多層次法律交錯的世界

念國際法的，很少在關注國內法。就是國際法這個大家族，也有很大一部分人對國際經濟法缺乏關注。更別提從區域經濟法的觀點，思考國際私法應如何發揮功能了。或是從實踐自由貿易協定的觀點，看兩國間進一步的競爭法合作，避免私人企業因獲得市場進入，濫用其市場優勢地位，貶損原本FTA所欲發揮的功能。然而，我們實際處在一個各種國內與國際法規交錯的年代。如果說荷蘭法學，或是馬斯垂克大學法學院有甚麼獨到之處，我想發現衝突與交錯，以及衝突中如何處理之必要性，正是過去四年來二度到荷蘭學到最深刻的東西。

我們的生活是由誰決定的? 決定某項食品是否安全的法規，可能不只是國內法，還有雙邊條約(美牛協定)，以及WTO協定，我們實際活在多層次的法律世界中，反應全球化的浪潮下，各國間既合作(多邊)又衝突(FTA也是一種小團體結盟形式)的複雜格局。因此，也許法學院的明天，也應該積極協助學生去認識這個多元法律世界的樣貌。

以國際投資法為例，一旦台灣與某國簽署雙邊投資協定，行政單位對於某外資之某項事業許可之拒絕(理由是內國環評未通過)，可能構成效力等同徵收的行為，依據雙邊投資協定中的仲裁條款，從法院改由國際仲裁組織或臨時仲裁庭決定，判決內國賠償外資，並依據紐約承認及執行仲裁公約，要求內國法院承認並執行之。這其間除國際投資法外，還牽涉了公司法、財產法、損害賠償計算、內國行政法(包括環境法)，以及國際私法的規定。

我們的法學院準備好了嗎? 法律實務界呢? 如果ECFA在國內有直接效力，私人是否可因此向國家或第三人請求其貿易權受損之賠償呢(歐盟模式)?

比利時的傳統五年制法學教育: 學士後法律以外的不同選擇

法律人常被批評只懂法律，法律以外的專業知識不足，缺乏認定事實的能力，法官尤其被批評的兇。而美式的學 士後法律教育，有時候反而方便培養出有不同專業背景、分工細緻的律師人才(懂工程、醫療、金融等)。以下是美式法學教育以外的不同選擇。

有時候覺得，像彼德教授說的，如果我們法學院的大一及大二，像比利時的傳統五年法學教育，先不要急著排那麼多法律科目，多花點時間在政治學、政治哲學、經濟學、社會學、法律史、國際關係的學習上，到了大三以後再專注在法律學習上，或許學習法律的路，就不會像從前因為缺乏知識的框架與背景前提那麼苦。回憶大一、大二時，法律就像憑空而降的怪獸，契約自由、當事人意思自主、無罪推定、法治國原則，一個個都像外星符號，高中以前的教育根本沒見過，也不知道該如何學習，只能狂啃教科書，還讀不懂，為了考試只能硬背。

現代社會不僅強調競爭，也強調分工。公司法律師看不懂財務報表、稅務律師不懂會計、貿易法律師不懂貿易實務，是不行的。不僅是學者想要追求跨領域研究，實務界何嘗不是如此，頂尖律師有會計師執照、MBA學位的所在多有，恰恰呼應了時代需求。有鑑於此，與其重搞一套學士後法律教育，為何不強化大一、大二法律系學生的基礎人文、社會科學的知識學習呢? 甚至還應該鼓勵他們去雙主修，去修理、工學院的課程。但是回到基礎，正是因為缺乏知識的框架與背景前提，使得許多法律系學生在學習法律時，不得其門而入。既然台灣有完善的國考補習教育，學校與同學們何妨放下競爭的壓力，在起步階段多花點時間培養自己的視野與基礎學能呢?

台灣的下一步: 何去何從?

我們進入了這樣的一個年代: 歐盟與美國的經濟復甦與市場不在可恃，中國大陸可能進入新一波的經濟轉型，作為在世界經濟體系半邊陲上掙扎的台灣，我們該怎麼做? 我始終覺得我們的能量沒有被徹底的釋放，社會各部門間(企業、大學與政黨)尤其缺乏對話。如果我們要在新世紀驚濤駭浪(試想我們所有重要的對外市場都陷於衰退或不穩定中)中脫困，我們真的需要一個完整的發展戰略規劃: 把產業、教育、對外經貿、環境保護與二代能源置於一個平台上，統籌考量。

作者想點出問題，但無法提供解答，但這是一個重要的問題，值得各方開啟對話。

Taiwanese Politics: An Entire Confrontation Between Two Main Parties

Taiwan's democracy has become a complete confrontation between National Party and Democracy Progressive Party. There is no constructive dialogue between parties. It is even worse that people are also divided. It is interesting to note that the biggest gap between both sides is not about democracy, human rights or political regimes. In fact, both parties are typical right-wing parties, which do not put their attentions on immigrants, labors, homosexual groups, and the other minority groups. What divides us is the only one thing: what shall be the future of Taiwan and the relation with China.

The result is that there is no consensus, no compromise on almost all hot issues in our society. And in the Parliament, Acts are used to determined by majority votes, instead of negotiations. Can Taiwan still be seen as a really democractic society? I really doubt.

How Shall We Apply the Law? Urging Judges to Use Expertise Evidence

How shall we apply the law?

Before interpreting the law, the first thing for judges to do is to identify the fact of the specific case. However, in the cases involving scientific and complicated factual contexts, how can we ensure that judges fully understand the factual context of the case they are going to apply? Apart from the United States, if we observe the educational backgrounds and the approach most of states use to train their judges, you would find that most of them lack the professional backgrounds other than law, it is obvious that they are not economists when facing anti-trust litigations and they are not scientists when they are requiring to determine whether the food safety standard is scientific-based or high enough to protect human health. Therefore, my first question is how we can ensure that judges fully understand the facts what they are going to make decisions without consulting the experts.

Subsequently, when we are interpreting the law, usually two common methods we would employ to explain the law: the first is literal approach and the second is purposive approach. They are commonly used both in interpreting national laws and international laws. The first approach is often to be used as the starting point. We are trying to realize what the law-makers mean by directly reading the texts. Indeed, people shall be bound by the laws they can understand through directly reading the texts and realizing the ordinary meanings of the texts. It is also one way we use to strengthen democracy. In addition, in some international litigation practices, the Appellate Body even chooses Oxford Dictionary as the guideline to find the ordinary meanings of the texts. Also, it is rational to use some professional dictionaries in some professional fields when interpreting the professional terms in the same fields like natural monopoly or . Therefore, even in the literal approach, when facing some professional key words, we would need to read some specific professional dictionaries and again those professional ones are written by the experts.

Then, you may wonder how about the purposive approach? Is it more reliable for it to play as the guideline when we facing two different and conflicting interpretations from one legal text through the literal approach? Some would claim that, normally there are two or even more purposes found in one statute, and sometimes it is even worse when those purposes are conflicting and no one can be seen as the predominant one by conducting the test of center of gravity.

Indeed, those doubts are convincing. However, if the legal system would like to survive in the whole society, it shall function well and gain the supports by obtaining the goals pursued by the legislators. Otherwise, why shall we be bound by the meaningless law? Therefore, it is necessary to evaluate the law by examining whether the law has obtained its goals or purposes. By the same token, when judges are applying and interpreting the law, they cannot ignore its purposes. Instead, they shall take the purposes as the guideline when facing the different explanations or even ambiguous legal texts. Here, again, we will encounter the similar challenge as we meet in the situation of the complicated facts, how can we ensure that judges fully realize the goals/purposes/polices pursues by the legislators? To note, here we are not going to challenge whether the policies embedded in laws are appropriate. We do not want to break the classic principle of powers separations in this paragraph. Nevertheless, what we doubt is whether judges fully realize the policies behind the laws they are interpreting. Would this situation become better when they determine to consult with the experts in the proceedings of the court?

 If we cannot deny the truths that sometimes either facts or policies shall be explained by the qualified and neutral experts before the court, we shall suppose that judges shall frequently use them in the real world, isn’t it? The reality is completely depressed. The literatures show that in most of cases before the ECJ, judges are reluctant to use the expertise evidence. They sometimes even rejected the experts brought by parties or denied the conclusions of some studies without giving the reasons. Some professionals feel that they are living in the blind world when presenting in the litigation proceedings. The legal norm gives judges a lot of room and discretion to decide whether they want to hear the expertise evidence in the proceedings, and if they want, whether they prefer to appoint the neutral experts on their own or to hear the experts brought by the parties. Nevertheless, at least, in some cases they shall hear to either neutral experts or partial experts, in order to ensure that they fully understand some complicated facts and some professional goals (for instance, to what extent shall human tolerate the specific toxin).

The following paragraphs have not completed yet. We would like to first analyze the reason why judges are reluctant to use expertise evidence, and second we will find the way to remedy the so-called professional deficits. Is it better to create a special court like IP, Trade or Maritime courts equipped with judges having the specific knowledge or background? Or the fundamental way is to design a regime of using of expertise evidence to urge, encourage, or even force judges to use.

Diversity, Unique, and Balance Based on Participation:Three Dutch Characteristics We May Want to Learn

Last night in the graduate dinner, I raised three questions to my classmate’s uncle, who just retired from Dutch government. Below is the content of our talk.

 Wen (W):

First, Dutch people are well-known in the area of international trade. People think they are natural businessmen. While, at the same time, the Netherlands is also the second biggest agriculture exporting country in the world. How can you make it? It seems that the way to develop trade and the way to farm is significantly different.

 The Classmate’s Uncil (U)

The answer is diversity. Different groups highly respect each other. Diversity is a very important mark in Dutch society.

 W:

Subsequently, since you mention diversity. As the parents, do you respect your children’s career choice? Or, inevitably, you would like to influence their choices. I think it is a good test.

U:

You need to realize that, in Dutch society, we believe everyone is unique. Since we deeply believe that each one is extremely unique. I would not influence my child’s career choice.

W:
As a former regulator, you are familiar with the ones you regulate. Since diversity is so important for Dutch society, it seems that your society believes market function more than regulation. Market is an appropriate forum for people to choose what they want. Conversely, regulations tend to limit people’s choices.

U:
Well, it is important to make a balance between regulation and market. Yes, balance is an important mark for Dutch society. Through participation democracy, we keep meeting and meeting, in order to find a balance, a consensus, and sometimes a compromise among the diversified interests and groups. Indeed, it is sometimes inefficient. But it is the way we want to do. We think diversify, uniqueness, are so important. We would like to seek consensus among them, and it would take longer time.

Hereafter is my comment. I think that is what we Taiwanese need to learn from Dutch. Democracy is not merely a scheme, but based on individual respect and pragmatic consensus through full participation.

Board Competition Under the Regulation of SE (European Company)

Index

Pages

1. Introduction	4
1.1 Background	4
1.2 Questions	5
1.3 Research Arrangement	5
1.4 Research Approach	6
2. Board Choice of The European Company	6
2.1 A Short History Regarding The Evolvement of SE’s Board Structure	6
2.2 Less Uses of SE in Practice	7
2.2.1 The Requirement of The Negotiating Process	7
2.2.2 The Participation of Non-EU Company	8
2.3 Board Structures in Europe	9
2.3.1 Unitary Board (British)	10
2.3.1.1 Merits	10
2.3.1.2 Demerits	11
2.3.2 Two-Tier Board (Germany)	12
2.3.2.1 Merits	12
2.3.2.2 Demerits	14
2.3.2.3 A Empirical Study As Regard Two-Tier Board in France	16
2.3.2.4. Possible Solution of Two –Tier Board in Germany	17
2.4 The Justifications of Allowing The Options of Board Structures	18
2.5 The Provisions of SE As Regard Board Defects	22
2.5.1 Duration and Removal	22
2.5.2 Board Secrecy and Member Liability	23
2.6 Implementing The Alternative SE Board Model in The Member States	26
2.6.1 The Situation in the Traditional One-Tier Board States	26
2.6.2 The Situation in The Traditional Two-Tier States	29
2.7 A Short Conclusion	32
3. The Implementation of Board Choice in Member States of EU	34
3.1 General Framework	34
3.2 The Netherlands	34
3.2.1 Structure Regime for Large Company	35
3.2.2 One-Tier Board	36
3.3 Germany	38
3.3.1 General Framework	38
3.3.2 One-Tier Board: The Role of Managing Directors	39
3.4 The United Kingdom	41
3.4.1 The Role of Managing Director	42
3.4.2 Two-Tier Board	42
4. Traditional Discussion of Regulatory Competition in the U.S.	43
4.1 General Framework	43
4.2 The Opponents of State Competition	44
4.2.1 The Doubt of Existence of State Competition	44
4.2.2 The Diffusion of Statutory Innovation Unrelated to State Competition	46
4.2.3 The Phenomenon of Race for Bottom	46
4.3 The Proponents of State Competition	49
4.3.1 The Relation Between State Competition and Statutory Diffusion	49
4.3.2 The Phenomenon of Race for Top	53
4.4 A Short Conclusion	55
5. Board Competition Incurred by the Regulation of SE	56
5.1 General Framework	56
5.2 Board Competition in Legal Structure and Theory Assumptions	58
5.3 Legal Limits of Board Competition in Europe	59
5.4 A Short Conclusion: Race for Top or Race for Bottom	64
6. Conclusion	66

Chapter 1. Introduction

1.1 Background

One of the legal innovations created by the Regulation EC 2157/2001 of 8 October 2001[1] on the Statute for a European Company (Societas Europea, SE), which has been in force on 8 October 2004, is the freedom of choice between one-tier board and two-tier board among the founders of SEs in all Member States. The legal basis of the Regulation of SE is Article 44 of the EC Treaty, the principle of freedom of establishment[2]. Despite a lot of articles surrounding the relation between regulatory competition and SE[3], few pages are engaged in exploring board competition under the Regulation of SE. Therefore, in this paper, I would like to explore whether board competition exists in Europe and whether board competition benefits the Europe.

