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he ECB is independent, but it is also accountable to the European parliament (EP). Yet, how the EP has held the ECB accountable has largely been overlooked. This paper starts addressing this gap by providing descriptive statistics of three accountability modalities. The paper highlights three findings. First, topics of accountability have changed. Climate-related accountability has increased quickly and dramatically since 2017. Second, if the relationship between price stability and climate change remains an object of conflict among MEPs, a majority within the EP has emerged to put pressure for the ECB to take a more active stance against climate change, precisely on behalf of its price stability mandate. Third, MEPs engage with the climate topic in very specific ways. There is a gender divide between the climate and the price stability topics. Women engage more actively with climate-related topics. While the Greens heavily dominate the climate topic, parties from the Right dominate the topic of Price stability. Finally, MEPs adopt a more united strategy and a particularly low confrontational tone in their climate-related interventions.
How special are they? - Targeting systemic risk by regulating shadow banking : (October 5, 2014)
(2014)
This essay argues that at least some of the financial stability concerns associated with shadow banking can be addressed by an approach to financial regulation that imports its functional foundations more vigorously into the interpretation and implementation of existing rules. It shows that the general policy goals of prudential banking regulation remain constant over time despite dramatic transformations in the financial and technological landscape. Moreover, these overarching policy goals also legitimize intervention in the shadow banking sector. On these grounds, this essay encourages a more normative construction of available rules that potentially limits both the scope for regulatory arbitrage and the need for ever more rapid updates and a constant increase in the complexity of the regulatory framework. By tying the regulatory treatment of financial innovation closely to existing prudential rules and their underlying policy rationales, the proposed approach potentially ends the socially wasteful race between hare and tortoise that signifies the relation between regulators and a highly dynamic industry. In doing so it does not generally hamper market participants’ efficient discoveries where disintermediation proves socially beneficial. Instead, it only weeds-out rent-seeking circumventions of existing rules and standards.
How special are they? - Targeting systemic risk by regulating shadow banking : (October 5, 2014)
(2014)
This essay argues that at least some of the financial stability concerns associated with shadow banking can be addressed by an approach to financial regulation that imports its functional foundations more vigorously into the interpretation and implementation of existing rules. It shows that the general policy goals of prudential banking regulation remain constant over time despite dramatic transformations in the financial and technological landscape. Moreover, these overarching policy goals also legitimize intervention in the shadow banking sector. On these grounds, this essay encourages a more normative construction of available rules that potentially limits both the scope for regulatory arbitrage and the need for ever more rapid updates and a constant increase in the complexity of the regulatory framework. By tying the regulatory treatment of financial innovation closely to existing prudential rules and their underlying policy rationales, the proposed approach potentially ends the socially wasteful race between hare and tortoise that signifies the relation between regulators and a highly dynamic industry. In doing so it does not generally hamper market participants’ efficient discoveries where disintermediation proves socially beneficial. Instead, it only weeds-out rent-seeking circumventions of existing rules and standards.
This paper argues that the key mechanisms protecting retail investors’ financial stake in their portfolio investments are indirect. They do not rely on actions by the investors or by any private actor directly charged with looking after investors’ interests. Rather, they are provided by the ecosystem that investors (are legally forced to) inhabit, as a byproduct of the mostly self-interested, mutually and legally constrained behavior of third parties without a mandate to help the investors (e.g., speculators, activists). This elucidates key rules, resolves the mandatory vs. enabling tension in corporate/securities law, and exposes passive investing’s fragile reliance on others’ trading.
Although intellectual property law is a distinctively Western, modern, and relatively young body of law, it has spread all over the world, now encompassing all but a very few outsiders such as Afghanistan, Somalia, and Vanuatu. This article presents three legal transfers that contributed to this development: first, from real property in land and movables to intellectual property in the late 18th century in Western Europe; second, from Western Europe, in particular from the United Kingdom and France to the rest of the world during the colonial era in the 19th and early 20th century; third, from the protection of new knowledge to the protection of traditional knowledge, held by indigenous communities in developing countries, on 5 August 1963. This story illuminates how legal transfers in a broad sense – including, but not limited to legal transplants - drive the evolution of law.
While distribution conflicts over natural resources were central to the debates on a New International Economic Order, during the last decades the specific distribution conflicts surrounding natural resource exploitation no longer have been at the core of international law. In this paper I trace the developments in the relationship between international law and resource distribution conflicts. I first argue that the New International Economic Order favored the political resolution of distribution conflicts over natural resources and envisaged international distribution conflicts to be addressed by the political organs of international institutions within legal procedures Second, I show how the NIEO was surpassed by a different order that relied largely on the market as a distribution mechanism for raw materials and how international institutions and international law played a crucial role in the establishment of this order by promoting the privatization of natural resource exploitation and protecting foreign direct investment and trade. With reference to the copper industry in Zambia I thirdly illustrate how international investment law, and more broadly international economic law, is shaping (and affecting the resolution of) not only distribution conflicts between, but also within States. I conclude with a call for a renewed focus on an international law of resource conflicts to allow for their political resolution given the countermoves we can observe with respect to international investment law and the persistence of (violent) conflicts over natural resource exploitation within States.
