Corporate Governance
Corporate governance research lies at the intersection of company law and capital market law and increasingly encompasses comparative and interdisciplinary methods. In exploring the wide array of themes presented in Germany, and the triad of Europe, Japan and the USA, the Institute and its staff engage in a wide spectrum of activities. These include the completion of doctoral and post-doctoral studies, editorial work on extensive legal commentaries and the organization of internationally attended symposia which result in the publication of corresponding conference volumes.
First described in the 1930’s by a number of U.S. authors, the corporate governance discussion addresses the risk that corporate management may deviate from the interests of the shareholders where corporate share ownership is separate from corporate control. In the current century, potential managerial failure has broad social repercussions, particularly as shifting demographics result in the private market assuming an expanded role in meeting the financial needs of retirees. Similarly, spectacular corporate collapses recently observable in Europe and the USA have led to a greater emphasis on the study of corporate governance. Within Europe, the recommendations of the High Level Group of Company Law Experts, on which Klaus J. Hopt served, resulted in the 2003 Commission communication, Modernising Company Law and Enhancing Corporate Governance in the European Union - A Plan to Move Forward. As such, a European system of corporate governance is being established whose legal sources are not only contained in statutory provisions but are increasingly found in non-binding codes of conduct. By way of example, prior to the introduction of the German Corporate Governance Code in 2002, the regulatory role of “soft law” was widely unknown in Germany. The German code requires that the management board and the supervisory board of stock exchange listed companies annually state their compliance (or non-compliance) with code recommendations. Utilizing the regulatory capability of the market in a manner rarely found in European private law, disclosure duties and code guidelines represent a new facet for the regulation of listed stock corporations.
Modern corporate governance research incorporates the entire spectrum of corporate control mechanisms, i.e. internal devices, external devices and some other means located somewhere in-between. Within German corporations, the Aufsichtsrat (supervisory board) stands at the center of internal controls. Moulded by court decisions as well as the Stock Corporation Act reforms of 1998 and 2003, the Aufsichtsrat has developed into a supervisory body which not only oversees the management but also provides advice and plays an active role in the governance of the corporation. Thus, the two-tier board model comprising management board and supervisory board now comes closer the internationally prevalent “board model” wherein management and supervision are consolidated in a single tier. That the “European Company” (Societas Europea), introduced in 2001, allows an election between a two-tiered and single-tier structure suggests the two systems perform on a par. With its 2005 recommendation on the role of non-executive or supervisory directors of listed companies, the European Commission has now highlighted common approaches to independent supervision, in particular in connection with the creation of committees whose composition reflects a task-specific level of independence. Such structural convergences stand in contrast to the divergences in the day-to-day operation of the one-tier and the two-tier board and are taken into account in modern commentaries such as the Großkommentar zum Aktiengesetz. Future research has to address the central mechanisms of management supervision, furnishing information to the supervisory board being of particular importance. Finally, consideration of the German situation also requires asking how the need for more effective supervision can be balanced with worker participation interests (co-determination).
Ranking particularly high among external control mechanisms is the market for corporate control. As recommended by the High Level Group of Company Law Experts, this area experienced a European harmonisation with the 2004 Takeover Directive. Takeover threats act as a significant disciplinary device for the management of a potential target company since a successful bidder will routinely place its own representatives in the top management positions. Closer analysis however - incorporating comparative perspectives and ‘law and economics’ approaches - unearths substantial functional differences. While in Germany debt finance, i.e. bank loans, traditionally constituted a considerable portion of the financing, corporations in the U.S.A., as in England, have met their financing needs to a much greater degree through equity finance on the stock market. In addition to its more limited market activity, Continental Europe’s comparatively concentrated shareholder structure is an additional obstacle to corporate acquisitions through the market. State measures for exerting influence, familiar in countries such as Japan but found also in Europe, create further obstacles.
Of increasing importance are the control mechanisms lying somewhere between internal and external corporate governance. The classic example is the annual financial audit which certifies the accuracy and legitimacy of the financial statements provided by the company to the market. Corporate disclosure and auditing improve the information efficiency of the capital market and thus enhance the potential for market controls. Yet the recent accounting scandals suggest the existence of functional shortcomings. In part, these may be mitigated by improved incentive structures, particularly via modernized rules for auditor liability. In light of the cross-border dimension of capital market information, the provision of inaccurate information can only be effectively regulated through a cooperative European approach. A prototypical illustration is the harmonised European prospectus liability Directive of 2003. Of key importance, the protection of investors cannot be accomplished through liability provisions only taking effect ex post. Rather, regulations should have an ex ante impact as with guidelines addressing conflicts of interests within banks and financial intermediaries.
In all corporate governance fields one has to ask whether legislation or the controlling influence of the market (e.g. corporate disclosure) is preferable. Corporate governance analysis breaks away from the traditional juristic canon and interlinks the fields of company law, capital market law, accounting law and labour law among others. In all areas, path dependent differences between legal systems and capital markets determine to a large extent the operation and effectiveness of legal rules. Significantly, the modern corporate governance debate is shaped by its interdisciplinary nature and incorporates the expertise of comparative legal and law and economics research.
