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The current model of corporate governance needs reform. There is mounting evidence that the practices of shareholder primacy drive company directors and executives to adopt the same short time horizon as financial markets. Pressure to meet the demands of the financial markets drives stock buybacks, excessive dividends and a failure to invest in productive capabilities. The result is a ‘tragedy of the horizon’, with corporations and their shareholders failing to consider environmental, social or even their own, long-term, economic sustainability. With less than a decade left to address the threat of climate change, and with consensus emerging that businesses need to be held accountable for their contribution, it is time to act and reform corporate governance in the EU. The statement puts forward specific recommendations to clarify the obligations of company boards and directors and make corporate governance practice significantly more sustainable and focused on the long term.

In the wake of the Global Financial Crisis (GFC), banks in the UK and other parts of the world suffered significant financial losses. One of the findings of official inquiries into the GFC and its effects in the UK is that shareholders were remarkably docile during the height of the market euphoria. Shareholders made very little effort to constrain banks from taking more risky business strategies. In addition, shareholders have been slow to bring legal actions against directors of loss-making banks and financial institutions. This is despite the fact that company law provides a wide range of mechanisms for shareholder activism, such as the powers of shareholders to elect and dismiss directors, (through the General Meeting), and to bring legal actions against directors for breach of statutory and fiduciary duties. This suggests that company law is, in practice, something rather different from what it is claimed to be in theory. This chapter explores some of the reasons for this divergence and looks at ways of bridging this gap between company law in theory and in practice. In so doing it examines the use of human rights claims as a last resort where the more traditional company law principles have proved to be inadequate with regards to fostering shareholder activism.

Corporations play a central role in modern economies. Certain beliefs about corporations and corporate law are widely held and relied upon by business experts, the financial press, and economists who study the firm. Unfortunately, some of these widely-held beliefs are mistaken. This has led to numerous common errors in the way corporate law concepts are understood and applied. The authors of this Summary are experts versed in a variety of national legal systems, including those of the U.S. and U.K. as well as the E.U. We provide this simple Summary of certain fundamentals of corporate law, applicable in almost all jurisdictions, in an effort to help prevent analytical errors which can have severe and damaging effects on corporations and corporate governance.

China has enacted a number of company law statutes since the early 1990s. These demonstrate a commitment to the adoption of the corporate form as a vehicle for business activity. In the 1993 and 2005 Company Laws, and in numerous amendments to these Laws, Chinese legislators have shown that they have been well attuned to modern corporate law ideas and concepts. However, these company laws nevertheless reflect some important Chinese characteristics, such as the dominant role of the Communist Party and the impact of the State within Chinese companies. Chinese company law has clearly evolved in the shadow of a strong authoritarian state. This has influenced the ways in which these laws have been implemented. This paper explores key issues regarding the implementation of Company Law in China since 1993 and suggests that the language of the law cannot be understood without an appreciation of various institutional constraints upon the effect of company law upon Chinese companies.

The maintenance of capital doctrine has generated considerable debate in corporate law since its heyday in the late nineteenth century. Capital rules continue to be debated in jurisdictions as diverse as the China and the United Kingdom. It was long assumed that the doctrine protected a company’s creditors and ensured that directors applied the equity capital of the company properly. The success of this doctrine in achieving these protective goals has been questioned. As a consequence, corporate law rules regarding capital related decisions have progressively been reformed. One strategy relied upon by reformers is to link corporate capital decisions to various tests relating to solvency, fairness and material disclosure to shareholders. Australian lawmakers have moved away from the old prohibitive approaches to corporate capital changes by drawing upon such tests and mechanisms. The Corporations Act 2001 (Cth) adopts this more permissive approach requiring that solvency, fairness and disclosure issues be satisfied by directors before capital related decisions are made. These decisions include the payment of dividends, share capital reductions, share buy-backs, and the provision of financial assistance to purchase shares. These decisions are now made subject to the insolvent trading provisions found in s 588G of the Corporations Act. Thus, directors of companies making such decisions will be personally liable if they make such a decision in breach a duty imposed upon them to prevent the company from trading whilst insolvent where they have reasonable grounds for suspecting that the company was insolvent at the time that the capital related decision was made or would become insolvent as a result of the decision. This more liberal approach has been adopted in a number of other jurisdictions.

Examines different approaches to the challenge of Australian corporate law enforcement and governance, and discusses success in this area and how it might be determined. Describes barriers to measuring success of regulatory action, and debates what level of law enforcement is appropriate and cost‐effective. Concludes that a more broadly based approach to regulatory action and assessment is of prime importance.

