The Editors ..................................................... v
List of Contributors .......................................... vii
List of Tables .............................................. xxvii
List of Figures .............................................. xxix
Chapter 1
Introduction .................................................... 1
Hanne S. Birkmose, Mette Neville & Karsten Engsig Sørensen
PART I
Rethinking the Market for Corporate Control ..................... 9
Chapter 2
European Takeover Law: The Case for a Neutral Approach ......... 11
Luca Enriques
1 Introduction ................................................ 11
2 The Economic Rationale of a Neutral Approach ................ 12
3 The Current EU Approach: (1) The Few Rules Promoting
Takeovers ................................................... 15
4 The Current EU Approach: (2) The Many Rules Hindering
Takeovers ................................................... 17
5 The Building Blocks of a Neutral Approach ................... 20
5.1 Limiting Member States' Freedom to Enact or Retain
Incumbent-Friendly Rules ............................... 21
5.2 Default Rules Protecting (Minority) Shareholders ....... 22
5.3 Menu Rules ............................................. 24
6 Anticipated Criticisms ...................................... 26
7 Conclusion .................................................. 27
Chapter 3
The Directive on Takeover Bids: Unwanted Harmonisation
of Corporate Law ............................................... 29
Jesper Lau Hansen
1 Introduction ................................................ 29
2 The Mandatory Bid Rule ...................................... 30
2.1 The Rule ............................................... 30
2.2 An Anti-takeover Measure ............................... 30
2.3 Possible Justification of the MBR ...................... 32
2.3.1 Change of Business Strategy ..................... 32
2.3.2 Equality as Fairness ............................ 33
2.3.3 Support for the MBR ............................. 35
3 Other Problems with the Directive ........................... 36
3.1 The Scope of the Directive ............................. 36
3.1.1 Only Listed Companies ........................... 36
3.1.2 Who to Protect? ................................. 36
3.1.3 Which Shares to Regulate? ....................... 37
3.2 The Anti-frustration Rule .............................. 38
3.3 The Breakthrough Rule .................................. 39
3.4 The Subsidiarity Principle ............................. 42
4 What Can Be Done? ........................................... 43
4.1 Harmonisation of Public Bids ........................... 44
4.2 Corporate Governance Issues ............................ 45
4.3 The MBR and Acting in Concert .......................... 45
5 Conclusion .................................................. 48
Chapter 4
Cash-Settled Derivatives as a Takeover Instrument and the
Reform of the EU Transparency Directive ........................ 49
Pierre-Henri Conac
1 The Use of Cash-Settled Derivatives in the Context of
Hostile Takeovers ........................................... 51
1.1 Cash-Settled Derivatives Can Be Equivalent to Holding
Shares ................................................. 51
1.2 The Use of Cash-Settled Derivatives in Different
Countries .............................................. 52
1.2.1 The Use of CSDs in the Context of a Takeover
or an Attempt to Gain Control ................... 52
1.2.2 The Use of CSDs outside the Context of
a Takeover ...................................... 55
2 The Inclusion of CSDs in European States Legislation ........ 56
2.1 Countries Which Have Included CSDs in the Calculation
of Thresholds .......................................... 56
2.2 Countries Which Have Not Included CSDs in the
Calculation of Thresholds but Have Adopted
Alternative Approaches ................................. 59
3 The Reform of the EU Transparency Directive ................. 61
3.1 The Justification and Content of a Reform of the EU
Transparency Directive ................................. 61
3.1.1 Arguments against and in Favour of an EU
Reform of the Transparency Directive ............ 61
3.1.2 The Possible Content of an EU Reform ............ 62
3.2 Reports at the European Level .......................... 65
3.2.1 Reports Requested by the European Commission .... 65
3.2.2 The Position of the European Commission ......... 67
4 Conclusion .................................................. 68
Chapter 5
Disclosing Barriers to Takeovers ............................... 69
Karsten Engsig Sørensen
1 Introduction ................................................ 69
2 Background and Purpose of Article 10 ........................ 70
3 What Should Be Disclosed? ................................... 72
3.1 The Issues Listed in Article 10(1) ..................... 72
3.2 The Importance of Different Information ................ 75
3.3 The Applicable Law ..................................... 77
4 How Is the Information to Be Published? ..................... 78
5 Shareholders' Reactions to the Information Disclosed ........ 82
6 Improving Article 10 ........................................ 84
7 Conclusions ................................................. 87
PART II
Promoting Shareholder Democracy ................................ 89
Chapter 6
Evolution of Company Law, Corporate Governance Codes
and the Principle of Comply or Explain: A Critical Review ...... 91
