DOI: https://doi.org/10.1093/oxrep/graa005
JA Armour, J Gordon and G Min, 'Taking Compliance Seriously' (2020) 36 Yale Journal on Regulation 1
JA Armour and M Sako, 'AI-enabled business models in legal services: from traditional law firms to next-generation law companies?' (2020) 7 Journal of Professions and Organization 27
‘Shareholder rights’ are the legal entitlements of shareholders vis-à-vis companies in which they invest. A large body of research has sought to investigate how shareholder rights foster accountability of controllers. The concern has been that without accountability, managers and dominant shareholders will use their power to further their own interests at the expense of outside investors. A contrasting concern is that strengthening shareholder rights may come at the expense of other parties, which may also lead to misallocation of corporate resources. A recently-emerging body of research suggests that the relationship between shareholder rights and social welfare is not monotonic, but rather inverse-U-shaped. We argue that the calibration and impact of shareholder rights depends crucially on the institutional channel(s) through which they are implemented—voting, litigation, and/or market pricing. In particular, the market pricing channel intensifies the effects of shareholder rights in ways that can be excessive. This can harm not only other constituencies but also shareholders, as it can promote short-termism and systemic externalities. These problems are less pronounced for shareholder rights implemented through the voting channel.-
JA Armour, J Gordon and G Min, 'Taking Compliance Seriously' (2020) 36 Yale Journal on Regulation 1
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JA Armour, B Garrett, J Gordon and G Min, 'Board Compliance' (2020) 104 Minnesota Law Review 101
ISBN: 0266-903X
How can we ensure corporations play by the “rules of the game”—that is, laws encouraging firms to avoid socially harmful conduct? Corporate compliance programs play a central role in society’s current response. Prosecutors give firms incentives—through discounts to penalties—to implement compliance programs that guide and monitor employees’ behavior. However, focusing on the incentives of firms overlooks the perspective of managers, who decide how much firms invest in compliance. We show that stock-based pay, ubiquitous for corporate executives, creates systematic incentives to short-change compliance. Compliance is a long-term investment for firms, whereas managers’ time horizon is truncated to the date they expect to liquidate stock. Moreover, investors find it hard to value compliance programs because firms routinely disclose little or nothing about their compliance activities. We show that stock-compensated managers prefer
not to disclose compliance because such disclosure can reveal private information about a firm’s propensity to misconduct. As a result, both managers and markets are likely myopic about compliance. How can this problem be resolved for the benefit of society and shareholders? Boards of directors are supposed to act as monitors to control managerial agency costs. We show that the increasing use of stock-based compensation for directors, justified as a means of encouraging more vigorous oversight of business decisions, also has a corrosive effect on boards’ monitoring incentives for compliance. Directors in theory face liability for compliance oversight failures, but only if so egregious as to amount to bad faith. We argue that this standard of liability, established in an era before ubiquitous stock-based compensation for both managers and directors, has now become too lax. We propose more assertive directors’ liability for compliance failures, limited in quantum to a proportionate clawback of stock-based pay. This would add power to the alignment of directors’ interests with those of shareholders—directors would stand to lose more than just a decrease in the value of their stock in the event of a compliance failure—but limiting liability in this way would avoid pushing boards to overinvest in compliance. We outline ways in which this proposal could be implemented either by shareholder proposals or
judicial innovation.
What role do corporate boards play in compliance? Compliance programs are internal enforcement programs, whereby firms train, monitor and discipline employees with respect to applicable laws and regulation. Corporate enforcement and compliance failures could not be more high-profile, and have placed boards in the position of responding to systemic problems. Both case law on boards’ fiduciary duties and guidance from prosecutors suggest that the board should have a continuing role in overseeing compliance activity. Yet very little is actually known about the role of boards in compliance. This paper offers the first empirical account of public companies’ engagement with compliance at the board level, drawing on director-level data from BoardEx and data on federal organizational prosecutions from the Duke University and University of Virginia Corporate Prosecution Registry. We find that, despite a standard account that compliance has boomed, few boards actually adopt compliance committees. Less than five per cent of U.S. public companies have done so, although the proportion has grown steadily over time. We use our data to explore why boards establish compliance committees. Our results suggest that there is room for more constructive engagement with compliance by many boards. We conclude by recommending ways in which board compliance might be facilitated or encouraged: reconsidering norms about board size and independence, enhancing accountability of directors to regulators, and tightening state law fiduciary duties regarding oversight.
Journal Article (65)
How can we ensure corporations play by the “rules of the game”—that is, laws encouraging firms to avoid socially harmful conduct? Corporate compliance programs play a central role in society’s current response. Prosecutors give firms incentives—through discounts to penalties—to implement compliance programs that guide and monitor employees’ behavior. However, focusing on the incentives of firms overlooks the perspective of managers, who decide how much firms invest in compliance. We show that stock-based pay, ubiquitous for corporate executives, creates systematic incentives to short-change compliance. Compliance is a long-term investment for firms, whereas managers’ time horizon is truncated to the date they expect to liquidate stock. Moreover, investors find it hard to value compliance programs because firms routinely disclose little or nothing about their compliance activities. We show that stock-compensated managers prefer
not to disclose compliance because such disclosure can reveal private information about a firm’s propensity to misconduct. As a result, both managers and markets are likely myopic about compliance. How can this problem be resolved for the benefit of society and shareholders? Boards of directors are supposed to act as monitors to control managerial agency costs. We show that the increasing use of stock-based compensation for directors, justified as a means of encouraging more vigorous oversight of business decisions, also has a corrosive effect on boards’ monitoring incentives for compliance. Directors in theory face liability for compliance oversight failures, but only if so egregious as to amount to bad faith. We argue that this standard of liability, established in an era before ubiquitous stock-based compensation for both managers and directors, has now become too lax. We propose more assertive directors’ liability for compliance failures, limited in quantum to a proportionate clawback of stock-based pay. This would add power to the alignment of directors’ interests with those of shareholders—directors would stand to lose more than just a decrease in the value of their stock in the event of a compliance failure—but limiting liability in this way would avoid pushing boards to overinvest in compliance. We outline ways in which this proposal could be implemented either by shareholder proposals or
judicial innovation.
DOI: doi.org/10.1093/jpo/joaa001
JA Armour, B Garrett, J Gordon and G Min, 'Board Compliance' (2020) 104 Minnesota Law Review 101
JA Armour and H Eidenmueller, 'Self-Driving Corporations?' (2020) 10 Harvard Business Law Review 201
JA Armour, 'Shareholder Rights' (2020) 36 Oxford Review of Economic Policy 314
What will happen to law firms and the legal profession when the use of artificial intelligence (AI) becomes prevalent in legal services? We address this question by considering three related levels of analysis: tasks, business models, and organizations. First, we review AI’s technical capabilities in relation to tasks, to identify contexts where it is likely to replace or augment humans. AI is capable of doing some, but not all, legal tasks better than lawyers and is augmented by multidisciplinary human inputs. Second, we identify new business models for creating value in legal services by applying AI. These differ from law firms’ traditional legal advisory business model, because they require technological (non-human) assets and multidisciplinary human inputs. Third, we analyze the organizational structure that complements the old and new business models: the professional partnership (P2) is well-adapted to delivering the legal advisory business model, but the centralized management, access to outside capital, and employee incentives offered by the corporate form appear better to complement the new AI-enabled business models. Some law firms are experimenting with pursuing new and old business models in parallel. However, differences in complements create conflicts when business models are combined. These conflicts are partially externalized via contracting and segregated and realigned via vertical integration. Our analysis suggests that law firm experimentation with aligning different business models to distinct organizational entities, along with ethical concerns, will affect the extent to which the legal profession will become ‘hybrid professionals’.