The German Capital Markets Model Case Act (KapMuG) and its amendment of 2012 highlight some fundamentals of collective redress in civil law countries at the example of model case procedures in the field of investor protection. That is why a survey of the ongoing activities of the European Union in the area of collective redress and of its repercussions on the member state level forms a suitable basis for the following analysis of the 2012 amendment of 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, regulatory policy and collective redress are two sides of the same coin today. 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 rules of the KapMuG: its scope of application, the three-tier procedure of a model case procedure, the newly introduced notification of claims and the new opt-out settlement under the amended §§ 17-19.
In this study, we analyze the trading behavior of banks with lending relationships. We combine detailed German data on banks’ proprietary trading and market making with lending information from the credit register and then examine how banks trade stocks of their borrowers around important corporate events. We find that banks trade more frequently and also profitably ahead of events when they are the main lender (or relationship bank) for the borrower. Specifically, we show that relationship banks are more likely to build up positive (negative) trading positions in the two weeks before positive (negative) news events, and also that they unwind these positions shortly after the event. This trading pattern is more pronounced for unscheduled earnings events, M&A transactions, and after borrower obtain new bank loans. Our results suggest that lending relationships endow banks with important information, highlighting the potential for conflicts of interest in banking, which has been a prominent concern in the regulatory debate.
Increasingly, alternative investments via hedge funds are gaining importance in Germany. Just recently, this subject was taken up in the legal literature, too; this resulted in a higher product transparency. However, German investment law and, particularly, the special division "hedge funds" is still a field dominated by practitioners. First, the present situation shall be outlined. In addition, a description of the current development is given, in which the practical knowledge of the author is included. Finally, the hedge fund regulation intended by the legislator at the beginning of the year 2004 is legally evaluated against this background.
Concepts of legal capacity and legal subjectivity have developed gradually through intermediate stages. Accordingly, there are numerous types of legal subjects and partial legal subjects, and ever-new types can develop, at the latest once the law confronts new social and technological challenges. Today such challenges seem to be making themselves felt especially in the field of information and communication technologies. Their specific communicative conditions resulting from the technological networking of social communication have a particularly pronounced influence on legal attributions of identity and action, and hence above all on issues of liability in electronic commerce. Here in particular it is becoming increasingly difficult to distinguish concrete human actors and, for example, to identify them as authors of declarations of intent or even as individually responsible agencies of legal transgressions. The communicative processes in this area appear instead as new kinds of chains of effects whose actors seem to be more socio-technical ensembles of people and things – whereby the artificial components of these hybrid human being-thing linkages can sometimes even be represented as driving forces and independent agents.
This country report was prepared for the 19th World Congress of the International Academy of Comparative Law in Vienna in 2014. It is structured as a questionnaire and provides an overview of the legal framework for Free and Open Source Software (FOSS) and other alternative license models like (e.g.) Creative Commons under German law. The first set of questions addresses the applicable statutory provisions and the reported case law in this area. The second section concerns contractual issues, in particular with regard to the interpretation and validity of open content licenses. The third section deals with copyright aspects of open content models, for example regarding revocation rights and rights to equitable remuneration. The final set of questions pertains to patent, trademark and competition law issues of open content licenses.
The loan impairment rules recently introduced by IFRS 9 require banks to estimate their future credit losses by using forward-looking information. We use supervisory loan-level data from Germany to investigate how banks apply their reporting discretion and adjust their lending upon the announcement of the new rules. Our identification strategy exploits a cut-off for the level of provisions at the investment grade threshold based on banks’ internal rating of a borrower. We find that banks required to adopt the new rules assign better internal ratings to exactly the same borrowers compared to banks that do not apply IFRS 9 around this cut-off. This pattern is consistent with a strategic use of the increased reporting discretion that is inherent to rules requiring forward-looking loss estimation. At the same time, banks also reduce their lending exposure to exactly those borrowers at the highest risk of experiencing a rating downgrade below the cutoff. These loans would be associated with additional provisions in future periods, both in the intensive and extensive margin. The lending change thus mitigates some of the negative effects of increased reporting opportunism on banks’ crisis resilience. However, when these firms with internal ratings around the investment grade cut-off obtain less external funding through banks, the introduction of IFRS 9 will likely also be associated with real economic effects
Between the 12th and 16th centuries the Hanseatic merchants obtained extremely important privileges from the rulers of the countries with whom they traded. These secured their commercial and legal status and the autonomy of their staples in Flanders, England, Norway, Denmark and Russia. Within these privileges no other subject receives so extensive a treatment as court procedure. Here, the single most important concern of the Hanseatic merchants was their position in front of alien courts. The article analyses the great attention given to court procedure in the twenty main Hanseatic privileges: What did the merchants require? Which procedural rules were necessary to encourage them to submit their disputes to alien public court instead of taking the matter into their own hands and turning to extra-judicial methods to resolve matters, e.g. cancellation of business relations, boycotts or even trade wars? This analysis suggests that the two most important concerns reflected in the procedural rules were to avoid delay to the next trading trip and to ensure a rational law of proof. The former was addressed by pressing for short-term scheduling and swift judgment and by the dispensation from appearing before the court in person. The latter included avoidance of duels and other ordeals and the attempt to obtain parity by appointing half of the jurors from Hanseatic cities.
The paper focuses on the problems of a juridical classification and evaluation of Ancient Near Eastern treaties with regard to the question if there existed an Ancient Near Eastern International Law or not. Alternatively treaties and their content are looked at uncommitted as mechanisms of conflict and dispute resolution. Main aspects are preliminary and prophylactic conflict resolution in treaties and the procedural context and efficiency of treaties.
