreign investment 270–1 institutional investors 117–19, 288–90, 339, 393 OECD Multilateral Agreement on Investment (MAI) 264, 270 shareholder as investor 2, 63–4, 69, 225, 391–3, 396 Trade Related Investment Measures (TRIMS) Agreement 264 Ireland, choice of law (regulatory competition) and 299 irrelevance thesis 233 Israel 271 Italy, corporate governance codes 57 Japan 2, 7, 224, 396 articles of association in 51–2 banking in 267, 279, 284, 286 company law in 36, 51–2 corporate governance codes 57, 260 culture 252 enterprise culture 274 legal culture 258–60 dividends in 76 legal bases for profit distribution 72 provisions on amount of 73, 74 financial reporting 133, 134 foreign investment in 270 historical development of companies 20–2 462 index Japan (cont.) interest groups in 326 internationalization and 267 ‘lifting corporate veil’ 70 mergers/acquisitions/takeovers in 186–7, 205, 209, 259, 269 non-voting preference shares 116 powers of general meeting decisions on conduct of business 152, 153 duration of appointments 158 fundamental changes to companies 163, 164, 165 legal bases 151 remuneration of directors 159 pressure from management in 308 sale of shares in agreed selling restrictions 82 practical difficulties 82 securities law in 41 share buybacks in 85 shareholders in actions against management conduct 215–17 actions against resolutions of general meeting 219 active participation by 90 agenda setting 94, 95 anonymous 138, 140 appraisal rights 206, 207 convocation rights 93 disruptive 110 information rights 122, 123, 125 institutional investors 118 modes of voting 91 necessary majority in meetings 170, 172 oversight of management 192, 193, 194, 196 protection of minority interests 200, 203 proxy voting 104, 106 ranking of shareholder interests 176, 177, 178, 181 shareholder agreements 54 structure of holdings 279, 282, 283–4, 285–6, 287, 289 timely information on general meeting 99, 100 typology 62, 63, 66 voting rights 113, 114 stock options in 188, 191–3 types of companies in 10, 13 joint ventures 269 judges, appointment of 36 Keynes, John Maynard 78 kind, dividends paid in 76 Kinoshita, Tsuyoshi 256 Kraakman, Reiner 17 La Porta, Rafael 9, 251, 277 language rules 342 Latham, Mark 345 ‘law follows’ thesis 232 ‘law matters’ thesis 231 legal bases 7–26, 31, 59, 224 company and securities law 37–45 international law 31–2, 240–2 powers of general meeting 150–2 for profit distribution 71–2 regional law 32–4, 242–4 self-regulation and state regulation 45–59 statute law and case law 34 legal capital see minimum capital requirements legal cultural convergence 24, 255–63, 375 changes in legal cultures 256–63 civil and common law 256–8 Western and Asian law 258–62 importance of legal culture 255–6 legal families 2, 8, 29, 396 legal innovation 376 legal profession 261, 315–16 internationalization of 260, 262 legal systems approximation of shareholder structures and 277–80 families of law 2, 8, 29, 396 private law-making 280–1 spatial dimension of convergence 7–26 Legrand, Pierre 24, 255 index Licht, Amir 251, 252, 358 limited liability 69–70 liquidity proceeds 26 Listing Authority (UKLA, United Kingdom) 40 litigating shareholders 3, 210–22, 362–4, 397 actions against management conduct 212–18 actions against resolutions of general meeting 218–21 lobbying 323–7 convergence from below and 384–5 international 323–4 national 324–7 Lopez-de-Silanes, Florencio see La Porta, Rafael loyalty, duties of 188, 191–3 McCahery, Joseph 333, 334 management see also directors of companies actions against management conduct 212–18 competences of 152–4 enterprise culture 276 oversight of 188, 190–8, 359–60 duties of care, loyalty and good faith 188, 191–3 functional equivalents to private law duties 193–6 protective mechanisms by securities law 196–7 pressure from 307–10 protection of shareholders from 174–98, 356–60 oversight of management 188, 190–8, 359–60 ranking of shareholder interests 175–90, 356–9 remuneration 159–60, 358 stock options 188–90 special situations 167 stock options for 188–90 market system 383 ‘alternatives’ 253–5 contractual theories and 46–8 Marx, Karl 229 463 Means, Gardiner 48 media 3, 266–7, 341, 346–52, 399 meetings see general meetings membership, shareholders as members of association 62–3 Mercosur 32, 263 mergers/acquisitions/takeovers 39, 88 decisions on 164–5 defences against hostile takeovers 182–8, 324, 358 exchange listing abroad and 272, 273 international 268–70 mandatory bid and appraisal rights 