ISBN: 2051-8811
What role do corporate boards play in compliance? Compliance programs are internal enforcement programs, whereby firms train, monitor and discipline employees with respect to applicable laws and regulation. Corporate enforcement and compliance failures could not be more high-profile, and have placed boards in the position of responding to systemic problems. Both case law on boards’ fiduciary duties and guidance from prosecutors suggest that the board should have a continuing role in overseeing compliance activity. Yet very little is actually known about the role of boards in compliance. This paper offers the first empirical account of public companies’ engagement with compliance at the board level, drawing on director-level data from BoardEx and data on federal organizational prosecutions from the Duke University and University of Virginia Corporate Prosecution Registry. We find that, despite a standard account that compliance has boomed, few boards actually adopt compliance committees. Less than five per cent of U.S. public companies have done so, although the proportion has grown steadily over time. We use our data to explore why boards establish compliance committees. Our results suggest that there is room for more constructive engagement with compliance by many boards. We conclude by recommending ways in which board compliance might be facilitated or encouraged: reconsidering norms about board size and independence, enhancing accountability of directors to regulators, and tightening state law fiduciary duties regarding oversight.
What are the implications of artificial intelligence (AI) for corporate law? In this essay, we consider the trajectory of AI’s evolution, analyze the effects of its application on business practice, and investigate the impact of these developments for corporate law. Overall, we claim that the increasing use of AI in corporations implies a shift from viewing the enterprise as primarily private and facilitative, towards a more public, and regulatory, conception of the law governing corporate activity. Today’s AI is dominated by machine learning applications which assist and augment human decision-making. These raise multiple challenges for business organization, the management of which we collectively term “data governance.” The impact of today’s AI on corporate law is coming to be felt along two margins. First, we expect a reduction across many standard dimensions of internal agency and coordination costs. Second, the oversight challenges—and liability risks—at the top of the firm will rise significantly. Tomorrow’s AI may permit humans to be replaced even at the apex of corporate decision-making. This is likely to happen first in what we call “self-driving subsidiaries” performing very limited corporate functions. Replacing humans on corporate boards with machines implies a fundamental shift in focus: from controlling internal costs to the design of appropriate strategies for controlling “algorithmic failure,” that is, unlawful acts by an algorithm with potentially severe negative effects (physical or financial harm) on external third parties. We discuss corporate goal-setting, which in the medium term is likely to become the center of gravity for debate on AI and corporate law. This will only intensify as technical progress moves toward the possibility of fully self-driving corporations. We outline potential regulatory strategies for their control. The potential for regulatory competition weakens lawmakers’ ability to respond, and so even though the self-driving corporation is not yet a reality, we believe the regulatory issues deserve attention well before tomorrow’s AI becomes today’s.
DOI: https://doi.org/10.1093/oxrep/graa005
JA Armour, 'Derivative Actions: A Framework for Decisions' (2019) 135 Law Quarterly Review 412
JA Armour and R Dicker, 'Artifical Intelligence in English Law: A Research Agenda' (2019) South Square Digest 6
JA Armour, 'Legal Origin and Securities Fraud—A Comment' (2019) Lloyds Maritime and Commercial Law Quarterly 631
JA Armour and H Eidenmueller, 'Selbstfahrende Kapitalgesellschaften?' (2019) 183 Zeitschrift fur das gesamte Handelsrecht und Wirtschaftsrecht 169
JA Armour, 'The Case for 'Forward Compliance'' (2018) British Academy Review 19
JA Armour and L Enriques, 'The Promise and Perils of Crowdfunding: Between Corporate Finance and Consumer Contracts' (2018) 81 Modern Law Review 51
JA Armour, L Enriques, A Ezrachi and J Vella, 'Putting Technology to Good Use for Society: The Role of Corporate, Competition and Tax Law' (2018) 6(s1) Journal of the British Academy 285
JA Armour, C Mayer and A Polo, 'Regulatory Sanctions and Reputational Damage in Financial Markets' (2017) Journal of Financial and Quantitative Analysis 1429
‘Shareholder rights’ are the legal entitlements of shareholders vis-à-vis companies in which they invest. A large body of research has sought to investigate how shareholder rights foster accountability of controllers. The concern has been that without accountability, managers and dominant shareholders will use their power to further their own interests at the expense of outside investors. A contrasting concern is that strengthening shareholder rights may come at the expense of other parties, which may also lead to misallocation of corporate resources. A recently-emerging body of research suggests that the relationship between shareholder rights and social welfare is not monotonic, but rather inverse-U-shaped. We argue that the calibration and impact of shareholder rights depends crucially on the institutional channel(s) through which they are implemented—voting, litigation, and/or market pricing. In particular, the market pricing channel intensifies the effects of shareholder rights in ways that can be excessive. This can harm not only other constituencies but also shareholders, as it can promote short-termism and systemic externalities. These problems are less pronounced for shareholder rights implemented through the voting channel.
ISBN: 0266-903X
Anwendungen der Knstlichen Intelligenz (KI) werden das Gesellschaftsrecht im Allgemeinen und die Corporate Governance (CG) im Besonderen
stark beeinflussen: Am Horizont steht die „selbstfahrende Kapitalgesellschaft“. Wir unternehmen es, einen konzeptionellen Rahmen fur dieUntersuchung von
CG-Fragestellungen bei KI-Anwendungen zu entwickeln. Agenturprobleme in Kapitalgesellschaften verlieren an Bedeutung: Algorithmen optimieren eine
vorgegebene Zielfunktion. In den Vordergrund rucken Fragen der Zielbestimmung von Kapitalgesellschaften. Wir beschaftigen uns zunachst mit dem Stand
der derzeitigen technischen Moglichkeiten. Er wird von Anwendungen im Bereich des Maschinellen Lernens (ML) gepragt. Sodann untersuchen wir die Implikationen der Data Governance fur CG-Fragestellungen, insbesondere hinsichtlich Qualifikation und Verantwortlichkeit von Unternehmensleitern. Anschließend beschaftigen wir uns mit der Zukunft der Kapitalgesellschaft beisteigender KI-Funktionalitat. Hier geht es um die „selbstfahrende tochtergesellschaft“ im Konzern sowie das Zentralproblem der Kalibrierung der Unternehmensziele. Regulatorische Implikationen sehen wir in einem von Regulierungswettbewerb gekennzeichneten Umfeld vor allem in der ex ante-Prufung unternehmenssteuernder Algorithmen sowie in einer strikten Haftung kombiniert mit einer (Haft-)Pflichtversicherung entsprechend gesteuerter Kapitalgesellschaften. Alternativ ist eine unbeschrankte pro rata-Haftung der Anteilseigner gegenuber Deliktsglaubigern in Betracht zu ziehen.
