The creation of the European Securities and Markets Authority (ESMA) has marked a major step towards more integrated rulemaking and supervision in the European financial market sector. ESMA's organisation and operations are strongly influenced by the position of this new Authority within the EU institutional framework. The European Court of Justice (in Case C-270/12) confirmed the legitimacy of the legal basis of ESMA itself and of its powers. While ESMA's governance still displays some features of a network among national supervisors, its quasi-regulatory functions and supervisory tasks are constrained by limitations directly or indirectly dictated by the Treaties. This paper highlights how the traditional concepts of independence and accountability towards EU institutions and stakeholders apply to ESMA. ESMA's relationships with national competent authorities, which retain direct supervisory powers with limited exceptions, and the EU institutions, which are competent for the adoption of legislative and non-legislative regulatory measures, are also considered. The analysis shows that tasks conferred on ESMA fall short to match its relatively high accountability, which is aligned with international best practices. The European Commission announced a possible revision of the European Supervisory Authorities (including ESMA) framework for 2014; we therefore suggest some reform proposals that could help streamline regulatory and supervisory functions at EU level, thus allowing ESMA to better exploit its potential while avoiding the risk of excessive centralisation of supervisory powers.

On 28 June 2014, the Faculty of Law of the University of Sarajevo hosted a workshop entitled ‘Collective Redress in South-East Europe’, organised by the Law Faculties of the Universities of Sarajevo and Zagreb with the financial support of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ). The workshop gathered law professors from Bosnia-Herzegovina, Serbia, Croatia, Macedonia, Albania and Montenegro. The guest of honour was Ms Diana Wallis, President of the European Law Institute (ELI). Collective redress is a relatively new topic among lawyers in South-East Europe. While certain countries of the region have horizontal legislation on collective redress, legislators in other countries still hesitate to introduce this mechanism, ‘replacing’ it with different forms of organisational claims. Even in countries that introduced a collective redress mechanism, decisional practice is quite scarce. The novelty of the collective redress mechanism in the region of South-East Europe, as well as its relevance in the European Union, especially given the recent initiatives of the European Commission, incited the organisers to arrange this exchange of views between researchers from South-East Europe and the European Union.

This paper analyses the new architecture for the prudential supervision of banks in the euro area. It is primarily concerned with the likely effectiveness of the Single Supervisory Mechanism (SSM) as a regime that intends to bolster financial stability in the steady state.

By using insights from the political economy of bureaucracy it finds that the SSM is overly focused on sharp tools to discipline captured national supervisors and thus under-incentivises their top-level personnel to voluntarily contribute to rigid supervision. The success of the SSM in this regard will hinge on establishing a common supervisory culture that provides positive incentives for national supervisors. To this end, the internal decision-making structure of the European Central Bank (ECB) in supervisory matters provides some integrative elements. Yet, the complex procedures also impede swift decision making and do not adequately solve the problem. Ultimately, a careful design and animation of the ECB-defined supervisory framework and the development of inter-agency career opportunities will be critical.

The ECB will become a de facto standard setter that competes with the European Banking Authority (EBA). A likely stand-off in the EBA's Board of Supervisors will lead to a growing gap in regulatory integration between SSM participants and other EU Member States.

Joining the SSM as a non-euro area Member State is unattractive because the current legal framework grants no voting rights in the ECB's ultimate decision-making body. Nor does it supply a credible commitment opportunity for Member States that seek to bond to high-quality supervision.

The Thirteenth Directive on Takeover Bids of 2006 has to be revised on the basis of experience gained in the five years of its application. This revision includes an examination of the control structures and barriers to takeover bids for those bids that do not fall within the scope of application of this Directive. On the basis of an examination carried out by Marccus Partners and the Centre for European Policy Studies, the Commission published an Application Report on 26 June 2012, to which the European Parliament responded favourably in its Resolution of 21 May 2013. This has provoked highly controversial discussions in various Member States and beyond. This article carries out a comparative, theoretical and policy analysis of European takeover law, incorporating not only the Thirteenth Directive but also commonalities and differences in takeover law in the Member States as regards the European market for corporate control, with an emphasis on the mandatory bid. While many economic opinions regard the mandatory bid as a mistake (it makes takeovers more expensive), the vast majority of academics and practitioners believe that the mandatory bid as an early exit option plays an irreplaceable role in the protection of minorities, and recent economic theory holds that mandatory bids are beneficial. The objection that the economic costs of the mandatory bid could be saved through improved protection of minorities after the takeover or in groups of companies is unrealistic. There is a whole range of special reform issues regarding the mandatory bid which fall partly within the remit of the European Commission and partly within that of the national legislatures. These issues include: the control threshold; opting up and opting out; low balling and creeping in; exercising control on the basis of a voting agreement; exemptions from the mandatory bid; and share price calculation.