This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Specifically, we show that, although a more accommodative monetary policy increases employment of black households more than white households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own less financial assets that appreciate in value. Over multi-year time horizons, the employment effects are substantially smaller than the countervailing portfolio effects. We conclude that there is little reason to think that accommodative monetary policy plays a significant role in reducing racial inequities in the way often discussed. On the contrary, it may well accentuate inequalities for extended periods.
This article provides a novel explanation for the global intellectual property (IP) paradox, i.e. the consistent growth of the multilateral IP system in spite of mounting evidence that its effects are at best neutral if not disadvantageous for low-income and most middleincome countries and thus the majority of contracting states. It demonstrates that the multilateral IP system is deliberately structured as a virtual network that exhibits network effects similar to a social media platform, for example. The more members an IP treaty has, the more IP protection acceding states can secure for their nationals. Conversely, every accession enlarges the territory in which nationals of previous members can enjoy protection. Due to these increasing returns to adoption, signing up to and remaining part of the global IP network is attractive, irrespective of the immediate effects of a treaty.
In this paper, I tackle the question whether one share - one vote should become a European law rule. I examine, first of all, the economic theory concerning one share - one vote and its optimality, and the law and economics literature on dual class recapitalizations and other deviations from one share - one vote. I also consider the agency costs of deviations from one share - one vote and examine whether they justify regulation. I subsequently analyze the rules implementing the one share - one vote standard in the US and Europe. In particular, I analyze the self-regulatory rules of US exchanges, the relevant provisions of the European Takeover Directive (including the well known break-through rule), and the European Court of Justice's position as to golden shares (which also are deviations from the one share - one vote standard). I conclude that one share - one vote is not justified by economic efficiency, as also confirmed by comparative law. Also the European breakthrough rule, which ultimately strikes down all deviations from one share - one vote, does not appear to be well grounded. Only transparency rules appear to be justified at EU level as disclosure of ownership and voting structures serves a pricing and governance function, while harmonisation of the relevant rules reduces transaction costs in integrated markets.
This paper outlines relatively easy to implement reforms for the supervision of transnational banking-groups in the E.U. that should not be primarily based on legal form but on the actual risk structures of the pertinent financial institutions. The proposal also aims at paying close attention to the economics of public administration and international relations in allocating competences among national and supranational supervisory bodies. Before detailing the own proposition, this paper looks into the relationship between sovereign debt and banking crises that drive regulatory reactions to the financial turmoil in the Euro area. These initiatives inter alia affirm effective prudential supervision as a pivotal element of crisis prevention. In order to arrive at a more informed idea, which determinants apart from a perceived appetite for regulatory arbitrage drive banks’ organizational choices, this paper scrutinizes the merits of either a branch or subsidiary structure for the cross-border business of financial institutions. In doing so, it also considers the policy-makers perspective. The analysis shows that no one size fits all organizational structure is available and concludes that banks’ choices should generally not be second-guessed, particularly because they are subject to (some) market discipline. The analysis proceeds with describing and evaluating how competences in prudential supervision are currently allocated among national and supranational supervisory authorities. In order to assess the findings the appraisal adopts insights form the economics of public administration and international relations. It argues that the supervisory architecture has to be more aligned with bureaucrats’ incentives and that inefficient requirements to cooperate and share information should be reduced. Contrary to a widespread perception, shifting responsibility to a supranational authority cannot solve all the problems identified. Resting on these foundations, the last part of this paper finally sketches an alternative solution that dwells on far-reaching mutual recognition of national supervisory regimes and allocates competences in line with supervisors’ incentives and the risk inherent in crossborder banking groups.
Power and law in enlightened absolutism : Carl Gottlieb Svarez' theoretical and practical approach
(2012)
The term Enlightened Absolutism reflects a certain tension between its two components. This tension is in a way a continuation of the dichotomy between power on one hand and law on the other. The present paper shall provide an analysis of these two concepts from the perspective of Carl Gottlieb Svarez, who, in his position as a high-ranking Prussian civil servant and legal reformist, has had unparalleled influence on the legislative history of the
Prussian states towards the end of the 18th century. Working side-by-side with Johann Heinrich Casimir von Carmer, who held the post of Prussian minister of justice from 1779 to 1798, Svarez was able to make use of his talent for reforming and legislating. From 1780 to 1794 he was primarily responsible for the elaboration of the codification of the Prussian private law – the “Allgemeines Landrecht für die Preußischen Staaten” in 1794. In the present paper, Svarez’ approach to the relation between law and power shall be analysed on two different levels. Firstly, on a theoretical level, the reformist’s thoughts and reflections as laid down in his numerous works, papers and memorandums, shall be discussed. Secondly, on a practical level, the question of the extent to which he implemented his ideas in Prussian legal reality shall be explored.
Ecolabels are frequently presented as consumer information tools that efficiently promote environmental aims such as the sustainability of fisheries. Two recent WTO dispute settlement cases -- Tuna II and COOL -- have called into question the characterisation of labels as ‘consumer information tools’ by illuminating the regulatory power and purposes of labelling. Tuna II moreover clarifies that WTO law does not necessarily privilege ecolabelling over more openly interventionist government measures aimed at environmental protection. In this contribution I first sketch two views of ecolabelling -- one that depicts ecolabelling as primarily aiming at consumer information and another that stresses the regulatory function of labelling. I then turn to the dispute settlement reports in Tuna II and COOL in order to specify the government authority involved in many labelling schemes. I conclude this contribution with the call for a critical assessment of ecolabelling. The power of ecolabelling may be employed to reshape markets and promote green growth. At the same time, however, it may consolidate a trend that places the consumer at the centre of initiatives for societal change and loses sight of potentially more radical transformations through the engagement of human beings as citizens.