With growing influences of Globalization and Europeanization, many traditionally domestic legal matters cannot be exclusively decided by national laws. This legal phenomenon is named the multi-level regulation, which indicates the interplay between international laws, regional laws (EU law), and national laws in the same regulated area[4]. SE is a typical example to illustrate this phenomenon. However, apart form the multi-level legal structures, we shall not ignore the role the domestic law plays as a mean of maintaining local legal culture and local legal certainty to defend the importing regional rules. Also, with an economic point of view, the potential economic incentives may be more decisive to predict how entrepreneurs and governments response to SE’s new legal regimes. Hence, in this paper, legal culture, law and economics, the interplay between national laws of Member States and EC Regulation, would be combined, in order to analyze the phenomenon of board competition.

1.2 Questions

Does the board competition truly exist within the Europe? If it exists, does it benefit the economy of the Europe?

1.3 Research Arrangement

Before answering the existence of board competition, we should at first clarify the interplay between the Regulation of SE and the implementation of SE in Member States. Thus, in chapter 2, an analysis of the provisions of the Regulation would be conducted to indicate the room the Regulation of SE offers for Member States to form their specific board structures. After analyzing the provisions of SE as regard board structures, chapter 3 attempts to observe the realizations of SE in three Member States. Considering a length discussion of regulatory competition in the United States, chapter 4 summarizes the relevant literatures to compare the pros and cons of regulatory competition. After exploring the legal structures and the economic discussions, chapter 5 attempts to explore the existence of board competition and to analyze the advantages and disadvantages of board competition. Chapter 6 concludes the whole paper.

1.4 Research Approach

Apart from exploring the interplay between the Regulation of SE and the relevant national laws, in terms of law and economics, this paper also compares the similarities and the differences of regulatory competition between the United States and the EU. In addition, the relevant empirical studies would be used to examine the effectiveness of different board structures and the relationship between the value of company and regulatory competition. Thus, in this paper, I choose the multi-discipline as the approach to conduct my research.

Chapter 2. Board Choice of The European Company

2.1 A Short History Regarding The Evolvement of SE’s Board Structure

The concept of SE is firstly presented by Professor Pieter Sanders. The original idea was to create a company, which can be recognized and function within the Community. The importance of SE was not from an economic pint of view, but as a means to bring the European Community closer to citizens. In 1966, the preliminary draft of a Statute for a European Company was presented by Prof. Sanders. In Sander’s draft, employee participation is not mandatory but flexible. Later, the size of the draft increasingly diminished. This was due to the Directives issued by the Commission. This essentially changed the nature of the Statute, which could no longer be regarded as a supra-national law. On many issues, the Statute falls back on the applicable national law, which can only be seen as a harmonized but not uniform throughout the Member States[5]. 

Comparing with the post drafts, the current Statute has significant changes in the arrangements of board structures. In the 1975 draft, the two-tier board was mandatory. The requirement of two-tier board was mainly due to implementations of labor co-determination by both the involvements of enterprise councils and supervisory boards. However, politically, imposing mandatory co-determination on Member States that adopted one-tier board was almost impossible[6]. The mandatory arrangement of two-tier board was partly due to the composition of the personnel of the EC Commission at the time. Despite the German Stock Corporation Act, then the most modern in the world, had been copied by the legal regime of the 1975 SE draft, while, over the years, the Anglo-Saxon ideas of capital market and more flexibility in corporate law gained weight and has replaced the prevailing position of German Governance Model of Company Law[7].

2.2 Less Uses of SE in Practice

2.2.1 The Requirement of The Negotiating Process 

Why are entrepreneurs reluctant to choose SE as their preferred form of organization? Firstly, the solution of labor co-determination embedded in the directive is too complicated[8]. The negotiating time between the entrepreneurs and the labor representatives, which is up to six months and can be extended up to one year if parties agree, are unreasonably long[9]. It can be led to the losses of business opportunities due to the changes of commercial conditions of forming SEs. In addition, the costs of creating a special negotiation body composed with members coming from different countries involved theoretically outweighs the benefits of forming SEs for businessmen[10]. Moreover, German enterprises further fear that the results of applying the ‘before and after principle’, i.e. the application of the strictest previously applicable co-determination system in the situation of failing in the negotiation process of attaining the agreement of labor involvement[11], would lead to discrimination against German companies, which compete with foreign companies adopted no or less labor co-determination[12]. Although German local enterprises consider the German negotiation in Brussels not to be successful[13], the official German opinion including politicians and trade unions insists that labor co-determination amounts to an asset for Germany in the competition for SEs. It can be used to explain the distance between business practice and lawmaker’s assumption.

2.2.2 The Participation of Non-EU Company

The above analysis only discusses the possible reactions of EU regional companies. However, We should not ignore the participations of foreign groups that originally incorporated outside of the EU but has subsidiaries incorporated in EU Member States at the same time. For those foreign participants, it may comparatively easy for them to attain the agreement as regard the matters of labor involvements in the shorter time than local participants before the registration of SE, since the foreign EU enterprises may essentially have less or no labor involvement in their internal enterprise culture. Furthermore, in the same industry, both foreign and EU companies are rivals, according to the analysis of game theory[14], it is inevitable for the EU companies to attempt to attain the necessary agreements of labor involvement as soon as possible, in order to maintain their competitiveness in the market, if the managers consider the needs to reorganize their internal structures through forming SEs.

2.3 Board Structures in Europe

Jacoby identifies two distinctive governance systems in modern countries. One is the “shareholder” system, also referred to as the “market-outsider system” or “stock-market capitalism” model. Another is the “stakeholder” system, which is also referred to as the “relational-insider” system, or the “welfare capitalism” model. The latter model is prevailing in Germany. The shareholder model is an “exit” model, in terms of which shareholders sell their shares to express dissatisfaction with management’s performance. The stakeholder model is a “voice” model, in terms of which the other stakeholders within the corporation, including the employees and shareholders, express concerns by communicating directly with management. These systems provide employees with very different roles in corporate governance. Employees have little or no influence on corporate matters under the shareholder system. While, under the stakeholder system, employees have a moderate role, through statute. In Germany, this occurs through a legal system of work councils and co-determination. Thus, employees are important stakeholders and management mediates between the shareholders, employees and other stakeholders[15].

2.3.1 Unitary Board (British)

2.3.1.1 Merits

Compared with German legal system much relied on mandatory rules, the regulatory approach in the United Kingdom is more flexible. Essentially, its main characteristic is self-regulation, which requires companies to yearly report how it has applied the principles of and whether it has complied with the provisions of the combined code[16]. Hence, this system is market-oriented and a mix of less hard laws and more soft laws. It provides for much room for companies to regulate themselves. In principle, control and management are concentrated in hand of one-tier board within the company[17]. Consequently, deadlocks would not happen between two separated organs within the company. As regard the costs of decision-making, it can be seen more efficient. Despite the advantages of centering power on one single board, agency costs can be seen as the typical problem of corporate governance[18]. A prevailing solution is to add the non-executive directors sitting on the unitary board, though the effectiveness of non-executive directors has been doubted by the empirical study[19]. The possible solution could be to add the number of non-executive directors sitting on the board or to extend the tasks of non-executive directors to the formation of company strategies[20]. Furthermore, the chairman of the board should be separated from the CEO to meet the test of independence on appointment[21]. The Majority of Members of the audit, the nomination and the remuneration committees should be the independent non-executive directors[22].

2.3.1.2 Demerits

It has been held that in this type of board structure the interests of employees and the interests of shareholders conflict[23]. The problem with one-tier board systems is that they are required to fulfill two incompatible corporate functions. That is, it is both the management organ and the supervisory organ. This raises the possibility of abuse of executive power by management and doubts about the accountability of directors are high. Moreover, one-tier board systems usually emphasize the role of non-executive directors on the basis that the non-exclusive directors’ independent judgment and monitoring of corporate governance strategies can raise the standards of good corporate governance[24], while the effectiveness of non-executive directors is doubted by the empirical study. In addition, Dore notes that what seems to me the obvious “social justice” case for subordinate-employee power is most obvious here in Britain where, last year, executive compensation (not including stock options) rose by 15% while average salaries rose by 5%[25]. The huge difference of income between managers and employees would result in the failure of attaining consensus within the company. 

2.3.2 Two-Tier Board (Germany)

2.3.2.1 Merits

Germans operate an institutionalized stakeholder model[26]. German style is designed for the whole interests of stakeholders in the corporation, not just for the shareholders and the directors. German attitudes attach much significance to the concept of “cooperation” rather than that of “confrontation”. Germans have an overwhelming sense of commitment to the community and seem to think to benefit in the long-term policies and not the short-term share profits. German companies place their employees and customers before the shareholders. Hence, the shareholders are merely one group of stakeholders and that, although important, making a profit is not the only concern of management directors. Furthermore, board remuneration is not as important to Germans as it is in other countries, such as the U.S. or the U.K. Germans see profit as being important, but not the only aspect to consider when making decisions. Thus, there are virtually no stock options for tax reasons and pay is not tied to profits. Directors would receive about 65 percent of their income as a basic salary. The balance would be comprised of annual bonuses and other company benefits[27].

German company law strictly separates the functions of the two boards to allow the creation of optimum effectiveness. In this way, the supervisory board closely scrutinizes the performance of the management board. Therefore, the interests of the employees will not be neglected. Germans believe that companies have a human and personal component to it and will “produce a general benefit for the community as a whole[28].”

Supervisory independence is ensured by the explicit provisions of law stating that the two boards have absolutely separate functions and that the supervisory board cannot take over any managerial competence. The law requires that each public company (AG) and each limited liability company (Gmbh) with more than 500 employees must have a supervisory board. The system of co-determination operates through the structure and mechanisms of the supervisory board. In this way, a certain proportion of supervisory board members must be employees. These employee representatives ensure that employees’ interests are not neglected. It is thought that, through codetermination, participation of the employees in decision-making will promote sound working relationships[29].

An important question to be considered is the extent to which employee participation in the decision-making processes in the enterprise would actually improve productivity standards and product quality[30]. The underlying ideology is that worker participation in the decision-making will promote trust, cooperation and harmony[31]. Jacoby notes that in theory giving employees a voice in corporate governance – either at the workplace or corporate levels –should enhance their willingness to invest in firm-specific skills and to share productivity-enhancing ideas with the employer. Voice could also reduce turnover-related costs[32].

According to the relevant empirical study, we also find out the evidence to support the two-tier board, in case that the large shareholder sits on the supervisory board but not on the management board. The study indicates that such a two-tier structure can limit the interference of the large shareholder and can restore manager’s incentive to exert effort to become informed on new investment projects without reducing the large shareholder’s incentive to monitor the manager. This results in higher expected profits. The difference in profits can be sufficiently high to make the large shareholder prefer a two-tier board even if this implies that the manager selects his own preferred project. This study also suggests that two-tier boards can be a valuable option in Continental Europe where ownership structure is concentrated. It also offers support to some recent corporate governance reforms (like the so called Vietti reform in Italy[33]) that have introduced the possibility to choose between one-tier and two-tier structure of boards for listed firms[34].

2.3.2.2 Demerits

The supervisory board is the institution, which is responsible for bringing the actions of the company against members of the management board. In accordance with business judgment rule adopted by court, directors are not liable if they acted in the interest of the company and on adequate information. Due to the high threshold of litigation[35] and the private concern of supervisory director as regard avoidance of failing control, the actions are less taken in Germany[36]. 

Despite the separation of management and control under the two-tier system in the German company, in terms of German commercial culture, business relationships are inherent characteristics of the German supervisory board. Many companies are used to employ their former managers as the supervisory directors, in order to make use of their business experiences. In particular, the former chairman of managing board often becomes the current chairman of supervisory board. Further seats on the board are used to offer the representatives of business partners, especially in case of cross shareholding. Whereas the close relationships between supervisory directors and managing directors, it is significantly difficult to anticipate them to keep independence and objectivity and to prevent conflicts of interests[37]. Hence, we may wonder the effectiveness of monitoring management board supplied by supervisory board[38].

With a business point of view, the merits of labor co-determination have been proved as an early warning system to solve internal conflicts. For instance, it helps to end strikes and further facilitate the networking and interest-balancing power of the supervisory board. In contrary to the shareholder priority of Angle-Saxon model, the stakeholder interest as the standards of the director’s duty cannot be precisely evaluated. Also, it is commonly acknowledged that the leaks of confident information have become a serious problem[39]. Furthermore, the division of management and control are not beneficial for efficient cooperation between the two boards. Co-determination also results in disqualified supervisory directors sitting on some professional committees like audit, compared with the U.S. Consequently, without adequate profession, it is unfair to impose a high level of duty of care on those who represents labors or trade unions. Those problems finally impair the capacity of German company to raise the capital on the international capital market. Even we regard the company as a social institution, its main function is still to raise capital. The influence of labor participation in the supervisory board also blocks the potential chances of transnational restructure by means of merge and acquisition, if it would lead to the loss of jobs[40] or the decrease of influencing power in the higher board of cross-border group[41]

2.3.2.3 An Empirical Study as Regard Two-Tier Board in France

Of the 2,500 executives polled, forty-two percent expressed that the two-tier system was too formal, especially regarding the director’s obligation to report to the supervisory board. Also, they stated that a formal division of competence between management and supervision lead to inefficiencies. Twenty-four percent of the directors considered the two-tier board to be costly. Not only the monetary costs of establishing the new structure and compensating additional directors add the financial burden of the company, but also the time costs generates from regular meetings, which need to be scheduled and re-scheduled. Another negative factor of the two-tier board is purely psychological in France. Thirty-one percent of the executives polled considered the title “PDG[42]” to be more famous than either chairman of the director or president of the supervisory board. Essentially, French executives prefer PDG-led management as opposed to cooperative management. Furthermore, other fears that a directorate may factually control or influence the supervisory board, A powerful directorate could use the two-tier board as a sort of smokescreen to convince investors that their interests are ensured by the supervisory board, while manipulating the supervisory board at the same time. However, despite only 1.62 % of French companies adopting the two-tier structure, majority of them are big companies registered on the Société des Bourses Françaises. Those companies are well known as the “SBF 120,” which is similar to Fortune 500 in the U.S. Moreover, many of them like Compagnie Bancaire are highly successful[43].