Empirical studies show that ownership structures that separate control and cash flow rights create agency problems and are associated with reduced value for minority shareholders. Institutional investors recognise these inefficiencies and expect a discount on the share price of companies with control-enhancing mechanisms like multiple voting rights shares or pyramidal ownership structures.

In the US, corporate pyramids are discouraged through the taxation of inter-company dividends, whereas multiple voting rights shares are allowed but have to be issued before the firm goes public. Therefore, controlling shareholders who want to entrench themselves in control by retaining multiple voting rights shares pay the costs of this inefficient capital structure when the firm initially goes public at a discounted price.

Some European countries – including Spain, Portugal, Greece and, until very recently, Italy – have adopted a diametrically opposite solution. Multiple voting rights shares have been expressly prohibited by the legislator, but corporate pyramids are commonly used by listed companies and can be created following the IPO of the firm without approval from the shareholders. In this situation, if institutional investors expect that a pyramidal ownership structure will be created in the future, they will discount the price of the shares when the firm goes public. Therefore, if Italy, Spain, Portugal and Greece are willing to privatise some of their state-owned companies and want to maximise the price of their stocks, they should create the conditions to assure the market that these companies will not be controlled through pyramids in the future.

Because of strong opposition from national business elites which control the largest corporate groups, it is very difficult to adopt strict regulations aimed at prohibiting - or at least limiting - the use of pyramidal ownership structures in a relatively short period of time. In order to solve this Olson problem, I suggest that Italy, Spain, Portugal and Greece should use regulatory dualism to create new markets with enhanced corporate governance rules that prevent shareholders' control through pyramids.

The traditional legal and economic theory of the company is based on the foundational understanding that equity ownership is a bundle of ‘cash flow rights’ and ‘voting rights’. However, this assumption is no longer adequate in today's economic and financial reality.

Developments in derivatives and capital markets have facilitated the decoupling of economic rights from voting rights and have consequently jeopardised the fundamental assumption that underlies the shareholder voting mechanism.

Reducing the agency problem intrinsic to the nature of the company while maintaining the efficiency of managerial discretion is the central issue of corporate governance. In order to achieve this, the shareholder primacy paradigm relies on shareholder and creditor activism. However, this tandem is increasingly losing its effectiveness. Credit institutions have become less client-driven and more market-driven. This evolution potentially alters the debtor-creditor relation and reduces the impact of debt finance on corporate governance. Shareholder activism, on the other hand, has been diminished by the growing spread in shareholder ownership and more recently by the presence of short-term shareholders.

Decoupling is a recent phenomenon that strikes at the heart of the predominant corporate governance model since stockholders lacking economic interest, or a fortiori with a negative interest, might be present at the General Meeting. This democratic deficit undermines the ‘one share, one vote’ concept as well as the concurrency of shareholders' and the corporation's interests.

The following analysis states that ‘the new vote buying’ should not mark the end of the ‘shareholder primacy model’. Already quite some time before the decoupling era, voting had ceased playing a pivotal role as a mechanism to lower agency costs. Invoking the decoupling phenomenon to bury the ‘shareholder primacy model’ would therefore be an oversimplification. However, I believe that awareness of the impact of decoupling is not sufficient to keep the ‘shareholder primacy model’ alive. Evidence is provided that the negative effects of this so-called ‘empty shareholder’ phenomenon can be counterbalanced by contractual provisions and industry standards, a new disclosure regime and voting reforms. The recent amendment to the Transparency Directive of the European Union should therefore be welcomed.

Corporate mobility in Europe continues to be on the rise, both creating space for regulatory arbitrage by companies and influencing legislative decisions in corporate law and related fields. This has triggered debates in European company law that centre on questions of harmonisation, cross-jurisdictional convergence and the superiority of certain regulatory approaches and legal families. This article uses a large cross-country sample of EU Member States to classify legal strategies in corporate governance and assess claims of convergence and the superiority of legal families. We analyse board structure, the most important duties of directors, namely the duties of care and loyalty, questions of enforcement, and the position of directors in the vicinity of insolvency, and develop a taxonomy of legal strategies across the Member States. We find that, in spite of differences in regulatory technique and legal tradition, the effect of the legal strategies employed by the Member States is often remarkably similar and legal systems exhibit interconnections in the form of mutual learning across borders. In addition, we show that, in contrast to claims by parts of the literature, judicial innovation is not restricted to particular legal families. We argue that all legal families are, in principle, well equipped to react to new developments and draw on general or unwritten principles of law to fill regulatory gaps. However, a precondition for the emergence of effective rules seems to be a sufficiently large body of case law and, accordingly, access to the courts and an efficiently functioning judicial system. Consequently, we submit that questions of enforcement are of greater importance than a particular legislative or regulatory style.