Jan Andersson
1 Introduction ................................................ 91
2 A Critical Review ........................................... 92
3 CGCs and Comply or Explain: Against the Background of the
Individual State ............................................ 93
4 CGC versus Company Law ...................................... 94
5 CGCs versus Individual (Ad Hoc) Improvements in Corporate
Governance: Benefits versus Costs ........................... 96
6 CGCs and the Principle of Comply or Explain ................ 100
7 Conclusions ................................................ 104
Chapter 7
The Transformation of Passive Institutional Investors into
Active Owners: 'Mission Impossible'? .......................... 107
Hanne S. Birkmose
1 Introduction ............................................... 107
2 Shareholder Activism ....................................... 109
3 Rethinking the Legal Setting for Shareholder Activism ...... 112
3.1 Governance Structures and Shareholders 'Rights ........ 112
3.1.1 Shareholders'Rights in the EU .................. 113
3.2 The Cost-Benefit Balance .............................. 115
3.3 Improving the Regulatory Framework and the
Cost-Benefit Balance .................................. 117
3.4 Balancing the Rights of Empowered Shareholders
against Directors' Powers ............................. 122
4 Is Lowering the Costs Sufficient? .......................... 124
4.1 Recommendations (Soft Law) or Hard Law ................ 124
4.2 Codes Directed at Shareholders ........................ 125
4.2.1 The Effect of Costs on Soft Law Regulation ..... 126
4.3 Disclosure of Voting Policies and Votes Cast .......... 127
4.3.1 Who Should Be Targeted? ........................ 128
4.4 Lowering Costs ........................................ 128
5 Ensuring Long-Term Activism ................................ 129
6 Conclusion ................................................. 131
Chapter 8
The Owners and the Power: An Insight into Shareholder
Actions ........................................................133
Thomas Poulsen & Therese Strand
1 Introduction ............................................... 133
2 The Owners and the Power ................................... 134
2.1 Amenability to Shareholder Activism ................... 135
2.2 Asymmetric Information ................................ 137
3 An Insight into Shareholder Actions ........................ 140
3.1 Statistical Methodology ............................... 141
3.2 Results ............................................... 142
3.2.1 Shareholder Activism and Power Structure ....... 142
3.2.2 Nomination Committee Activism and Power
Structure ...................................... 142
3.2.3 Influence of Asymmetric Information on
Shareholder Activism ........................... 144
3.2.4 Influence of Control Mechanisms on Asymmetric
Information and Shareholder Activism ........... 144
4 Policy Implications ........................................ 145
Chapter 9
Shareholder Suits and Shareholder Democracy ................... 147
Olav Fr. Perland
1 Introduction ............................................... 147
2 Types of shareholders' Rights and Interests ................ 149
3 Majority Suits and Deadlock Resolution ..................... 150
4 Available Corporate Law Remedies for Protection of
Minority Shareholder Interests ............................. 152
5 Potential Corporate and Civil Procedures Law Obstacles
to the Protection of Minority Shareholder Interests ........ 154
5.1 Introduction .......................................... 154
5.2 Claims with the Company as Entitled Plaintiff:
Authority, Disqualification, etc ...................... 155
5.3 Shareholders' Rights for Derivative Action ............ 157
5.4 Direct and Indirect Losses for Shareholders ........... 159
5.5 Importance of the Board of Directors' and
Shareholder Majority's Discretion ..................... 161
5.6 The Problem of Disrupting Established Positions ....... 162
5.7 Limitation and Time Limits for Claims: Access to
Court Regulation ...................................... 163
5.8 Restrictions on Court's Authority to Rule on
Specific Performance .................................. 164
5.9 Enforcement of Court Rulings .......................... 164
5.10 Choice of 'Battlefield' ............................... 165
6 Potential for Bylaws and Shareholder Agreements ............ 167
7 Conclusions ................................................ 168
Chapter 10
The Principle of Shareholder Primacy in Company Law from
a Nordic and European Regulatory Perspective .................. 169
Paul Krüger Andersen & Evelyne J.B. Sørensen
1 What Does Shareholder Primacy Mean? ........................ 169
2 The Problem of European Company Law: How to Define the
Role of Shareholders ....................................... 171
3 Different Positions and Theories ........................... 174
4 The Role of Shareholders ................................... 182
4.1 Public versus Private Limited Companies ............... 182
4.1.1 Institutional Shareholders ..................... 183
4.2 Elements of Shareholder Action ........................ 185
4.2.1 Voting Rights .................................. 186
4.2.2 Rights to Information .......................... 189
4.2.3 The Right to Sue ............................... 192
5 Briefly on Employees' Co-determination ..................... 193
6 Conclusions: The Principle of Shareholder Primacy as the