ISBN: 0044-2437
ISBN: 2047-1866
‘Crowdfunding’ is a burgeoning phenomenon. Its still‐evolving status is reflected in diversity of contracting practices: for example, ‘equity’ crowdfunders invest in shares, whereas ‘reward’ crowdfunders get advance units of product. These practices occupy a hinterland between existing regimes of securities law and consumer contract law. Consumer protection law in the UK (but not the US) imposes mandatory terms that impede risk‐sharing in reward crowdfunding, whereas US (but not UK) securities law mandates expensive disclosures that hinder equity crowdfunding. This article suggests that while crowdfunding poses real risks for funders, the classical regulatory techniques of securities and consumer law provide an ineffective response. Yet, a review of rapidly‐developing market mechanisms suggests they may provide meaningful protection for funders. An initially permissive regulatory approach, open to learning from market developments yet with a credible threat of intervention should markets fail to protect consumers, is justified.
ISBN: 0026-7961
Innovation and its main output, technology, are changing the way we work, socialise, vote, and live. New technologies have improved our lives and made firms more productive, overall raising living standards across the world. Thanks to progress in information technology, the rate of change is accelerating. Disruption and disequilibrium are the new normal. In this essay, prepared as a chapter for the first phase of the British Academy ‘The Future of the Corporation’ initiative, we reflect upon the role that corporate, competition, and tax law can play both to facilitate innovation and simultaneously assuage emergent societal risks arising from new technologies. We consider means of enhancing investment in research and development (‘R&D’) and optimising corporate organisation. But we also reflect on the risks associated with innovation, such as the use of technology to exploit consumers, manipulate markets, or distort, unwittingly or not, the political process. Finally, we consider the way in which the environment for business law reform is subject to new political risks following the challenge to the liberal order from populism and the rising power of dominant technology companies.
ISBN: 2052–7217
DOI: doi:10.1017/S0022109017000461
JA Armour, H Fleischer, V Knapp and M Winner, 'Brexit and Corporate Citizenship' (2017) European Business Organization Law Review 225
JA Armour, 'Brexit and Financial Services' (2017) 33 Oxford Review of Economic Policy S54
We study the impact of the enforcement of financial regulation by the United Kingdom’s regulatory authorities on the market price of penalized firms. Existing studies rely on analyses of multiple events that may distort the measurement of reputational losses. In the United Kingdom, the entire enforcement process involves only one public announcement and is accompanied by complete information on legal penalties. We find that reputational losses are nearly nine times the size of fines and are associated with misconduct harming customers or investors but not third parties.
ISBN: 0022-1090
The UK’s recent vote for Brexit has sparked a fierce debate over the
implications for the rights of EU citizens living in the UK and UK citizens living in
the rest of the EU. So far, however, there has been relatively little discussion of the implications of Brexit for legal persons – that is, corporate citizens of the EU, which may also be profoundly affected by consequent changes. The ECJ’s 1999 decision in Centros made clear that the freedom of establishment protects the entitlement of corporate persons formed in one EU Member State to carry on their business in another Member State. Since then, many entrepreneurs in continental European countries have chosen to form companies in the UK, while still carrying on their business in their home country. What will the consequences of Brexit be for such companies?
ISBN: 1566 7529
DOI: 10.1093/oxrep/grx014
JA Armour and BR Cheffins, 'Stock Market Prices and the Market for Corporate Control' (2016) University of Illinois Law Review 101
JA Armour and JN Gordon, 'Systemic Harms and Shareholder Value' (2014) 6 Journal of Legal Analysis 37
JA Armour and BR Cheffins, 'The Origins of the Market for Corporate Control' (2014) University of Illinois Law Review 1835
Brian Cheffins, JA Armour and Bernard Black, 'Delaware Corporate Litigation and the Fragmentation of the Plaintiffs' Bar' (2012) Columbia Business Law Review 427
JA Armour, Bernard Black and Brian Cheffins, 'Delaware's Balancing Act' (2012) 87 Indiana Law Journal 1345
JA Armour, BS Black and BR Cheffins, 'Is Delaware Losing its Cases?' (2012) 9 Journal of Empirical Legal Studies 605
Financial services constitute an important net export for the UK economy, for which the rest of the EU is the largest market. This paper considers the likely consequences of Brexit for this sector. A ‘soft’ Brexit, whereby the UK leaves the EU but remains in the single market, would be a lower-risk option for the City than other Brexit options, because it would enable financial services firms to continue to rely on regulatory passporting rights. Under a ‘hard’ Brexit scenario, where the UK leaves the single market, the UK might in principle be able to benefit from the EU’s third country ‘equivalence’ frameworks for financial services, but these are cumbrous and incomplete alternatives to passporting. UK firms would find it considerably more costly to export to the EU. This would also be a loss to the EU27, because the UK specializes in capital markets services for which the EU, over-reliant on banking, recognizes a need. However, much of this ‘UK’ activity is provided by subsidiaries of US-headquartered groups. In the event of hard Brexit, these firms may be able to compete just as effectively from New York as from London. If soft Brexit proves politically impossible, it seems highly desirable that the UK push for a transition period of continued EU membership pending at the very least completion of equivalence determinations and, more usefully, the conclusion of a suitable bilateral agreement.
ISBN: 1460-2121
The manner in which hostile takeovers have historically been executed has just begun to receive serious academic attention. Similarly, while the literature on the accuracy and determinants of share prices is voluminous, there has been little systematic historical analysis of when and how modern standards of share price efficiency took shape. This Article addresses both subjects in depth to ascertain the extent to which developments in the market for corporate control may
have been associated with, or facilitated by, developments in stock market efficiency. We identify potential linkages between hostile control transactions and stock market pricing and explore these linkages empirically with a new hand-collected dataset of control contests occurring between 1900 and 1965. We show that, while the evolution of acquiror tactics in control contests was plausibly linked in some circumstances to changes affecting the manner in which shares were priced, other factors have to be taken into account to explain how the market for corporate control developed over this period.
ISBN: 0276-9948
The financial crisis has demonstrated serious flaws in the corporate governance of systemically important financial firms. In particular, the norm that managers should seek to maximize shareholder value, as measured by the stock price, proves to be a faulty guide for managerial action in systemically important firms. This is not only because the failure of such firms will have spillovers that defy the cost-internalization of the tort system, but also because these spillovers will harm their own majoritarian shareholders. The interests of diversified shareholders fundamentally diverge from the interests of managers and other controllers because the failure of a systemically important financial firm will produce losses throughout a diversified portfolio, not just own-firm losses. Among the consequences: the business judgment rule protection that makes sense for officers and directors of a non-financial firm leads to excessive risk-taking in a systemically important financial firm. To encourage appropriate modification of incentives, we propose officer and director liability rules as a complement to (and substitute for) the prescriptive rules that have emerged from the financial crisis.
ISBN: 21617201
This Article examines the origins of the market for corporate control in the United States. The standard historical narrative is that the market for corporate control took on its modern form in the mid-1950s
with the emergence of the cash tender offer. Using handcollected data from newspaper reports, we show that there in fact were numerous instances during the opening decade of the twentieth century where a bidder sought to obtain voting control by purchasing shares on the stock market. Moreover, share-for-share exchange tender offers likely were used to make takeover bids as early as 1901 and cash tender offers can be traced back to at least the mid-1940s. We argue that the
way in which cash tender offers came to dominate the market for control after World War II can be explained primarily by changes in the pattern of share ownership and reduced opportunities bidders had for managing the stock price of intended targets.
