The core activity regulated by takeover codes is the voluntary offer by a bidder addressed to all the shareholders of a target company (other than the bidder) to acquire their shares in order to give the bidder control of the company. Around this core transaction, however, takeover codes regulate a range of other transactions. This paper explores four such transactions. Two of them are offers by persons already in control of the company: first, where the offer is made by the controller voluntarily (the ‘consolidating’ offer) and, second, where the offer is required by regulation (the mandatory bid rule). The third transaction is where shares move into the hands of an acquirer, not by reason of a contract between acquirer and shareholders, but by reason of powers conferred by statute. The clearest examples are statutory merger provisions and schemes of arrangement. The fourth transaction is a control shift produced by contract between company and shareholders or investors without any contracting between acquirer and existing shareholders. The example examined in detail is the share buy-back.
The purpose of the analysis is to determine the rationale for applying rules formulated for general, voluntary offers to acquire control to these peripheral transactions – either in full or in part. The focus of the analysis is on the UK Takeover Code and the variants of it which have been adopted in various Far East jurisdictions. To some extent the drafters of the UK Code faced the same problems as those in the other jurisdictions and the resulting rules have a high degree of commonality across the codes. However, the dominant shareholder structure of public companies in the other jurisdictions is very different from the dispersed UK pattern. The drafters of the non-UK codes have thus faced difficult issues about how to shape relations between controlling and non-controlling shareholders which the UK code is able to ignore or downplay. Some reference is also made to the law of Delaware, which, whilst not a Code jurisdiction, has an innovative approach to protection of minorities against controlling shareholders.
The dominant agency-cost paradigm for the analysis of corporate law is based on the proposition that the welfare of society is best met by rules which minimise the costs of production through the corporate form. This is typically interpreted to mean that the agency costs of shareholders should be minimised, so as to reduce the companys cost of capital. However, it is clear that the agency cost analysis admits of the theoretical possibility that a companys overall costs of production might be minimised even in the presence of sub-optimal rules relating to the cost of capital if those additional capital costs were outweighed by a greater reduction in the costs of contracting for other inputs necessary for the companys productive activities.
It has often been asserted that this situation obtains in relation to labour inputs. This essay seeks to establish the basis on which this argument might be formulated, dealing in particular with the proposition that employees can obtain full protection for their exchange relationship through contracting with the company. It then considers what empirical evidence is available about the production costs of companies in systems with high levels of mandatory employee involvement in decision-making. It focuses in particular on the tripartite system of employee representation in Germany board representation, works councils and collective bargaining. Finally, it speculates about the conditions under which high levels of employee involvement might reduce a companys overall costs of production or, by contrast, might increase those costs.
Abstract:
Inadequate regulation of the financial system is widely thought to have contributed to the financial crisis. The purpose of the book is to articulate a framework within which financial regulation can be analysed in a coherent and comprehensive fashion. The books approach is distinctive in several respects. First, it views the subject from a multidisciplinary perspective of economics, finance and law. Second, it takes a holistic approach, starting from the premise that financial regulation is best understood in the context of an appreciation of the entire financial system. Third it is international and comparative in nature, contrasting approaches, in particular in the EU and US. The book focuses on underlying policies and the objectives of regulation, using specific regulatory measures as examples. This allows the reader to compare choices in respect of the same policy issue in different regulatory frameworks. This introductory chapter sets out the motivation for the project and outlines the books analytic framework and contents.
