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Tijdschrift Erasmus Law Review x Jaar 2016 x
Article

Access_open Exit, Voice and Loyalty from the Perspective of Hedge Funds Activism in Corporate Governance

Tijdschrift Erasmus Law Review, Aflevering 4 2016
Trefwoorden Uncertainty, entrepreneurship, agency costs, loyalty shares, institutional investors
Auteurs Alessio M. Pacces
SamenvattingAuteursinformatie

    This article discusses hedge funds activism based on Hirschman’s classic. It is argued that hedge funds do not create the loyalty concerns underlying the usual short-termism critique of their activism, because the arbiters of such activism are typically indexed funds, which cannot choose short-term exit. Nevertheless, the voice activated by hedge funds can be excessive for a particular company. Furthermore, this article claims that the short-termism debate cannot shed light on the desirability of hedge funds activism. Neither theory nor empirical evidence can tell whether hedge funds activism leads to short-termism or long-termism. The real issue with activism is a conflict of entrepreneurship, namely a conflict between the opposing views of the activists and the incumbent management regarding in how long an individual company should be profitable. Leaving the choice between these views to institutional investors is not efficient for every company at every point in time. Consequently, this article argues that regulation should enable individual companies to choose whether to curb hedge funds activism depending on what is efficient for them. The recent European experience reveals that loyalty shares enable such choice, even in the midstream, operating as dual-class shares in disguise. However, loyalty shares can often be introduced without institutional investors’ consent. This outcome could be improved by allowing dual-class recapitalisations, instead of loyalty shares, but only with a majority of minority vote. This solution would screen for the companies for which temporarily curbing activism is efficient, and induce these companies to negotiate sunset clauses with institutional investors.


Alessio M. Pacces
Professor of Law & Finance, Erasmus School of Law, and Research Associate, European Corporate Governance Institute.
Article

Access_open A World Apart? Private Investigations in the Corporate Sector

Tijdschrift Erasmus Law Review, Aflevering 4 2016
Trefwoorden Corporate security, private investigations, private troubles, public/private differentiation
Auteurs Clarissa Meerts
SamenvattingAuteursinformatie

    This article explores the investigative methods used by corporate security within organisations concerned about property misappropriation by their own staff and/or others. The research methods are qualitative: interviews, observations and case studies carried out between October 2012 and November 2015. The findings include that, even though corporate investigators do not have the formal investigative powers enjoyed by police and other public agencies, they do have multiple methods of investigation at their disposal, some of which are less used by public investigative agencies, for example the in-depth investigation of internal systems. Corporate investigators also rely heavily on interviews, the investigation of documentation and financial administration and the investigation of communication devices and open sources. However, there are many additional sources of information (for example, site visits or observations), which might be available to corporate investigators. The influences from people from different backgrounds, most notably (forensic) accountants, (former) police officers, private investigators and lawyers, together with the creativity that is necessary (and possible) when working without formal investigative powers, make corporate security a diverse field. It is argued that these factors contribute to a differentiation between public and private actors in the field of corporate security.


Clarissa Meerts
Clarissa Meerts, MSc., is a PhD student at the Criminology Department of the Erasmus University Rotterdam.
Article

Access_open Keck in Capital? Redefining ‘Restrictions’ in the ‘Golden Shares’ Case Law

Tijdschrift Erasmus Law Review, Aflevering 4 2016
Trefwoorden Keck, selling arrangements, market access, golden shares, capital
Auteurs Ilektra Antonaki
SamenvattingAuteursinformatie