ISBN: 02769948
Since 2000, a growing proportion of lawsuits against
directors of public companies incorporated in Delaware have
been filed outside Delaware. There has also been a large
increase in the likelihood of litigation challenging M&A
transactions involving Delaware targets, and the likelihood
that suits involving the same transaction will be filed both in
Delaware and elsewhere. In this Article we explore one
potential cause for these trendsintensified competition
between plaintiffs law firms. We trace the development of the
plaintiffs bar from the 1970s to the present and identify three
changes that plausibly contributed to the out-of-Delaware
trend and a higher litigation rate: (1) stronger competition
among plaintiffs lawyers specializing in securities litigation
also affected the corporate law side of the plaintiffs bar; (2)
changes in how the Delaware courts selected lead counsel
encouraged non-Delaware filing by firms who were unlikely
to win lead counsel status in Delaware; (3) potential obstacles associated with launching a suit in a jurisdiction other than
Delaware become less of a concern to the plaintiffs bar.
This Article draws upon data and insights developed more
fully in a related policy-oriented paper: Delawares
Balancing Act, 87 Indiana Law Review 1345 ( 2012), and
a related empirical paper (Is Delaware Losing its Cases,
Journal of Empirical Legal Studies (forthcoming 2012)).
ISBN: 08980721
Delawares courts and well-developed case law are widely seen as integral elements of Delawares success in attracting incorporations. However, as we show using empirical evidence involving reported judicial decisions and filed cases concerning large mergers and acquisitions, leveraged buyouts, and options backdating, Delawares popularity as a venue for corporate litigation is under threat. Today, a majority of shareholder suits involving Delaware companies are being brought and decided elsewhere. We examine in this Article the implications of this out-of-Delaware trend, emphasizing a difficult balancing act that Delaware faces. If Delaware accommodates litigation too readily, companies, fearful of lawsuits, may incorporate elsewhere. But if plaintiffs attorneys find the Delaware courts unwelcoming, they can often file cases in other courts. Delaware could risk losing its status as the de facto national corporate law court, as well as the case flow that lets it provide the rich body of precedent that is part of Delawares overall corporate law brand. We assess how the Delaware courts and legislature, and Delaware companies, might respond to this threat to Delawares pre-eminence as the leading forum for corporate cases, as well as incorporations.
ISBN: 00196665
DOI: 10.1111/j.1740-1461.2012.01268.x
JA Armour, Audrey Hsu and Adrian Walters, 'The Costs and Benefits of Secured Creditor Control in Bankruptcy: Evidence from the UK' (2012) 8 Review of Law and Economics 101
Delawares expert courts are seen as an integral part of the states success in attracting incorporation by public companies. However, the benefit that Delaware companies derive from this expertise depends on whether corporate lawsuits against Delaware companies are brought before the Delaware courts. We report evidence that these suits are increasingly brought outside Delaware. We investigate changes in where suits are brought using four hand-collected data sets capturing different types of suits: class action lawsuits filed in (1) large M&A and (2) leveraged buyout transactions over 19942010; (3) derivative suits alleging option backdating; and (4) cases against public company directors that generate one or more
publicly available opinions between 1995 and 2009. We find a secular increase in litigation rates for all companies in large M&A transactions and for Delaware companies in LBO transactions. We also see trends toward (1) suits being filed outside Delaware in both large M&A and LBO transactions and in cases generating opinions; and (2) suits being filed both in Delaware and elsewhere in large M&A transactions. Overall, Delaware courts are losing market share in lawsuits, and Delaware companies are gaining lawsuits, often filed elsewhere. We find some evidence that the timing of specific Delaware court decisions that affect plaintiffs firms coincides with the movement of cases out of Delaware. Our evidence suggests that serious as well as nuisance cases are leaving Delaware. The trends we report potentially present a challenge to Delawares competitiveness in the market for incorporations.
ISBN: 1740-1461
DOI: 10.1515/1555-5879.1507
JA Armour and B.R. Cheffins, 'The Rise and Fall(?) of Shareholder Activism by Hedge Funds' (2012) Journal of Alternative Investments 17
JA Armour, J. Jacobs and C. Milhaupt, 'The Evolution of Hostile Takeover Regimes in Developed and Emerging Markets: An Analytical Framework' (2011) 52 Harvard International Law Journal 219
B.R. Cheffins and JA Armour, 'The Past, Present and Future of Shareholder Activism by Hedge Funds' (2011) 37 Journal of Corporation Law 51
JA Armour and W.-G. Ringe, 'European Corporate Law 1999-2010: Renaissance and Crisis' (2011) 48 Common Market Law Review 125
JA Armour, S Deakin, V Mollica and M Siems, 'Law and Financial Development: What We are Learning from Time Series Evidence' (2010) Brigham Young University Law Review 1435
JA Armour, S Deakin, P Lele and M Siems, 'How Do Legal Rules Evolve? Evidence from a Cross-Country Comparison of hareholder, Creditor and Worker Protection' (2009) 57 American Journal of Comparative Law 579
JA Armour and P Lele, 'Law, Finance and Politics: The Case of India' (2009) 43 Law and Society Review 491
The theoretical literature debates whether debtors should be permitted to contract with lenders over control rights in bankruptcy. Proponents point to coordination benefits from concentrating control rights; detractors point to inter-creditor agency costs. A recent reform of UK bankruptcy law provides an opportunity to test these theories. Until 2003, UK bankruptcy law permitted firms to give complete ex post control to secured creditors, through a procedure known as receivership. A bankruptcy reform then required firms to use a different procedure, administration, which confers greater control on unsecured creditors. We present empirical findings from a hand-coded sample of 340 bankruptcies from both before and after the change in the law. Whilst gross realizations have increased following the change in the law, these have tended to be eaten up by increased bankruptcy costs. We infer that dispersed and concentrated creditor governance in bankruptcy may be functionally equivalent.
ISBN: 1555-5879
Shareholder activism by hedge funds became a major corporate governance phenomenon in the United States in the 2000s. This article puts the trend into context by introducing a heuristic device referred to as the market for corporate influence to distinguish the ex ante-oriented offensive brand of activism hedge funds engage in from the ex post-oriented defensive activism carried out by mutual funds and pension funds. This article traces the rise of hedge fund activism and anticipates future developments, arguing in so doing that despite the blow the 2008 financial crisis dealt to hedge funds, their interventions will remain an important element of U.S. corporate governance going forward.
ISBN: 1520-3255
n each of the three largest economies with dispersed ownership of public companiesthe United States, the United Kingdom, and Japanhostile takeovers emerged under a common set of circumstances. Yet the national regulatory responses to these new market developments diverged substantially. In the United States, the Delaware judiciary became the principal source and enforcer of rules on hostile takeovers. These rules give substantial discretion to target company boards in responding to unsolicited bids. In the United Kingdom, by contrast, a private body consisting of market professionals was formed to adopt and enforce the rules on hostile bids and defenses. In contrast to those of the United States, the U.K. rules give the shareholders primary decisionmaking authority in responding to hostile takeover attempts. The hostile takeover regime in Japan, which developed recently and is still evolving, combines substantive rules with elements drawn from both the United States (Delaware) and the United Kingdom, while adding distinctive elements, including an independent enforcement role for Japans stock exchange.
This Article provides an analytical framework for business law development to explain the diversity in hostile takeover regimes in these three countries. The framework identifies a range of supply and demand dynamics that drives the evolution of business law in response to new market developments. It emphasizes the common role of subordinate lawmakers in filling the vacuum left by legislative inaction, and it highlights the prevalence of preemptive lawmaking to avoid legislation that may be contrary to the interests of important corporate governance players.