205–8 squeeze-out 208–9 meso-economics 236 methodological dimension of convergence 23–6, 27 division into ‘diagnosis’, ‘prognosis’ and ‘therapy’ 25 shareholder law as core of study 25–6 variants of convergence 23–4 Milhaupt, Curtis 24, 280 minimum capital requirements 19, 85, 207 minority interests, protection of 198–210, 360–2 actions against resolutions of general meeting 218–21 leaving the company 205–9 substantive control of decisions 201–4 voting in case of special interests 199–201 mixed Asian law systems 8, 29, 258–62, 396 model for the future 373, 395 convergence from above 373–80 interim finding 380 means towards 377–80 problems and implications 375–80 reasons for unification of law 373–5 convergence from below 381–91 case law 386–7 national legislators 381–6 self-regulation 387–90 464 index model for the future (cont.) object of convergence 381–91 disempowered shareholder 393 empowered shareholder 3, 26, 393–5, 400 powerless shareholder 391–3 model statutes 243 modern shareholders 26, 338–53 delegating shareholders 343–6 information-seeking shareholders 3468 international shareholders 33943 postmodern shareholders 34852 Măulbert, Peter 64 Măuller-Erzbach, Rudolf 87 multinational (transnational) corporations 32, 23940, 366 national law convergence from below and 381–6 choice of law (regulatory competition) 382–4 convergence through lobbying 384–5 multinational (transnational) corporations and 239–40 see also regulation nationalization 22 neo-classical theory 46 neo-corporatism 237 Netherlands choice of law (regulatory competition) and 299 corporate governance codes 57 historical development of companies 18 nirvana fallacy 46 non-governmental organizations (NGOs) 315, 324, 357, 378 non-voting preference shares 16, 76, 115–17 normative convergence 24 North American Free Trade Agreement (NAFTA) 32, 263 object of convergence 381–91 disempowered shareholder 393 empowered shareholder 3, 26, 393–5, 400 powerless shareholder 391–3 objective dimension of convergence 10–20, 27 demarcation from other participants in the firm 15–17 demarcation from shareholders in small companies 10–14 one-person companies 70 options (stock) 188–90 ordo-liberalism 79 Organization for Economic Co-operation and Development (OECD) 263, 317 Guidelines for Multinational Enterprises 32 Multilateral Agreement on Investment (MAI) 264, 270 Principles of Corporate Governance 32, 38, 56, 135, 139, 165, 180, 182, 227, 241–2 orientalism 259 ownership of companies beneficial ownership 15, 142–5 shareholders as owners 2, 15, 29, 48, 60–1, 68, 225, 376, 396 parliamentarian, shareholder as 2, 62–3, 69, 225, 376, 396 participation bonds 16 participation by shareholders see active shareholders path dependency 1, 259, 293–6 strong 294–6 time dependency 332–3 weak 294 pensions 289–90, 314 Peters, Hans-Rudolf 236 Plato 229 political systems ‘alternatives’ 253–5 approximation of shareholder structures and 277–80 interest groups 3, 231, 236–8, 247, 398 convergence from below and 384–5 index legislative responses 317–35 lobbying by 323–7, 384–5 pressure from company founders 297–307 pressure from international organizations and foreign states 316–17, 357, 379 pressure from management 307–10 pressure from other interest groups 314–16 pressure from shareholders 3, 310–14, 399 political model of shareholding 62–3 public choice theory 3, 234–6, 237, 247, 295, 314–16, 366, 388, 398 problems of application 235–6 voters, parties and politicians 234–5 Popper, Sir Karl 229 postmodern shareholders 348–52 power structures of company, shareholders and 3, 149, 222–3, 225, 397 deciding shareholders 3, 150–74, 354–5, 397 future convergences 353–65, 368 litigating shareholders 3, 210–22, 362–4, 397 necessary majority of shareholders 169–73 powers of general meeting 150–68 protected shareholders 3, 174–210, 356–62, 397 powerless shareholder 391–3 preference shares 16, 76, 115–17 prejudice to shareholders’ interests 35 pressure, convergence through 3, 297, 343, 367, 398 from company founders 297–307 choice of law (regulatory competition) 297–307 other forms of pressure 307 convergence from below and 384–5 from international organizations and foreign states 316–17, 357, 379 465 legislative responses 317–35 competition for seat of companies 318–23, 367 competition for shareholders 327–35, 367 effect of lobbying 323–7 from management 307–10 from other interest groups 314–16 from shareholders 3, 310–14, 399 choice of law (regulatory competition) 310–13 other forms of pressure 