Regulatory European Principle .............................. 196
Chapter 11
Europe's Corporate Governance Green Paper: Rethinking
Shareholder Engagement ........................................ 199
Christoph van der Eist & Erik P.M. Vermeulen
1 Introduction ............................................... 199
2 Green Paper: The EU Corporate Governance Framework ......... 202
3 The Theory and Practice of Shareholder Engagement .......... 207
3.1 Agency and Monitoring Costs ........................... 207
3.2 Shareholder Engagement Costs .......................... 209
3.2.1 Conventionalism/Micromanagement ................ 212
3.2.2 Distraction .................................... 213
3.2.3 Risk Aversion and Lack of Transparency ......... 213
4 Conclusion ................................................. 214
Chapter 12
Shareholder Activism: The Suspicious Shareholder .............. 217
Mette Neville
1 Introduction ............................................... 217
2 Active Ownership as a Corporate Governance Mechanism ....... 218
2.1 The Theoretical Reasoning for Active Ownership as
a Corporate Governance Mechanism ...................... 218
2.2 The EU Commission's Promotion of Active Ownership as
a Corporate Governance Mechanism ...................... 220
3 The Evolution of New Ownership Structures and Financial
Innovation Challenge the Basis for Active Ownership ........ 223
3.1 Hedge Funds ........................................... 224
3.1.1 Decoupling of Voting Power and Economic
Ownership: A Challenge to Active Ownership
as a Corporate Governance Mechanism ............ 226
3.2 Sovereign Wealth Funds ................................ 229
4 Promoting the 'Right' Active Ownership and Curbing
'Unwanted' Behaviour: The Gordian Knot? .................... 232
5 Mechanisms to Curb Negative Active Ownership ............... 233
5.1 Shifting the Balance of Power between Management and
Shareholders .......................................... 233
5.2 Voting Restrictions ................................... 236
5.2.1 Multiple Voting Rights and/or Higher
Dividends for Long-Term Investors .............. 236
5.2.2 Suspension of Voting Rights .................... 237
5.3 Further Shareholder Responsibility? ................... 239
5.3.1 Abuse Clauses .................................. 240
5.3.2 A Wider Duty of Loyalty ........................ 241
5.4 Greater Transparency .................................. 244
5.4.1 Information about the Holding of Derivatives ... 245
5.4.2 Disclosure of Short Selling .................... 246
5.4.3 Disclosure of Investors, Investment
Strategies, Voting Policies and Records ........ 248
6 Conclusion ................................................. 249
PART III
A New Framework for the European Financial Market ............ 253
Chapter 13
Europe's Financial Regulatory Bodies .......................... 255
Eddy Wymeersch
1 The Complexity of Today's Regulatory Systems ............... 255
2 The Objectives of the Regulatory Reform .................... 257
3 Distinguishing Regulation from Supervision ................. 258
4 Continuation of Sectoral Regulation ........................ 259
5 The Levels of Regulation ................................... 260
6 The New Authorities ........................................ 261
7 Cooperation between the Three Authorities .................. 263
8 The Need for More Detailed Rules and the 'European
Rulebook' .................................................. 264
9 The Need for a Verification of the Actual Application of
the European Rules ......................................... 266
10 Legal Competences of the ESAs .............................. 267
10.1 Rulemaking and the ESAs ............................... 268
10.1.1 Delegating and Implementing Acts ............... 268
10.2 Implementation of Union Law ........................... 270
10.3 Emergency Powers ...................................... 271
10.4 Conflict Resolution Powers ............................ 271
10.5 Restricting Certain Financial Products ................ 272
11 Conclusion ................................................. 273
Chapter 14
The Uncertain Role of Banks' Corporate Governance in
Systemic Risk Regulation ...................................... 275
Peter O. Mülbert & Ryan D. Citlau
1 Introduction: The Competing Goals of 'Good' Corporate
Governance and Systemic Risk Regulation .................... 275
2 Why Do Firms Take on Too Much Risk? ........................ 278
2.1 Firm-Level Models of Risk ............................. 278
2.1.1 Shareholder Ownership and Limited Liability .... 279
2.1.2 Separation of Ownership and Control ............ 279
2.1.3 Why Banks Are Different ........................ 282
2.2 Models of Systemic Risk ............................... 284
2.2.1 Correlation of Risk Portfolios ................. 286
2.2.2 Real and Informational Linkages ................ 288
2.3 The Relationship between Firm-Level Risk and
Systemic Risk ......................................... 291
3 Corporate Governance and Systemic Risk Regulation:
Corporate Governance Reforms as Responses to Firm-Level
Models of Risk ............................................. 293
3.1 Enhancing Corporate Governance Mechanisms ............. 293
3.1.1 Risk Management ................................ 293
3.1.2 Remuneration ................................... 297
3.2 Redesigning Corporate Governance Mechanisms ........... 303
3.2.1 Refocusing the Duties of Board Members/