Extrapolating from the analysis of developed economies, the framework also illuminates the current state and plausible future trajectory of hostile takeover regulation in the important emerging markets of China, India, and Brazil. A noteworthy pattern that the analysis reveals is the ostensible adoptionand adaptationof best practices for hostile takeover regulation derived from Delaware and the United Kingdom in ways that protect important interests within each emerging markets national corporate governance system.
ISBN: 0017-8063
The forthright brand of shareholder activism hedge funds deploy emerged by the mid-2000s as a major corporate governance phenomenon. This Article explains the rise of hedge fund activism and offers predictions about future developments. The Article begins by distinguishing the offensive form of activism hedge funds engage in from defensive interventions mainstream institutional investors (e.g. pension funds or mutual funds) undertake. Variables influencing the prevalence of offensive shareholder activism are then identified using a heuristic device, the market for corporate influence. The rise of hedge funds as practitioners of offensive shareholder activism is traced by reference to the supply and demand sides of this market, with the basic chronology being that, while there were direct antecedents of hedge fund activists as far back as the 1980s, hedge funds did not move to the activism forefront until the 2000s. The Article brings matters up-to-date by discussing the impact of the recent financial crisis on hedge fund activism and draws upon the market for corporate influence heuristic to predict that activism by hedge funds is likely to remain an important element of corporate governance going forward.
ISBN: 0360-795X
European corporate law has enjoyed a renaissance in the past decade. Fifteen years ago, this would have seemed most implausible. In the mid1990s, the early integration strategy of seeking to harmonize substantive company law seemed to have been stalled by the need to reconcile fundamental differences in approaches to corporate governance. Little was happening, and the grand vision of the early pioneers appeared more dream than ambition. Yet since then, a combination of adventurous decisions by the Court of Justice, innovative approaches to legislation by the Commission, and disastrous crises in capital markets has produced a headlong rush of reform activity. The volume and pace of change has been such that few have had time to digest it: not least policymakers, with the consequence that the developments have not always been well coordinated. The recent financial crisis has yet again thrown many quite fundamental issues into question. In this article, we offer an overview that puts the most significant developments of this decade into context, alongside each other and the changing patterns of corporate structure in European countries. Such developments cover, for instance, corporate mobility, corporate freedom of establishment, golden shares case law, as well as the Commissions Company Law Action Plan CLAP and Financial Services Action Plan FSAP. Harmonization of Member States company laws on the rules governing listed companies and the facilitation of cross-border restructuring are also examined.
ISBN: 0165-0750
The legal origins hypothesis is one of the most important and influential ideas to emerge in the social sciences in the past decade. However, the empirical base of the legal origins claim has always been contestable, as it largely consists of cross-sectional datasets, which provide evidence on the state of the law only at limited points in time. There is now a growing body of data derived from techniques for coding crossnational legal variation over time. This time-series evidence is reviewed here and is shown to cast new light on some of the central claims of legal origins theory. Legal origins are shown to be of little help in explaining trends in the law relating to shareholder protection, although the classification of legal systems into English-, French-, and German origin families has greater explanatory force in the context of creditor rights. The widely-held view that increases in shareholder rights foster financial development is not supported by time-series analyses. More generally, the new evidence casts doubt on the suggestion that legal origins operate as an exogenous force, independently shaping both the content of laws and economic outcomes. It is more plausible to see legal systems as evolving in parallel with changes in economic conditions and political structures at national level.
Much attention has been devoted in recent literature to the claim that a countrys legal origin may make a difference to its pattern of financial development and more generally to its economic growth path. Proponents of this view assert that the family within which a countrys legal system originated, be it common law, or one of the varieties of civil law, has a significant impact upon the quality of its legal protection of shareholders, which in turn impacts upon economic growth, through the channel of firms access to external finance. Complementary studies of creditors rights and labour regulation have buttressed the core claim that different legal families have different dynamic properties. Specifically, common law systems are thought to be better able to respond to the changing needs of a market economy than are civilian systems. This literature has, however, largely been based upon cross-sectional studies of the quality of corporate, insolvency and labour law at particular points in the late 1990s. In this paper, we report findings based on newly constructed indices which track legal change over time in the areas of shareholder, creditor and worker protection. The indices cover five systems for the period 1970-2005: three parent systems, the UK, France and Germany; the worlds most developed economy, the US; and its largest democracy, India. The results cast doubt on the legal origin hypothesis in so far as they show that civil law systems have seen substantial increases in shareholder protection over the period in question. The pattern of change differs depending on the area which is being examined, with the law on creditor and worker protection demonstrating more divergence and heterogeneity than that relationg to shareholders. The results for worker protection are more consistent with the legal origin claim than in the other two cases, but this overall result conceals significant diversity within the two legal families,' with different countries relying on different institutional mechanisms to regulate labour. Until the late 1980s the law of the five countries was diverging, but in the last 10-15 years there has been some convergence, particularly in relation to shareholder protection.
DOI: 10.1111/j.1540-5893.2009.00380.x
JA Armour, BS Black, BR Cheffins and RC Nolan, 'Private Enforcement of Corporate Law: An Empirical Comparison of the UK and US' (2009) 6 Journal of Empirical Legal Studies 701
JA Armour, S Deakin, P Sarkar, M Siems and A Singh, 'Shareholder Protection and Stock Market Development: An Empirical Test of the Legal Origins Hypothesis' (2009) 6 Journal of Empirical Legal Studies 343
The process of liberalisation of India's economy since 1991 has brought with it considerable development both of its financial markets and the legal institutions which support these. An influential body of recent economic work asserts that a country's 'legal origin'-as a civilian or common law jurisdiction-plays an important part in determining the development of its investor protection regulations, and consequently its financial development. An alternative theory claims that the determinants of investor protection are political, rather than legal. We use the case of India to test these theories. We find little support for the idea that India's legal heritage as a common law country has been influential in speeding the path of regulatory reforms and financial development. There is a complementarity between (i) India's relative success in services and software, (ii) the relative strength of its financial markets for outside equity, as opposed to outside debt, and (iii) the relative success of stock market regulation, as opposed to reforms of creditor rights. We conclude that political explanations have more traction in explaining the case of India than do theories based on 'legal origins'.
ISBN: 0023-9216
DOI: 10.1111/j.1740-1461.2009.01157.x
It is often assumed that strong securities markets require good legal protection of minority shareholders. This implies both good lawprincipally, corporate and securities lawand enforcement, yet there has been little empirical analysis of enforcement. We study private enforcement of corporate law in two common-law jurisdictions with highly developed stock markets, the United Kingdom and the United States, examining how often directors of publicly traded companies are sued, and the nature and outcomes of those suits. We find, based a comprehensive search for filings over 20042006, that lawsuits against directors of public companies alleging breach of duty are nearly nonexistent in the United Kingdom. The United States is more litigious, but we still find, based on a nationwide search of court decisions between 20002007, that only a small percentage of public companies face a lawsuit against directors alleging a breach of duty that is sufficiently contentious to result in a reported judicial opinion, and a substantial fraction of these cases are dismissed. We examine possible substitutes in the United Kingdom for formal private enforcement of corporate law and find some evidence of substitutes, especially for takeover litigation. Nonetheless, our results suggest that formal private enforcement of corporate law is less central to strong securities markets than might be anticipated.