2.3.2.4. Possible Solution of Two –Tier Board in Germany

To begin with, in the past, the supervisory directors cannot directly obtain information from executives. It results in the difficulty of precisely evaluating the performance of the company, due to lack of information. Hence, the interplay between the supervisory board and the external auditors has become the key point in the modern debates. As a consequence of the KonTraG reform in 1998[44], the supervisory board has the competence to conclude the auditing contract and confers the auditing mandate, which can cover all matters relevant to the affairs of the supervisory board[45]. Information flow has strengthened, due to the direct deliver of auditing report to the supervisory board. Also, the auditor has the duty of participating in the process of approving the annual accounts. Moreover, apart from the checking of the accounts, the auditing mandate has extended to the control of the risk management systems[46].

2.4 The Justifications of Allowing The Options of Board Structures

The Current SE Statute is in line with modern company law theory, because it recognizes that the one-tier and the two-tier systems are path-dependent phenomena[47]. This means that the states with one-tier board as legal tradition such like the U.K., Belgium, Spain, and Greece, can keep their one-tier board, On the other hand, Germany, Austria, Sweden, Finland and Denmark may keep their two-tier board, Recently, France and Italy have allowed the founders of companies to choose their favorite board. Therefore, the free choice of board structures provided by SE Regulation can be seen as the respect of Member States’ legal traditions, instead of imposing a rigidly single board structure applying within the EU. Actually, it is un-benefited to impose either one single system on all Member States of the EU, since these two systems were rooted in different historical contexts, traditions, and public choices of legislators[48]. Modern debate on the board as a corporate governance instrument emphasizes that both board structure systems have their own merits and demerits. Marcus Lutter has pointed out that the German two-tier system needs to partly improve[49], while Paul Davies claims that the one-tier system are better than the two-tier system in the circumstance that the outside directors are integrated into the information system of the one-tier board and are allowed to join the process of vital decision-making[50]. Outside director’s participation of one-tier board may effectively solve the problems of conflicting interests between the executive directors and the company. However, Paul Davies also stresses that whether the cost of the monitoring function of the German two-tier board might be outweighed by the benefits of its networking and thus finally benefits shareholders more is an empirical question[51]. Also, in the relevantly domestic reports, empirically, both of the two sides can be found their supporting evidences[52]. Thus, it is sincerely that choosing one single model, as the mandatory system, is unjustified.

In addition, the SE Statute breaks with the tradition way of gaining consensus upon a new European draft regulation or directive by conferring the Member States various options[53]. Indeed, this used route may politically make sense, but it conceals the fact that the harmonization has not actually completed. Sometimes, too many options make things even worse than before, since the failed harmonization makes businessmen confused by producing more legal uncertainties in case of cross-borders activities[54]. Furthermore, too many options also imply that several conflicting solutions representing different legal objectives exist in the same statute and thus this arrangement reduce the effectiveness of the legal reform. The foreseen innovation of the SE Statute is that it grants the options to the founders of SE, not to the States who are used to enjoy.

Allowing the founders of SE to choose their preferred board can not only politically attain the consensus among Member States’ representatives as regard the contents of European Company legal matters, but it can also be used to maintain the old board structures, evolved in the particularly social contexts of Member States, as a results of the needs of legal certainty. It can be seen as a compromise between the innovative needs of entrepreneurs by adopting the foreign board models and the traditional needs of maintaining the habitual arrangements agreed among entrepreneurs, labor unions and governments by adopting the local board model.

Despite the convincing reasons presented above, if we carefully observe the wordings used in Article 39 (5) and Article 43 (4), it states that Member States “may” adopt the appropriate measures in relation to SEs in the situation where no provision is made for one-tier board or two-tier board in relation to public limited company with registered office within its territory. Can it be explained that Member States have their own discretion to decide whether they will supplement the lack of national laws in relation to SE board structure or not? In the situation of lack of rules, this can be only solved by domestic laws. Consequently, this could lead to a considerably high degree of legal uncertainty and could actually amount to keeping out SEs with another board structure. For systematically explaining the wording of “may”, albeit this approach may go against the words but satisfy the spirit of the whole Regulation[55], the term “may” does not give full discretion to the Member States not to adopt the appropriate measures at all[56]. Furthermore, for making the choice of board structures sense, Member States should appropriately transpose the two-tier system into the one-tier system, without reducing the merits of one-tier system, in compliance with Community law, vice versa[57]. 

Finally, one may argue that the freedom of choosing the board structures for SE’s incorporators is not aimed at enabling SEs to structure their organizations to fit their specific needs. Nor was it meant to enable Member States to compete for the best legal forms for attracting more SEs[58]. It mainly resulted from a long-lasting and difficult process to reach an agreement on how SEs should organize their internal governance structure[59]. Therefore, it is a typically political comprise among Member States, since each Member States can keep their traditional board forms in SE Regulation. However, law is a system interacting between producers and consumers[60]. In practice, we cannot ignore the fact that those who want to adopt SE as their commercial vehicle would choose the most suitable board form after conducting benefit-risk analysis. Moreover, SE opens a door for Member States to supplement the rules they lack. This would lead to a race among Member States, because legal cost is also one of the concerns for businessmen to decide where they prefer to sep up their managing centers. Thus, if we deem law as the ship produced by legislators, when the ship has launched, the user of the ship would decide the direction of ship after launching.

2.5 The Provisions of SE As Regard Board Defects

2.5.1 Duration and Removal

Article 46 of SE Regulation stipulates that members of company organs shall be appointed for a period not exceeding six years and members can be reappointed once or more than once[61]. In terms of comparative law, the terms of office range from a low of two years, in the case of Japan[62], to no statutory term limits at all in the case of the U.K.[63]. U.S. corporate law falls at the short end of this spectrum, with a one-year term as the default rule and commonly a maximum term of three years for staggered board. In contrary, Germany and France are long-term jurisdictions, in which directors can be elected for terms of up to five and six years respectively[64]. Compared with the current legal regimes in the world, the duration of office provided by Article 46 is too long.

Pursuant to Article 39 (2) of SE Regulation, the member or members of the management organ shall be appointed and removed by the supervisory organ[65]. Can it be read as the mandatory discretion of the supervisory organ to remove management board members without cause? Or this is just a rule of competence that leaves for Member States to decide under which conditions the removal is possible[66]. In terms of comparative law, British and French laws offer the majority of shareholders a strong right to remove directors without cause, while Japanese and German laws provide a weaker removal right with a high threshold of requiring the assent of two-thirds of the voting shares or the assent of three-quarters of the voting rights. Apart from Germany, a trend of balance can be sought between a short duration of office with a weak removal right (U.S. Model) and a long duration of office with a strong removal right (French Model)[67]. Thus, Article 46 of SE Regulation offers choices for Member States to decide.

2.5.2 Board Secrecy and Member Liability

According to Article 49 of SE Regulation, board secrecy is restricted in case which the divulgence of the information regarding SE might be prejudicial to the interests of the company, except where such disclosure is required or permitted under national law provisions applicable to public limited-liability company or is in the public interest. The scope of Member’s duty is sincerely narrow. Board secrecy shall be kept irrespective of potential damage, and violation of confidential provisions shall lead to dismissal or penal sanctions. It is ambiguous whether Article 49 would be explained as conclusive, or whether it can be explained that national laws of Member States can go further under Article 9 (1) of the SE Regulation[68].

Pursuant to Article 51, members of SE’s management, supervisory and administrative organs shall be liable, in accordance with the provisions applicable to public limited-liability companies in the Member States in which the SE’s registered office is situated, for loss or damage sustained by the SE following any breach on their part of the legal, statutory or other obligations inherent in their duties. A mainstream of criticisms is that SE’s provisions are too general and lack many vital provisions of coping with the typical agency problems[69] such as conflicts of interests, insider dealing, wrongful trading, the role of independence and competence of board members, the distinction between executive and non-executive directors in one-tier board, party transactions, and formation of board committees as regard remuneration[70], nomination and audit. Also, detailed information rights are vital for supervisory board to effectively monitor the condition of company operation. For controlling the director’s self-seeking behaviors, it is necessary to provide direct liability of management and supervisory board members towards shareholders and third parties. All of these regimes undoubtedly contribute to the protection of investors and the whole interests of the company[71], in line with capital market law and modern corporate governance[72]. Therefore, the provisions restricts itself to liability of the board member towards SE is too narrow.

Indeed, those provisions are deemed as necessity for modern company and capital laws. However, we shall not forget the original ideas of SE is to offer room for Member States to develop their own SE regimes to fit the domestically specific needs. Therefore, the function of Article 9 is to allowed the Member States to develop and to supplement the lack of rules concerning SE. This is a public choice of EC Commission to open a door for Member States to compete the best legal forms for SE.

Furthermore, modern rulemaking in company law and capital market law is not confined in hard law, but embodies more voluntary and self-regulated rules in codes of conduct, recommendations, and contractual and non-contractual agreements. It is a mix of hard law and soft law[73], a coordination of public and private regulation, which can be seen as a phenomenon of multi-level regulation[74] in the area of corporate governance. Finally. We shall ask ourselves that such a legal regime can be seen as purely legal uncertainty[75] or a chance for Member States to race and to improve their internal structure of corporate governance by implementing SE into their domestic legal system[76].

2.6 Implementing The Alternative SE Board Model in The Member States

2.6.1 The Situation in the Traditional One-Tier Board States

Pursuant to Article 39 (5) of SE Regulation, where no provisions is made for a two-tier system in relation to public limited-liability companies with registered office within its territory, a Member State may adopt the appropriate measures in relation to SEs. Thus, Member States are expected to make appropriate SE provisions for the board system, either one-tier or two-tier, which they lack in their national laws. On the other hand, in accordance with Article 10 of SE Regulation, Member States are prohibited from making rules they have had, if these rules are only applicable for SEs. This Article should be interpreted as the forbiddance of any discriminated rules provided by Member States to make SEs less attractive to entrepreneurs. In other words, SEs should be treated as well as national public limited-liability companies of Member States[77]. However, the scope of Article 10 of SE Regulation is confined in the guarantee of equal treatment between SEs and locally public limited-liability companies, and it cannot be inversely read that locally public limited-liability companies should enjoy the same conditions SEs have[78]. In my personal opinion, Article 10 cannot be explained to extend the board choice for the locally public limited-liability companies[79]. Hence, Article 39 (5) of SE Regulation can merely be used to make the operation of the alternative board of SEs possible in the states with one-tier board, vice versa.

In the states with one-tier tradition, it is not troublesome to implement the alternative board model. In one-tier board states like the U.K., it can be observed that by way of convergence[80], a different way of development occurs in the one-tier board, despite only for listed company[81]. The Company Law Review noted insofar an actual emergence of the two-tier system in the U.K. Under the Combined Code, the one-tier board can both control and manage the company[82]. Furthermore, at least one-thirds of the board directors should be non-executive directors that satisfy the requirements of independence. The Code defines independent director as the one who is independent of management and free from any business or other relationship with the company that could factually interfere with the exercise of his/her judgment. Actually, first of all, independence depends on the background of the non-executive director. Furthermore, a constant flow of new non-executive directors on the board can promote independence more[83]. Although the non-executive directors join the formation of company strategy with executive directors, their basic role is to monitor the performance of the executive directors. Therefore, the factual basis has already existed in the U.K. before introducing the two-tier board for SEs[84].

Paul Davies claimed that the two-tier system might reduce the main advantage of the one-tier system[85]. While, since SE allows the founders to decide which board form can fit their companies. Those who choose two-tier system as their internal structure have compared the merits and demerits between one-tier and two-tier systems. Thus, even if introducing the two-tier system of SE in the UK would take away the advantages of one-tier system, it shall be left for businessmen to judge[86]. Moreover, if the U.K. government wants to reduce the impact of introducing the two-tier system in the domestic market, a smart strategy can be made by aligning the new two-tier system close to the one-tier system[87]. Since the Regulation only requires the separation of control and management into supervisory board and management board, respectively[88]. Also, in accordance with Article 39 (3), no person may at the same time be a member of both the management organ and the supervisory organ of the same SE. Thus, the one-tier board states are not obliged to introduce the stake-holding and networking approach of the German style two-tier structure[89]. Through Article 41 of SE Regulation[90], an institutional arrangement can be made to ensure the full flow of information, which is the main advantage of one-tier board and also fundamental difference between one-tier system and two-tier system[91]. The alternative way could set up a forum for supervisory directors and managing directors to sit together and to discuss the operation of the company or even allow the supervisory directors to join the process of decision-making in the managing board without having the voting rights[92].

2.6.2 The Situation in The Traditional Two-Tier States

Pursuant to Article 43 (4) of SE Regulation, where no provisions is made for a one-tier system in relation to public limited-liability companies with registered offices within its territory, a Member State may adopt the appropriate measures in relation to SEs. Thus, the two-tier states are obliged to offer the alternative board structure, in order to satisfy the requirement of board choice provided by SE Regulation. Compared with the one-tier board states, it could more difficult to introduce the one-tier board into the states with traditional two-tier system, due to the regime of labor co-determination[93].

Labor co-determination in a supervisory board does not take part in the management board. It is hard to imagine that the supervisory directors including the representatives of the workers and the trade unions are sitting in the one-tier board and getting every kind of information and participating in every vital decision. Traditionally, the two-tier states’ systems usually consist of a well-balanced set of rules to separate the power within the company between the management board, the supervisory board, and the general meeting of shareholders[94]. The introduction could ultimately change the political compromise between labor and capital in German boards. However, the solution could be made by separating management and supervision within the one single board. Despite the lack of rules distinguishing executive and non-executive directors in SE Regulation[95], it can be implemented by national laws of the two-tier board states. Thus, the labor representatives as the supervisory directors could be confined to conducting monitoring matters, and they shall be prohibited from joining the process of decision-making and voting. The second approach is to raise the level of the one-tier board as the main monitoring organ, while leaving one of the administrative members to be responsible for daily management[96]. This high level of the administrative organ may only be responsible for supervising the expression of company and the managing director’s performance, and allows the managing director to organize his/her own managing group composed of higher managers. Through this arrangement, the competence of the administrative affairs is conferred to the sub-managing group led by the managing directors, and thus the administrative organ is close to the old supervisory board[97].