Officers ....................................... 304
3.2.2 Altering Limited Liability and Creating New
Liability Rules ................................ 305
4 Conclusions ................................................ 307
Chapter 15
Extending the EU Financial Regulatory Framework to New
Investors and New Markets ..................................... 311
Enrico Baffi, Dino Lattuca & Paolo Santella
1 Introduction ............................................... 311
2 The AIFM Directive (AIFMD) ................................. 314
2.1 Authori sation ........................................ 316
2.2 Operating Conditions for AIFM ......................... 316
2.2.1 Capital Requirements ........................... 316
2.3.1 Remuneration ................................... 316
2.2.3 Conflicts of Interest .......................... 317
2.2.4 Risk Management and Liquidity Requirements ..... 317
2.2.5 Organisation ................................... 317
2.2.6 Depositaries ................................... 318
2.2.7 Leverage ....................................... 319
2.3 Reporting Requirements ................................ 319
2.4 The So-Called Passport Regime ......................... 319
2.4.1 EU AIFM Marketing EU AIF ....................... 319
2.4.2 EU AIFM Marketing Non-EU AIF ................... 320
2.4.3 Non-EU AIFM Marketing an EU or Non-EUAIF ....... 320
2.5 The Provisions of the AIFMD on Private Equity
Acquisitions .......................................... 321
3 The EMIR Regulation Proposal ............................... 323
3.1 Reducing Credit and Operational Risks: Mandatory
Clearing .............................................. 324
3.2 Regulating CCPs ....................................... 325
3.3 Reducing Opacity: The Role of Trade Repositories
(TR) .................................................. 327
4 The Short Selling Regulation Proposal ...................... 327
5 Conclusion ................................................. 335
Chapter 16
Investment Law as Financial Law: From Fund Governance over
Market Governance to Stakeholder Governance? .................. 337
Dirk Zetzsche
1 Introduction ............................................... 337
2 Investment Law as a Legal Discipline ....................... 338
2.1 European Roots of Asset Management Law ................ 338
2.2 The Investment Triangle ............................... 340
3 Traditional Dualism of Financial Law ....................... 341
4 The Past: Focus on Fund Governance ......................... 343
5 The Present: Combining Fund and Market Governance .......... 344
5.1 The Rise of Collective Investments .................... 344
5.2 Progenitors of Market Governance ...................... 346
5.2.1 Systemic Risk as Pars Pro Toto of Market
Governance ..................................... 346
5.2.2 Regulating Remuneration Policies, Depositary
Chains, Commodities Trading, Etc ............... 347
5.2.3 Risk-Based Supervision ......................... 348
5.3 Fund and Market Governance as Communicating Pipes ..... 349
6 The Future: Stakeholder Governance through Investment
Law? ....................................................... 350
6.1 The (Not So) Hidden Agenda ............................ 350
6.1.1 Fuzziness of Systemic Risk ..................... 351
6.1.2 AIFMD Private Equity Rules ..................... 352
6.1.3 Stakeholder Concerns and Stewardship Codes
and Why It Is Not Desirable .................... 353
Conclusion ................................................. 354
Chapter 17
Regulating Different Trading Venues: The European Experience
Based on MiFID ................................................ 357
Nis Jul Clausen & Karsten Engsig Sørensen
1 Introduction ............................................... 357
2 The Rise of Alternative Trading Venues ..................... 359
2.1 The New Trading Venues ................................ 359
2.2 Market Shares: Statistics ............................. 360
3 Regulating the New Types of Trading Venues ................. 361
4 Requirements for Doing Business as MTF ..................... 364
5 How Does It Affect Investors Where Trade Is Executed? ...... 370
6 Transparency ............................................... 374
7 Best Execution ............................................. 377
8 Concluding Remarks ......................................... 381
Chapter 18
Towards a New Financial Market Segment for High Tech
Companies in Europe ........................................... 383
Jose Miguel Mendoza & Erik P.M. Vermeulen
1 Introduction ............................................... 383
2 A New Equilibrium in the Market for Exits .................. 386
3 The Rise of Alternative Liquidity Options .................. 393
3.1 The Need for Pre-IPO Liquidity ........................ 393
3.2 The Online Private Secondary Exchanges ................ 398
3.2.1 SecondMarket ................................... 399
3.2.2 SharesPost ..................................... 402
3.2.3 Myths and Facts about Private Secondary
Exchanges ...................................... 404
3.3 TASE: Special Listing Rules for R&D Companies ......... 408
4 A Segmented Stock Market to Bridge the Liquidity Gap
in Europe .................................................. 410
5 Conclusion ................................................. 420
Bibliography .................................................. 421
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