313–14 principal–agent problem 46, 48 private institutions 267–8 processing of transactions 337 profit, distribution of see dividends profit-oriented shareholders 3, 68–87, 397 future convergences 337–8 limited liability 69–70 profit realization by selling shares 77–84 admissibility of trade in shares 77–8 agreed selling restrictions 80–2 influence of statutory provisions 78–80 practical difficulties 82–4 profit realization while remaining in the company 71–7 dividend practice 75–7 legal bases for profit distribution 71–2 provisions on amount of dividend 72–5 share buybacks 84–6 prognosis stage 2, 25 protection of shareholders 3, 174–210, 232, 356–62, 397 power structures of company and, protected shareholders 3, 174–210, 356–62, 397 protection against management 174–98, 356–60 oversight of management 188, 190–8, 359–60 ranking of shareholder interests 175–90, 356–9 466 index protection of shareholders (cont.) protection against shareholder majority 198–210, 360–2 leaving the company 205–9 substantive control of decisions 201–4 voting in case of special interests 199–201 shareholder structures and 277–8 protectionism 265 proxy voting 33, 94, 100, 101, 103–6, 107, 340, 343–6, 352 public choice theory 3, 234–6, 237, 247, 295, 314–16, 366, 388, 398 problems of application 235–6 voters, parties and politicians 234–5 publicity rules 20, 32 ranking of shareholder interests 175–90, 356–9 comparative starting points 176–8 convergences 178–82 defences against hostile takeovers 182–8, 324, 358 stock options 188–90 rational apathy 89–90, 234, 339, 344, 393 regional law 32–4, 242–4 regulation 3, 398, 399 co-regulation 39 deregulation 20, 49, 50, 247, 387 financial reporting and 130–1 legal bases 7–26, 31, 59 company and securities law 37–45 international law 31–2, 240–2 regional law 32–4, 242–4 self-regulation and state regulation 45–59 statute law and case law 34 national level 244–8, 366 company and securities law 245–7 statute and case law 244–5 regulatory competition see choice of law (regulatory competition) regulatory levels of shareholder law 239–44 internationalization 240–2 multinational firms and national law 239–40 national level 244–8, 366 regionalization 242–4 re-regulation 366–7, 398 self-regulation 38, 39, 45–59 convergence from below and 387–90 corporate governance codes 2, 56–9, 66, 182, 243, 247–8, 396 remuneration of directors 159–60, 358 stock options 188–90 re-regulation 366–7, 398 reserve, statutory 72–5 Ricardo, David 263 Roe, Mark 278–9, 280 Romano, Roberta 11 Rose, Paul 24 Răosler, Karl Friedrich Hermann 21 Roth, Găunther H 64 sale of shares 7784, 2059 admissibility of trade in shares 77–8 agreed selling restrictions 80–2 future trends 337–8 influence of statutory provisions 78–80 practical difficulties 82–4 Salwin, Lester 21 saving, forced 73 Securities and Exchange Commission (SEC, Japan) 41 Securities and Exchange Commission (SEC, United States) 38 Securities and Exchange Surveillance Commission (SESC, Japan) 41 Securities and Investment Board (SIB, United Kingdom) 39 securities law 2, 37–45, 245–7, 290–6, 396 causality problem 231–3 convergence of see convergence information rights of shareholders and 126–30 convergence in law 126–8 reservations 128–9 international law and 31–2, 240–2 oversight of management and 196–7 index regional law and 32–4, 242–4 statute law and case law 34 Securities Regulatory Commission (SRC, China) 42, 261 self-interest, public choice theory 3, 234–6, 237, 247, 295, 314–16, 366, 388, 398 problems of application 235–6 voters, parties and politicians 234–5 self-regulation 38, 39, 45–59 convergence from below and 387–90 corporate governance codes 2, 56–9, 66, 182, 243, 247–8, 396 settlement of transactions 82 shareholders 1–2, 3, 10–20, 68, 107, 147–8, 225, 336–7, 397 active see active shareholders anonymous see anonymous shareholders approximation of shareholder structures 3, 277–90, 343, 399 decline in concentrated shareholder structures 280, 281–8 explanatory models 277–81 influence of institutional investors 288–90 role of law and politics 277–80 role of private law-making and individualism 280–1 competition for 3, 327–35, 367, 398 evolutionary position 327–9 limits to convergence 329–35 convergence of laws on see convergence deciding see deciding shareholders demarcation from other participants in the firm 15–17 demarcation from shareholders in small companies 10–14 dependency see dependency of shareholder law disempowered shareholder 393 empowered shareholders 3, 26, 