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Currently, the Council of the European Union is negotiating the European Commission’s recent proposal on cross-border mobility. This paper provides an overall assessment based on the proposal’s central pillars: freedom of establishment and protection of the interests of creditors, shareholders, and employees. The proposed directive meets a real necessity for regulation on a European level and pursues an ambitious agenda. While the general approach is excellent, there is room for improvement on some issues of importance.

A core element of most analyses of how capitalism is failing us is the shareholder primacy doctrine that has taken hold of corporate law and corporate governance. The doctrine has been developed in theory (among others through the agency theory) and practice (e.g. executive remuneration and takeover bids) resulting in the corporation becoming amoral. Any moral responsibility for the effects of one’s behaviour on others has to come from the outside, as an externality. Within the corporation only responsibility to create value for shareholders exists. It is striking to see how this corporate reality created by ourselves seems to have become a reality that is over and beyond us, as a matter-of-fact that cannot be contested, it is simply how it is. Insights of Weber and Fromm show how we have succumbed to self-made formal rationalization and alienation so that we no longer have any responsibility for this corporate reality. This human failure can only be conquered by turning to who we are in the corporate context. Proposals have been made to change this corporate reality, by reducing shareholders’ rights, by installing a broader corporate purpose and by involving other stakeholders in the governance of the corporation. In each of these approaches the role of the board is crucial. Without a board, without the people who make up the board, who commit the corporation to being a responsible citizen in society, nothing much will change. In this paper I argue that in order to generate such a commitment corporate law should introduce a duty of societal responsibility of the board. This involves being responsible for the impact the corporation has on human, social and natural capital, besides financial capital. Corporate law and corporate governance arrangements should elaborate on this duty, by applying principles of fair decision-making and by transforming board decision-making, board composition, organizational governance, executive remuneration and transparency. Such elaborations anchored in the duty of societal responsibility will bring to life a veritable and human commitment from within the corporation to conduct itself as a responsible corporate citizen in society.

The large corporation has become dehumanised, through a combination of developments like the one-sided shareholder value focus in the modern theory of the firm, capital markets that see companies as balance sheets, efficiency driven management practices that see humans as production tools, excessive regulation and control and failing remuneration sytems. Modern digital technologies, considering people only as bundles of data that can be exploited, increase dehumanisation. To re-humanise the corporation we need to reorient the purpose of the corporation, develop humane management practices, invent and improve corporate legal forms and first of all rediscover what it is to be human in our times.

The legal regime applicable to groups of companies in the European Union has been discussed for many years. National legislations have been adopted in a certain number of Member States, and new initiatives are being considered by the European Commission and in academic writing. The central issues in groups of companies is the relationship between the controlling shareholder, often the parent company and the subsidiaries, and the potential for abuse to the detriment of the latter’s minority shareholders and creditors. Several answers have been formulated, ranging from a duty of the parent to indemnify the subsidiary for the charges imposed by the parent, to the acceptance of these charges provided they result in some benefit to the subsidiary and do not endanger the subsidiary’s solvency. In another approach, these issues may be solved by other common company law, e.g., on the basis of the unfair prejudice provisions. With respect to shareholder and creditor protection, a comparative analysis concludes that there is no need for additional regulatory safeguards. The present approaches indicate that group relations are often characterised by conflicts of interest. Therefore, it is proposed to develop a standard for dealing with these, especially under the form of related party transactions. The specific conditions for dealing with intragroup related party transactions are submitted for further discussion.

Corporate Governance research so far practically ignores the human experience of being-in-the-board as a source of understanding board practices, board performance and its strengths and weaknesses. This article takes a phenomenological approach to describe key, structural features of boards that inform members of the board on how to behave. Board members make sense of the complexity of these features in different ways, determined by their personal characters, drives, values, virtues, experiences and world views. Boards would benefit hugely from developing a reflective practice of uncovering, sharing and discussing their mutual experiences of being-in-the-board. Academically, becoming aware of the crucial role of human experience of being-in-the-board for the performance of the board should lead to very different types of research.

Currently, the Council of the European Union is negotiating the European Commission’s recent proposal on cross-border mobility. This paper provides an overall assessment based on the proposal’s central pillars: freedom of establishment and protection of the interests of creditors, shareholders, and employees. The proposed directive meets a real necessity for regulation on a European level and pursues an ambitious agenda. While the general approach is excellent, there is room for improvement on some issues of importance.