Corporate governance reform is a major challenge facing Chinese firms trying to establish themselves in global markets. When they enter foreign markets, Chinese enterprises are likely to bring their pre-existing corporate governance practices with them. This paper examines how the corporate governance practices of foreign listed corporations operating in China have been received and how major Chinese companies operating outside China have responded to corporate governance requirements of foreign countries when listing abroad. The pervasive role of the state within individual Chinese companies is fundamental to understanding China’s corporate governance practices both at home and abroad. Because the state in China is somewhat fragmented, (its various agents operating at the national, provincial and local levels), large company shares may be held by different state agencies and may be used in different ways. This can result in conflicting obligations to the State. Although China may have copied Western corporate laws, stock market rules and corporate governance codes, the local meaning of these transplants is inevitably different due to the dominance of the state in large listed companies both as a shareholder and as the regulator. The “Go Global” campaign of senior Chinese officials might have been expected to consolidate the transposition of corporate governance practice and hastened some convergence between Chinese an Anglo American corporate governance practice. However, this does not seem to have happened as expected. So, the listing of Chinese companies on foreign stock exchanges does not seem to have resulted in these companies absorbing more refined principles of Anglo-American corporate law and governance.

The rise of the information age has led to what some have referred to as the network society. The rise to prominence of the network society is likely to change the nature of corporate organisation and activity. It is also likely to have huge implications for how we think of corporations- ideas that the corporation is a ‘nexus of contracts’ or a means of reducing ‘transaction costs’ will no longer accurately describe the true nature of the modern ‘network enterprise’ which the corporation has become. Arguably, the idea of trust can be more closely associated with this new form of network enterprise. It is also likely that many of the previously dominant ideas in corporate governance, such as agency theory and shareholder primacy, will no longer be adequate for articulating how best to govern the modern network enterprise. This is largely because they conflict with a wider trust-oriented approach. Such an approach facilitates greater stakeholder engagement in corporate governance. This article suggests that, going forward, trust and embedded stakeholder ideas will play a greater role in the organisation and governance of corporations.

The global financial crisis demonstrated the fragility of the widely accepted faith in prevailing corporate governance ideas and the adequacy of legal mechanisms that were available to buttress these ideas. This was very evident from the fate of British banks after the failure of Northern Rock plc in late 2007 and the subsequent government action to rescue other leading British banks (Treasury Committee, 2008b). After more than two decades of debate in regard to the improvement of corporate governance mechanisms in Britain, it became evident that many of the ideas that had been advanced during this debate have been found to be wanting and were in need of revision or even replacement; these earlier debates had largely sought to legitimize a self-regulatory approach to corporate governance and a minimal involvement of governments in markets

Introduction, Guanghua Yu Part 1: Public Law 1. Constitutional Judicialisation and Popular Constitutionalism in China: Are We Ready Yet?, Jianfu Chen 2. Institutionalizing Criminal Process in China, Hualing Fu Part 2: Civil Law 3. Public Regulation of Private Relations: Changing Conditions of Property Regulation in China, Pitman B. Potter 4. The Law of Property and the Evolving System of Property Rights in China, Albert H.Y. Chen 5. The Role of Mortgages: A Case for Formal Law, Guanghua Yu 6. Transplantation and Transformation: 30-Year Development of China's IP System, Yahong Li Part 3: Corporate Law 7. Who Writes Corporate Law Rules? The Making of the Piercing the Corporate Veil Rule as a Case Study, Chao Xi 8. Looking at Corporate Governance in China's Large Companies: Is the Glass Half Full or Half Empty?, Roman Tomasic Part 4: The Regulation Of Banking And The Stock Market 9. China's Banking Reforms at the Time of Global Economic Recession, Yuwa Wei 10. The Political Logic of Securities Regulation in China, Jiangyu Wang Part 5: Procedural Law 11. Civil Justice Reform with Political Agendas, Xianchu Zhang 12. China's Arbitration: Restricted Reform, Weixia Gu Part 6: Law And Regulation With International Implications 13. Environmental Law and Policy in China: Responding to Climate Change, Jolene Lin 14. WTO and Developing Countries: The Case for Liberalization of Telecommunications Services in China, Yun Zhao

