This chapter explores the intersection of transnational law with contemporary corporate governance laws and principles. Corporate governance, with its complex array of public and private actors, fits naturally within the modern concept of transnational law as a species of law that "can no longer be viewed through a purely national lens." Financial markets today are global and interconnected and events, such as the 2007-2009 global financial crisis and the COVID-19 crisis, exemplify the risk of contagion across those markets. Not only can corporate governance problems transcend national boundaries, so too can their solutions, which often involve regulatory efforts that operate at a transnational level. The chapter explores, from a transnational perspective, the transmission of laws and norms that are designed to constrain directors’ conduct and enhance corporate accountability. It focuses on two key examples of such accountability mechanisms-fiduciary duties and corporate codes. The chapter examines, for example, the global transmission of corporate governance and shareholder stewardship codes. These codes, which are a relatively recent phenomenon, play an important role as “norm creators.” The chapter assesses the transmission of laws and norms against the backdrop of convergence and path dependence theories of corporate governance.

The chapter argues that socially responsible investment (SRI) can be linked to long-term financial success and therefore should be part of the corporate social responsibility (CSR) strategy of investors. It shows how capital providers, including ordinary shareholders, institutional investors and socially responsible investors, can provide the stimulus for improvements in CSR standards and performance. The chapter traces the origins of SRI and investigates the range of powers and responsibilities, procedures and opportunities that can be applied to encourage a greater degree of participation of different kinds of investor, particularly institutional investors, in SRI.

Increasing regulatory oversight to control shareholders is bound to underperform. This is because it rests on an invalid assumption, namely that shareholders are better controlled and better steered when regulatory stringency is increased. The assumption runs counter to the conditions that a regulation must require of shareholders, owing to those conditional requirements being unevenly matched by shareholders. Specifically, since shareholders vary in what is required of them by a regulation, the increase of regulatory oversight necessitates that some shareholders will fail to respond, some will comply with what is required, and others will do more. Increasing regulatory oversight does not therefore address the fundamental problem of there being pre-existing deficiencies in stakeholder capacities to comply. To better address the problem, a minmax approach to regulation is proposed. The main benefit of minmax is that it aligns itself to shareholder differences, helping to reduce non-compliance while simultaneously encouraging beyond-compliance behaviour.

This chapter argues that beneficiaries of social enterprises should be given decision-making powers. I examine two problems with restricting the decision-making powers to shareholders, that is, shareholders can exercise the governance rights to benefit themselves but at the expense of the constituencies that the social enterprise is set up to benefit; and it is odd for a social enterprise to claim that it seeks to pursue social welfare and to promote public benefit, and yet its beneficiaries have absolutely no say in how the social enterprise is being run. I then analyze three objections in giving beneficiaries decision-making powers, that is, it will be disruptive and inefficient; beneficiaries can act opportunistically; and only shareholders have the incentive and ability to monitor. Finally, I assess five different decision-making mechanisms, that is, beneficiary advisory panel; director appointed from the beneficiary advisory panel; appointing independent nonexecutive directors; beneficiaries as shareholders; appointing a regulator and public enforcement.

During the last decade, discussion on shareholder activism concentrated on hedge funds, some seeing them as agents for passive institutional shareholders, bridging the separation of ownership and control, others believing their short-term value-maximization interests differing fundamentally from those of other shareholders. Some have seen hopes for long-term activism in institutional shareholders such as pension funds. In the European Union, activism is seen positively, encouraging proposals to enhance shareholders’ rights against the boards’ discretion. The purpose of this chapter is to focus on institutional investor activism and its impact on both their ultimate beneficiaries and their target companies, and how investors could be incentivised to more sustainable behaviour in their activism. Albeit the focus is on the European Union, institutional investors are global. A broader perspective including North America and Asia is therefore taken. The most important impact of institutional activism is arguably normative, causing changes in corporate governance. Specific attention is therefore given to governance questions.

In Chapter 8, the spotlight is shareholder and stakeholder engagement. Boards that govern for the long term should actively engage shareholders – or oversee the interaction with them – learn from their suggestions and assure that the company has an adequate shareholder structure to carry out its activities and purpose. Boards should also understand how key stakeholders interact and create joint-value with the company, and how it can learn from them. Among the board’s responsibilities is to ensure the company has the right type of shareholders to pursue its purpose. A major assumption in many corporate governance studies is that shareholders are homogeneous and have the same preferences. The evidence indicates the contrary: Shareholders are heterogeneous. There is a wide variety of shareholders: family offices, pension funds, passive investors, private equity firm, hedge funds or governments, among others. Each shareholder is unique, with distinct time horizons and motivations. The board of directors needs to consider this diversity.

The authors analyze corporate governance and competition sanctions. Despite their extensive powers, shareholders cannot (legally) interfere directly in the management of a company. It is hard to imagine that any competition law infringements attributed to the company could happen without the knowledge, or even more the active participation, of its directors or other executives. Consequently, if a competition law fine or other sanction is applied on the company, directors appear to be particularly well placed to be sued for compensation for this harm caused in their management activity. On the other hand, shareholders are the main beneficiaries of successfully completed cartels, i.e. those which remain undetected by competition authorities. The chapter investigates whether the financial burden of infringement sanctions should be borne by the company as the main potential beneficiary of excess profits, or should be fully, or at least partially, transferred to the directors who effectively committed or overlooked the breaches. Clarifications are gained from the study of managerial liability in the context of competition law infringements, followed by a deeper analysis of the consequences of the damages suffered by the company in the form of competition law fines or compensations paid as a result of private enforcement

Business history and theory reflect a tension between public and private conceptions of the corporation. This is embodied in the famous Berle-Dodd debate, which provides the basis for contemporary clashes between “different visions of corporatism,” such as the conflict between shareholder primacy and stakeholder-centered versions of the corporation. This chapter examines a number of recent developments suggesting that the pendulum, which swung so clearly in favour of a private conception of the corporation from the 1980s onwards, is in the process of changing direction. The chapter provides two central insights. The first is that there is not one problem, but multiple problems in corporate law, and that different problems may come to the forefront at different times. The second insight is that corporate governance techniques (such as performance-based pay), which are designed to ameliorate one problem in corporate law, such as corporate performance, can at the same time exacerbate other problems involving the social impact of corporations.

This chapter explains that a central feature of private equity governance mechanisms is a system designed to improve decision-making. Through an explanation of the typical structures seen in practice, it considers the main ways in which better decision-making is facilitated. These structures – most importantly, the board of directors of the company – differ according to the size, type and stage of development of the company, as well as the skills and expertise of the relevant stakeholders. This chapter also looks at the ways in which private equity firms seek to protect their own interests, as distinct from those of the underlying company. That question is examined from a number of perspectives, including the need for a private equity investor to sell the company within a defined time frame, and its need to protect its own reputation with a wide variety of stakeholders. Building on this analysis, and connecting in particular with the various objectives of private equity firms, this chapter considers how, if at all, private equity firms design governance mechanisms with a view to protecting external stakeholders.

I argue that none of the current explanations of why shareholders should be given voting powers are persuasive. I then explain the exercise of informal power through the exertion of influence.

This chapter summarises the key arguments, explains the rationales and importance of this book, and sets out the structure and outline.

This chapter summarises the key arguments, explains the rationales and importance of this book, and sets out the structure and outline.

I argue that none of the current explanations of why shareholders should be given voting powers are persuasive. I then explain the exercise of informal power through the exertion of influence.