Global consensus is growing on the contribution that corporations and finance must make towards the net-zero transition in line with the Paris Agreement goals. However, most efforts in legislative instruments as well as shareholder or stakeholder initiatives have ultimately focused on public companies.
This article argues that such a focus falls short of providing a comprehensive approach to the problem of climate change. In doing so, it examines the contribution of private companies to climate change, the relevance of climate risks for them, as well as the phenomenon of brown-spinning (ie, the practice of public companies selling their highly polluting assets to private companies). We show that one cannot afford to ignore private companies in the net-zero transition and climate change adaptation. Yet, private companies lack several disciplining mechanisms that are available to public companies, such as institutional investor engagement, certain corporate governance arrangements, and transparency through regular disclosure obligations. At this stage, only some generic regulatory instruments such as carbon pricing and environmental regulation apply to them.
The article closes with a discussion of the main policy implications. Primarily, we discuss and evaluate the recent push to extend climate-related disclosure requirements to private companies. These disclosures would not only help investors by addressing information asymmetry, but also serve a wide group of stakeholders and thus aim at promoting a transition to a greener economy.
Prospective welfare analysis - extending willingness-to-pay assessment to embrace sustainability
(2022)
In this paper we outline how a future change in consumers’ willingness-to-pay can be accounted for in a consumer welfare effects analysis in antitrust. Key to our solution is the prediction of preferences of new consumers and changing preferences of existing consumers in the future. The dimension of time is inextricably linked with that of sustainability. Taking into account the welfare of future cohorts of consumers, concerns for sustainability can therefore be integrated into the consumer welfare paradigm to a greater extent. As we argue in this paper, it is expedient to consider changes in consumers’ willingness-to-pay, in particular if society undergoes profound changes in such preferences, e.g., caused by an increase in generally available information on environmental effects of consumption, and a rising societal awareness about how consumption can have irreversible impacts on the environment. We offer suggestions on how to conceptionalize and operationalize the projection of such consumers’ changing preferences in a “prospective welfare analysis”. This increases the scope of the consumer welfare paradigm and can help to solve conceptual issues regarding the integration of sustainability into antitrust enforcement while keeping consumer surplus as a quantitative gauge.
Our starting point is the following simple but potentially underappreciated observation: When assessing willingness to pay (WTP) for hedonic features of a product, the results of such measurement are influenced by the context in which the consumer makes her real or hypothetical choice or in which the questions to which she replies are set (such as in a contingent valuation analysis). This observation is of particular relevance when WTP regards sustainability, the “non-use value” of which does not derive from a direct (physical) sensation and where perceived benefits depend heavily on available information and deliberations. The recognition of such context sensitivity paves the way for a broader conception of consumer welfare (CW), and our proposed standard of “reflective WTP” may materially change the scope for private market initiatives with regards to sustainability, while keeping the analytical framework within the realm of the CW paradigm. In terms of practical implications, we argue, for instance, that actual purchasing decisions may prove insufficient to measure consumer appreciation of sustainability, as they may rather echo learnt but unreflected heuristics and may be subject to the specific shopping context, such as heavy price promotions. Also, while it may reflect current social norm, the latter may change considerably over time as more consumers adopt their behavior.
Industry concentration and markups in the US have been rising over the last 3-4 decades. However, the causes remain largely unknown. This paper uses machine learning on regulatory documents to construct a novel dataset on compliance costs to examine the effect of regulations on market power. The dataset is comprehensive and consists of all significant regulations at the 6-digit NAICS level from 1970-2018. We find that regulatory costs have increased by $1 trillion during this period. We document that an increase in regulatory costs results in lower (higher) sales, employment, markups, and profitability for small (large) firms. Regulation driven increase in concentration is associated with lower elasticity of entry with respect to Tobin's Q, lower productivity and investment after the late 1990s. We estimate that increased regulations can explain 31-37% of the rise in market power. Finally, we uncover the political economy of rulemaking. While large firms are opposed to regulations in general, they push for the passage of regulations that have an adverse impact on small firms.
It has become popular for journalists who are trying to sell newspapers, and politicians who are trying to solicit votes, to refer to this financial crisis as the worst since the Great Depression or WWII. I don’t know whether it is the worst or not so will leave that question to the historians and economists of the future once the storm has past. But it is indeed a “storm” as described by Vince Cable, Member of Parliament in his UK bestselling book entitled “The Storm – The World Economic Crisis and What it Means”. He describes this “storm” as a very destructive one displacing jobs, businesses, banks and whole economies from Iceland to the United Kingdom to the United States. I propose to offer a short chronology and summary of the causes of the current economic crisis. Then I will review several of the regulatory responses to the crisis focusing on the Turner Report, the de Larosière Group and certain US Treasury statements. I will offer my critiques of these proposals and then make some predictions of what the financial services industry may look like in the future.
We investigate the impact of reporting regulation on corporate innovation. Exploiting thresholds in Europe’s regulation and a major enforcement reform in Germany, we find that forcing firms to publicly disclose their financial statements discourages innovative activities. Our evidence suggests that reporting regulation has significant real effects by imposing proprietary costs on innovative firms, which in turn diminish their incentives to innovate. At the industry level, positive information spillovers (e.g., to competitors, suppliers, and customers) appear insufficient to compensate the negative direct effect on the prevalence of innovative activity. The spillovers instead appear to concentrate innovation among a few large firms in a given industry. Thus, financial reporting regulation has important aggregate and distributional effects on corporate innovation.