The personal liability of executive and non-executive directors receives perhaps surprisingly little attention in the international literature and research into the functioning of corporate governance. Although liability is a recognised enforcement mechanism for dealing with misconduct, no systematic research has as yet been conducted into the effects of personal liability (or the threat of it) on the conduct of executive and non-executive directors. The central point of this paper is that the core risk of liability for directors is that they are being judged by others (the court and public opinion) and will find that it becomes harder to maintain self-serving rationalisations for their behaviour that help them deal with their cognitive dissonance. This threat does not depend on actual out-of-pocket payments of damages. In fact, the ongoing formalisation and juridification of corporate and board conduct constantly increases the risk of making mistakes that trigger this threat. This may lead to boards being distracted from taking the best possible decision in order to take a decision that can be best justified in light of the rules and procedures that need to be complied with.

The consequences of the Brexit vote will be felt throughout the legal systems, both in the UK and in the EU. The legal consequences of the Brexit decision and the process which will lead to the withdrawal of the UK, raises numerous questions many of which are in the process of being analysed, and possibly solved. In the field of company law, with respect to cross-border matters, UK companies will be exposed to national laws in the EU States after the Treaty freedom of establishment will not further apply. This may lead to tensions between the two systems of recognition of foreign companies, i,e. the incorporation theory and the seat theory. Foreign companies active in seat jurisdictions may in the future be disqualified if their seat is effectively established in the seat State. Access may become more difficult, not on the basis of company law, but of sectoral regulations. In other part of the regulatory system, such as the rules on cross-border mergers, on rights of shareholders in listed companies, or disclosures to be made, equivalence of rules, as decided by the European Commission, will be the key factor. Additional issues will arise for the cross-border recognition of accounting standards and for the activity of auditors.

The legal regime applicable to groups of companies in the European Union has been discussed for many years. National legislations have been adopted in a certain number of member states, and new initiatives are being considered by the European Commission and in academic writing. The central issues in groups of companies is the relationship between the controlling shareholder, often the parent company and the subsidiaries, and the potential for abuse to the detriment of the latter’s minority shareholders and creditors. Several answers have been formulated, going from a duty of the parent to indemnify the subsidiary for the charges imposed by the parent, to the acceptance of these charges provided they result in some benefit to the subsidiary and provided they do not endanger the subsidiary’s solvency. In a third approach, these issues may be solved by other common company law, e.g. on the basis of the unfair prejudice provisions. With respect to shareholder and creditor protection, a comparative analysis concludes that there is no need for additional regulatory safeguards. The present approaches indicate that group relations are often characterised by conflicts of interest. Therefore, it is proposed to develop a standard for dealing with these, especially under the form of Related Party Transactions. The specific conditions for dealing with intragroup related party transactions are submitted for further discussion.

This chapter examines corporate law and governance from a behavioral perspective. It begins with an overview of the growing body of behavioral knowledge and its impact on the core assumptions of the agency theory. It then goes on to consider a number of specific areas of corporate law and governance where behavioral perspectives are particularly relevant, with particular emphasis on rule making. The chapter also explores how the board of directors performs, along with modern executive compensation systems, often in the form of performance-based pay. Finally, the chapter turns to the interaction between executives, non-executives, and (institutional) investors in corporate governance.

The European Commission launched, in April 2014, a new initiative to amend the shareholder rights directive as regards to the encouragement of long-term shareholder engagement. Under this heading, the Commission proposal intends to grant rights to shareholders concerning director remuneration (say on pay) and related party transactions. Moreover, it also imposes duties concerning an engagement policy on institutional investors and asset managers and gives rights to the management concerning shareholder identification. This paper deals with shareholder engagement and identification by referring to the initial Commission proposal. Both instruments are motivated by referring to the support shareholders have allegedly given to managers’ excessive risk taking before the financial crisis. The current level of “monitoring” of investee companies and engagement by institutional investors and asset managers is considered inadequate, leading to suboptimal governance of listed companies (see preamble 2). It is questionable whether the financial crisis revealed weak governance in listed companies and whether the rules proposed are likely to meet the objectives as stated in the directive.

(General information:) The corporate governance system in the Netherlands has witnessed important changes over the last decade. Following a very public debate about the maintenance of the wide arsenal of defensive measures against takeovers in the first half of the 1990s, a first attempt was made to produce corporate governance recommendations for listed companies. The forty recommendations of the Peters Committee, published in 1997, triggered general awareness of corporate governance questions. The discussions on corporate governance were held against the background of the Dutch corporate law system that imposes a stakeholder rather than shareholder orientation of executive and supervisory boards of companies. The Dutch corporate law system includes distinct elements of employee codetermination: far-reaching works council powers and the Dutch structure regime for large companies, allowing employees to have a say in the appointment of supervisory directors. Dutch corporate law also, in general, allows a wide-ranging set of mechanisms that can be used not only to defend companies against hostile takeovers, but also to reduce substantially shareholders' involvement in corporate affairs under normal circumstances, including non-voting depositary receipts for shares, priority shares with special control rights, and structural delegation of authorities to the executive board.