DOI: 10.1111/j.1740-1461.2009.01146.x
JA Armour, 'The Law and Economics Debate About Secured Lending: Lessons for European Lawmaking?' (2008) 5 European Company and FInancial Law Review 3
JA Armour and D.J. Cumming, 'Bankruptcy Law and Entrepreneurship' (2008) 10 American Law and Economics Review 303
Using a panel data set covering a range of developed and developing countries, we show that common-law systems were more protective of shareholder interests than civil-law ones in the period 19952005. However, civilian systems were catching up, suggesting that legal origin was not much of an obstacle to formal convergence in shareholder protection law. We find no evidence of a positive impact of these legal changes on stock market development. Possible explanations are that laws have been overly protective of shareholders and that transplanted laws have not worked well in contexts for which they were not suited.
ISBN: 1740-1453
This review paper is a contribution to a symposium on the 'Future of Secured Credit in Europe'. Its theme is the way in which empirical research has shed light on earlier theoretical literature. These findings tend to suggest that the legal institution of secured credit is, on the whole, socially beneficial, and that such benefits are likely to outweigh any associated social costs. Having made this general claim, the paper then turns to consider the effects of four particular dimensions across which systems of secured credit may differ, and which may therefore be of interest to European law-makers. These are: (i) the scope of permissible collateral; (ii) the efficacy of enforcement; (iii) the priority treatment of secured creditors; and (iv) the mechanisms employed to assist third parties in discovering that security has been granted. In each case, consideration is paid first to the theoretical position, and then empirical findings. It is argued that perhaps the most difficult of these issues for European law-makers concerns the appropriate design of publicity mechanisms for third parties.
DOI: 10.1093/aler/ahn008
JA Armour, A. Hsu and A.J. Walters, 'Corporate Insolvency in the United Kingdom: the Impact of the Enterprise Act 2002' (2008) 5 European Company and Financial Law Review 135
JA Armour and B.R. Cheffins, 'The Eclipse of Private Equity' (2008) 33 Delaware Journal of Corporate Law
JA Armour and M. J. Whincop, 'The Proprietary Foundations of Corporate Law' (2007) 27 Oxford Journal of Legal Studies
Recent initiatives in a number of countries have sought to promote entrepreneurship through relaxing the legal consequences of personal bankruptcy. Whilst there is an intuitive link, relatively little attention has been paid to the question empirically, particularly in the international context. We investigate the relationship between bankruptcy laws and entrepreneurship using data on self-employment over 16 years (19902005) and fifteen countries in Europe and North America. We compile new indices reflecting how "forgiving" personal bankruptcy laws are. These measures vary over time and across the countries studied. We show that bankruptcy law has a statistically and economically significant effect on self-employment rates when controlling for GDP growth, MSCI stock returns, and a variety of other legal and economic factors.
ISBN: 1465-7252
With effect from September 15, 2003, the Enterprise Act made significant changes to the governance of corporate rescue procedures in the United Kingdom which involved a shift away from a "concentrated creditor" model of governance towards a "dispersed creditor" model of governance which vests greater control rights in unsecured creditors collectively. These changes were motivated by fairness and efficiency concerns, notably the concern that the UK's administrative receivership procedure was not conducive to rescue outcomes and operated to the detriment of unsecured creditors. This article discusses the Enterprise Act reforms in the context of wider theoretical debates about the desirability (or otherwise) of secured creditor control of corporate rescue procedures. It then presents in summary form the findings of an empirical study carried out by the authors that sought to evaluate the impact of the Act by comparing the gross realizations, costs and net returns to creditors in a sample of 284 corporate insolvencies commenced before and after the law changed. Whilst we find that gross realizations have increased under the streamlined administration procedure, we also find that costs have increased. These findings imply that secured creditor control of the insolvency procedure (as in receivership) may be no worse for unsecured creditors than control by dispersed unsecured creditors (as in administrations) at least as regards returns.
Private equity, characterized by firms operating as privately held partnerships organizing the acquisition and "taking private" of public companies, has recently dominated the business news due to deals unprecedented in number and size. If this buyout boom continues unabated, the 1989 prediction by economist Michael Jensen of The Eclipse of the Public Corporation could be proved accurate. This article argues matters will work out much differently, with the current version of private equity being eclipsed.
One possibility is that a set of market and legal conditions highly congenial to "public-to-private" transactions could be disrupted. A "credit crunch" commencing in the summer of 2007 stands out as the most immediate threat. The article draws on history to put matters into context, discussing how the spectacular rise of conglomerates in the 1960s was reversed in subsequent decades and how the 1980s buyout boom led by leveraged buyout associations - the private equity firms of the day - collapsed.
If legal and market conditions remain favorable for private equity, its eclipse is likely to occur in a different way. Privacy has been a hallmark of private equity, with industry leaders operating as secretive partnerships that negotiate buyouts behind closed doors and restructure portfolio companies outside the public gaze. However, the private equity boom created momentum among market leaders to carry out public offerings and diversify their operations. If this trend proves sustainable, then even if the taking private of publicly quoted companies remains a mainstream pursuit, the exercise will be carried out in the main by broadly based financial groups under the umbrella of public markets.
DOI: 10.1093/ojls/gqm009
JA Armour and D.A. Skeel, Jr., 'Who Writes the Rules for Hostile Takeovers, and Why? The Peculiar Divergence of US and UK Takeover Regulation' (2007) 95(6) Georgetown Law Journal 1727
JA Armour, 'European Corporate Insolvencies: the Race goes to the Swiftest?' (2006) 65 Cambridge Law Journal 504
JA Armour and A.J. Walters, 'The Proceeds of Office-holder Actions under the Insolvency Act: Charged Assets or Free Estate?' (2006) Lloyds Maritime and Commercial Law Quarterly 27
JA Armour and A. J. Walters, 'Funding Liquidation: a Functional View' (2006) 122 Law Quaterly Review 303
JA Armour, 'Legal Capital: an Outdated Concept?' (2006) 7 European Business Organization Law Review 5
Recent work in both the theory of the firm and of corporate law has called into question the appropriateness of analysing corporate law as merely a set of standard form contracts. This article develops these ideas by focusing on property law's role in underpinning corporate enterprise. Rights to control assets are a significant mechanism of governance in the firm. However, their use in this way predicates some arrangement for stipulating which parties will have control under which circumstances. It is argued that property rulesa category whose scope is determined functionallyprotect the entitlements of parties to such sharing arrangements against each other's opportunistic attempts to grant conflicting entitlements to third parties. At the same time, the legal system uses a range of strategies to minimize the costs such protection imposes on third parties. The choice of strategy significantly affects co-owners freedom to customize their control-sharing arrangements. This theory is applied to give an account of the proprietary foundations of corporate law, which has significant implications for the way in which the subject's functions are understood and evaluated.
ISBN: 0143-6503
Hostile takeovers are commonly thought to play a key role in rendering managers accountable to dispersed shareholders in the "Anglo-American system of corporate governance. Yet surprisingly little attention has been paid to the very significant differences in takeover regulation between the two most prominent jurisdictions. In
the United Kingdom, defensive tactics by target managers are prohibited, whereas Delaware law gives U.S. managers a good deal of room to maneuver. Existing accounts of this difference focus on alleged pathologies in competitive federalism in the United States. In contrast, we focus on the supply-side of rule production by
examining the evolution of the two regimes from a public choice perspective. We suggest that the content of the rules has been crucially influenced by differences in the mode of regulation. In the United Kingdom, self-regulation of takeovers has led to a regime largely driven by the interests of institutional investors, whereas the
dynamics of judicial law-making in the United States have benefited managers by making it relatively difficult for shareholders to influence the rules. Moreover, it was never possible for Wall Street to privatize takeovers in the same way as the City of London, because U.S. federal regulation in the 1930s both pre-empted selfregulation
and restricted the ability of institutional investors to coordinate.