As regard information, the situation of the two-tier states is opposite to the one-tier states without labor co-determination. In traditional one-tier states, the aim is to keep the full flow of information, which is deemed as the main advantage of one-tier board. In contrary, in the typical two-tier states like Germany, in practice, violating the obligation of confidence is the common phenomena from the labor representatives of the supervisory board, despite the enactment of penalty for breaking board secrecy in listed company[98]. Article 49 of SE Regulation prohibits such kind of behavior but leaves Member States to decide the sanctions. Apart form broad secrecy, one may wonder whether conferring the labor representatives the full and immediate information as well as managing directors could improve the negative side of labor influence on company’s decision-making. For instance, some decisions may benefit the whole interests of the company but impair the interests of labors suck like setting up branches abroad, preparing mergers with partners who are unfamiliar with or against labor participations in the board[99]. Especially, in accordance with Article 44 (2) of SE Regulation, each member of the administrative organ shall be entitled to examine all information submitted to it. Thus, limiting the information rights of administrative directors in line with German enterprise culture could be hard to find the legal basis in SE Regulation.

Recently, The Deutsche Bank aims at promoting the CEO in the board structure. While under the currently German two-tier system, it is out of question. Perhaps, in accordance with Article 43 (1) of SE Regulation, a Member State may provide that a managing director shall be responsible for the daily management. Therefore, it could be used as the legal basis of introducing a CEO in the one-tier board of SE. However, limited to the requirement of the same conditions as for public limited-liability companies that have registered offices within that Member State’s territory, this can be interpreted as the forbiddance of installing the CEO in the one-tier board of SE[100].

2.7 A Short Conclusion

First of all, systems evolve in accordance with their historical and cultural contexts, particularly depending on the shareholder structure and the capital market environment. Economies, political preferences and cultural and legal traditions are important conditions that shape a country’s corporate system. Therefore, the development of a corporate system in a specific country should be studied in the country’s own historical context[101]. The theory of path dependence clearly explains the distinct risk of welfare losses for the importation of foreign institutional arrangements[102]. Therefore, we should affirm the freedom of choosing board structure given by SE Statute. At this moment, we cannot conclude that which form should be the mandatory form in the Europe. SE Statute essentially is not a set of market-oriented rules, since it both recognize the unitary board and the two-tier board, which are based on the different political-economic contexts. Despite the influence of economic globalization, still some scholars support to introduce two-tier board in France[103] and in Italy[104], in terms of cultural analysis and economic analysis, respectively. On the other hand, Paul Davies also explains the lack of labor participation in the board level in the U.K., due to the cultural context[105]. Thus, legal culture and legal certainty can be seen as one of the decisive factors of shaping national board structure. Therefore, we cannot predict which board structure would be the final winner in Europe.

Secondly, whether the choice of board structure can be realized much depends on the implication of Member States. Actually, if they prefer to maintain legal certainty, the Statute of SE also offers room for them to align the one-tier board with their old two-tier board, vice versa. Hence, SE Regulation provides a balance between legal flexibility and legal certainty for domestic governments of Member States. It also confers the rights to founders of SE to choose the board structure, in order to satisfy the needs of innovation and tradition. Only after choice of board structures have been effectively realized by national laws of Member States, we can anticipate that the competition between board structures would happen within the EU.

Thirdly, a main criticism indicates that the SE Regulation lacks the provisions of real governance[106]. However, in the context of multi-level regulation and governance, a mix of soft law and hard law and a coordination between public regulation and self-regulation can explain why SE Statute leaves to Member States to develop their specific European Company by combining national laws and national corporate governance codes.

Chapter 3. The Implementation of Board Choice in Member States of EU

3.1 General Framework

As mentioned in Chapter 2, the full realization of board choice under the Regulation of SE is the prerequisite of board competition. In this chapter, I select the Netherlands, the United Kingdom, and Germany as the objects to observe whether their legal implications of SE have made choice of board sense. Hence, I would focus on the alternative board that Member States traditionally lack and how they use the domestic laws to supplement the gaps in the SE’s regime.

3.2 The Netherlands

The SE Regulation was implemented in the Netherlands on 1 April 2005 by means of the European Company (SE) Regulation Implementation Act (RIA). The provisions of the act are supplemented by national laws applicable to public limited-liability companies incorporated under Dutch law (‘naamloze vennootschappen’ or ‘NVs’), as embedded in the Civil Code (‘Burgerlijk Wetboel’). The approach of drafting RIA is minimal. It did not take the chance to enact provisions on the one-tier system of management, which lack specific provisions in the Dutch Civil Code[107]. The general Dutch company rules as regard public limited-liability companies (‘NV’) play a role as the supplementing source of rules to fill the gap, in accordance with Article 9 of the SE Regulation. These rules are laid down in Book 2 of Dutch Civil Code (BW)[108].

3.2.1 Structure Regime for Large Company

The central issue of implementing SE into the Dutch legal system is whether the structure regime of large companies[109] would be fully applied on SEs, no matter what one-tier SEs or two-tier SEs. Large companies incorporated under Dutch law would be subjective to the ‘structure regime’, if they have (i) issued capital of at least 16 million Euros, (ii) a works council (iii) and at least 100 employees in the Netherlands for at least constant three years. Company subject to the structure regime are obliged to establish a supervisory board[110] composed of members appointed by the general meeting of shareholders on the basis of nominations presented by the supervisory board. The works council and the general meeting can also recommend candidates to the supervisory board, and the works council has a privileged right to recommend one-third of members in the board. In some circumstances[111], a company could be qualified for a full or partial exemption from the structure regime. For instance, it is a member of a multinational group. In this situation, members of the management organ are appointed and removed by the general meeting of shareholders[112]. This exceptions are based on the competitive concern, since the foreign international groups may not be evolved from the Dutch society, and thus they should not be bound by the mandatory labor participation in the context of Dutch legal culture.

In implementing the SE Regulation and the Directive, the structure regime would not automatically apply to the qualified SEs. As regard the participation rights of the works council in companies subject to structure regime, Article 1 (6) of the EIA stipulates that such rights are not of mandatory application in an SE registered in the Netherlands. Such rights merely are given to them, in accordance with Article 40 (2) of SE Regulation[113]. While, without applying the structure regime in SEs as well as the normal NVs, it may result in the agency problem, due to a weaker monitoring organ of SEs. Hence, a NV may have strong incentives to transform into a SE, in order to decrease the influence of employees on the management. On the other hand, this can be thought as the advantages of board competition between NV and SE in the Netherlands[114]. The regime applicable to SEs would be more flexible than NV, and shareholders gain the power to decide which regime of check and balance demands. It would be possible for them to design a tailor-made system of corporate governance for their own companies[115], instead of relying on the rigid rules provided by the structure regime for large companies[116].

3.2.2 One-Tier Board

Dutch Civil Code does not provide specific provisions for a unitary system, composed of inside and outside directors. Whilst, in practice, some Dutch international companies actively recruit outside directors to be responsible for daily management in their boards[117]. Hence, it is no troublesome to introduce the separation of executive and non-executive directors in the unitary board through amending corporate charters. However, for keeping in consistent with the principle of joint liability and responsibility, the Dutch legislature chose not to enact the option embedded in Article 43 (1) of the Regulation. Consequently, there is no distinction between the responsibilities of inside and outside directors in the single board of SEs, nevertheless Article 2: 9 of the Civil Code permits the division of duties to a certain extent[118]. It is unwise for Dutch legislators to ignore the prevailing standpoint that it is suitable to introduce the outside or independent director to strengthen the governance of companies with unitary board[119]. Also, in the systematical arrangements of the SE Regulation, principally, it starts from the distinction between executive and non-executive directors. 

In addition, Members of administrative organ who are not in charge with management in an SE have to be natural persons[120]. In conformity with Article 2: 134 (1) of Dutch Civil Code, Members of the administrative organ appointed by the general meeting of shareholders should be suspended or removed by the same organ[121]. Also, on basis of lack the provisions to separate managing directors with daily management[122] and the other members in the single board, the Dutch legislators decide not to use the option given by Article 43 (2) of the SE Regulation to introduce the managing directors in the unitary board of SE[123]. 

In the end, I would like to criticize the minimal approach of regulating SE adopted by Dutch legislators, since they not only leave the unsolved legal uncertainty resulted from the SE Regulation, but they also ignore the necessity of separating the executive and non-executive directors in the unitary board in line with modern corporate governance. The only advantage they gain is to reduce the impact of introducing SE into the local market by fully applying the domestic law to maintain the traditionally legal certainty.

3.3 Germany

3.3.1 General Framework

A draft of the SEEG (‘Gesetz zur Einjführung der Europäischen Gesellschaft’) was published on 26 May 2004, and the Regulation and the SEEG both entered into force on 8 October 2004. The German approach is to limit the scope of the SEEG to necessary matters to transpose the SE Statute and refuse to extend the reforms to the German Stock Corporation Act. Hence, an SE registered in Germany would be very similar to a German public limited-liability company or stock corporation (‘Aktiengesellschaft’ or ‘AG’), because part of its matters are governed by national laws in the absence of specific provisions in the SE Regulation and the SEEG[124]. The SEEG aims at providing a flexibly internal structure for small and medium sized companies and subsidiaries of group to use, since both of them neither is unbound for labor co-determination, nor quotes on a stock exchange. Hence, the basic model of the unitary board of SE is based on the law of German private limited-liability company[125].

3.3.2 One-Tier Board: The Role of Managing Directors

To begin with, the administrative organ shall manage the company, issue the guidelines for its activities, and supervise its implementation, which is based on French model[126]. A task distribution has been made between the administrative organ and the managing directors in charge of daily management[127], on basis of Article 43 (1) of the SE Regulation. In principle, the administrative organ is responsible for the long-term business strategy and policy of the company, while the implementations of these strategies and policies are left for managing directors. Section 40 of the SEAG (‘SE-Ausfuhrunfsgesetz’) stipulates that the appointment of at least one managing directors. The managing directors can be selected from the members of the administrative organ or from outside candidates. While, a majority of members of the administrative organ cannot be managing directors at the same time. Despite the full delegation of managerial authority to the managing directors, member of the administrative organ still have to hold jointly liability. Ultimate responsibility for management and control are laid on the administrative organ, compared with the separation in the two-tier system. The provisions of the SEAG on the administrative organ largely reflect the provisions for the supervisory board of a German public limited-liability company, and only changes if necessary[128]. Despite the broadly managing power is centralized in hands of the administrative organ, the daily management tasks should be left for managing directors[129]. The legal basis of managing director’s position should be sought from Article 43 (4) of the SE Regulation, which delegates Member States to adopt the appropriate measures to realize the alternative board[130].

The managing directors are overseen by the administrative organ. The administrative organ is responsible for appointing the managing directors and can remove them at any time without cause[131]. Although the managing directors have complete authority to represent the company toward third parties, as regard internal matters, they have to comply with the instructions and restrictions rendered by the administrative organ. Under German law, the position of the managing directors is close to the managing directors of a private limited-liability company (Gesellschaft mit beschränker Haftung or ‘GmbH’)[132].

To separate the managing directors and the administrative organ is not only in conformity with business practice, but it also relies on the familiar rules of German private limited-liability company to add legal certainty. While the scope of SEs with unitary board is limited for small and medium sized companies and subsidiaries, at least more little public companies can adopt the flexible approach to organize their internal structures now. This development is also correspondent to some scholar’s observations[133]. However, Member States can only provide this regime in the circumstances that they already have in the one-tier system, in accordance with Article 43 (1) of the SE Regulation. Thus, installing the managing directors in the unitary board of SE in Germany may violate the SE Regulation[134].

Finally, we may need to ask ourselves: shall the scope of SEEG be limited in SMEz and subsidiaries? Can it be extend to the public or listed companies in Germany? Or it is more important to maintain the balance between trade unions, works council, capitalists and government and thus the scope of SEEG should be narrowly interpreted.

3.4 The United Kingdom

Firstly of all, it is vital to stress that there is no single set of company law applicable throughout the United Kingdom. Apart from the Northern Ireland, the whole Great Britain is governed by the Company Act (CA) 1985 and the Insolvency Act 1986, and the Company Directors Disqualification Act 1986. The laws as regard England and Wales contained in these acts are the same, but many differences can be found in Scotland, especially in the field of insolvency[135].

3.4.1 The Role of Managing Director

Article 39 (1) and 43 (1) of SE Regulation delegate that Member States may provide that one or more managing directors shall be responsible for the daily management of an SE under the same conditions applicable to public limited-liability companies registered in Member States. While, there is no provisions under British law to require public limited-liability company to have one or more managing managers. Nor does British law change the provisions applicable to public limited-liability company in this part. Thus, it may be difficult to have a managing director under British law[136].

3.4.2 Two-Tier Board

First of all, at present, there is nothing in law to prevent public limited-liability companies registered in Britain from adopting a two-tier system under their articles of companies[137].

Secondly, any reference to directors in the CA and other legislation applied by the Regulation should refer to both members of the supervisory board and members of management board. However, if an SE adopts a two-tier system, any functions concerning the management of the SE may not be undertaken by the supervisory board. Britain has opted to extend the scope of the supervisory organ’s competence, in order to allow each member can perform his/her duties with sufficient information. However, British decides not to adopt the options embedded in Article 48 (1) and (2) of the SE Regulation, which allow Member States to provide that (i) the supervisory organ of an SE can preserve certain categories of decisions subject to its approval and (ii) certain categories of transactions have to be embedded in the articles of SEs incorporated in Member States. Thus, British still maintain its traditional way of centralizing the company’s power in hands of administrative directors. It is unnecessary for the UK to fully adopt a stakeholder and networking model in the society with laissez-fair philosophy[138]. While, in the case of foreign companies incorporated in the U.K., it may be more similar and convenient for them to choose the two-tier board as their internal structure of the companies[139]. 

Chapter 4. Traditional Discussion of Regulatory Competition in the U.S.

4.1 General Framework

In the United States, each state still maintain a substantial reservoir of power. This makes possible a “market” for laws. The states compete each other for “customers,” by passing attractive laws. And one state can effect the policy of others by offering for sale a cheaper, better, or simply different brand of law, including corporate law[140]. Insofar, states compete to provide firms with products, corporate charters, in order to obtain franchise tax revenue[141].

A trend of reforming corporate law can be observed that one state will amend its corporate laws in response to another state’s innovation[142]. Thus, a substantial uniformity of corporate law across the states can be confirmed in the U.S., although in fact each state’s corporate law remains different.