The shadow banking system is the one that conducts credit, maturity and liquidity transformation outside regular banking mechanisms. Chinese practices largely fit into this concept. However, unlike their foreign peers, Chinese shadow banking institutions have been intertwined into a complex whole and have achieved credit intermediation usually through wealth management products, often using the problematic asset-pool model. They are also substantially influenced by the unique political economic dynamics in China, such as the rigid financial licensing regime and credit policy control. Both the supply and demand ends of funding have provided those activities with new features, for instance, the P2P lending marketplaces and local government financing vehicles. Chinese government agencies have interplayed responsively and proactively with the market via rulemaking and enforcement, in particular recently, with the aim to fix loopholes, level the playing field and limit regulatory arbitrage. However, further efforts are imperative in order to develop moderate and appropriate regulation and draw clearer legal boundaries.

We conjecture that venture capitalists and their investors often fall prey to what is known as ‘collective conservatism’. We investigate this conjecture by analysing boilerplate provisions in limited partnership agreements. When investors accept suboptimal boilerplate provisions it is not because they believe that the standardised terms and conditions sufficiently align the interests of investors and fund managers, but merely because they think their peers, including their competitors, prefer to include them in the limited partnership agreement. We find that the financial crisis has facilitated some notable deviations in the boilerplate provisions that are designed to facilitate the return of confidence in the venture capital industry. We argue that a gradual shift may be taking place towards more investor-favourable limited partnership agreements or separate account and pledge fund arrangements. These shifts — which do not lead to significant changes in limited partnership agreements — appear to be particularly effective for bigger funds that increasingly focus on later-stage investments. We show that early-stage funds are more inclined to enter into innovative collaborative agreements. Collaborative agreements differ from traditional limited partnership agreements in that they focus less on curtailing principal-agent problems and more on joint development and value creation.

Model case procedures have some fundamentals in common with collective redress in civil law countries. This is particularly true in the field of investor protection. This area is highly regulated and marked by resulting enforcement failures, which led the German legislator to the enactment of the KapMuG and its recent amendment, highlighting exemplary elements of model case procedures. A survey of the ongoing activities of the European Union in the area of collective redress and of its repercussions at Member State level therefore forms a suitable basis for the following analysis of the 2012 amendment to the KapMuG. It clearly brings into focus a shift from sector-specific regulation with an emphasis on the cross-border aspect of protecting consumers, towards a ‘coherent approach’ strengthening the enforcement of EU law. As a result, today, regulatory policy and collective redress are two sides of the same coin. With respect to the KapMuG, such a development brings about some tension between its aim to aggregate small individual claims as efficiently as possible and the dominant role of individual procedural rights in German civil procedure. This conflict can be illustrated by some specific elements of the KapMuG: its scope of application; the three-tier structure of a model case procedure; the newly introduced notification of claims; and the new opt-out settlement under amended §§ 17-19.

Promoting entrepreneurship is high on the agenda at both European and national level. This is, e.g., reflected in a number of company law initiatives, which have mainly focused on creating easier and cheaper access to limited liability, for example, by introducing sub-types of the private limited company. The main questions addressed here are whether it is possible to promote entrepreneurship through company law reforms and what the content of such frameworks should be in order to meet the needs of entrepreneurs. The analysis takes its point of departure in a new Danish survey of what the content of company legislation should be in order to meet the needs of entrepreneurs. In line with existing empirical studies, the importance of the capital requirement and formation procedures and costs is analysed, and further insight is given into, for example, what level of minimum capital and cost is regarded as acceptable. Besides this insight, the Danish survey adds to the existing studies and literature by also shedding light on whether company laws can be further optimised, for instance, by introducing more flexible rules for company management, etc. The results of the survey are compared with the reforms which, in recent years, have been adopted in several EU Member States, with the aim of evaluating whether these have met the needs indicated in the survey. The overall conclusion is that this is not the case on all points and that there is thus room for improvement. It is also briefly discussed whether the different reform methods used in the recent national reforms are well-suited for further optimising the legislation and it is shown that the method of introducing sub-types of private limited companies has its limitations.