Corporate boards play a central role in corporate governance and therefore are regulated in the corporate law and corporate governance codes of all industrialized countries. Yet while there is a common core of rules on the boards, considerable differences remain, not only in detail, but sometimes also as to main issues. These differences depend partly on shareholder structure (dispersed or blockholding), partly on path dependent historical, political and social developments, especially employee representation on the board. More recently, in particular with the rise of the international corporate governance code movement there is a clear tendency towards convergence, at least in terms of the formal provisions of the codes. This article analyses the corporate boards, their regulation in law and codes and their actual functioning in nine European countries (Belgium, France, Germany, Italy, the Netherlands, Poland, Sweden, Switzerland and the United Kingdom) in a functional and comparative method. Issues dealt with are inter alia board structure, composition and functioning (one tier v. two tier, independent directors, expertise and diversity, separating the chair and the CEO functions, information streams, committees, voting and employee representation) and enforcement by liability rules (in particular conflicts of interest), incentive structures (remuneration) and shareholder activism. The article finds convergence in these European countries due to the pressures of competition, a pro-shareholder change supported by government and institutional investors and, to a certain degree, the impact of the EU. This convergence shows more in the codes and the ensuing practice than in the statutes. On the other side considerable differences remain, in particular as a result of the failure to adopt a mandatory "no frustration" rule for takeovers at EU level and diverging systems of labor codetermination. The result is an unstable balance between convergence and divergence, shareholder and stakeholder influence and European v. national rulemaking. -
P Davies, 'Liquidity Safety Nets for Banks' (2013) 13 Journal of Corporate Law Studies 285
ISBN: 0002-919X
DOI: 10.5235/14735970.13.2.287
Liquidity shocks are a core risk of the business model of commercial banks, which is founded on a liquidity mismatch between the banks liabilities and assets. A substantial part of the banks funding comes from short-term retail and wholesale funding, whilst a substantial part of the assets are long-term and illiquid loans. This is the source of the banks profi ts, but also of their claim to fulfi l an important social role. Having argued that leaving the solution to this problem to the banks alone is unsafe, this article turns to examine three regulatory strategies for reducing the incidence of liquidity shocks or making banks more resilient to them. They are: regulating the level of banks liquidity reserves, insuring
the value of the banks long-term assets and guaranteeing the discharge of the banks short-term liabilities. The criteria of assessment are the least impact on the banks social role of transforming short-term deposits into long-term loans, coupled with the least incentive for banks to take excessive risk, the least subsidy to banking and the least cost to the public purse. It is suggested that insuring the value of the banks long-term assets
emerges as the most attractive strategy. -
P Davies, K Hopt, R Nowak and G Van Solinge, 'Boards in Law and Practice: A Cross-Country Analysis in Europe' in Paul Davies, Klaus Hopt, Richard Nowak, Gerard Van Solinge (ed), Corporate Boards in Law and Practice (OUP 2013)
ISBN: 1473-5970
This is the general report analysing a group of national reports on the role and function of the board in European public companies. The report assesses how far the role and function of the board have converged in different European countries and how far divergences continue to exist. It explains convergencs and divergences by reference to the forces of globalisation, differences in shareholder structure and in differing perceptions of the board as a monitor on behalf of shareholders or as a mediator among stakeholder groups. The book analyses not only corporate laws but also corporate governance codes and looks at enforcement as well as at law 'in the book's -
P Davies, 'Corporate Boards in the United Kingdom' in Paul Davies, Klaus Hopt, Richard Nowak, Gerard Van Solinge (ed), Corporate Boards in Law and Practice (2013)
ISBN: 978-0-19-870515-4
This is the UK national report for Corporate Boards in Law and Practice (qv) -
P Davies, 'Federal Deposit Insurance Corporation and Bank of England memorandum on resolving globally active systemically important financial institutions' (2013) 7 Law and Financial Markets Review 304
ISBN: 978-0-19-870515-4
DOI: 10.5235/17521440.7.6.304
The cross-border co-ordination necessary for the successful resolution of global systemically important financial institutions (G-SIFIs) has emerged as a major issue in the post-crisis reforms. In particular, the Financial Stability Board addressed this issue in its Key Attributes of Effective Resolution for Financial Institutions, adopted in 2011. However, little exists by way of operational machinery to give effect to the Key Attributes. The memorandum of December 2012 setting out the understandings of the resolution authorities in the US and the UK as to how they will effect a single point of entry resolution of a G-SIFI is thus an important first step. This article analyses the agreement, identifying the conditions necessary for it to operate successfully. It is noted that, for understandable reasons, both countries have also put in place resolution mechanisms which do not depend upon appropriate action by the home-state regulator.
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P Bockli, P Davies, E Ferran and G Ferrarini and others, 'Making Corporate Governance Codes More Effective: A Response to the European Commission\'s Action Plan of December 2012
' (2013)
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P Bockli, P Davies, E Ferran and G Ferrarini and others, 'Response to the European Commission's Report on the Application of the Takeover Bids Directive
' (2013)
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P Davies, Gower and Davies Principles of Modern Company Law (9th edn Sweet & Maxwell 2012)
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Peter Boeckli, P Davies, Eilis Ferran and Guido Ferrarini and others, 'The Future of European Company Law' (2012) ECLE
ISBN: ISSN 1752-1440
This paper contains the European Company Law Experts' response to one of the main issues raised in the European Commissions Action Plan of 12 December 2012, namely how to make corporate governance codes more effective. The concept of codes effectiveness has two meanings: effectiveness of the comply-explain mechanism (disclosure effectiveness) and level of adoption of the codes recommendations themselves (substantive effectiveness). The ECLE believes that it is of crucial importance to keep the advantages of regulation by codes while finding adequate improvements of the quality of the reports and the explanations. The relationship between the content of corporate governance codes and disclosure is discussed. A culture of departure from code recommendations, if well explained, is needed. The quality of corporate governance reports and the explanations should primarily be improved by incentives, but non-legal and legal sanctions may help. Improvements may also be possible by mobilizing private actors and/or by charging public or private agents and agencies with inspection and monitoring.