The decision of the England and Wales Court of Appeal (Civil Division) dismissing the appeal by Northern Rock plc shareholders following the nationalization of Northern Rock and the subsequent compulsory acquisition of their shares is an important statement of the role of legal mechanisms in periods of major financial crises. The Court’s rejection of the appeal in SRM Global Master Fund LP, RAB Special Situations (Master) Fund Ltd, Dennis Grainger & Others v The Commissioners of Her Majesty’s Treasury [2009] EWCA Civ 788, identified key drivers of the legal response and highlighted the relatively weak position of shareholders of banks, such as Northern Rock, that failed during the global financial crisis. These key drivers have included the legislative framework which was put in place by the UK Parliament following the passage of the Banking (Special Provisions) Act 2008. In the end, this meant that the resolution of the appeal largely became a matter of statutory interpretation. Also driving the legal response was the lore of central banks which act as lenders of last resort (LOLR) in times of crisis; the Court of Appeal was to turn to this body of economically inspired principles to provide the basis for its decision when it accepted the centrality of this body of thought, as expressed by former Governor of the Bank of England Lord George. A 1993 speech delivered by Lord George served to set out the principles that the appeal court regarded as fundamental in this case. In doing so, the Court recognized the importance of economic concepts such as “moral hazard” as providing a basis for the policy that had been adopted by the Bank of England and the UK Government. Another notable feature of this appeal is that the principal legal foundations of the shareholders’ action were not found in insolvency or company law principles, but in the application of European human rights law as developed by the European Court of Human Rights; in particular, the decision rested on the interpretation of Article 1 of the First Protocol (A1P1) of the European Convention on Human Rights which guarantees the protection of private property.

China has experienced dramatic developments in the growth of a rule-based approach to its securities market and the operation of corporate law since the early 1990s. These efforts sought to keep pace with the speed at which the market economy has grown in China over this time. However, the development of a sophisticated system of corporate law and corporate governance has tended to lag well behind rapid market developments, even in regard to the most advanced sector of China’s major stock exchange listed companies. This paper seeks to assess the nature of current patterns of law and regulation of this sector by reference to data derived from China’s top 100 listed companies. This paper was made possible by funding from the Australian Research Council of a project funded study led by Roman Tomasic, Neil Andrews and Jian Fu. This paper explores this theme by reference to findings from face to face interviews undertaken by the authors in China.

The corporate collapses of recent times, culminating with massive collapses such as those of Enron in the United States and HIH in Australia, have suggested to many that there are major systemic problems facing the way in which corporations and corporate governance operate. Some conduct associated with these collapses has been clearly criminal in character, such as the actions of accounting firm Anderson in shredding audit related papers after a regulatory investigation into Enron had been announced. The use of off-balance sheet structures by Enron so as to avoid adequate disclosure or transparency has also offended basic corporate governance notions. Some conduct associated with the collapse of pivotal institutions such as these have led to the disqualification of directors and even to the virtual disappearance of one of the world’s great accounting firms. Recent corporate collapses have also struck at the basis of investor and public confidence in previously highly regarded companies and professional firms and have led to calls for a reassessment of ethical standards, auditing practices, executive reward structures, governance practices and disclosure principles. This article reviews some of the factors which have led us to this bleak juncture.

This paper reviews findings from one of the first empirical studies of the phoenix company problem in Australia. The phoenix company phenomenon is a disturbing one, especially as it seems to reflect the emergence of a business culture in which a substantial number of businesses see the payment of debt as being optional, as some insolvency practitioners have begun to suggest. Whilst changing corporate and business cultures is as important as changing or simplifying corporate laws and vigorous law enforcement, any regulatory compliance program needs to pay particular attention to changing attitudes to debt and debt enforcement in Australia. This research suggests that unless grass roots activity such as the use of phoenix companies is adequately attended to, the broader corporate culture may be affected and lead to the further spread of phoenix type attitudes into other areas.

This paper reports upon an empirical study of the place of law and legal duties in the governance of Australian public companies. A fuller discussion of the findings from this empirical research project is to be found in: Tomasic and Bottomley, Directing the Top 500: Corporate Governance and Accountability in Australian Companies, (Sydney, Allen & Unwin, 1993). The debate concerning the legal duties and obligations of management of corporations became quite heated in Australia following the corporate excesses of the 1980s. Many corporations exploited the looseness of the legal rules for the control of business; weak regulatory structures also operated to the disadvantage of shareholders and creditors. The study is based upon data derived from a series of interviews conducted with officers from the top 500 Australian listed public companies. Interviews were held with 95 public company directors and 55 advisers of public companies. The adviser group comprised leading corporate lawyers, liquidators, auditors and corporate regulators. Interviews took place in five Australian state capital cities and all interviews were undertaken personally by the principal investigators. This article examines perceptions of corporate citizenship held by directors and goes on to contrast these with actual corporate decision making in the context of the legal requirements placed upon directors of Australian companies. The article also examines the structure of Australian corporate decision making processes by the board of directors.