What specific corporate governance arrangements matter in the governance of public firms worldwide has been the subject of an ongoing debate in comparative corporate governance. In this debate, the role of cumulative voting has attracted increasing attention. Using a unique, hand-collected dataset of formal adoptions of cumulative voting in 1,060 Chinese listed firms during the period from 2002 through 2012, we extend the growing comparative literature to encompass, for the first time, the case of China. Our empirical inquiry shows that an overwhelming majority of the sample Chinese listed firms have formally embraced cumulative voting. Whereas cumulative voting is mandatory for blockholder firms (i.e., firms with a blockholder controlling more than 30 per cent of the outstanding shares) and elective for non-blockholder firms, the levels of cumulative voting adoption were similarly high by the end of 2012 (95.7 per cent and 89.3 per cent, respectively). Market reactions to the formal adoptions of cumulative voting have, however, been negative on the whole. As such, we argue that cumulative voting does not matter in China. This, as will be further argued, is attributed in large part to certain defining characteristics of the adopting firms, more specifically, the comparatively small size of their boards, the relatively low shareholding levels of (large) minority shareholders, as well as the pervasive presence of the overwhelmingly dominant shareholder. Weak public enforcement by the regulatory authorities and the near-absence of private enforcement through shareholder lawsuits are also important contributing factors. This research supports the view that the value of a particular corporate governance measure is dependent on the context, at both firm and country level. The research also has implications for the growing discourse on the global proliferation of corporate governance codes.

In recent years, many countries have introduced special regimes to facilitate the organisation of social enterprises. Many of these include company law rules which may either provide for a special corporate form for social enterprises, or are part of a certification scheme for such enterprises. This article analyses how these company law issues have been addressed. It focuses on the US benefit corporation, the UK Community Interest Company and the recently proposed Danish certification regime for social enterprises. An analysis is made of how the different systems aim to find the right balance between flexible rules that are sufficiently attractive to entrepreneurs and (social) investors, and rules which ensure that the designation of ‘social enterprise’ is credible. It is pointed out that the three systems balance these requirements quite differently, and the advantages and disadvantages of each are discussed. One of the key elements in the governing of social enterprises is the regulation of how assets can be transferred from these enterprises. It is concluded that a certification scheme seems preferable to a new corporate form, and several recommendations are made as to how to find a system that is more credible than the US solution and more flexible than the UK and Danish solutions.

In China, state-controlled listed companies (SCLCs) refer to a type of Chinese domestically listed companies half of whose voting shares are held by Chinese governments or their wholly owned companies, or the resolutions of whose shareholder meetings can be substantially influenced by Chinese governments or their wholly owned companies despite the fact that the voting shares held by them account for less than half of all the outstanding voting shares issued by these listed companies. For example, they are able to have non-negligible impacts on the motions of shareholder meetings by holding only one third of the voting shares whereas two thirds supermajority voting is always required. The existing literature primarily scrutinises the corporate governance of SCLCs through the perspective of agency costs. Little attention is paid to its adaptive efficiency through the lens of venture capital. This article attempts to fill this gap on the basis of evidence from the incentive mechanisms in the operation of Chinese domestic venture capital, as compared to American venture capital experience. The template of American venture capital contains five incentive mechanisms useful for China: limited partnerships, staged financing, board representation, convertible preferred stock and stock options. Unfortunately, partly due to the institutional barriers imposed by the control-based model of SCLCs, these five mechanisms are still underdeveloped in Chinese domestic venture capital. The study shows that adaptive efficiency and agency costs are equally important factors which ought to be considered when proposing reforms of the corporate governance of SCLCs. Neglecting either of them would jeopardise the overall efficiency of the economy.

This paper seeks to analyse the ruling (hereinafter: the Essent ruling) handed down by the Grand Chamber of the Court of Justice of the European Union (hereinafter: CJEU) on 22 October 2013 on the compatibility with EU law of Dutch legislation concerning ownership unbundling in the electricity and natural gas sectors. The ruling concerns the interpretation of Article 63 TFEU (free movement of capital) and Article 345 TFEU.

The paper starts by briefly outlining the developments in the EU energy market since the 1990s and the contents of the Dutch legislation at issue. This is followed by a short description of the factual background to the cases and the preliminary questions. The analysis then shifts to three important legal issues. The first is the interaction between Article 345 TFEU and the free movement rules. The second is the dividing line between purely economic interests and overriding reasons in the general interest. A final issue to be touched upon is that of so-called ‘gold plating’, i.e., the situation in which the requirements laid down in the implementing legislation of a Member State go further than those set out in relevant EU directives.