ISBN: 0016-8092
ISBN: 0008-1973
ISBN: 0306-2945
ISBN: 0023-933X
DOI: 10.1017/S156675290600005X
JA Armour and D. J. Cumming, 'The Legislative Road to Silicon Valley' (2006) 58 Oxford Economic Papers 596
This paper reviews the case for and against mandatory legal capital rules. It is argued that legal capital is no longer an appropriate means of safeguarding creditors' interests. This is most clearly the case as regards mandatory rules. Moreover, it is suggested that even an opt in (or default) legal capital regime is unlikely to be a useful mechanism. However, the advent of regulatory arbitrage in European corporate law will provide a way of gathering information regarding investors' preferences in relation to such rules. Those creditor protection rules that do not further the interests of adjusting creditors will become subject to competitive pressures. Legislatures will be faced with the task of designing mandatory rules to deal with the issues raised by non-adjusting creditors in a proportionate and effective manner, consistent with the Gebhard formula.
ISBN: 1566-7529
DOI: 10.1093/oep/gpl007
JA Armour and Conaglen, M. D. J., 'Directorial Disclosure' (2005) 64 Cambridge Law Journal 48
JA Armour, 'La Reforma de los Procedimientos de Recuperación de Empresas en Crisis en el Reino' (2005) 3 Revista de Derecho Concursal y Paraconcursal 403
JA Armour and R.J. Mokal, 'Reforming the Governance of Corporate Rescue: The Enterprise Act 2002' (2005) Lloyds Maritime and Commercial Law Quarterly 28
JA Armour, 'Corporate Opportunities: If in Doubt, Disclose (But How?)' (2004) Cambridge Law Journal 33
JA Armour, 'Floating Charges: All Adrift?' (2004) 63 Cambridge Law Journal 560
JA Armour, 'The Chequered History of the Floating Charge' (2004) 13 Griffith Law Review 27
JA Armour and R.J. Mokal, 'The New UK Corporate Rescue ProcedureThe Administrators Duty to Act Rationally' (2004) International Corporate Rescue 136
JA Armour, 'Personal Insolvency Law and the Demand for Venture Capital' (2004) 5 European Business Organization Law Review 87
Must policymakers seeking to replicate the success of Silicon Valley's venture capital market first copy other US institutions, such as deep and liquid stock markets? Or can legislative reforms alone make a significant difference? In this paper, we compare the economic and legal determinants of venture capital investment, fundraising, and exits. We introduce a cross-sectional and time series empirical analysis across 15 countries and 14 years of data spanning an entire business cycle. We show that liberal bankruptcy laws stimulate entrepreneurial demand for venture capital; that government programmes more often hinder than help the development of private equity, and that the legal environment matters as much as the strength of stock markets. Our results imply generalizable lessons for legal reform.
ISBN: 00307653
ISBN: 0008-1973
ISBN: 1698-4188
English corporate insolvency law has been reshaped by the Enterprise Act 2002. The Act was intended to 'to facilitate company rescue and to produce better returns for creditors as a whole'. Administrative receivership, which placed control of insolvency proceedings in the hands of banks, is for most purposes being abolished. It is being replaced by a 'streamlined' administration procedure. Whilst it will still be possible for banks to control the appointment process, the administrator once in office owes duties to all creditors and must act in accordance with a statutory hierarchy of objectives. In this article, we seek to describe, and to evaluate, this new world of corporate rescue.
ISBN: 0306-2945
ISBN: 0008-1973
ISBN: 0008-1973
ISBN: 781 060 94461
ISBN: 1572-4638
DOI: 10.1017/S1566752904000874
JA Armour and N. R. Campbell, 'Demystifying Corporate Civil Liability' (2003) 62 Cambridge Law Journal 290
JA Armour, 'Financial Assistance: A Restatement' (2003) 62 Cambridge Law Journal 266
JA Armour and J.A. McCahery, 'Improving Corporate Law and the Modernization of Securities Regulation in Europe' (2003) 24 Journal of Corporate Law Studies 211
JA Armour, 'The Uncertain Flight of British Eagle' (2003) 62 Cambridge Law Journal 39
JA Armour and S. Deakin, 'Insolvency and Employment Protection: the Mixed Effects of the Acquired Rights Directive' (2003) 22 International Review of Law & Economics 443
Scholars working in the law and finance field have investigated empirically the links between various types of law and the incidence of venture capital finance. However, no study to date has systematically investigated the relationship between insolvency law both personal and corporate and venture capital finance. This paper argues that a nations personal insolvency law may have an important impact on the demand for venture capital finance, with more severe treatment of insolvents tending to reduce demand. This hypothesis is subjected to a preliminary test by comparing data on venture capital investment activity with an index of severity of insolvency laws, and is not falsified. This finding will be of interest to policymakers, as a number of recent national and EU initiatives have sought explicitly to encourage innovative firms and venture capital finance.
ISBN: 1566-7529
ISBN: 0-19-926487-2
ISBN: 0008-1973
ISBN: 1473-5970
ISBN: 0008-1973
DOI: 10.1016/S0144-8188(02)00114-X
JA Armour, S. Deakin and S. Konzelmann, 'Shareholder Primacy and the Trajectory of UK Corporate Governance' (2003) 41 British Journal of Industrial Relations 531
The statutory protection provided by European Community law to employees during transfers of undertakings and other restructurings has been criticised on the grounds that it undermines insolvency procedures and interferes with the rescue process. We present an analysis which suggests that granting employees rights of this kind may be an efficient means of recognising their firm-specific human capital. Case-study evidence is then presented to show that while in some situations employment rights may obstruct reorganisations, in others they allow employee interests to be factored into the bargaining process in such a way as to enhance the survival chances of enterprises undergoing restructuring. The law functions best when effective mechanisms of employee representation are in place and when the conditions under which employees acquired rights can be waived in the interests of preserving employment are clearly specified.
ISBN: 0144-8188
DOI: 10.1111/1467-8543.00286
JA Armour, B.R. Cheffins and D.A. Skeel, 'Corporate ownership structure and the evolution of bankruptcy Law: Lessons from the UK' (2002) 55 Vanderbilt Law Review 1699
JA Armour and M. J. Whincop, 'An Economic Analysis of Shared Property in Partnership and Close Corporations Law' (2001) 26 Journal of Corporation Law 101
JA Armour and S. Deakin, 'Norms in Private Insolvency: The London Approach to the Resolution of Financial Distress' (2001) 1 Journal Corporate Law Studies 21
JA Armour and S. Frisby, 'Rethinking Receivership' (2001) 21 Oxford Journal of Legal Studies 73
Core institutions of UK corporate governance, in particular those relating to takeovers, board structure and directors' duties, are strongly orientated towards a norm of shareholder primacy. Beyond the core, in particular at the inter-section of insolvency and employment law, stakeholder interests are better represented, thanks largely to European Community influence. Moreover, institutional shareholders are redirecting their investment strategies away from a focus on short-term returns, in such a way as to favour stakeholder-inclusive practices. We therefore suggest that the UK system is currently in a state of flux and that the debate over shareholder primacy has not been concluded.
