As I mentioned in my previous blog I would try to provide a bit more analysis on the report and discussion from the conference. Today, I have taken time to review the first stream and panel discussion from the conference and will highlight some of the key points of interest and will be numbered below. First a quick mention to the objectives that this part tries to address: 1) Allowing companies to operate at lesser cost; 2) increase ability for cross border mobility; and 3) improve the EU's ability to compete1) My first point goes straight to shareholder protection. A lot of mention was given to increasing shareholder protection to protect against managerial/directorial opportunism and abuse.
Although I fully support review I struggle to accept the notion of increasing protection. One must consider that increasing their protection and involvement may not necessarily have the desired consequences. Shareholders notoriously spread their risk across different companies. To afford them more rights may not necessarily cause them to use them in the best interests of the company. If directors can be opportunistic and abusive, why can't shareholders? If shareholders conclude it is better to abuse their power in one company to benefit themselves at another company they invest in, there may be little to stop them doing so. Less so than a director who acts opportunistically and abusively for sure.
Where there is a clear separation of ownership and management it can only be a sensible conclusion to allow directors and managers to make decisions under the duties of loyalty and care. They are well placed to be concerned with the interests of the company as risk is unlikely to be as well spread for them and with greater forces acting on their decision making such as, labour and securities markets, the threat of litigation and so on they are more likely to act within the limits determined.
The result will be one or two shareholders pre-determining all the decisions making shareholder meetings a mere formality without sufficient checks in place to monitor these decisions.
2) One interesting point was on the notion of transparency of shareholders. It was debated whether companies should have transparency on who the current shareholders are. The risk here is that this will increase anti-takeover defences. What was used is that there still needs to be some "mist" around takeovers at least for a short while as this can have positive corporate governance effects. By providing full transparency in this area may harm self-regulating areas of the market such as labour markets by allowing directors to identify potential takeovers and create defences against that shareholder or group for example.
3) Transparency itself was a hot topic of discussion. The benefits and detriments where both noted as potentially increasing red tape and causing more confusion but on the other hand making more information available will lead to more accurate pricing and causing less confusion. One must argue that either way, transparency potentially does little to solve problems. If anything it just allows companies to dress things up or tell us exactly how they are exploiting any particular group. It does not seem to deal with the cause of any of the problems. However, transparency itself is perhaps merely one piece in the puzzle towards creating a more efficient and competitive European market.
Interestingly the Chairman of the Legal Committee also proposed increasing red tape. This may in itself cause less confusion.
4) It was also raised that there should be consideration to changing to insolvency tests from minimal capital requirements with the EU. I must admit this is not a particular area I am particularly knowledgeable in but an interesting proposal none the less.
5) Corporate social responsibility was also raised by the Chairman of the Legal Committee who seems quite opposed to it begin a matter for Company Law to address. Noting again, that CSR merely increases red tape without much benefit. He noted that it merely gives companies a chance to talk up their good deeds. CSR it would seem should be dealt with by other areas.
6) He was also against quotas of female representation on the board, but important to note, not against female representation on the board. He addressed again that this is perhaps not a problem for company law as it merely deals with the "result and not the cause". He argues this area needs to be addressed by social policy and not company law: He opined "company law cannot improve the world". Addressing the causes of why their is little female representation will result in a more equal system rather than trying to tinker with the result.
7) My own point in regards to points 5 and 6 link to the underlying argument of whether areas such as CSR, quotas on boards etc are really a matter for Company Law? Although it seemed the consensus was a majority verdict of "no" it seems spreading the issues across vast masses of different areas of law can cause considerable difficulties for business. Perhaps it would be a positive move for lawyers (so I don't quibble too much perhaps) but finding ways of keeping the fundamental aspects or perhaps the structure of a company in one place can facilitate companies in a positive way. The finer details perhaps do not have to be a matter for company law but the basics keep it all in one place. Companies then do not need 12 different lawyers to explain 12 different areas of law.
Take s172 of the Companies Act 2006 for example. This provides that a director is to act in the best interests of the company with regard to, amongst other things, the interests of the environment. This section is merely giving the director guidance on how to behave, making it clear to him his responsibilities. However, detailing the amount of emissions a company can produce for example is a finer detail for environmental law. By including the basic elements of other areas within Company Law aim to assist the internal running of a company that they cannot disregard issues of the environment but the finer details are left to other areas of law.
8) Cross border mobility and the movement of seats was an important discussion and it seems that the consensus is heading towards increased mobility and removing restrictions on the transfers of seats contrary to some existing European Court of Justice decisions.
This issue will apparently be addressed during this legislative period. It was opined that companies are not fully able to take advantage of free movement because of the restrictions or difficulties in transferring their seats. The Chairman of the Legal Committee argued that he saw no good argument that restrictions are necessary because of the avoidance of tax. He however failed to address the possibility of abuse of moving seats may have on creditors, employees etc if directors could move the company's seat more freely.
However, with the increase trend of cross-border activity it seems that time is limited on difficulties and restrictions on transfer of seat and cross-border mobility.
I for one would agree that cross-border mobility is an issue that needs to be addressed but which has no easy conclusion.
Although this is just a brief summary of the issues raised I found these to be of the most interest. The entire stream above lasts two and half hours so you can imagine there are a few more equally important issues raised by the panel and speakers. These did include the issues of: Long term interests; allowing inquiries after a business fails for trade unions/pension funds/shareholders; the creation of the European private company; co-determination; group companies (although a minor point as the issue is discussed in the second panel) and the ability to integrate the company in the group's interest as is possible in Germany; and the introduction of "no par-value shares"