Selected research projects and monographs published by the Institute and its staff:
Conference Volumes and Collective Works
Comparative Corporate Governance - Essays and Materials, K. J. Hopt, E. Wymeersch, eds., Berlin, New York (de Gruyter) 1997.
Comparative Corporate Governance - The State of the Art and Emerging Research -, K. J. Hopt, H. Kanda, M. J. Roe, E. Wymeersch, S. Prigge, eds., Oxford (Clarendon) 1998, in parts translated into Chinese: Comparative Corporate Governance – The Theory and Practice in European Countries with an Introduction by K. J. Hopt, editors and translators: Jin Hóng Jiao, Ding Ding, Beijing 2004.
Capital Markets in the Age of the Euro – Cross-Border Transactions, Listed Companies and Regulation, G. Ferrarini, K. J. Hopt, E. Wymeersch, eds., The Hague, London, New York (Kluwer Law International) 2002.
Report on Issues Related to Takeover Bids, Report of the High Level Group of Company Law Experts, European Commission, Brussels, 10 January 2002, J. Winter (chairman), J. Schans Christensen, J. M. Garrido Garcia, K. J. Hopt, J. Rickford, G. Rossi, J. Simon, mit offiziellen Übersetzungen in verschiedene Amtssprachen der EU, also in: G. Ferrarini, K. J. Hopt, J. Winter, E. Wymeersch, eds., Reforming Company and Takeover Law in Europe Oxford (Oxford University Press) 2004.
A Modern Regulatory Framework for Company Law in Europe, Report of the High Level Group of Company Law Experts, European Commission, Brussels, 4 November 2002, J. Winter (chairman), J. Schans Christensen, J. M. Garrido Garcia, K. J. Hopt, J. Rickford, G. Rossi, J. Simon, with official translations in various EU languages, also in: G. Ferrarini, K. J. Hopt, J. Winter, E. Wymeersch, eds., Reforming Company and Takeover Law in Europe Oxford (Oxford University Press) 2004.
Capital Markets and Company Law, K. J. Hopt, E. Wymeersch, eds., Oxford (Oxford University Press) 2003.
Handbuch Corporate Governance, Leitung und Überwachung börsennotierter Unternehmen in der Rechts- und Wirtschaftspraxis, P. Hommelhoff, K. J. Hopt, A. v. Werder, eds., Cologne (Otto Schmidt) und Stuttgart (Schäffer-Poeschel) 2003.
The Anatomy of Corporate Law, A Comparative and Functional Approach, R. Kraakman, P. Davies, H. Hansmann, G. Hertig, K. J. Hopt, H. Kanda, E. B. Rock, Oxford (Oxford University Press) 2004, Italian translation, a cura di L. Enriques, Diritto societario comparato, Un approccio funzionale, Bologna (il Mulino) 2006.
Reforming Company and Takeover Law in Europe, G. Ferrarini, K. J. Hopt, J. Winter, E. Wymeersch, eds., Oxford (Oxford University Press) 2004.
Corporate Governance in Context – Corporations, States, and Markets in Europe, Japan, and the US –, K. J. Hopt, E. Wymeersch, H. Kanda, H. Baum, eds., Oxford (Oxford University Press) 2005.
Europäisierung des Handels- und Wirtschaftsrechts, Gemeinsame oder unterschiedliche Probleme für das deutsche und griechische Recht?, K. J. Hopt, D. Tzouganatos, eds., Tübingen (Mohr Siebeck) 2006.
European Company and Financial Law, Texts and Leading Cases, K. J. Hopt, E. Wymeersch, eds., 4th ed., Oxford (Oxford University Press) 2007.
Journals
European Company and Financial Law Review (ECFR), Berlin (de Gruyter), co-edited by K. J. Hopt.
Zeitschrift für Unternehmens- und Gesellschaftsrecht (ZGR), Berlin (de Gruyter), co-edited by K. J. Hopt.
European Business Organization Law Review (EBOR), editor in chief R. Kulms.
Commentaries and Monographs
Commentary on § 93 AktG Sorgfaltspflicht und Verantwortlichkeit der Vorstandsmitglieder (Business Judgment Rule), in: K. J. Hopt, H. Wiedemann, eds., Aktiengesetz, Großkommentar (Commentary on the German Stock Corporation Act), 4th ed., Inst. 11, Berlin, New York (de Gruyter) 1999.
Commentary on §§ 95-116 AktG Aufsichtsrat (Supervisory Board), K. J. Hopt, M. Roth, §§ 97-99, 102, K. J. Hopt, M. Roth, A. Peddinghaus, in: K. J. Hopt, H. Wiedemann, eds., Aktiengesetz, Großkommentar (Commentary on the German Stock Corporation Act), 4th ed., Inst. 24, Berlin, New York (de Gruyter Recht) 2005.
Leyens, Patrick, Information des Aufsichtsrats: Ökonomisch-funktionale Analyse und Rechtsvergleich zum englischen Board, Tübingen (Mohr Siebeck) 2006.
Roth, Markus, Unternehmerisches Ermessen und Haftung des Vorstands: Handlungsspielräume und Haftungsrisiken insbesondere in der wirtschaftlichen Krise, Munich (Beck) 2001.
Voigt, Hans-Christoph - Haftung aus Einfluss auf die Aktiengsellschaft (§§ 117, 309, 317 AktG), Munich (Beck) 2004.