393–5, 400 informed see informed shareholders as investors 2, 63–4, 69, 225, 391–3, 396 467 meetings see general meetings modern see modern shareholders as owners 2, 15, 29, 48, 60–1, 68, 225, 376, 396 as parliamentarian 2, 62–3, 69, 225, 376, 396 power structures of company and 3, 149, 222–3, 225, 397 deciding shareholders 3, 150–74, 354–5, 397 litigating shareholders 3, 210–22, 362–4, 397 necessary majority of shareholders 169–73 powers of general meeting 150–68 powerless shareholder 391–3 pressure from 3, 310–14, 399 choice of law (regulatory competition) 310–13 other forms of pressure 313–14 profit-oriented see profit-oriented shareholders ranking of shareholder interests 175–90, 356–9 comparative starting points 176–8 convergences 178–82 defences against hostile takeovers 182–8, 324, 358 stock options 188–90 regulatory levels of shareholder law 239–44 internationalization 240–2 multinational firms and national law 239–40 national level 244–8, 366 regionalization 242–4 shareholder agreements 2, 54–6, 396 shareholder law as core of study 25–6 squeeze-out 208–9 typology see typology of shareholders shares, stock options 188–90 Shleifer, Andrei see La Porta, Rafael small companies, shareholders in 10–14 Smith, Adam 89, 189, 190 social democracy 279, 280 social responsibility 179 468 index Societas Europaea (European Company, SE) 7, 34, 242, 269, 380 articles of association 49 choice of law (regulatory competition) and 301, 321–2 oversight of management 194 types of 10 South Africa, corporate governance codes 57 Spain choice of law (regulatory competition) and 300 corporate governance codes 57 spatial dimension of convergence 7–26 special interests, voting in case of 199–201 special situations, powers of general meeting and 167 speculation 78 spurious shareholders, anonymity of 142–5 squeeze-out 208–9 stakeholder models 178–82 state see government and the state status quo of convergence 29–30 legal bases 7–26, 31, 59 company and securities law 37–45 international law 31–2, 240–2 regional law 32–4, 242–4 self-regulation and state regulation 45–59 statute law and case law 34 statute law 34, 244–5 sale of shares and 78–80 stock markets (capital markets) 12–13, 14, 29, 37, 44, 245, 279, 280–1 exchange listing abroad 271–6 causes 272–3 effects on convergence debate 275–6 problems 273–5 future of 337, 338 self-regulation 38, 39 supervision of 37, 38 Structural Adjustment Programs (SAPs) 317 subsidiarity principle 243 supervision of companies 15, 26 supervision of stock markets 37, 38 supranational companies 380 Taiwan 22 takeovers see mergers/ acquisitions/takeovers taxation 266 telecommunications 3, 266–7, 341, 346–52, 399 Thatcher, Margaret 253 therapy stage 2, 25 theses on convergence 2–3, 396–400 time dependency 332–3 time dimension of convergence 17–18, 27 China 22–3 ‘End of History’ for corporate law 17–18 historical interconnectedness in Europe 18–19 Japan 20–2 United States 20 Tobin tax 266 tracking stocks 76 Trade Related Investment Measures (TRIMS) Agreement 264 transaction costs 377 translations 342 accounts 133 terms transnational corporations 32, 239–40 transparency standards 82, 129, 145 transport 266 triviality thesis 233 typology of companies 10–14, 66 typology of shareholders 60–7, 225 active shareholders see active shareholders anonymous shareholders see anonymous shareholders informed shareholders see informed shareholders modern shareholders see modern shareholders profit-oriented shareholders see profit-oriented shareholders real types 64–6 index theoretical debate 60–4 shareholder as ‘investor’ or ‘bystander’ 2, 63–4, 69, 225, 391–3, 396 shareholder as ‘member of association’ or ‘parliamentarian’ 2, 62–3, 69, 225, 376, 396 shareholder as ‘owner’ or ‘quasi-partner’ 2, 15, 29, 48, 60–1, 68, 225, 376, 396 undertakings see companies uniform law problems and implications 375–7 reasons for 373–5 United Kingdom 2, 7, 224, 396 articles of association in 51, 53 banking in 279 choice of law (regulatory competition) and 299, 306, 321 company law in 35, 51 corporate governance codes 56, 247 culture 251, 257 changes in legal culture 258 dividends in legal bases for profit distribution 72 provisions on amount of 74 financial reporting 131, 134 historical development of companies 18, 19, 232 ‘lifting corporate veil’ 70 mergers/acquisitions/takeovers in 39, 183, 205, 208, 325 non-voting preference shares 115 powers of general meeting decisions on conduct of business 152 duration of appointments 158 fundamental