Delaware, a tiny state, is the “home” of thousands of corporations, including large firms. Almost all sorts of companies are incorporated in Delaware without any genuine link to the state. For instance, unsurprisingly, a Denver bus company was actually a Delaware corporation. The main reason why Delaware is so popular for those companies is due to its lenient corporation laws in the beginning of the last century. This attracted companies like bees to honey. They set up “headquarters” in center of Wilmington, Delaware, in most circumstances, small cubbyholes where company could receive mail. Instead, the real head offices were elsewhere. The taxes they offered to Delaware are a main source of Delaware government’s income[143].

Whether federal corporate law is desirable in the United States has been a length issue. In the following sections, both of positive and negative propositions would be discussed. In the final section of this chapter, I would present a short conclusion.

4.2 The Opponents of State Competition

4.2.1 The Doubt of Existence of State Competition

To begin with, some advocates doubt the existence of corporate law competition among states. Other than Delaware, states do not gain significant financial benefits through competition. Even if they have attracted a substantial number of public corporations, they would neither earn meaningful franchise taxes under their current tax system nor considerably profit from an increase in legal business, especially in the large state. Consequently, they lack the economic incentives to attract incorporations[144]. Apart form Delaware, states have not established a specific court for corporate issues and left the judges who lack the specialized knowledge and incentives to attract incorporations to decide the corporate legal disputes. Despite the existence of revising their outdated corporate laws, the main reason does not lie in attracting incorporations. Hence, the notion of state competition is a myth, and Delaware is an exception in the United States[145].

In addition, the lack of competition is due to the political concerns. First of all, profits may come too late for lawmakers, since they tend to pursue the apparent results in the short-term, in order to be the winners in the next election. Secondly, state budget is designed to balance the short-term cash flows, rather than long-term profits brought by the increase of incorporated companies[146]. With less companies located within the state, it is also difficult to calculate legal capital as much as Delaware by forming a huge body of case law through adjudicating a substantial number of corporate disputes[147]. Although the difference of corporate legal capital can be partly solved by completely coping the Delaware’s corporate law and its legal precedents[148], the reputation of company’s home remain unchanged[149]. Finally, competition among public regulators is different from competition among private sectors. Regulators are mainly influenced by political factors, rather than pursuing profits. Indeed, it is difficult to predict the strategies adopted by regulators, because the political-payoff structure is less predicable than the economic entity. Hence, it is too simple to analyze public sectors competition, according to the model of private sectors competition[150].

4.2.2 The Diffusion of Statutory Innovation Unrelated to State Competition

In the classic article, Romano examined four statutory innovations in corporate law and found that they diffuse among states, forming an ogive curve of cumulative adoptions over time. This pattern resembled the diffusion of innovation in charting market[151]. Indeed, in economic theory, competitive forces can result in an ogive curve pattern. However, the opponent disagrees with Romano’s view that this pattern indicates the existence of state competition. Many statutory innovations in areas where states do not compete also diffuse among states along ogive curves[152]. What drives the diffusion in these areas and explains its shape is information transfer and learning[153].

4.2.3 The Phenomenon of Race for Bottom

In principle, compared with the Continental Europe, the U.S. corporate legal model is based on the maximum of shareholder interest, rather than stakeholder interest[154]. Therefore, through empirical studies, proponents of federal corporate law contended that a decrease of share price in the capital market is resulted from state competition in corporate law. Thus, it proved their assumption that state competition would lead to race for bottom. However, even on behalf of shareholder, the mainstream theory of management contends that managers should try to pursue the long-term profits, instead of short-term profits from financial exchanges[155]. Hence, the decrease of share price in short-term cannot be seen as the strong evidence to certify as race for bottom. On the contrary, company’s expression should be observed from the change of share price in the capital market in the long period, despite the urgent needs of cash flow for small public companies in the short time[156].

Agency problem has been a long issue in the area of corporate law. As regard state competition, the power of deciding the applicable state law belongs to managers or controlling shareholders. Thus, if state’s lawmakers seriously attempt to attract incorporation, the predominant strategy is to enact the rules that are attractive to managers or controlling shareholders, at the expense of minority shareholders.  Furthermore, Bedchuck advanced that state competition may lead to the consequence of externalities towards third parties who is not involved in the bargaining process. Thus, states compete to offer the undesirable rules for the whole society, if managers and controlling shareholders collectively influence the process of lawmaking[157]. Contrary to the empirical study[158], Bedchuck argued that the absence of negative returns upon might indicate that both of the legal rules of the original state and the destination state are equally harmful to shareholders. This observation is consistent with the failure of the empirical studies to uncover significant positive or negative returns in most cases[159], and with the degree to which the similarity between two states’ corporate laws.

On the other hands, Cary pointed out the importance of a federal law. He stated that as long as confidence in management is prerequisite to its continuance, a federal interest in the proper conduct of the corporation is as well as security exchange in the capital market[160]. He further emphasized a federal corporate law can prevent lawmakers from interest group’s influence. The close connections between legislators, judges, and law firms and the desire for franchise revenues contribute to Delaware’s success. Raising the level of regulation on the national rules can decrease the adverse influence in local politics[161].

Recently, an empirical study indicated a decreasing influence of Delaware position by observing the change of firm’s value. After 1996, the difference between Delaware and non-Delaware firms became statistically and economically insignificant. This study presented two potential explanations for these results and tests them against the available empirical evidence. Firstly, two anti-takeover movements in Delaware’s law in the mid-1990s – one regarding companies with staggered boards and another more generally – might have strengthened the Just Say No defense and made Delaware corporate law undifferentiated from the law of other states. Secondly, “adaptive devices[162]”, notably the growth of stock option compensation in the 1990s, might have transformed many takeovers in the second half of the 1990s into “very friendly” takeovers in which the background corporate law was not a binding constraint. Both of two explanations found the supporting evidence in this study[163]. However, despite the value of firms incorporated in Delaware is no longer significant, we cannot ignore the saving legal costs, due to the legal capital provided by Delaware court and administrative efforts. Legal certainty of Delaware corporate rules is reinforced by Delaware’s constitutional guarantee and Delaware’s strong corporate law firms[164].

4.3 The Proponents of State Competition

4.3.1 The Relation Between State Competition and Statutory Diffusion

A trend of reforming corporate law can be observed that one state will amend its corporate laws in response to another state’s innovation. Provisions spread in a discernible S-shaped pattern. Thus, a substantial uniformity of corporate law across the states can be confirmed in the U.S., although in fact each state’s corporate law is still slightly different. This trend is due to “state[165] competition”, which means that state compete to provide firm with products, corporate charters, in order to obtain franchise tax revenue.

Revenues derived from franchise tax provide a strong incentive for state legislatures to enact or reform corporate codes, in order to maintain the number of domiciled corporations and to attract more foreign corporations reincorporated in the local state. The main assumption is that incomes brought by charter business encourage states to provide the proper corporate law to satisfy corporations’ needs. However, this assumption is too broad and can be clarified by exploring the relationship between the percentage of total revenues that states obtain from franchise taxes and how states response to corporations in their corporate laws[166].

State competition for incorporation has encouraged an innovative legal process, which is responsive to a rapidly changing business environment for the benefits of business corporations and their shareholders. The spread of the principal corporate law innovation of the past thirty years across the state is to provide provisions increasing organizational flexibility introduced in the modernization of corporation codes in the late 1960s. Romano observed a tendency that a majority of states in the U.S. adopted the same statutory regime to solve the common problem. This tendency results in substantial uniformity across the states in the U.S. Through examining the interaction between Delaware and the Model Act in the legal innovation process and the diffusion of provisions, in the most part, the two work cooperatively, with Delaware’s innovation being transmitted across other states through their copies in the Model Act[167].

One of the key features of U.S. corporate law is that Delaware has dominated the charter market for public corporations since the beginning of the last century. Roughly half of the largest corporations are incorporated in Delaware, the majority of corporations going public in the first time are domiciled in Delaware, and the majority of firms have changed their original domiciles to reincorporate in Delaware[168].

Compared with Delaware, it is difficult for states with a small number of local corporations to improve their corporate laws, since states with less corporations lack the basis of forming more legal precedents to provide more legal certainty. Therefore, at present, Model Act has been adopted by thirty-two states and the District of Columbia in the U.S., while most large states still refuse[169].

In the U.S., three indicators can be found to justify state competition. First of all, corporate law innovations diffuse across states in an S-shaped curve, a pattern that is explained as a sign of competition, in terms of economics[170]. Thus, state competition truly exists between states. Secondly, state franchise revenues are considerably positive related to the responsiveness of a state corporate law to firm demands, even excluding Delaware in the analysis[171]. Thirdly, corporations migrate from states with low levels of responsiveness to those with high levels[172].

The diffusion pattern explains that state would provide the most suitable corporate laws to cope with the challenges brought by a changing business environment through updating their domestic corporate laws, in order to induce firms to incorporate. Since local lawyers are acting in their self-interest[173], given Delaware’s leading position, other states would engage in designing a form of “defensive competition”, presented by local bar to advocate law reform for being able to offer a local domicile choice to their clients[174]. Hence, after Delaware’s success, states early adopting corporate law innovations are more likely to keep more local firms in the charting market.

In the diffusion process of corporate laws, differences often exist in the beginning. Different states enact different statutes coping with the common problems. Eventually, one of the solutions become dominant as the preferred solution and is adopted by the vast majority of states[175].

Delaware’s position, as a leading innovator among the states, in conjunction with the gradual diffusion of provisions, advices a pattern of experimentation regarding corporate initiatives. Especially, Delaware tends to response until the other state’s initiative has proved to successfully response to challenges incurred by changing business conditions. Other states follow even later, and responding after the innovator’s legislation has been proved successfully according to the confirmations provided by the legal counsels of the firms[176].

The other important contributing factor to the diffusion process of corporate law is the Model Business Corporation Act produced by the Committee on Corporate Laws of the American Bar Association’s (ABA) Corporate and Business Law Section, composed of attorneys in large legal firms, in charge of legal affairs of big public corporations[177]. States may follow the model Act completely or adopt only parts of it. Indeed, some state’s corporate codes are a mix of Model Act, the Delaware Statute, and their specific laws.

Finally, the dynamic production of corporate laws has explained how the legal market can create an effective laboratory for experimentation and innovation. The prerequisite of well-operated legal market is to have a direct financial connection: innovation enhances revenues from charter fees and the income of the local bar from serving local firms[178].

4.3.2 The Phenomenon of Race for Top

As mentioned above, the change of share price in the capital market can be used as the standards to evaluate whether state competition would lead to race for top or race for bottom. However, considering the pursuit of the long-term profits, the change of the share price in the short-term cannot fully reflect the fair distribution of company profits within the company, if we adopt the stakeholder model.

Initially, Ralph Winter assumed that market power could force managers to incorporate in states, whose legal systems are more favorable to shareholders. If managers chose a state whose rules are adverse to the shareholder’s interest, the price of firm’s shares would decrease, relative to shares in a comparable firm incorporated in a state with market-oriented rules, since investors would require a higher return on capital to finance the business under the less market-oriented legal system. The impact of market power would force managers to adopt the predominant strategy to keep their jobs, in order to prevent companies from suffering bankruptcy or from being taken over. Winter also assumed that the agency problem could be solved, because capital market is efficient and investors would take into account the impact of different legal regimes. Since the information of the differences between legal regimes is publicly available, we can anticipate that this information would be fully assimilated into the share price[179].

While the assumptions of race for top for state competition sound great, we should seek more empirical evidences to examine the efficacy of this theory. Netter and Poulsen investigated Delaware re-incorporations from 1986 to 1987, after Delaware reformed its statute to allow shareholders to limit director’s negligent liability by amending corporations’ charters. Those reincorporated corporations gained positive abnormal returns in this period surrounding the announcement of the move at a considerable level of 10 percent[180]. In contrast, Weiss and White concluded that they failed to find a significant impact of Delaware court decision that investors do not take into account the differences of corporate legal regimes. Accordingly, state competition does not exist[181].

In recently empirical studies, Robert Daines found that firms incorporated in Delaware are significantly worth more than firms incorporated elsewhere. Differences are statistically significant and economically meaningful in 12 of the 16 years in the sample. Results are robust to a wide variety of controls, including firm and industry fixed effects. He also found that Delaware firms are also significantly likely to receive takeover bids and to be acquired. This result is consistent with the theory that Delaware law facilitates the sale of public firms through its relatively clear and mild takeover law and expert courts. The Author also argue that Delaware’s political economy makes it relatively pro-takeover and unlikely to protect target managers. Consistent with the theory that cross-sectional variation in firm value is partly explained by state law, firms incorporated in several states with severe anti-takeover statutes are worth significantly less and may receive fewer bids[182].

4.4 A Short Conclusion

The legal “market” has both advantages and disadvantages. On the one hand, a state can forge ahead of its neighbors: it can act as a “laboratory” of social reform. On the other hand, conservative states can delay economic changes. The remedy is on the national law level, through federal law[183].

However, after observing the legal changes in the past three decades in the U.S., we can conclude that the diffusion of statutory innovation mainly attributes to state competition. Hence, legal market acts a laboratory of social reform very well in the area of corporate law. In nowadays, nations no longer monopolize the professional knowledge, and thus a liberal approach of decentralizing[184] the legislative power to the state or local governments could be better than centralizing power in hands of federal governments or EU. Since, through market selections, various solutions for coping with new challenges brought by changing business environment would be tested and the finally preferred one can be adopted as the model of unified law. Thus, state competition as the starting point and legal market as a laboratory can contribute to the process of evolving a unified European Company Code.

Chapter 5. Board Competition Incurred by the Regulation of SE

5.1 General Framework

To begin with, I would like to define the notion of “board competition”. Competition both happens between corporations and between states. On the one hand, as the internal regime of corporate governance, businessmen would adopt different kinds of board structure as tools to compete with each other. Thus, the choice of board structure is the prerequisite of board competition, which is initially allowed by the Regulation of SE. While, in practice, whether businessmen would choose SEs as their company forms depends on the cost-benefit analysis of the rules as regard SE[185]. On the other hand, competition also happens between states. Despite the importance of operating the internal market well, it is therefore necessary to confront corporate fraud by applying the minimal standards of corporate law throughout the Europe. In essence, Member States still have incentives to compete with each other by providing companies with the more attractive board structure. Because once multinationals choose to establish SEs incorporated in that state, the SEs would bring the long-term investment and create more jobs in locally labor market. Furthermore, Article 7 of the SE Regulation states that the registered office shall be located within the Community in the same Member State as its head office. Thus, this provision also provides Member States with a strongly economic incentive to become the central place of SEs’ head quarters in Europe. In addition, many legal matters of SEs have to apply the national laws of Member States. Therefore, in terms of legal structure, Member States also have room and discretion to design its own legal regime of SE for inter-states competition.