This paper contains the European Company Law Experts' response to one of the main issues raised in the European Commission’s Action Plan of 12 December 2012, namely how to make corporate governance codes more effective. The concept of “codes’ effectiveness” has two meanings: effectiveness of the comply-explain mechanism (disclosure effectiveness) and level of adoption of the codes’ recommendations themselves (substantive effectiveness). The ECLE believes that it is of crucial importance to keep the advantages of regulation by codes while finding adequate improvements of the quality of the reports and the explanations. The relationship between the content of corporate governance codes and disclosure is discussed. A “culture of departure from code recommendations”, if well explained, is needed. The quality of corporate governance reports and the explanations should primarily be improved by incentives, but non-legal and legal sanctions may help. Improvements may also be possible by mobilizing private actors and/or by charging public or private agents and agencies with inspection and monitoring.

The corporate governance crisis at the start of this third Millennium and the financial crisis only a few years later, have cast doubts on the way boards of directors of companies function. Lawyers and (financial) economists have developed narrow perceptions of boards and their roles that are unable to explain board performance in reality and the factors that determine it. A comprehensive and integrated approach of boards is required to truly understand what drives board performance. Such an integrated approach necessarily includes behavioural aspects. In this paper we focus on a crucial element in the analysis of board performance: what it means for a board to be On Task. On the basis of an Organisational Role Analysis we describe the interaction between executives and non-executives that constitutes board activity. The concept of the Board On Task helps to understand and assess board performance in practice. It also offers a comprehensive conceptual framework for conducting novel research in understanding board performance. We conclude with some policy implications.

This paper contains the views of the European Company Law Experts (ECLE) on the future of European company law. The paper accompanies the responses of the European Company Law Experts to the European Commission’s Consultation on the future of European Company Law of spring 2012. In the first part of the paper we set out our views on the objectives of European company law and in the following parts we discuss how the European Commission should proceed with rule making in the field of company law.

Modern perceptions of good corporate governance assume that the general meeting has a meaningful role in the governance of listed companies and that shareholders make responsible use of their voting rights. Assessments after the financial crisis, however, indicate that institutional investors by and large are not engaged in any meaningful way. This paper analyses various factors that may lead institutional investors to be uninterested and unknowledgeable, including standard investment practices based on modern portfolio theory, diversification, prudency and solvency rules, intermediation through asset managers, fiduciary duties and portfolio manager remuneration. The paper distinguishes three types of engagement: Compliance, intervention and stewardship and argues that stewardship by institutional investors requires a radical rethinking and redesigning of institutional investment. Measures suggested by the European Commission in its Green Paper on Governance of Listed Companies may remove some obstacles and provide for some incentives but will not be enough to affect such transformation.

This paper constitutes the European Company Law Experts' response to the European Commission's Green Paper "The EU Corporate Governance Framework". The paper contains responses to the individual questions put forward by the Commission as well as an introductory statement. In this statement we first set out briefly the rationale for having rules on corporate governance, whether those rules are determined at national or EU level and whether they are contained in hard or soft law. We then consider the rationale for taking action at EU level. Thirdly, we make a suggestion as to how the choice between hard and soft law should be made. Fourth, we consider the overall implications of the previous arguments for the division of rule-making between the EU and Member States.

After the governance crisis of 2001-2003 and the regulatory response through the Sarbanes-Oxley Act and the European corporate governance codes, the financial crisis has revealed persistent governance problems in financial institutions relating to executives, non-executives and shareholders. For executives these problems lie in the areas of risk and remuneration. Non-executives may have been insufficiently involved in key decisions and underlying direction of the institutions, despite the strong push to increased monitoring by non-executives through Sarbanes-Oxley and European governance codes. Institutional investors have shown a general lack of engagement with investee companies. The paper continues to critically review the governance provisions for financial institutions set forth in the recent proposals for a European Capital Requirements Directive IV and related Regulation. It concludes that regulation often is not the best way to deal with the persistent governance problems, either because it cannot deal with the intricacies of corporate and human reality, as is the case of board and non-executive director performance, or because it will be ineffective as long as underlying generally held beliefs, world views, assumptions and paradigms remain unaffected, for example in the case of risk culture, remuneration and institutional investor lack of engagement. Regulation may actually worsen the situation in some cases, like remuneration and board performance. It takes courage not to regulate and seek alternative avenues to address such problems.