changes to companies 162, 163, 165 legal bases 151 remuneration of directors 159 sale of shares in agreed selling restrictions 81 practical difficulties 82 securities law in 29, 35, 39–40 469 share buybacks in 85 shareholders in actions against management conduct 213–14 actions against resolutions of general meeting 220–1 active participation by 90 agenda setting 95 anonymous 137, 139, 142, 143, 145 convocation rights 93 information rights 120, 123, 124, 125 institutional investors 117 modes of voting 91 necessary majority in meetings 170, 171 oversight of management 191, 192, 195, 196 protection of minority interests 199, 202, 207 proxy voting 104, 106 ranking of shareholder interests 176, 178, 180 shareholder agreements 54 structure of holdings 279, 280, 288 timely information on general meeting 97, 98, 99, 100 typology 63, 66 voting rights 113, 114, 115 stock exchanges 274, 280 types of companies in 11, 14 United Nations Draft Code of Conduct on Transnational Corporations 32 Global Compact 357 United States 2, 7, 224, 317, 396 appointment of judges in 36 articles of association in 50–1, 53 auditing in 135 banking in 278, 279, 280 choice of law (regulatory competition) in 299, 304, 305, 306, 307, 312, 319–21, 382 company law in 7–8, 33, 36, 50–1, 53 corporate governance codes 57, 58, 248 470 index United States (cont.) culture 251, 257 enterprise culture 274 deregulation in 247 dividends in 76 legal bases for profit distribution 72 provisions on amount of 74 financial reporting 131, 134, 135 historical development of companies 20, 232 interest groups in 316, 326 ‘lifting corporate veil’ 70 mergers/acquisitions/takeovers in 184, 206, 324, 325, 359 non-voting preference shares 115 powers of general meeting 168 appointments 156 decisions on conduct of business 152, 153 duration of appointments 158 fundamental changes to companies 162, 163, 164, 166 legal bases 151 remuneration of directors 159 pressure from management in 308 regulatory forms case law 245 company and securities law 245 sale of shares in admissibility of 77 agreed selling restrictions 82 practical difficulties 82 statutory provisions 79 securities law in 35, 38, 51 share buybacks in 85 shareholders in 233 actions against management conduct 212–13, 221 actions against resolutions of general meeting 220–1 active participation by 90 agenda setting 94 anonymous 137, 140, 142, 143 appraisal rights 206 convocation rights 93 information rights 120, 123, 124, 125, 126 institutional investors 117 modes of voting 91 necessary majority in meetings 169, 170, 171, 172 oversight of management 191, 195, 196, 197 protection of minority interests 199, 200, 201, 278 proxy voting 94, 100, 103–4, 106, 107 ranking of shareholder interests 176, 179, 180, 181, 182 shareholder agreements 55 structure of holdings 278, 279, 280, 288 timely information on general meeting 98, 99, 100 typology 62, 63, 66 voting rights 114, 115, 345 stock exchanges 274, 280 stock markets 272 stock options in 188, 190–8 types of companies in 11, 12, 14 utilitarianism 46 variants of convergence 23–4 virtual general meetings 348–52 Vishny, Robert see La Porta, Rafael voting public choice theory 3, 234–6, 237, 247, 295, 314–16, 366, 388, 398 problems of application 235–6 voters, parties and politicians 234–5 rights of shareholders 15, 26, 62, 65, 66, 83, 112–17, 341, 355 cumulative voting rights 172–3 different types of shareholders 87–9 modes of voting 91 necessary majority of shareholders 169–73 non-voting preference shares 16, 76, 115–17 proxy voting 33, 94, 100, 101, 103–6, 107, 340, 343–6, 352 purpose of shareholder participation 87–90 index rational apathy 89–90, 234, 339, 344, 393 relative, absolute and qualified majorities 169–71 vote capping and multiple voting rights 113–15, 341 471 waiver of claims 155 warrants 16 West, Mark 21, 22 World Bank 241, 263, 317 World Trade Organization (WTO) 263, 264, 265, 317 ... International Financial Law Review International Financial Reporting Standards The International Lawyer International Monetary Fund International Journal of Business International Review of Law. .. Law Review University of Cincinnati Law Review UC Davis Law Review UCLA Pacific Basin Law Journal University of Pennsylvania Journal of International Economic Law University of Pennsylvania Law. .. Working Group on Clearing and Settlement, and part time Professor of Commercial Law, University of Ghent, Belgium CONVERGENCE IN SHAREHOLDER LAW MATHIAS M SIEMS CAMBRIDGE UNIVERSITY PRESS Cambridge,