Dieser Beitrag ist ein Besprechungsaufsatz zu Beatrice Brunhöbers 2010 erschienener Dissertation Die Erfindung „demokratischer Repräsentation“ in den Federalist Papers (Mohr Siebeck, Tübingen: Grundlagen der Rechtswissenschaft, Bd. 14), in der Brunhöber die innovative – und auch die Verfassungsentwicklung andernorts prägende – Kraft der Verbindung von Demokratie, politischer Repräsentation und Föderalismusidee durch die amerikanischen Verfassungsväter herausarbeitet. Auf der Basis von Brunhöbers Untersuchung geht es insbesondere darum, wie sich das von Hamilton, Madison und Jay entworfene ‚alte‘ Konzept zur Gestaltung eines starken Gemeinwesens (eingeschlossen das vertrauensbildende Prinzip der Gewaltenteilung) für einen integrativen Umgang mit den ‚modernen‘ Gegebenheiten pluralistischer Gesellschaften nutzbar machen läßt, im Blick die Gesamtheit (und Vielfalt) des Staatsvolkes als Geltungsfundament legitimer Herrschaft. Im Hintergrund steht die Frage nach Möglichkeiten zur Nutzbarmachung historischer Vergewisserungen für heutige Debatten überhaupt.
Resolving financial distress where property rights are not clearly defined: the case of China
(2022)
We use data on financially distressed Chinese companies in order to study a debt market where property rights are crudely defined and poorly enforced. To help with identification we use an event where a business-friendly province published new guidelines regarding the administration and enforcement of assets pledged as collateral. Although by no means a comprehensive reform of bankruptcy law or property rights, by instructing courts to enforce existing, albeit rudimentary, contractual rights the new guidelines virtually eliminated creditors runs and produced a sharp increase in the survival rate of financially-distressed companies. These changes illustrate how piecemeal reforms of property rights and their enforcement may have a significant impact on economic outcomes. Our analysis and results challenge the view that a fully fledged system of private property is a precondition for economic development.
Scholarship and practice
(2016)
How can I as an international lawyer, conscious that international law is deeply implicated in today’s global injustices and that the course of history will not be changed by any grand legal design, practice law responsibly? Taking as a point of departure my own desire not to seek comfort in the formulation of a critique of law, but to aspire to a responsible practice, I consult two quite different bodies of work: first, critical theory of law and second, recent scholarship on international law that argues a practice guided by ethics may enhance the legitimacy of international law. I turn then to my own practice of international economic law focusing on my occasional role as legal expert on the so-called megaregionals the EU aims to conclude with Canada and the United States. I propose that the debate on international economic law lacks an investigation into the role of law in shaping political economy; that this lack can be explained by the compartmentalization of expertise which leads to justification gaps with respect to projects such as the megaregionals. One way how lawyers can assume responsibility is to work on closing these gaps even if it means leaving the ‘inside’ of the legal discipline. Finally, I suggest that a responsible legal practice of social change might follow Roberto Unger’s call for institutional imagination. Maybe I can satisfy my wish for a transformative practice by joining forces with friends in experimenting with institutions, hoping to build an alternative political economy.
Using hand-collected data on CEO appointments during shareholder activism campaigns, this study examines whether shareholder involvement in CEO recruiting affects frictions in CEO hiring decisions. The results indicate that appointments of CEOs who are recruited with shareholder activist influence are followed by more favorable stock market reactions and stronger profitability improvements than CEO appointments that also occur during activism campaigns but without the influence of activists. I find little evidence that shareholder activists increase hiring frictions by facilitating the recruiting of CEOs who will implement myopic corporate policies. Analyses of recruiting process characteristics reveal that activist influence is associated with more resources being dedicated to the CEO search process and with a higher propensity to recruit CEOs from outside the firm. These findings contribute to the CEO labor market literature, which tends to focus on the decision to remove incumbent CEOs but provides limited insights into CEO recruiting.
This paper has shown that some of the principal arguments against shareholder voice are unfounded. It has shown that shareholders do own corporations, and that the nature of their property interest is structured to meet the needs of the relationships found in stock corporations. The paper has explained that fiduciary and other duties restrain the actions of shareholders just as they do those of management, and that critics cannot reasonably expect court-imposed fiduciary duties to extend beyond the actual powers of shareholders. It has also illustrated how, although corporate statutes give shareholders complete power to structure governance as they will, the default governance structures of U.S. corporations leaves shareholders almost powerless to initiate any sort of action, and the interaction between state and federal law makes it almost impossible for shareholders to elect directors of their choice. Lastly, the paper has recalled how the percentage of U.S. corporate equities owned by institutional investors has increased dramatically in recent decades, and it has outlined some of the major developments in shareholder rights that followed this increase. I hope that this paper deflated some of the strong rhetoric used against shareholder voice by contrasting rhetoric to law, and that it illustrated why the picture of weak owners painted in the early 20th century should be updated to new circumstances, which will help avoid projecting an old description as a current normative model that perpetuates the inevitability of "managerialsm", perhaps better known as "dirigisme".
