Comparative Company Law: Case Based Approach

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday May 24, 2013 at 9:16 am
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Editor’s Note: The following post comes to us from Mathias Siems of Durham University and David Cabrelli of Edinburgh University, UK.

There has been an exponential growth in interest in comparative company law in recent years. For example, in the period from 2002 to 2011, no fewer than ten monographs or edited collections were published exploring this new field of enquiry. The burgeoning literature was mirrored by an increase in University Postgraduate courses or programs in comparative company law and corporate governance. Moreover, the dissolution of trade barriers and mass cross-border capital flows engendered by the forces of competition and globalization have necessitated legal practitioners to be conversant with the company laws of jurisdictions other than their own.

In Mathias Siems and David Cabrelli (eds.), Comparative Company Law: A Case Based Approach, Hart Publishing, 2013 (publisher’s website; introduction on SSRN) we have aimed to fill an important gap in this field. Existing books on comparative company law tend to focus on the institutional structure of the corporation but this approach risks overlooking specific cases and how the issues arising from disputes are resolved in different jurisdictions. For example, topics related to directors’ liability, creditor protection and shareholders’ rights may best be understood by analyzing how selected hypothetical cases would be solved in different countries.

The book covers ten legal systems. With respect to countries of the European Union, it focuses on the most populous countries (Germany, France, UK, Spain, Italy, and Poland) as well as two smaller Member States (Finland and Latvia). In addition, the laws of the world’s largest economies (the US and Japan) are included for the purposes of wider comparison. We owe an immense debt of gratitude to our country experts Pierre-Henri Conac (France), Pablo Iglesias Rodríguez (Spain), Hisaei Chuck Ito (Japan), Theis Klauberg (Latvia), Corrado Malberti (Italy), Lena Nordman (Finland), Gordon Smith (USA), Kamil Szmid (Poland), Marco Ventoruzzo (Italy), Horoyuki Watanabe (Japan) and Michał Zurek (Poland).

The introductory chapter of the book outlines our case-based approach to comparative company law. The subsequent ten chapters deal with various topics of directors’ duties, takeovers, creditor protection and shareholder protection. Each of the country experts performed three tasks. First, he or she drafted one hypothetical case and a solution to that case according to the company law of his or her home jurisdiction. The decision to enable each participant to draft one of the cases was predicated on the perceived need to achieve a good mix and balance of cases, possibly reflecting different socio-economic circumstances. Secondly, each of the country experts then circulated their hypothetical cases and solutions amongst the other country experts and solutions were produced by each of the country experts to the hypothetical cases under the law of his/her home jurisdiction. Thirdly, each country expert examined the different solutions to “his/her hypothetical case” and drew up a comparative chapter conclusion.

In the final chapter of the book on the “Form, Style and Substance in Comparative Company Law” we use the case studies in order to engage in a more general discussion about differences and similarities between legal systems in company law. For this purpose, two topics from each of the ten cases, thus twenty components in total, were coded in terms of legal rules, the underlying legal sources and the actual results. This approach enabled us to quantify similarities and differences, going beyond anecdotal examples. The main findings of this chapter can be summarized as follows:

  • First, we do not find Americanization of company laws. Rather, in all three categories the US is the outlier, thus, confirming the counter-view of an American exceptionalism.
  • Second, there is some evidence that EU Directives have led to some convergence of company laws. Still, the UK system of company law is a bit of an outlier in terms of the nature of the rules, the sources of those rules and the outcome reached when such rules are applied. Moreover, it is remarkable that even the continental European countries differ considerably, for instance, in the role played by case law and the strength of shareholder protection.
  • Third, we are skeptical about the role of legal families. There are some similarities between the UK and US in terms of sources of law, yet, case law also plays an important role in Germany, France and Japan. Moreover, our findings do not confirm the hypothesis that the case law of common law countries is a crucial determinant for their high levels of shareholder protection; rather, if case law has an influence on shareholder protection, this appears to be more pronounced in France and Germany.
  • Finally, the harmonization of company laws is often countered by the argument that it can only lead to formal harmonization and that it fails to respond to the need for functionally equivalent legal rules. Our results do not confirm such skepticism as we find a strong positive correlation between the content of legal rules and the actual results.

  1. Contrastive, Comparative Corporate Law is an Eminently Practical Tool
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    The world’s intellectually most powerful law firms are required to become more cosmopolitan and less regional, i.e., speak additional tongues other than English and to be thoroughly conversant in US-American, UK and German legal doctrine and practice at the same time. This has very little to do with having offices abroad and very much to do with curiosity and growing with the flow of our times. A Cravath, Skadden Arps or Wachtell solely steeped in Delaware law and LBO or takeover lore of yesteryear would be just at about the same competitive disadvantage as a Linklaters without deep analytical understanding of the impact of the jurisprudence of the German Constitutional Court on, say, de-listing from the Frankfurt Stock Exchange, or a Hengeler ignorant of recent Delaware standstill case law or latest trends in U.S. (LSTA) or U.K. (LMA) inter-creditor agreements shading off into the Frankfurt practice. Whereas NYSE and Frankfurt did not come together after all; and London still occupies tenfold as many corp fin professionals than the Frankfurt market, comparative contrastive law has become eminently practical. It’s only in part on our computers and in our file cabinets in what’s called precedent collections. Most of contrastive comparative law as a tool has to do with the attitude of open-mindedness and mentoring in our law firms and a growing culture of cross-border acceptance of the insight that complex societies cannot afford to deviate too strongly in the regulation of our most pressing problems. Nor can our courts ignore one another in dispute resolution. Much work lies ahead. I recently met an old friend of mine, a retired German Constitutional Court Justice and asked him whether he had ever sat down with a U.S. Supreme Court Justice counterpart to exchange ideas. He had not. Marshaling contrastive, comparative law and mastering staying on top of the game is both hard work and fun: Relentless industry and drive are more important than many of the accoutrements of BigLaw with too regional (NY – Del – D.C.) a linguistic or doctrinal predisposition towards the struggle for optimizing outcomes and providing the best possible services and solutions to their clients; but most important of all, pragmatic comparative law has to do with the respective overriding impact of New York and Delaware jurisprudence (now waning because of agency overreaching and backlash against imperialist posture, as English law becomes more influential, especially in Asia), the precedent setting quality of the new UK Supreme Court and borrowings in Russia, Eastern Europe, Japan and Latin America from German legal experience and legislation precision – as a practical matter of experience. Just consider the many cross-border qualities of the Governance debate right here in the midst of our Blog.
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    Where the authors have a point is that, say, in the U.S., law- and rule-making particularly on the State and agency level has become practically the same as in any European-continental legal system; while pronouncements of, say, higher German courts have become just as significant, and carry similar weight in the German legal fabric, as decisions by U.S. Court of Appeals or the Supreme Court would engender for a New York law firm. Whether you sit as a legal corp fin professional in a New York, London, Frankfurt, Hong Kong or Sydney conference room, you need the intricacies of these three legal systems at your intellectual fingertips, readily available in comments, posture and negotiation ploys and tactics, lest you do a disservice to your client by running the risk of losing the fight for the better argument or inviting unfavorable developments for your clients in the overall equation of a fair distribution of benefits and burdens in an agreement. Thanks for an interesting and thought-provoking post.

    Comment by Ami de Chapeaurouge — May 25, 2013 @ 4:25 am

 

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