ISBN: 0 19 928703 1
ISBN: 0042-2533
ISBN: 0360795X
In recent years law and economics scholarship has expanded its frame of reference to incorporate the role of social norms in shaping the incentives of actors. This shift in perspective has yet to filter through to the literature on bankruptcy, which has to date concentrated on the role of legal rules in resolving financial distress. This paper presents qualitative findings on how financial distress is resolved amongst creditors of large UK firms. Such restructurings proceed according to an informal set of market norms known collectively as the "London Approach." The paper suggests that regulatory pressure applied by the Bank of England may have been critical in "seeding" the market norms. It also examines the prospects for the London Approach's future in light of changes in the financial environment brought about by globalisation. The paper points the way towards an incorporation into bankruptcy scholarship of the role played by social norms.
ISBN: 1473-5970
DOI: 10.1093/ojls/21.1.73
JA Armour and S. Deakin, 'The Rover Case (2): Bargaining in the Shadow of TUPE' (2000) 29 Industrial Law Journal 395
JA Armour, 'Who Pays When Polluters Go Bust?' (2000) 116 Law Quarterly Review 200
JA Armour, 'Share Capital and Creditor Protection: Efficient Rules for a Modern Company Law?' (2000) 63 Modern Law Review 355
It is a popular perception that administrative receivers and their appointors hold «too much» power in relation to troubled companies. Many who hold this view have called for the reform of insolvency law in order to redress the balance of power. This issue is timely, because insolvency law is currently under review. This article argues that although the law's formal structure is imbalanced, it can nevertheless generate savings for parties, by allowing a concentrated creditor who has invested in information-gathering about the debtor to conduct a private insolvency procedure. It is suggested that this procedure is likely to be more efficient than one conducted by a state official, and that it is likely to reduce the costs of debt finance, a matter of particular importance for small and medium-sized businesses. Empirical data are presented from 26 interviews with practitioners, which shed further light on the operation of receivership. Finally, the current law is compared with possible alternatives. It is argued that the case for wide-ranging reform is not made out.
ISBN: 1464-3820/0143-6503
ISBN: 1464-3669/0305-9332
ISBN: 0023-933X
DOI: 10.1111/1468-2230.00268
JA Armour, 'Corporate Personality and Assumption of Responsibility' (1999) Lloyds Maritime & Commercial Law Quarterly 246
JA Armour, 'Directors' Self-Dealing: The Plot Thickens' (1997) 113 Law Quarterly Review 540
JA Armour and L Enriques, 'Equity Crowdfunding: An Acid Test for Securities Regulation?' in F Allen, E Faia, M Haliassos and K Langenbucher (eds), Capital Markets Union and Beyond (MIT Press 2019)
JA Armour, 'Bank Governance' in JN Gordon and W-G Ringe (eds), The Oxford Handbook of Corporate Law and Governance (Oxford University Press 2018)
JA Armour and L Enriques, 'Individual Investors’ Access to Crowdinvesting: Two Regulatory Models' in D Cumming and L Hornuf (eds), The Economics of Crowdfunding: Startups, Portals and Investor Behavior (Palgrave Macmillan 2018)
JA Armour, A Menezes, M Uttamchandani and K van Zwieten, 'How Do Creditor Rights Matter for Debt Finance? A Review of Empirical Evidence' in F Dahan (ed), Research Handbook on Secured Financing in Commercial Transactions (Edward Elgar 2015)
JA Armour, 'Making Bank Resolution Credible' in The Oxford Handbook of Financial Regulation (ed), E Ferran, N Moloney and J Payne (2015)
This article examines the case for rules of company law which regulate the raising and maintenance of share capital by companies. The enquiry has practical relevance because the content of company law is currently under review, and the rules relating to share capital have been singled out for particular attention. The existing rules, which apply generally, are commonly rationalised as a means of protecting corporate creditors. The analysis considers whether such rules can be understood as responses to failures in the markets for corporate credit. It suggests that whilst the current rules are unlikely, on the whole, to be justified in terms of efficiency, a case may be made for a framework within which companies may 'opt in' to customised restrictions on dealings in their share capital.
ISBN: 1468-2230/0026-7961
ISBN: 0306-2945
ISBN: 0023-933X
Chapter (26)
According to a common narrative, the failure of banks in the financial crisis reflected poor corporate governance practices, as well as inadequate prudential regulatory safeguards. Yet it turns out that the ‘best’ governance practices according to ordinary standards were the ones that did worst during the financial crisis. In the period leading up to the financial crisis, it was believed that regulation would cause banks to internalize the costs of their activities, meaning that what maximized bank shareholders’ returns would also be in the interests of society. Consequently, large banks used the same governance tools as non-financial companies to minimize shareholder-management agency costs, namely independent boards, shareholder rights, the shareholder primacy norm, the threat of takeovers, and equity-based executive compensation. Unfortunately, such tools had the adverse effect of encouraging bank managers to take excessive risks. Consequently a significant rethink about the way in which banks are governed is required.
ISBN: 9780198743682
Crowdinvesting--raising many small contributions of capital from individual funders via specialized online platforms--is a burgeoning phenomenon. This Chapter first highlights the perils to which individual investors are exposed when they access these platforms. Next, it describes the legal regime in two sample jurisdictions, the US with its tradition of high-fixed-cost, disclosure-intensive securities laws that had to be tweaked to make equity crowdfunding viable, and the UK, which has early on provided for a nimble set of rules for the same. Finally, the Chapter offers some thoughts on the merits of introducing a lighter regime for equity crowdfunding.
ISBN: 978-3-319-66118-6
ISBN: 9781781001837
Financial difficulties at large financial institutions present governments and regulators with an unenviable dilemma. On the one hand, they are afraid to permit such a firm to enter 'ordinary' insolvency proceedings, lest this transmit financial shock to other, connected, institutions. Yet every voter can grasp the moral hazard problems and distributional inequity associated with government handouts for the financial sector. Consequently many jurisdictions have introduced, or are designing, 'special resolution' mechanisms for financial institutions. The first generation of such mechanisms were based on the US FDIC receivership regime. They focus on waiving property rights so as to effect a very rapid transfer of complex assets and short-term liabilities to a purchaser who will be able to stand behind those liabilities and thereby ensure stability. This model works well for small to medium sized domestic banks, but is insufficient to provide a credible alternative to bailouts for large, complex financial institutions. As a result, a series of new measures which we have termed 'second generation' resolution mechanisms have been developed. First, there has been a realization that the level of complexity is such that resolution ex post is impossible without careful planning by supervisors ex ante. Second, this planning process can be used not only to understand, but also to modify, the structure of complex financial institutions and their regulatory oversight so as to facilitate resolution should it be necessary. Third, the use of 'bail-in' or mandated debt to equity swaps provides a potentially very useful additional resolution tool when used in conjunction with such forward planning and oversight. Fourth, in the context of international financial institutions, coordination and allocation of responsibility amongst national regulators is an integral part of the planning process. The implications of this shift are clear. For the resolution of large complex financial institutions to be credible, it must be thought of as an integral part of the ongoing oversight of financial institutions by regulators, and not as simply a set of mechanisms that are kept for troubled times. Investment in regulatory capacity recruitment and training to build human capital in the regulatory sector is therefore crucial to ensuring the success of resolution.