This paper contains the European Company Law Experts' response to the report of the European Commission of 28 June 2012 on the application of the Takeover Bids Directive of 2004 and the reform initiatives announced. For evaluating these initiatives the rationale of the mandatory bid rule is relevant (exit rationale, control premium rationale and undistorted choice rationale). On this basis the paper discusses each of the concerns raised by the European Commission: 1) The concept of "acting in concert": The ECLE are of the opinion that a uniform concept for the Takeover Bids Directive, the Transparency Directive and the Acquisition Directive is not useful because of the different objectives of these Directives. As to the Takeover Directive it should be made clear that joint engagement activities of investors should not trigger a mandatory offer. 2) National derogations to the mandatory offer rule differ widely, but there are different types of derogations that pose different concerns. The ECLE recommend that the Directive should provide for a review process with respect to national derogations. 3) The ECLE believe that there are good reasons to close the loopholes against the creep in and the creep on acquisitions. 4) As to board neutrality and the break-through rule the ECLE believe that the default rules should be changed. The option rights should be given to the shareholders, not to the member states. The reciprocity rule is flawed. 5) The protection of the rights of employees should be addressed in a wider context and should not be taken up specifically for one type of transaction such as takeover bids.
ISBN: 978-0-414-02272-0
DOI: 10.2139/ssrn.2075034
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P Davies and Sarah Worthington, Gower and Davies Principles of Modern Company Law, Ninth Edition (Thomson/Sweet & Maxwell 2012)
This is a textbook on English company law which deals with all the elements of core company law (separate legal personality, limited liability, board and shareholder relations, majority and minority shareholder relations, accounts and audit) as well as with corporate finace (including share issues, market manipulation and takeovers). It aims to provide a strong analytical structure as well as a detailed treatment of the law. -
Geoffrey Morse, P Davies, Ian Fletcher and David Milman, Palmer's Limited Liability Partnership Law (2nd edn Sweet & Maxwell 2011)
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P Davies, Guido Ferrarini, Klaus Hopt and Alain Pietrancosta, 'Response to the European Commissions Green Paper: The EU Corporate Governance Framework' (2011)
ISBN: 978-0421-94900-3
ISBN: 9781847036360
DOI: 10.2139/ssrn.1912548
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P Davies, 'The European Private Company (SPE): Uniformity, Flexibility, Competition and the Persistence of National Laws' (2010) ECGI Working Paper 154/2010
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P Davies, E Schuster and E van de Walle de Ghelcke, 'The Takeover Directive as a Protectionist Tool?' in Ulf Bernitz and Wolf-Georg Ringe (eds), Company Law and Economic Protectionism - New Challenges to Economic Integration (OUP 2010)
In 2008 the European Commission put forward proposals for a European Private Company (SPE), following up on the adoption of the European Public Company legislation of 2001. Although speedy adoption of the SPE proposals was initially hoped for, subsequent negotiations among the member states have stalled, despite at least two revised drafts of the proposals having been produced by the Presidency of the European Council. This article seeks to identify the challenges posed to the national company laws of the member states by the Commissions proposals for a simple and flexible Community form of incorporation. It seeks to argue that the discussions among the member states have revolved mainly around the question of the appropriate role for mandatory rules in modern company law.
Member states have been reluctant to see the SPE freed from mandatory rules to which their national companies are subject, because of the competition to their national laws which the
SPE would generate. On the other hand, member states with few mandatory rules in their domestic law have been reluctant to see the SPE burdened with mandatory rules which do
not apply to domestic companies, because otherwise their businesses will be deterred from taking up the new European form and obtaining its advantages. The article predicts that,
of the possible legislative solutions to this confl ict, referring more of the rules applicable to the SPE to the national law of the state in which the SPE is registered is likely to be
the dominant one, even though this will undermine both the uniformity and flexibility goals of the proposed legislation. It also considers how effective the national law strategy is likely to be in the light of the Treaty provisions on freedom of establishment
DOI: 10.2139/ssrn.1554616
When the European Commission first proposed a harmonised legal framework for takeovers in the EU, its aim was to facilitate takeover bids in order to create a more effi cient and competitive
corporate landscape and to further the single market. In the view of the Commission, a functioning market of corporate control required rebalancing the division of powers between
shareholders and management in companies facing a takeover bid. Taking the UK, EUs most active takeover market, as a model, the Commission proposed to assign the sole decisionmaking power regarding the bid to the shareholders, with management primarily playing an advisory role.