Shareholder voting is back on the agenda of public debate for several reasons. One is the investors’ internationalization of capital investments and the raising of funds globally by companies. It can be predicted that considering the growing together of capital markets the trend to international investments will increase not least because the introduction of the Euro will create a uniform European stock market. This leads to the question how the law deals with this development and its problems. The EU Commission has commissioned a comparative study dealing, inter alia, with shareholders’ representation at general meetings in the EU member states.1 The aim is to simplify the operating regulations for public limited companies in the EU. Furthermore, the internationalization of shareholdings leads the investors to ask how their interests are protected abroad. Are the mechanisms of shareholder protection sufficient for foreign investors? In particular the formation of transnational companies like Daimler-Chrysler will change corporate governance systems. It remains to be seen whether and how foreign institutional investors will use measures of - in this case - German corporate law to control the management. From a microeconomic point of view the question is what specific features of a given corporate governance system might contribute to better performance of firms. The following remarks will however, be confined to one specific aspect of corporate governance only, the exercise of shareholders’ voting rights at the general meeting.
We present evidence on the way personal and institutional factors could together guide public company directors in decision-making concerning shareholders and stakeholders. In a sample comprising more than nine hundred directors originating from over fifty countries and serving in firms from twenty three countries, we confirm that directors around the world hold a principled, quasi-ideological stance towards shareholders and stakeholders, called shareholderism, on which they vary in line with their personal values. We theorize and find that in addition to personal values, directors’ shareholderism level associates with cultural norms that are conducive to entrepreneurship. Among legal factors, only creditor protection exhibits a negative correlation with shareholderism, while general legal origin and proxies for shareholder and employee protection are unrelated to it.
Other than in Belgium, German banks may hold even controlling equity participations in industrial firms (and such firms may own banks) and do so to a large extent. Vis-a-vis the European development this leads to two questions: From the perspective of the (Belgian and other) competitors of these banks, whether their own domestic System might be disadvantageous to them. And from a public interest perspective, which advantages and drawbacks are connected with the different regulations in Europe. The article first informs about the legal framework and some statistical facts. Then the various and different reasons why banks acquire and hold shares on own account are analyzed. The following Parts deal with the various public policy arguments whether equity links between banks and industrial firms should be prohibited or not (safety and soundness of banking; autonomie de Ia fonction bancaire ; abuse of confidential information and conflicts of interest; antitrust considerations; negative and positive impacts on the respective firm). In its last part the article deals with recent proposals in the German political debate to limit stockholdings of banks. The article argues that a step-by-step approach to the Single Problems and issues (conflict of interests; anticompetitive effects etc.) should be preferred to a general limitation of stock ownership of banks.
In an ideal world all investment products, including hedge funds, would be marketable to all investors. In this ideal world, all investors would fully understand the nature of the products and would be able to make an informed choice whether to invest. Of course the ideal world does not exist – the retail investment market is characterised by asymmetries of information. Product providers know most about the products on offer (or at least they should do). Investment advisers often know rather less than the provider but much more than their retail customers. Providers and intermediary advisers are understandably motivated by the desire to sell their products. There is therefore a risk that investment products will be mis-sold by investment advisers or mis-bought by ill-informed investors. This asymmetry of information is dealt with in most countries through regulation. However, the regulatory response in different countries is not necessarily the same. There are various ways in which protections can be applied and it is important to understand that the cultural background and regulatory histories of countries flavours the way regulation has developed. This means (as will be explained in greater detail later) that some countries are better able than others to admit hedge funds to the retail sector. Following this Introduction, Section II looks at some key background issues. Section III then looks at some important questions raised by the retail hedge fund issue. Many of these are questions of balance. Balance lies at the heart of regulation of course – regulation must always balance the needs of investors and with market efficiency. Understanding the “retail hedge fund” question requires particular attention to balance. Section IV then looks at the UK regime and how the FSA has answered the balance question. Section V offers some international perspectives. Section VI concludes. It will be seen that there is no obviously right answer to the question whether hedge fund products should be marketed to retail investors. Each regulator in each jurisdiction needs to make up its own mind on how to deal with the various issues and balances. It is evident, however, that internationally there is a move towards a greater variety of retail funds. There is nothing wrong with that, provided the regulators and the retail customers they protect, understand sufficiently what sort of protection is, or is not, being offered in the regulatory regime.
Constitutionalization beyond the nation state can be observed as an evolutionary process that leads in two quite different directions: (1) constitutions evolve in transnational political processes outside the nation state; (2) simulta-neously, constitutions evolve outside international politics in global society’s ‘private’ sectors. What, however, is the specifically societal element in societal constitutionalism? This is currently the object of a controversy regarding the subjects of non-state constitutions, their origin, their legitimization, their scope, and their internal structures. This article interprets the controversy as a theme with a number of variations. What is the distinctive ‘compositional principle’ in each particular variation? Which problems become evident in its ‘development’? What are its most valuable ‘motifs’? The article starts with David Sciulli’s theme of societal constitutionalism. Then it presents six variations on Sciulli. In a first group, constitutionalization is perceived as the expansion of a single rationality into all spheres of society. In a second group, the motif of the unity of the consti-tution can still be heard, despite the essential pluralism of societal constitution-alism. In the final movement, three further variations will then reprise and devel-op further the most important motifs, in a resumption of the original theme.