The European Commission has proposed a Takeover Directive that aims to make the control of European corporations more contestable. The European Parliament and Germany will not adopt the Directive unless it provides for reciprocity in takeovers, limiting access to the articles of contestability to bidders that have adopted contestability themselves. Reciprocity in takeovers is not desirable. It unduly restricts the pool of bidders and reduces the potential benefits of contestable control. Contestable control itself has benefits, but the theoretical and empirical support for neutralising the power of incumbent blockholders and boards is too weak to justify large-scale regulatory intervention. The most powerful instruments for making corporate control contestable are not available in all Member States. The Takeover Directive could put these tools on the menu throughout the European Union, allowing companies that want them to embrace them - and giving institutional investors a chance to push for the hug. The current proposals will not change much, one-way or the other. If anything, they will add another level of complexity and confusion to the prevailing systems of corporate control in Europe.

This document constitutes the High Level Group of Company Law Experts' first report, in conformity with the Group's terms of reference which were defined by the European Commission on 4 September 2001. The Group has been set up by the European Commission to provide independent advice in the first instance on issues related to pan-European rules for takeover bids and subsequently on key priorities for modernising company law in the European Union. The Group has been asked to consider the following three issues: - How to ensure the existence of a level playing field in the European Union concerning the equal treatment of shareholders across Member States; - The definition of the notion of an "equitable price" to be paid to minority shareholders; - The right for a majority shareholder to buy out minority shareholders ("squeeze-out right"). An important goal of the European Union is to create an integrated capital market in the Union by 2005. The regulation of takeover bids is a key element of such an integrated market. Currently there are many differences between the various Member States, in terms of such general and company specific factors. Annex [4] gives an overview of company specific barriers to takeover bids which are lawful or actually applied in the Member States and which the Group has reviewed.... This is what is generally referred to as the 'lack of level playing field' in the area of takeover bids in the European Union. In the light of available economic evidence the Group holds the view that the availability of a mechanism for takeover bids is basically beneficial. Takeovers are a means to create wealth by exploiting synergies and to discipline the management of listed companies with dispersed ownership, which in the long term is in the best interests of all stakeholders, and society at large. These views also form the basis for the Directive. This is not to say that takeover bids are always beneficial for all (or indeed any) of the parties involved. The mandate of the Group is to review whether and to what extent a level playing field for takeover bids should be created under company law in Member States. The Group acknowledges that any approach on this basis would leave the various general differences existing in Member States untouched. It believes, however, that its recommendations with respect to company law mechanisms and structures would, in addition to market driven changes, mark an important step forward in developing a general level playing field for takeover bids in the European Union. The Group believes that any European company law regulation aimed at creating a level playing field for takeover bids should be guided by two principles: 1. Shareholder decision-making In the event of a takeover bid the ultimate decision must be with the shareholders. They should always be able to decide whether to tender their shares to a bidder and for what price. It is not for the board of a company to decide whether a takeover bid for the shares in the company should be successful or not. This is not to say that the board has no responsibility at all in the context of a takeover bid. It is sometimes argued that allowing the board to frustrate a takeover bid can be justified as a means to help take into consideration the interests of shareholders and other stakeholders in the company, notably the employees. The Group rejects these views. Defensive mechanisms are often costly. Most importantly, managers are faced with a significant conflict of interests. Shareholders should be able to decide for themselves and stakeholders should be protected by specific rules (e.g. on labour law or environmental law). 2. Proportionality between risk-bearing capital and control In the Group's view, proportionality between ultimate economic risk and control means that share capital which has an unlimited right to participate in the profits of the company or in the residue on liquidation, and only such share capital, should normally carry control rights, in proportion to the risk carried. The holders of these rights to the residual profits and assets of the company are best equipped to decide on the affairs of the company as the ultimate effects of their decisions will be borne by them. This report will use the term 'risk-bearing capital' to refer to this concept. The holder of the majority of risk-bearing capital should be able to exercise control. Capital and control structures in a company which grant disproportionate control rights to some shareholder(s) should not operate to frustrate an otherwise successful bid for the risk-bearing capital of the company. The concept of risk-bearing capital used here does not include those preference shares which have no exposure to the surplus but only carry a limited right to distributions of profits and on liquidation.

This paper investigates the difficulties in the cross-border exercise of voting rights by shareholders. The difficulties arise a result of differences in the company laws, securities laws and securities systems in the member-states of the European Union, which have all been set up decades ago to serve national purposes. In addition there are as uncertainties in the rules of private international law governing these securities systems. These differences cause serious problems where shares are increasingly held through cross-border chains of intermediaries from investors to custodian and depository banks, national and international clearing organisations and regional or global custodians. As a result the author concludes that Europe is in need of a new legal and practical infrastructure which would facilitate cross-border voting by shareholders. The consolidating stock exchanges and clearing markets will increase the necessity of such an infrastructure, but will in itself not provide this infrastructure. Legislation, on a European scale is required. In devising a new system, Europe should look at the United States, where a number of these problems have been overcome in the past. With the knowledge of hindsight, Europe could probably even improve on the US system.