    The evolution of the case law in the field of free movement of goods has been marked by consecutive changes in the legal tests applied by the Court of Justice of the European Union for the determination of the existence of a trade restriction. Starting with the broad Dassonville and Cassis de Dijon definition of MEEQR (measures having equivalent effect to a quantitative restriction), the Court subsequently introduced the Keck-concept of ‘selling arrangements’, which allowed for more regulatory autonomy of the Member States, but proved insufficient to capture disguised trade restrictions. Ultimately, a refined ‘market access’ test was adopted, qualified by the requirement of a ‘substantial’ hindrance on inter-State trade. Contrary to the free movement of goods, the free movement of capital has not undergone the same evolutionary process. Focusing on the ‘golden shares’ case law, this article questions the broad interpretation of ‘capital restrictions’ and seeks to investigate whether the underlying rationale of striking down any special right that could have a potential deterrent effect on inter-State investment is compatible with the constitutional foundations of negative integration. So far the Court seems to promote a company law regime that endorses shareholders’ primacy, lacking, however, the constitutional and institutional legitimacy to decide on such a highly political question. It is thus suggested that a refined test should be adopted that would capture measures departing from ordinary company law and hindering market access of foreign investors, while at the same time allowing Member States to determine their corporate governance systems.


Ilektra Antonaki
Ilektra Antonaki, LL.M., is a PhD candidate at Leiden University, The Netherlands.
Article

Access_open Harmony, Law and Criminal Reconciliation in China: A Historical Perspective

Tijdschrift Erasmus Law Review, Aflevering 1 2016
Trefwoorden Criminal reconciliation, Confucianism, decentralisation, centralisation
Auteurs Wei Pei
SamenvattingAuteursinformatie

    In 2012, China revised its Criminal Procedure Law (2012 CPL). One of the major changes is its official approval of the use of victim-offender reconciliation, or ‘criminal reconciliation’ in certain public prosecution cases. This change, on the one hand, echoes the Confucian doctrine that favours harmonious inter-personal relationships and mediation, while, on the other hand, it deviates from the direction of legal reforms dating from the 1970s through the late 1990s. Questions have emerged concerning not only the cause of this change in legal norms but also the proper position of criminal reconciliation in the current criminal justice system in China. The answers to these questions largely rely on understanding the role of traditional informal dispute resolution as well as its interaction with legal norms. Criminal reconciliation in ancient China functioned as a means to centralise imperial power by decentralizing decentralising its administration. Abolishing or enabling such a mechanism in law is merely a small part of the government’s strategy to react to political or social crises and to maintain social stability. However, its actual effect depends on the vitality of Confucianism, which in turn relies on the economic foundation and corresponding structure of society.


Wei Pei
Wei Pei, Ph.D., is an Associate Professor at the Beihang School of Law in the Beihang University.

Jing Hiah
Jing Hiah is PhD candidate at the Department of Criminology, Erasmus University Rotterdam (hiah@law.eur.nl).

Thomas Riesthuis
Thomas Riesthuis is PhD candidate at the Department of Sociology, Theory and Methodology, Erasmus University Rotterdam (riesthuis@law.eur.nl).
Article

Access_open A Law and Economics Approach to Norms in Transnational Commercial Transactions: Incorporation and Internalisation

Tijdschrift Erasmus Law Review, Aflevering 1 2016
Trefwoorden Incorporation and internalisation, transnational commercial transactions, transnational commercial norms
Auteurs Bo Yuan
SamenvattingAuteursinformatie

    In today’s global economy, a noticeable trend is that the traditional state-law-centred legal framework is increasingly challenged by self-regulatory private orders. Commercial norms, commercial arbitration and social sanctions at the international level have become important alternatives to national laws, national courts and legal sanctions at the national level. Consisting of transnational commercial norms, both codified and uncodified, and legal norms, both national and international, a plural regime for the governance of transnational commercial transactions has emerged and developed in the past few decades. This article explores the interaction between various kinds of norms in this regime, identifies the effects of this interaction on the governance of transnational commercial transactions and shows the challenges to this interaction at the current stage. The central argument of this article is that the interaction between social and legal norms, namely incorporation and internalisation, and the three effects derived from incorporation and internalisation, namely systematisation, harmonisation and compliance enhancement, are evident at both the national and international levels. In particular, the emergence of codified transnational commercial norms that are positioned in the middle of the continuum between national legal norms and uncodified transnational commercial norms has brought changes to the interaction within the international dimension. Although the development of codified transnational commercial norms faces several challenges at the moment, it can be expected that these norms will play an increasingly important role in the future governance of transnational commercial transactions.


Bo Yuan
Bo Yuan is a Ph.D. candidate at the Erasmus University Rotterdam, Department of Law and Economics.
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