Stability maintenance at the grassroots: China’s weiwen apparatus as a form of conflict resolution
(2013)
This working paper explores the history and potential of “stability maintenance” (weiwen) as a form of conflict resolution in China. Its emphasis on conflict resolution is novel. Previous examinations of the weiwen apparatus have concentrated on its political function, namely to manage resistance within society and maintain the authority of the party-state. This avenue of investigation has proved fruitful as a means of characterising the political motivation and the higher-level strategies involved in stability maintenance. Nonetheless, there remain significant conceptual and empirical gaps relating to how stability maintenance offices and processes actually function, particularly out of larger cities and at local levels. The research described in this paper aims to consider the effectiveness of stability maintenance as a part of the “market” for conflict resolution in local China, and to test the hypothesis that conflict resolution as facilitated by weiwen is the most pragmatic and effective means of actually resolving conflicts in the current Chinese political context, notwithstanding the closeness of the stability maintenance discourse to state authority and its relative distance from rule of law-based methods of dispute resolution...
The Åland Islands archipelago enjoys a special international status sui generis, which essentially encompasses demilitarisation, neutralisation, and autonomy. This status is guaranteed under international law by the agreements of 1921, 1940, and 1947, which are still in force. Furthermore, there are convincing reasons to assume that the Åland Islands regime has grown into European customary law. By virtue of her international (treaty) obligations, Finland cannot unilaterally change this status under the present conditions, irrespective of domestic (constitutional) decisions. While integration into NATO’s collective defence system and the EU’s Common Security and Defence Policy structures is compatible with the special status of the Åland Islands, care must be taken by Finland and her partners to ensure that the obligations arising from these developments are fulfilled in accordance with the demilitarised and neutralised status of the archipelago. This includes that the use by Finnish troops for preventive defence, beyond the exceptions laid down in the 1921 Åland Agreement, is only permitted in the case (of threat) of an immediate and clearly identifiable attack.
The autonomous character of the Åland Islands was established under a League of Nations dispute settlement and implemented, inter alia, in Finnish legislation. Its essence even grew into customary law. The arrangements of 1921, however, do not constitute a bilateral treaty between Finland and Sweden. The UN assumes that the international mechanism to protect Åland’s autonomy did not become obsolete with the demise of the League of Nations, but was only “suspended until such time as an express decision has been taken by the United Nations to put it back into force”. A corresponding proposal could be submitted, in any case, both by Finland and/or Sweden or possibly even by any other UN member state, for discussion in the Sixth Committee. However, the final decision to re-activate this special mechanism would have to be adopted by the UN General Assembly.
EU Law applies to the Åland Islands in principle; however, Finland’s Accession Treaty to the EU to which Protocol No. 2 on the Åland Islands was annexed, established a number of specific rules which are still in force today. This, most notably, results in the limited application of value added tax and excise duties in the Åland Islands. Therefore, the rules on customs procedures apply with respect to the movement of goods to and from the Åland Islands. In addition, other provisions of Union law, in particular those relating to fundamental freedoms and European state aid law, may be relevant in view of the special fiscal status of the Åland Islands. However, assessing individual cases would require further information and in-depth studies. Irrespective of the requirements set out in the said Protocol, the EU is obliged to respect the national identity of Member States pursuant to Article 4 para. 2 TEU; this obligation includes respect for the special status of the Åland Islands under both international and Finnish constitutional law.
Supranational supervision
(2022)
We exploit the establishment of a supranational supervisor in Europe (the Single Supervisory Mechanism) to learn how the organizational design of supervisory institutions impacts the enforcement of financial regulation. Banks under supranational supervision are required to increase regulatory capital for exposures to the same firm compared to banks under the local supervisor. Local supervisors provide preferential treatment to larger institutes. The central supervisor removes such biases, which results in an overall standardized behavior. While the central supervisor treats banks more equally, we document a loss in information in banks’ risk models associated with central supervision. The tighter supervision of larger banks results in a shift of particularly risky lending activities to smaller banks. We document lower sales and employment for firms receiving most of their funding from banks that receive a tighter supervisory treatment. Overall, the central supervisor treats banks more equally but has less information about them than the local supervisor.
The corporate governance Systems in the U.K. and in Germany differ markedly. German large firms have a two-board structure, they are subject to employee codetermination, their managements are not confronted with public hostile takeover bids, and banks play a major role in corporate governance, through equity stakes, through proxies given to them by small investors, and through bankers positions on the supervisory boards of these firms. One of the main issues of corporate governance in large firms, the Problem of shareholders passivity in monitoring management in Berle-Means type corporations, is thus addressed by an institutional Provision, the role of the banks, rather than by a market-oriented Solution as we find it in the U.K. with its market for corporate control through the threat of hostile takeovers. These two different approaches to corporate governance have been compared several times recently, and it was argued that a bank-based or institutional Solution has clear advantages and should be preferred. Cosh, Hughes and Singh, for example, argue at the conclusion of their discussion of takeovers and short-termism in the U.K. that the institutional shareholder [in the UK] should take a much more active and vigorous part in the internal governance of corporations. . . . In Order for such a proposal to be effective both in disciplining inefficient managements and promoting long-term investments, far reaching changes in the internal workings and behaviour of the financial institutions would be required. The financial institutions would need to pool their resources together, set up specialised departments for promoting investment and innovations - in other words behave like German banks. The following remarks seek to continue this discussion from the German perspective. The article will first attempt to evaluate the monitoring potential of our domestic bank or institution-oriented corporate governance System and then, in a further patt, compare it with that of a market-oriented Solution. lt will be argued that both Systems focus on different Problems and have specific advantages and drawbacks, and that there are still quite a few puzzles to be solved until all pros and cons of each of these monitoring devices tan be assessed. The perception that both Systems focus on different Problems suggests combining institutional monitoring with a market for corporate control rather than considering them to be contrasting and incompatible approaches. The article is organized as follows. Section II will describe the legal structure of the large corporation in Germany in more detail. Section Ill explains why a market for corporate control by the threat of public hostile takeover bids does not exist in Germany. Section IV then Shows how corporate governance in publicly held corporations with small investors is organized instead, and deals with the role of banks in corporate governance in these firms. Section V of the atticle then will try to compare the monitoring potential of a marketoriented and our bank or institution-oriented corporate governance System. Concluding remarks follow.