However, competition even happens between two kinds of board structures under the Regulation of SE within the state. Since in the same industry, the rival corporations may choose different kinds of board structures to compete with each other. It results in the competition between two kinds of board structures under the same legal system within the state.

To sum up, there are three meanings of board competition in this paper. Board competition between states leads to incorporations competition within the EU. Board competition happens between SEs and public corporations incorporated in national laws of Member States within the state and within the EU. And board competition happens between SEs under one-tier system and SEs under two-tier system, especially in the same industry. Which board structure would become the final winner in the race need to be examined over time and by the constantly empirical studies in the future.

5.2 Board Competition in Legal Structure and Theory Assumptions

Different board structures are evolved from different social and cultural contexts of Member States. Two-tier board is gradually shaped in the past two centuries of German history, and it has been reinforced during the hard time after World War I and World War II[186]. The social basis of this structure lies in the networking between Banks, workers, capitalists and government[187]. While, one-tier board is the first board structure in the world and more prevailing in the Europe and in the world[188]. In the U.K., Davies clearly explained why there is no regime of labor participation in the board, in terms of social context[189]. It is therefore reasonable to predict the potential difficulties that SEs with innovative board structures would face, compare with SEs with traditional board structure. Without a package of the relevant rules to support, it is unlikely to purely import the foreign board structure into the domestic legal system[190]. Thus, legal uncertainty is indeed a handicap for businessmen to choose SE, because of lack of experiences[191] and lack of supplementing rules. In terms of legal culture[192] and legal certainty, the effect of board competition under the Regulation of SE is limited.

However, multinationals have sufficient capacity to overcome the legal uncertainty by their strong legal departments[193], and governments of Member States have responsibilities to enact the rules to realize the alternative board under the national legal system. Also, through an agreement between managers and labor representatives, it would work very well and create room for businessmen to pursue an unforeseeable board structure to fit their specific needs[194]. Hence, a SE with unitary board without labor participation operating in all Member States becomes possible for multinationals. It can be seen as a powerful incentive to facilitate board competition.

5.3 Legal Limits of Board Competition in Europe

Some proponents claimed that state competition results in race for top, especially gaining stability and predictability in Delaware. Thus, The legal market as an instrument can also be used to find out the best law for the whole Europe[195]. While, the opponents presented two points to argue the merits of regulatory competition in corporate law in EU. Firstly, the theory of U.S. regulatory competition is to use in large companies, which is much influenced by capital market. In Europe, the discussion of regulatory competition mainly focuses on the small and medium sized company. Recently, after Inspire Act[196], a growing number of small German companies have chosen British Private Company form, due to its fast incorporation procedure and the avoidance of the minimum capital requirement pursuant to German Law[197]. Secondly, Roe pointed out that U.S. corporate legal system is not merely the product of a free competition between states, but a result of an inter-relationship between centralized lawmaking and decentralized lawmaking. Thus, the proponents of regulatory competition in EU corporate law need to take into account the role the European Union play as the centralized lawmaker[198].

Although it is commonly acknowledged that the labor involvement of SE is a real deterrent to small family-owned companies. The Regulation of SE aims at providing the cross-border activities for public limited-liability companies[199], not the small and medium sized companies. Moreover, like the United States, the allocation of legislative power in corporate law between the European Union and its Member States can be seen as a semi-federation system[200]. Thus, it is reasonable to compare the two systems, in order to predict the potential rout of EU company law in the future. In the past four decades, the diffusion of statutory innovation has proved the success of regulatory competition in the U.S[201]. In the age of flooding information, states no longer enjoy the advantage of monopolizing the professional information. It is therefore not reliable for states or the European Union to enact a comprehensive corporate law. In contrary, through market competition, those rules that survive and express well can be seen as the justifiable legal regimes in the long run.

Delaware, as the leading state in chart competition in the United States, has provided a corporate legal system of highly legal certainty, attributed to constitutional guarantee, strong legal services offered by local lawyer bars, and a comprehensive body of case law. It is comparative difficult for any Member State to become the Delaware of Europe[202], since the fees of franchise in Europe is limited and the legal capital among states is comparative equal. More importantly, the main Western-European countries have their own strong industries, unlike Delaware, and thus there are closely genuine links between corporations and states, especially the relationships between large listed companies and their home states. When the legislators are considering the reforms of corporate law, various kinds of interest groups would try to influence the process of lawmaking. It is unlikely to enact the corporate law purely on behalf of managers and controlling shareholders as well as Delaware[203]. Hence, we can conclude that the effect of Delaware in Europe is limited.

Some scholars criticized that the main disadvantages of regulatory competition is race for bottom[204]. While, we may wonder which legal regime can be viewed as race for bottom[205]. Under stakeholder model, the provisions of anti-takeover can be seen as the power tool for managers to defend the market power, in order to pursue the long-term interest of the whole company. Without the regime of anti-takeover, managers would be forced to frequently conduct the highly risky financial operations through derivatives deals, in order to raise the value of share in the short-term, merely on behalf of investor’s interests. Thus, the recent empirical study indicated the disappearing effect of Delaware could not be conclusive[206], since the increase of company’s value in the short time does not fully reflect the fair distribution of profits within the company. Also, market force, as the regime of the external control of corporate governance in Europe, is not so powerful as well as U.S. corporations, due to the differences of stock structures and the attitudes of institutional investors. In Europe, some large companies are still family-owned, and thus their stock structures are still comparatively centralized, not spread among thousands of shareholders. In Germany, the phenomena of cross-shareholding within the groups and the cooperative attitudes between banks and corporations are prevailing. It also results in the high threshold of takeover in capital market. Thus, agency problems cannot fully solved by market control presented by Ralph Winter[207]. Therefore, it is still necessary to maintain the two-tier board as one of board choice, in order to solve the agency problem in the circumstances of combining ownership and management.

With the strong influence of state’s legal culture, the traditional board structure remains dominating and the corresponding reform of SE is still rooted in national legal systems. As mentioned in Chapter 3, in Germany, the managing director in charge of SE’s daily management in one-tier system is based on the similar position of managing directors of German private limited-liability company[208]. While, in the Netherlands, a more conservative approach of implementing SE is mainly relied on the existing provisions of NV under Dutch Civil Code, although the structure regime is not mandatory application on large SEs meeting the conditions[209]. Both state’s reform can be evaluated as a conservative approach, mainly due to the strong influence of local legal culture and the limited time of enforcement.

Despite the strong influence of state’s legal culture, a growing influence of Europeanization and its legal culture lead to the flexible approach of SE. It may result from the political compromise among the Member States, but unintentionally open a door for further competition in the future. In addition, the role the non-EU multinationals play as the powerful lobby-fodder, trying to pursue a SE with unitary system without labor participation by agreed involvement throughout the Europe[210], has become possible Nowadays. Those big multinationals, as the powerful corporations in the world, would push their local competitors to change their internal structures, in terms of game theory. It can be viewed as the disadvantages of regulatory competition, but also can be viewed as a test for European market to decide whether the labor involvement on the level of board participation is desirable or necessary. Actually, in essence, competition is neutral. It only provides different choices with a stage to compete with each other. Whether the conflicts of interests among shareholders, managers, workers and the other stakeholders shall be primarily solved within or outside the company is a public choice. Since a public choice traditionally made by politicians who are easily influenced by the interests groups[211], we may consider that a public choice made by market competition may be more reasonable and beneficial for public interest. Furthermore, the cooperative relations between Member States[212] within the EU also limit each Member States to enact rules to purely attract the foreign incorporations, while externalizing the negative costs to the other Member States[213].

5.4 A Short Conclusion: Race for Top or Race for Bottom

In the end of this chapter, I would like to answer whether board competition benefits the whole Europe or not. In legal structure, the Regulation of SE not only allows the founders of SEs to choose their favorable board, but it also offers Member States much room to design the attractive rules to compete with the other Member States. Also, according to the current picture of EU company legal system, through the interplays between regulations, directives, and national laws, it has guaranteed the basic requirements of national corporate rules among Member States. Thus, race for bottom incurred by regulatory competition can be prevented.

While, with an economic point of view, whether Member States would compete each other by enacting the attractive rules for SEs depends on the relevant incentives. On the one hand, unlike Delaware’s model, neither the high franchise taxes nor the concerns of maintaining the booming law services would become the economic incentives for Member States to be the Delaware of Europe. Considering the existence of genuine links between large companies and their home states, it is unlikely for Member States to provide a set of corporate rules purely on behalf of managers and controlling shareholders. On the other hand, to become the central place of SEs in Europe may provide the strong incentive with Member States to compete, since Article 7 of the Regulation requires that the head office and the registered office should be in the same state. To become the central place of SEs’ headquarters can effectively raise the state’s economy and provide more jobs in the service sectors. 

However, limited in legal culture and social tradition, despite the opportunities provided by the Regulation of SE, the current approach of legal reforms as regard the realization of SE is comparatively conservative. In the implementations of legal structure provided by national laws of Member States, the main theme of reform is limited and deeply rooted in traditionally legal system. In addition, it is impossible to purely import the foreign legal regimes without the relevantly supplementing rules, and the small-medium sized companies also lack the adequate legal capital to cope with the legal uncertainties brought by choosing SE. Despite the hindrances mentioned above, governments and multinationals still find out the cures to cope with the legal uncertainties. The former like German government creates the position of managing directors for SEs to operate the unitary system, and the latter attempts to create the tailor-made corporate structure through a specific agreement of labor involvement[214].

Finally, in the changing world, we cannot precisely evaluate which board structure is the best in advance. Keeping choices of board structures in rules can provide room for entrepreneurs to choose the suitable board to form their companies. It can also assist government to save the costs of time and monetary in the process of lawmaking, since essentially the rules have provided room for government to cope with the unforeseeable challenges incurred by the changing business environment. Moreover, compared with the evidence provided by the legal history of the United States, we believe that a dynamic process of board competition can produce a better board structure in the long run. In the process of competition, a diffusion of statutory innovations would occur within the Europe, in terms of game theory.

Chapter 6. Conclusion

In the end of this paper, I should be back to the starting point: Does the board competition truly exist within the Europe? If it exists, does it benefit the economy of the Europe?

In the legal structure, the SE Regulation aims at providing board choice between one-tier board and two-tier board with entrepreneurs to create their companies’ internal structures in all Member States. It would result in board competition among Member States and among entrepreneurs. Whilst, since SE Regulation also leave much room for Member States to supplement by enacting their domestic laws, whether board competition would happen depends much on the effective implementations of Member States. Without the real differences between board structures in national legal system of Member States, board competition could not exist.

With an economic point of view, whether board competition would happen relies on the comparison between marginal costs and marginal benefits. Indeed, the Delaware’s experience cannot be directly applicable in Europe. The amounts of franchise tax are comparatively limited in each Member States, and the legal business of law firms between the Western European countries are comparatively equal. Considering the genuine links between those European large companies and their home states, it is unlikely for lawmakers to enact a corporate rules purely on behalf of managers and controlling shareholders, at the expenses of labors’ interests.  However, it is undoubted that becoming the central place of SEs’ headquarters can provide a strong incentive for Member States to compete in corporate law. For the multinationals, it is also attractive to reorganize their groups of companies by forming SEs with unitary board without labor participation throughout the Europe, after concluding the agreements of labor involvement with workers’ representatives.

In legal certainty, although Member States’ legislators tend to decrease the impact of importing the legal regime of SE into their local markets, legal innovations still can be found in the implementations of Member States. Thus, it is likely for Member States to make a balance between legal certainty and legal flexibility. Also, without a package of supplementing rules for the alternative board structure, it is unlikely for founders of SE to choose the innovative board structure to conduct their activities. Thus, it is also stable for Member States to transpose SE into their traditional legal systems, despite the limits of innovation.

Whether board competition benefits the EU, if competition does exist. Firstly of all, competition is neutral. It only opens a door for Member States and entrepreneurs to compete with each other. After comparing the merits and demerits between the one-tier board and the two-tier board, I cannot conclude which board is better but would rather to facilitate competition between the two systems within the EU. In terms of the legal history of the United States, diversely regulatory options in the legal market in the beginning would finally lead to the surviving board structure as the final winner. Hence, the diffusion of statutory innovations would also be materialized in Europe through market selection.

The former efforts of harmonizing the EU company laws through several Directives and Regulations have established the minimum protection of defeating fraud. Hence, board competition would not result in race for bottom but race for top on basis of the common legal contexts provided by the former harmonization.

Board choice allows Member States to keep their traditional board structures, instead of imposing a single mandatory board system throughout the EU. The SE Regulation provides room with Member States to make balances between legal certainty and legal flexibility and between the needs of maintaining tradition and the needs of facilitating innovations. Thus, Member States could determine the level of board competition by amending their domestic rules.

Finally, we should ask ourselves that which way is better for the EU by harmonization or by regulatory competition. In the age of flooding information, States no longer monopolize the professional knowledge. A flexibly legal approach can not only offer choices for entrepreneurs to design a tailor-made board structures for their specific needs, but it can also provide room with States to quickly response the changing business environment by promoting the suitable choice which has already been embedded in company rules, rather than through a costly and time-consuming process of law-making to establish a new rule.

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[1] Hereafter refers to the Regulation of SE.

[2] Jaap Winter, Thalassa! Thalassa! The SE as a Glimpse of the Future, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: 2002, Intersentia), at p. 113.

[3] José Garrido, Company Law and Capital Market, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: Intersentia, 2002); Christoph Teichmann, Law as a Product-Regulatory Competition in the Common Market and the European Private Company, in: European Company Law in Accelerated Progress, Steef M. Bartman ed., Kluwer Law International 2006; J. C. Dammann, Freedom of Choice in European Corporate Law, 29 The Yale Journal of International Law (2004); K. Heine and W. Kerber, European Corporate Law, Regulatory Competition and Path Dependence, 13 European Journal of Law and Economics, (2002).