This so-called board neutrality rule, however, caused much controversy among the member states, and it was one of the main reasons for the Takeover Directives notoriously long
adoption history. Failing to achieve consensus on this topic, the Takeover Directive was finally adopted in a watered down version, without a mandatory board neutrality rule. Instead, a
rather complicated system of options was introduced, both at member state and at company level. Although it was clear that this approach would not create the same barrier-free market
for corporate control the Commission originally had in mind, it was still hoped that it would be a step in this direction. At the very least, it was certainly expected that this approach would
retain the status quo.
This paper examines how the implementation of the Directive changed the takeover rules applicable to European companies. To that end, we analyse the pre-implementation rules regarding managements role in takeovers in all member states, and compare them with the current legal framework. We find that, instead of facilitating the Commissions ideal of a comprehensive, mandatory board neutrality rule, the Directive has, in aggregate, likely had an opposite effect. We argue that there are signs of protectionist motives driving member states
choices regarding board neutrality, and we fi nd that the system of company-level choices is ineffective in its current form.
We propose a simplifi ed and more coherent board neutrality rule, solely based on shareholder decision making. Acknowledging that a system allowing management to prevent unwanted bids might have advantages over a pure board neutrality rule in certain circumstances, we argue that shareholders are in a better position to decide on the optimal rules for a particular company than legislators. -
P Davies, Introduction to Company Law 2nd ed (OUP, Clarendon Law Series 2010)
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P Davies, 'Liability for Misstatements to the Market' (2010) 5 Capital Markets Law Journal 443
ISBN: 978-0-19-959145
ISBN: 978-0-19-920776-3
The Liability of Issuers Regulations introduce a revised statutory scheme of liability for issuers in respect of misstatements to the market.
This article considers how the revised scheme differs from the stop-gap regime introduced in 2006, notably by extending the range of misstatements and markets to which the regime applies.
The new regime also includes liability for delayed statements and increases the range of potential claimants.
However, fraud as the basis for issuer liability is retained, as is the exclusion of liability to investors of the directors of issuers. -
P Davies, 'Liability for Misstatements to the Market: Some Reflections' (2009) 9 Journal of Corporate Law Studies 295
ISBN: 1750-7219
This article considers some of the fundamental issues arising out of the Davies Review of Issuer Liability. That Review recommended only a limited role for private enforcement of the
continuing disclosure obligations imposed upon issuers. The article considers whether such a limited role can be justified, from both a compensation and a deterrence standpoint. It concludes that it can, provided there is a sound system of public enforcement of those obligations in place. Whether the recent changes in the role of the Financial Services Authority will provide an appropriate level of public enforcement is not yet clear. -
P Davies, R Kraakman, J Armour and L Enriques, The Anatomy of Corporate Law, Second Edition (OUP 2009)
ISBN: 1473-5970
This book explains in detail how and why the principal European jurisdictions, Japan, and the United States sometimes select identical legal
strategies to address a given corporate law problem, and sometimes make divergent choices. After an introductory discussion of agency issues and legal strategies, the book addresses the basic governance structure of the corporation, including the powers of the board of directors and the shareholders meeting. It proceeds to creditor protection measures, related-party transactions, and fundamental corporate actions such as mergers and charter amendments. Finally, it concludes with an examination of friendly acquisitions, hostile takeovers, and the regulation of the capital markets -
P Davies and M Freedland, Towards a Flexible Labour Market (OUP: Oxford Monographs on Labour Law 2007)
ISBN: 978-0-19-956584-9
Taking as its starting point the authors earlier work on Labour Legislation and Public Policy, this book provides a detailed account and critical analysis of British labour legislation and labour market regulation since the early 1990s. Referring back to the earlier history, and filling in the gaps in the early and mid-1990s, the work concentrates mainly on the legislation and policy measures in the employment sphere of the New Labour governments which have been in power since 1997, placing those developments in the context of the relevant aspects of European Community law. The work argues for an understanding of this body of legislation and regulatory activity as being directed towards the realisation of a flexible labour market, and shows how this objective has been pursued in three intersecting areas, those of regulating personal or individual employment relations, regulating collective representation, and promoting work. It explores the methods of regulation which have been used, developing a taxonomy of regulation and a notion of light regulation to characterise some recent legislative interventions. It considers how far the administration of Prime Minister Tony Blair has fulfilled its promises or claims of fairness at work, welfare to work and success at work. It is intended to be of interest to those concerned with the study of British and European labour or employment law, employee relations or human resource management, labour market economics, and contemporary politics.
ISBN: 978-0-19-921788-5
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Research Interests
Corporate governance, corporate finance, regulation of securities markets, regulation of banks, collective representation of employees