Taking shareholder protection seriously? : Corporate governance in the United States and Germany
(2003)
The paper undertakes a comparative study of the set of laws affecting corporate governance in the United States and Germany, and an evaluation of their design if one assumes that their objective were the protection of the interests of minority outside shareholders. The rationale for such an objective is reviewed, in terms of agency cost theory, and then the institutions that serve to bound agency costs are examined and critiqued. In particular, there is discussion of the applicable legal rules in each country, the role of the board of directors, the functioning of the market for corporate control, and (briefly) the use of incentive compensation. The paper concludes with the authors views on what taking shareholder protection seriously, in each country s legal system, would require.
Taking shareholder protection seriously? : Corporate governance in the United States and Germany
(2003)
The attitude expressed by Carl Fuerstenberg, a leading German banker of his time, succinctly embodies one of the principal issues facing the large enterprise – the divergence of interest between the management of the firm and outside equity shareholders. Why do, or should, investors put some of their savings in the hands of others, to expend as they see fit, with no commitment to repayment or a return? The answers are far from simple, and involve a complex interaction among a number of legal rules, economic institutions and market forces. Yet crafting a viable response is essential to the functioning of a modern economy based upon technology with scale economies whose attainment is dependent on the creation of large firms.
Even though fiscal sovereignty still counts as a fundamental principle of government, global and regional economic integration as well as increasing levels of sovereign debt severely limit governments’ tax policy choices. In particular the redistributive function of taxation has suffered in the pursuit of economic competitiveness. As inequality rises and attention is directed again at taxation as a means for redistribution, international cooperation appears as an avenue to enable redistribution through taxation. Yet, one of the predominant international institutions dealing with tax matters – the OECD – with its focus on economic growth and competitiveness and resulting tax policy advice prevents rather than promotes national and international debates on taxation as a question of social justice. The paper argues that questions of taxation need to be perceived as questions of social justice and thus as questions of politics, and not merely of economics. Only if taxation is not considered a mere economic instrument can a ‘political economy’ be maintained. The paper addresses the three objectives of taxation – revenue generation, redistribution and regulation -- and how they are affected as governments aim for fiscal consolidation to conclude that governments’ power to freely pursue and calibrate these objectives has come to appear rather as a myth than the core of sovereignty. It then demonstrates how the OECD’s tax policy advice and cooperation in tax matters react to the constraints on governmental taxation powers; how they aim at economic growth and competitiveness to the detriment of (other) ideas of social justice. The paper concludes with a call for (re)integrating social and global justice concerns into debates on taxation.
The paper examines the importance of international labour standards for ESG reporting. International labour standards exist today for almost all working conditions. There are many reasons why ESG criteria should be based on these standards. This is already happening to some extent. However, the references to international labor standards should be expanded and the existing references deepened.
This paper contributes to the debate on the adequate regulatory treatment of non-bank financial intermediation (NBFI). It proposes an avenue for regulators to keep regulatory arbitrage under control and preserve sufficient space for efficient financial innovation at the same time. We argue for a normative approach to supervision that can overcome the proverbial race between hare and hedgehog in financial regulation and demonstrate how such an approach can be implemented in practice. We first show that regulators should primarily analyse the allocation of tail risk inherent in NBFI. Our paper proposes to apply regulatory burdens equivalent to prudential banking regulation if the respective transactional structures become only viable through indirect or direct access to (ad hoc) public backstops. Second, we use insights from the scholarship on regulatory networks as communities of interpretation to demonstrate how regulators can retrieve the information on transactional innovations and their risk-allocating characteristics that they need to make the pivotal determination. We suggest in particular how supervisors should structure their relationships with semi-public gatekeepers such as lawyers, auditors and consultants to keep abreast of the risk-allocating features of evolving transactional structures. Finally, this paper uses the example of credit funds as non-bank entities economically engaged in credit intermediation to illustrate the merits of the proposed normative framework and to highlight that multipolar regulatory dialogues are needed to shed light on the specific risk-allocating characteristics of recent contractual innovations.
This paper reexamines the current legal landscape regarding the protection of trade marks and other industrial property rights in signs on the Internet. It is based on a comparative analysis of EU and national laws, in particular, German, U.S., and U.K. law. It starts with a short restatement of the principles governing trade mark conflicts that occur within a particular jurisdiction (part 2) and proceeds to the regulation of transnational disputes (part 3). This juxtaposition yields two basic approaches. Whereas trade mark conflicts within closed legal systems are generally adjudicated according to a binary either/or logic, transnational disputes are and should indeed be solved in a way that leads to a fair coexistence of conflicting trade mark laws and rights under multiple laws. This paper explains how geolocation technologies can alleviate the implementation of the principle of fair coexistence in concrete cases.