[4] Ramses Wessel and Jan Wouters, The Phenomenon of Multilevel Regulation: Interactions between Global, EU andNational Regulatory Spheres, in: R. A. Wessels, A. Follesdal and J. Wouters ed., Multi-level Regulation and the EU: The Interplay between Global, European and National Normative Processes, (Leiden: Martinus Nijhoff Publishers, 2007), at pp. 1-12.

[5] Pieter Sanders, The SE: From Conception to Reality, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: 2002, Intersentia), at pp. 37-38; Edwards, The European Company-Essential Tool or Eviscerated Dream? C.M.L. Rev. 2003, at p. 443; Stefano Lambardo & Piero Pasotti, The Societas Europaea- A Network Economics Approach, ECFR 169, 2004, at pp. 171-172.

[6] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: 2002, Intersentia), at p. 49.

[7] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: 2002, Intersentia), at pp. 49-50.

[8] Ger van der Sangen, The European Company and The Involvement of Employees, The European Company-Corporate Governance and Cross-Border Reorganization from a Legal and Tax Perspective, (Den Haag: 2005, Boom Juridische uitgevers), at pp. 169-209.

[9] Philippe François & Julien Hick, Employee Involvement-Rights and Obligations, The European Company-Volume I, Dirk Van Gerven and Paul Strom ed., Cambridge 2006, at pp. 77-114.

[10] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: 2002, Intersentia), at p. 53.

[11] Paul Davies, Employee Involvement in the European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: 2002, Intersentia), at pp. 73-76.

[12] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: 2002, Intersentia), at pp. 53-54.

[13] E. Gerum and H. Wagner, Economics of Labor Co-Determination in Views of Corporate Governance, in Hopt/Kanda/Roe/Wymeersch/Prigge ed., Comparative Corporate Governance, Oxford 1998, at p. 341.

[14] Robert Cooter and Thomas Ulen, Law and Economics, Pearson Addison Wesley, New York, 2004, at pp. 38-42.

[15] S. M. Jacoby, “Corporate Governance in Comparative Perspective: Prospects for Convergence”, Comparative Labor Law & Policy Journal: Employees and Corporate Governance, Vol. 22, No. 1, 2000, at pp. 6-7.

[16] Klaus J. Hopt & Patrick C. Leyens, Board Structures in Europe: Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France and Italy, VOC 1602-2002-400Years of Company Law, Ella Gepken-Jager, Gerard van Solinge, and Levinus Timmerman ed., Kluwer 2005, at pp. 295-296.

[17] Paul L. Davies, Gower and Davies’ Principles of Modern Company Law, London: Sweet & Maxwell, 2003, at p. 294.

[18] Henry Hansmann & Reinier Kraakman, Agency Problems and Legal Strategies, The Anatomy of Corporate Law, Reinier Kraakman ed., Oxford 2004, at pp. 21-31.

[19] There is no convincing evidence that firms with majority-independent boards perform better than firms without such boards, see Sanjai Bhagat & Bernard Black, The Relationship Between Board Composition and Firm Performance, in K. J. Hopt/ H. Kanda/ M. J. Roe/ E. Wymeersch/ S. Prigge, ed., Comparative Corporate Governance, Oxford 1998, at pp. 281-302.

[20] Klaus J. Hopt & Patrick C. Leyens, Board Structures in Europe: Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France and Italy, VOC 1602-2002-400Years of Company Law, Ella Gepken-Jager, Gerard van Solinge, and Levinus Timmerman ed., Kluwer 2005, at p. 297.

[21] Combined Code section A 2.1 and A. 2.2

[22] Combined Code sections A 4.1, C 3.1, B 2.1

[23] Y Wei, Comparative Corporate Governance-A Chinese Perspective, Global Trade and Finance Series, Vol. 3, Kluwer Law International 2003, at p. 15.

[24] Michael Spisto, Unitary Board or Two-tiered Board for the New South Africa? International Review of Business Research Papers, Vol. 1, No. 2,OCT/ Nov. 2005, at pp. 87-88. 

[25] R Dore, “Comment: Papers on Employees and Corporate Governance”, Comparative Labor Law & Policy Journal: Employees and Corporate Governance Vol. 22, No. 1, 2000, at. P. 159.

[26] T Araki, “A comparative analysis: corporate governance and labor and employment relations”, Comparative Labour Law & Policy Journal: Employees and Corporate Governance, Vol. 22, No. 1, 2000, at p. 89.

[27] Y Wei (2003), Comparative Corporate Governance A Chinese Perspective, Global Trade and Finance Series, Vol. 3, Kluwer Law International 2003, at p. 126.

[28] Michael Spisto, Unitary Board or Two-tiered Board for the New South Africa? International Review of Business Research Papers, Vol. 1, No. 2,OCT/ Nov. 2005, at pp. 90-92.

[29] Charkham, Keeping Good Company, A Study of Corporate Governance in Five Countries, (New York: Oxford 1995), at p. 13.

[30] Michael Spisto, Unitary Board or Two-tiered Board for the New South Africa? International Review of Business Research Papers, Vol. 1, No. 2,OCT/ Nov. 2005, at p. 86.

[31] M Lutter, (1982), “The German System of Worker Participation in Practice” Journal of Business Law, at pp. 154-155,

[32] S. M. Jacoby, (2000), “Corporate Governance in Comparative Perspective: Prospects for Convergence”, Comparative Labor Law & Policy Journal: Employees and Corporate Governance, Vol. 22, No. 1, at p 24.

[33] Klaus J. Hopt & Patrick C. Leyens, Board Structures in Europe: Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France and Italy, VOC 1602-2002-400Years of Company Law, Ella Gepken-Jager, Gerard van Solinge, and Levinus Timmerman ed., Kluwer 2005, at pp. 305-307.

[34] Clara Graziano & Annalisa Luponi, Ownership, Concentration, Monitoring, and optimal board structure, CESIFO Working Paper No. 1543, Category 9: Industrial Organization September 2005, at pp. 1-13.

[35] P. Oberhammer and T. Dmej, Germany, Switzerland, Austria, (CA. 1800-2005), European Traditions in Civil Procedure, C. H. van Rhee ed., Metro, Intersentia Antwerpen 2005, at pp. 113-117.

[36] Klaus J. Hopt & Patrick C. Leyens, Board Structures in Europe: Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France and Italy, VOC 1602-2002-400Years of Company Law, Ella Gepken-Jager, Gerard van Solinge, and Levinus Timmerman ed., Kluwer 2005, at p. 288-289.

[37] The similar situation happens in The Netherlands. In practice, Dutch directors bypass formal structures by means of informal arrangements. For instance, it is common for the supervisory board to organize joint meetings with the entire managing board. Also, directors actively establish committees composed of supervisory directors and managing directors. Furthermore, the appointment of formerly affiliated managing directors to the supervisory board indicates a mixed composition of the board. All of these findings challenge the assumption that supervisory directors are independent in two-tier board, see Gregory F. Maassen and Frans A. J. van den Bosch, On the Supposed Independence of Two-tier Boards: formal structure and reality in the Netherlands, Corporate Governance, Volume 7 Number 1 January 1999, at pp. 36-37

[38] Klaus J. Hopt & Patrick C. Leyens, Board Structures in Europe: Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France and Italy, VOC 1602-2002-400Years of Company Law, Ella Gepken-Jager, Gerard van Solinge, and Levinus Timmerman ed., Kluwer 2005, at p. 289-290.

[39] Klaus J. Hopt, Labor Representation on Corporate Board: Impact and Problems for Corporate Governance and Economic Integration in Europe, in Int’l Rev. L. & Econ. (1994), at p. 216.

[40] Klaus J. Hopt & Patrick C. Leyens, Board Structures in Europe: Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France and Italy, VOC 1602-2002-400Years of Company Law, Ella Gepken-Jager, Gerard van Solinge, and Levinus Timmerman ed., Kluwer 2005, at p. 292-293.

[41] Michael Gold and Sandra Schwimbersky, The European Company Statute: Implications for Industrial Relations in the European Union, European Journal of Industrial Relations 2008, at p. 14.

[42] Président Directeur Générale.

[43] Lauren J. Aste, Reforming French Corporate Governance: A Return to The Two-Tier Board? Geo. Wash. J. Int’l L. & Econ. (Vol.) 32, 1999-2000, at pp. 36-39.

[44] Klaus J. Hopt & Patrick C. Leyens, Board Structures in Europe: Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France and Italy, VOC 1602-2002-400Years of Company Law, Ella Gepken-Jager, Gerard van Solinge, and Levinus Timmerman ed., Kluwer 2005, at p. 294.

[45] German Corporate Governance Code para. 7.2.3

[46] Klaus J. Hopt & Patrick C. Leyens, Board Structures in Europe: Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France and Italy, VOC 1602-2002-400Years of Company Law, Ella Gepken-Jager, Gerard van Solinge, and Levinus Timmerman ed., Kluwer 2005, at pp. 294-295.

[47] Klaus J. Hopt & Patrick C. Leyens, Board Structures in Europe: Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France and Italy, VOC 1602-2002-400Years of Company Law, Ella Gepken-Jager, Gerard van Solinge, and Levinus Timmerman ed., Kluwer 2005, at p. 309.

[48] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: 2000, Intersentia), at p. 50.

[49] M. Lutter, Comparative Corporate Governance: A German Perspective, International and Comparative Corporate Law Journal 2 (2000), at p. 423. 

[50] P. Davies, Board Structure in the UK and Germany: Convergence or Continuing Divergence? , International and Comparative Corporate Law Journal 2 (2000), at p. 435.

[51] Ibid, at p. 453.

[52] M. R. Theisen, Empirical Evidence and Economic Comments on Board Structure in Germany, in K. J. Hopt/ H. Kanda/ M. J. Roe/ E. Wymeersch/ S. Prigge, ed., Comparative Corporate Governance, Oxford 1998, at pp. 259-260. We can find out the strongly supporting evidence of maintaining the legal certainty for founders of SEs and domestic governments by opting the tradition board model as the internal governance regime of SE.

[53] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: 2000, Intersentia), at p. 52.

[54] However, due to SE’s objective as serving for EU cross-borders companies, the empirical studies reveals that the multinational corporations have capacity to create the comparatively legal certainty by organizing a strong legal department within the company, under the circumstance where diverse legal implementations of SE through national laws of Member States form the legal uncertainties for enterprises, see Volkmar Gessner, Globalization and Legal Certainty, Emerging Legal Certainty: Empirical Studies on the Globalization of Law, Volkmar Gessner and Ali Cem Buidak ed., Dartmouth 1998, at pp. 444-447.

[55] This is also a typical conflict of approaches between literature and purpose. In this paper, I adopt the purposive approach.

[56] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Intersentia 2002, Antwerp), at p. 52-53.

[57] Sven Dumoulin, Board Structure of the European Company, The European Company-Corporate Governance and Cross-Border Reorganization from a Legal and Tax Perspective, (Den Haag: Boom Juridische uitgevers, 2005), at pp. 153-154.

[58] Christoph Teichmann, Law as a Product-Regulatory Competition in the Common Market and the European Private Company, in European Company Law in Accelerated Progress, Steef M. Bartman ed., Kluwer Law International, 2006, at pp. 145-150.

[59] Sven Dumoulin, Board Structure of the European Company, The European Company-Corporate Governance and Cross-Border Reorganization from a Legal and Tax Perspective, (Den Haag: Boom Juridische uitgevers, 2005), at pp. 134.

[60] Lawrence Friedman divides law as a system composing of structures (judicial system and procedure), entity (substantive rules), and culture. As regard legal culture, people’s attitudes, valuations, beliefs and thoughts relating to law is very influential. While discussing legal culture, we cannot only emphasize the importance how the public bodies to enforce law, but we also have to observe how the regulated group response to the rules in force. See Lawrence Friedman, American Law-An Introduction, Norton 1998, at pp. 20-23.

[61] Dirk Van Gerven, Provisions of Community law applicable to the Societas Europaea, Cambridge: Cambridge Press 2006, at p. 63.

[62] Article 256 Commercial Code of Japan.

[63] Gower And Davies’ Principles Of Modern Company Law, (London: Sweet & Maxwell, 2003), at p. 307.

[64] Henry Hansmann & Reinier Kraakman, The Basic Governance Structure, R. R. Kraakman ed., The Anatomy of Corporate Law-A Comparative and Functional Approach, Oxford 2003, at p. 37.

[65] Dirk Van Gerven, Provisions of Community law applicable to the Societas Europaea, Cambridge: Cambridge Press 2006, at p. 64.

[66] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Intersentia 2002, Antwerp), at p. 56.

[67] Henry Hansmann & Reinier Kraakman, The Basic Governance Structure, R. R. Kraakman ed., The Anatomy of Corporate Law-A Comparative and Functional Approach, Oxford 2003, at pp. 37-38.

[68] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: 2002, Intersenia), at p. 57.

[69] Henry Hansmann & Reinier Kraakman, Agency Problems and Legal Strategy, R. R. Kraakman ed., The Anatomy of Corporate Law-A Comparative and Functional Approach, 2003, at pp. 37-38.

[70] As regard the debate of the director’s remuneration, see C.A. Mallin, Directors’ Performance and Remuneration, Corporate Governance, Oxford 2004, at pp. 109-119.

[71] The whole interest of a company includes shareholders’ interests and stakeholders’ interests’ (employees and creditors), see C.A. Mallin, Shareholders and Stakeholders, Corporate Governance, Oxford 2004, at pp. 43-52.

[72] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: 2002, Intersenia), at p. 57. The relation between company law and capital market law, see José M. Garrido, Company Law and Capital Market, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: 2002, Intersenia), at p. 95-97.

[73] Soft law can be defined as rules of conduct that are laid down in instruments which have not been attributed legal binding force, but nevertheless may have certain indirect legal effects, see Senden, Soft law in European Community law, (Oxford, Hard Publishing, 2004), at pp. 111-113.

[74] R. A. Wessels, Interactions between Global, European and National Regulatory Spheres, in R.A. Wessels, A. Follesdal and J. Wouters ed., Multilevel Regulation and the EU: The Interplay Between Global, European and National Normative Processes, Leiden: Martinus Nijholff Publishers, 2007, at pp. 10-47. The European Statute of SE represents a further step in the development of multi-level governance of EU, see Michael Gold & Sandra Schwimbersky, The European Company Statute: Implication for Industrial Relation in the European Union, European Journal of Industrial Relation, Volume 14, Number 1, 2008, at pp. 58-60.

