Shareholder Primacy and Corporate Governance by Shuangge Wen

Author:Shuangge Wen
Language: eng
Format: epub
Publisher: Routledge

Contesting procedural harmonisation from a practical point of view – continuing diversities across member states

The inspiration behind the EUs push towards procedural harmonisation, i.e. the ultimate emergence of a harmonised framework via substantial integration of individual codes, can be traced back to the theory of regulatory competition put forward by “race to the top” advocates. In their analysis, law can also be seen as a product in a market for regulatory regimes, and diverse systems of rules will eventually converge via a process of national legislatures competing to attract firms.124 Reflecting business demands, moderate but not excessive competition among national laws and rules is seen as promoting regulatory innovations, accelerating the integration of the substance of European corporate laws towards an aggregation of best practices, and subsequently progressing towards a “bottom-up” convergence across the European Union.125

For the purposes of this book, we need not engage in seeking answers about the contentious topic of whether regulatory competition will occur.126 What does need to be acknowledged, however, is that the presumed convergence will occur as a by-product of competition between national legislatures, which intend to attract firms to become subject to their laws. In other words, convergence will be triggered by firms preferences rather than by a vertical imposition of laws working towards a unifying direction. This renders the EUs imposition of the comply-or-explain principle – i.e. the mandatory application of national codes – largely redundant from a theoretical point of view. When the envisaged convergence rests entirely on the basis of voluntary modifications of laws, why do we need further Union mandates to complicate the picture?

From a practical point of view, observation of the regulatory integration status casts further doubt on procedural harmonisation, and even on the prospect of regulatory competition. In the US, where regulatory competition is thought to be common practice, there is conflicting evidence regarding the large-scale occurrence of regulatory competition and convergence.127 In Europe, the practice in the years since the Centros decision128 has proved that the anticipated “legislation shopping” that was feared as a result of increased corporate mobility has been largely overwhelmed by the persistence of Member States domestic competitive advantages, including skilled workforces, infrastructure and proximity to natural resources.129 No significant sign has been found of national rules regarding corporate governance “competing and converging”. With regard to the central themes characterising the dichotomous models of corporate governance – namely, ownership and control – fascinating diversities in terms of both structural and practical aspects are still exhibited in European countries, despite an emerging common understanding of the significance of corporate governance and various harmonising efforts over the past decades. As will be presented below, these differences in board structure and the rights and composition of the shareholder body indicate the inefficiency of procedural harmonisation, and tentatively suggest the limited prospect of regulatory approximation arising out of competition between national codes.

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