Company and Takeover Law Reforms in Europe: Misguided Harmonization Efforts or Regulatory Competition?

Gerard Hertig
ETH Zurich; European Corporate Governance Institute (ECGI)

Joseph A. McCahery
Tilburg University – School of Law; European Banking Center (EBC); Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

August 2003

ECGI – Law Working Paper No. 12/2003

Abstract:

Despite recent developments in ECJ case law, the ability of EU firms to choose among corporate law regimes remains restricted. However, Member States have started to show interest in supplying competitive business forms and firms seem keen to use them. Ongoing reviews of EU governance and takeover law can be seen as an attempt to complete the set of minimum requirements that put a floor to a «race to the bottom.» This paper suggests that most of the proposed harmonization, however, is likely to be ineffective or to promote bureaucratic uniformity rather than enable market-driven diversity.

Indeed, disclosure, board structure and director liability proposals as currently structured are unlikely to satisfy the needs of shareholders. Moreover, reforms aimed at the establishment of a permanent structure providing advice on future EU regulatory initiatives and at requiring Member States to adopt director disqualification mechanisms are likely to result in excessive regulatory intervention. Similarly, many provisions of the proposed Takeover Bids Directive can be expected to hamper rather than enhance the development of a competitive corporate control market.

By contrast, the authors recommend regulatory changes that facilitate private litigation, as this should be beneficial for shareholders and could enable regulatory competition without stimulating a «race to the bottom.» Finally, the authors endorse a default arrangement for takeovers that would allow firms to choose to be governed by either the proposed Takeover Bids Directive or existing Member state law.

Company and Takeover Law Reforms in Europe- Misguided Harmonization Efforts or Regulatory Competition?

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