[75] Paul Storm, The Societas Europaea: a new opportunity? The European Company, Dirk Van Gerven & Paul Storm ed., (Cambridge: Cambridge, 2006), at p.3.

[76] Sven Dumoulin, Board Structure of the European Company, The European Company-Corporate Governance and Cross-Border Reorganization from a Legal and Tax Perspective, (Den Haag: Boom Juridische uitgevers, 2005), at pp. 167-168.

[77] Sven Dumoulin, Board Structure of the European Company, The European Company-Corporate Governance and Cross-Border Reorganization from a Legal and Tax Perspective, (Boom Juridische uitgevers, Den Haag, 2005), at pp. 160.

[78] The opposing opinions can be seen, Jaap Winter, Thalassa! Thalassa! The SE as a Glimpse of The Future, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Intersentia 2002, Antwerp), at pp. 113-122.

[79] Ibid, at p. 118.

[80] For instance, initially, board committees were installed in one-tier board, now it can be found in two-tier board countries. See the German Corporate Governance Code, provisions 5.3 ff, the Dutch Corporate Governance Code, principle III. 5. Recently, the majority of German larger listed company has installed the committees under the board, see Klaus J. Hopt/ Patrick C. Leyens, Recent Development of Internal Corporate Governance Structures in Germany, the United Kingdom, France, and Italy, VOC 1602-2002-400 Years of Company law, Ella Gepken-Jager, Gerard van Slinge and Levinus Timmerman ed., Kluwer 2005, at p. 288.

[81] G. F. Maassen, An International Comparison of Corporate Governance Models, Amsterdam 2000.

[82] P. Davies, Board Structure in the UK and Germany: Convergence or Continuing Divergence? , International and Comparative Corporate Law Journal 2 (2000), at p. 447.

[83] Article 13 of the Commission recommendation on non-executive directors. Recommendation is also one kind of soft law. Insofar, we observe the coordination of hard law and soft law as regard corporate governance again.

[84] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Intersentia 2002, Antwerp), at p. 60.

[85] P. Davies, Board Structure in the UK and Germany: Convergence or Continuing Divergence? , International and Comparative Corporate Law Journal 2 (2000), at p. 447.

[86] In the business field, we use the “business judgment” as the standards to decide whether the director’s decision has satisfied the standards of duty of care. As regard the material content of business judgment, one may refer to the comparison between marginal benefit and marginal cost, see Robert Cooter and Thomas Ulen, Law and Economics, Pearson Addison Wesley, New York, 2004, at pp. 33-38.

[87] Despite the maintenance of legal certainty, this strategy also reduces the effective function of board structures’ choice.

[88] Article 39 (1), Article 40 (1) of SE Regulation

[89] We shall observe both the legal structure and legal culture. Without German social and cultural contexts, two-tier board cannot be operated by purely exporting into the one-tier states. This purely legal exporting is also doubted by Prof. Winter, see Jaap Winter, Thalassa! Thalassa! The SE as a Glimpse of The Future, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Intersentia 2002, Antwerp), at pp. 113-122. However, considering the potential needs of foreign companies in the domestic market of the one-tier states, it may be able for the companies with two-tier tradition to adopt in the one-tier states. While, with a growing influence of Europeanization, a new legal culture of European way has become vital, see European ways of law: towards a European Sociology of law, Volkmar Gessner & David Nelken ed., Oxford 2007, at pp. 3-12.

[90] Dirk Van Gerven, Provisions of Community law applicable to the Societas Europaea, Cambridge: Cambridge Press 2006, at p. 66.

[91] Sven Dumoulin, Board Structure of the European Company, The European Company-Corporate Governance and Cross-Border Reorganization from a Legal and Tax Perspective, (Boom Juridische uitgevers, Den Haag, 2005), at pp. 165.

[92] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Intersentia 2002, Antwerp), at pp. 60-61.

[93] Because two-tier system is built under the stakeholder model, labor co-determination is deemed as the institutional regime of ensuring employee interests.

[94] Sven Dumoulin, Board Structure of the European Company, The European Company-Corporate Governance and Cross-Border Reorganization from a Legal and Tax Perspective, (Den Haag: Boom Juridische uitgevers, 2005), at pp. 153.

[95] Sven Dumoulin, Board Structure of the European Company, The European Company-Corporate Governance and Cross-Border Reorganization from a Legal and Tax Perspective, (Den Haag: Boom Juridische uitgevers, 2005) at pp. 147.

[96] National laws can provide that daily management can be entrusted to one managing director under the same conditions applicable to locally public limited-liability company, see Dirk Van Gerven, Provisions of Community law applicable to the Societas Europaea, Cambridge: Cambridge Press 2006, at p. 66. Thus, it is possible to treat the single managing director as a CEO, in line with US business practice.

[97] Sven Dumoulin, Board Structure of the European Company, The European Company-Corporate Governance and Cross-Border Reorganization from a Legal and Tax Perspective, (Boom Juridische uitgevers, Den Haag, 2005), at pp. 154.

[98] According to the scholar’s observation, this article is almost a dead letter in Germany, see Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Intersentia 2002, Antwerp), at p. 62.

[99] K. J. Hopt, Labor Representation on Corporate Boards: Impacts and Problems for Corporate Governance and Economic Integration in Europe, 14 International Reviews of Law and Economics 203 (1994).

[100] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Intersentia 2002, Antwerp), at p. 63.

[101] D.C. North, Institutions, Institutional Change and Economic Performance, (New York: Cambridge, 1990), at pp. 37-69.

[102] John C. Coffee, The Future as a History: The Prospects for Global Corporate Governance and its Implication, Northw. Univ. L. Rev. 93 (1999), at pp. 641-707.

[103] Lauren J. Aste, Reforming French Corporate Governance: A Return to The Two-Tier Board? Geo. Wash. J. Int’l L. & Econ. (Vol.) 32, 1999-2000, at pp. 36-39.

[104] Clara Graziano & Annalisa Luponi, Ownership, Concentration, Monitoring, and optimal board structure, CESIFO WORKING PAPER NO. 1543, CATEGORY 9: INDUSTRIAL ORGANISATION

SEPTEMBER 2005, at pp. 1-13.

[105] Paul L. Davies, A Note on Labour and Corporate Governance in the U.K., in K. J. Hopt/ H. Kanda/ M. J. Roe/ E. Wymeersch/ S. Prigge, ed., Comparative Corporate Governance, Oxford 1998, at pp. 373-387.

[106] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Intersentia 2002, Antwerp), at p. 63.

[107] Marianne de Waard, Frits Oldenburg, and Paul Storm, The Netherlands, The European Company-Volume I, Dirk Van Gerven and Paul Strom ed., Cambridge 2006, at p. 265.

[108] Michael Huizingal & Martha Meinema, The Netherlands, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann eds., (Berlin: De Gruyter Recht, 2004), at p. 201.

[109] Article 2: 153 (2) of BW.

[110] A controlled cooperative system, see Michael Huizingal & Martha Meinema, The Netherlands, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann eds., (Berlin: De Gruyter Recht, 2004), at p. 215.

[111] Subsidiaries of large companies, group of fiancé companies, and international holding companies are three exceptions under Dutch company law.

[112] Marianne de Waard, Frits Oldenburg, and Paul Storm, The Netherlands, The European Company-Volume I, Dirk Van Gerven and Paul Strom ed., Cambridge 2006, at pp. 277-278.

[113] Marianne de Waard, Frits Oldenburg, and Paul Storm, The Netherlands, The European Company-Volume I, Dirk Van Gerven and Paul Strom ed., Cambridge 2006, at p. 278.

[114] This is one kind of board competition occurring in the state.

[115] A flexibly legal approach depends on the room given by the mandatory laws, and it is a trend to mix the public regulation and self-regulation in modern corporate governance.

[116] Michael Huizingal & Martha Meinema, The Netherlands, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann eds., (Berlin: De Gruyter Recht, 2004), at p. 216-217.

[117] Marianne de Waard, Frits Oldenburg, and Paul Storm, The Netherlands, The European Company-Volume I, Dirk Van Gerven and Paul Strom ed., Cambridge 2006, at p. 281.

[118] Marianne de Waard, Frits Oldenburg, and Paul Storm, The Netherlands, The European Company-Volume I, Dirk Van Gerven and Paul Strom ed., Cambridge 2006, at pp. 281-282.

[119] However, according to the empirical study, no evidence can be found to support the value of firm with independent directors is higher than the firms without independent directors, see Sanjai Bhagat & Bernard Black, The Relationship Between Board Composition and Firm Performance, in K. J. Hopt/ H. Kanda/ M. J. Roe/ E. Wymeersch/ S. Prigge, ed., Comparative Corporate Governance, Oxford 1998, at pp. 281-302.

[120] Article 14 of RIA

[121] Marianne de Waard, Frits Oldenburg, and Paul Storm, The Netherlands, The European Company-Volume I, Dirk Van Gerven and Paul Strom ed., Cambridge 2006, at p. 283.

[122] In practice, its function is similar as CEO.

[123] Michael Huizingal & Martha Meinema, The Netherlands, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann eds., (Berlin: De Gruyter Recht, 2004), at p. 226.

[124] Wilhelm Haarmann & Clemens Philipp Schindler, Germany, The European Company-Volume I, Dirk Van Gerven and Paul Strom ed., Cambridge 2006, at p. 239.

[125] Christoph Teichmann, Germany, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann ed., (Berlin: De Gruyter Recht, 2004), at p. 120.

[126] Art. L. 225-235, Code de commerce

[127] It is also necessary for managing directors to be responsible for daily administrative affairs of company, and thus the administrative organ can concentrate on the high level of decision-making and the supervision of the performances of the managing directors, see Christoph Teichmann, Germany, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann eds., (Berlin: De Gruyter Recht, 2004), at p. 123.

[128] Christoph Teichmann, Germany, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann eds., (Berlin: De Gruyter Recht, 2004), at p. 121. While, directly coping the provisions of supervisory board in the two-tier system under German law may be comprehensive to maintain the legal certainty, it cam also be seen overruled.

[129] The separation of task, see Sec. 40 of SEAG, Sec. 47 of SEAG

[130] Wilhelm Haarmann & Clemens Philipp Schindler, Germany, The European Company-Volume I, Dirk Van Gerven and Paul Strom ed., Cambridge 2006, at pp. 251-252.

[131] Sec. 40 (1) and (5) of SEAG

[132] Wilhelm Haarmann & Clemens Philipp Schindler, Germany, The European Company-Volume I, Dirk Van Gerven and Paul Strom ed., Cambridge 2006, at p. 253.

[133] I have discussed this model in 2.6.2, see Sven Dumoulin, Board Structure of the European Company, The European Company-Corporate Governance and Cross-Border Reorganization from a Legal and Tax Perspective, (Boom Juridische uitgevers, Den Haag, 2005), at pp. 154.

[134] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Intersentia 2002, Antwerp), at pp. 62-63.

[135] Mike Edbury, United Kingdom, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann eds., (Berlin: De Gruyter Recht, 2004), at p. 316.

[136] Nigel Boardman, United Kingdom, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann eds., (Berlin: De Gruyter Recht, 2004), at p. 470; Paul Davies, Themes from the Conference Discussion, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: Intersentia, 2002), at p. 137.

[137] Mike Edbury, United Kingdom, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann eds., (Berlin: De Gruyter Recht, 2004), at p. 320.

[138] Klaus J. Hopt, Board Structures-The Significance Of The Rules On The Board Of The European Company, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Intersentia 2002, Antwerp), at pp. 61.

[139] Nigel Boardman, United Kingdom, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann eds., (Berlin: De Gruyter Recht, 2004), at p. 470.

[140] Lawrence M. Friedman, American Law-An Introduction, (New York: W. W. Norton & Company, 1998), at p. 155. 

[141] Roberta Romano, Foundations of Corporate Law, Foundation Press, 1993, at p. 84.

[142] This can be analyzed by the prisoner’s dilemma, a typical example applying game theory. States or nations will try to find their dominant strategy, regardless of what the other nations or states do. Once one state has reduced the legal requirement by reforming its corporate law, another state will follow, in order to keep the domiciled company continuing to stay in the original country. As regard the introduction of game theory, see Robert Cooter & Thomas Ulen, Law and Economics, (New York: Pearson Addison Wesley, 2004), at pp. 38-42.

[143] Lawrence M. Friedman, American Law-An Introduction, (New York: W. W. Norton & Company, 1998), at p. 156.

[144] In large states, the franchise of the overall revenues is minimal. Thus, states lack the economic incentive to gain more franchise tax through competition with the other states. Thus, the phenomenon of defensive competition, which states innovate their corporate laws to keep the domiciled companies, does not occur. The opposing opinion, see Roberta Romano, Law as A Product: Some Pieces of the Incorporation Puzzle, 1 J. L. ECON. & ORG., (1985), at p. 226.

[145] Marcel Kahan & Ehud Kamar, The Myth of State Competition in Corporate Law, Stan. L. Rev. Vol. 55. 2002, at p. 748.

[146] Marcel Kahan & Ehud Kamar, The Myth of State Competition in Corporate Law, Stan. L. Rev. Vol. 55. 2002, at p. 729-730.

[147] Thus, a more legal certainty can be provided for companies incorporated in Delaware.

[148] Marcel Kahan & Michael Klausner, Standardization and Innovation in Corporate Contracting, 83 VA L. Rev., (1997), at 713, 750-751, 760-761.

[149] Ehud Kamar, A Regulatory Competition Theory of Indeterminacy in Corporate Law, 98 Colum. L. Rev., (1998), at pp. 1928-1932.

[150] Marcel Kahan & Ehud Kamar, The Myth of State Competition in Corporate Law, Stan. L. Rev. Vol. 55. 2002, at p. 748.

[151] Roberta Romano, Law as A Product: Some Pieces of the Incorporation Puzzle, 1 J. L. ECON. & ORG., (1985), at pp. 233-242.

[152] Marcel Kahan & Ehud Kamar, The Myth of State Competition in Corporate Law, Stan. L. Rev. Vol. 55. 2002, at p. 715.

[153] Generally see, Evereit M. Rogers, Diffusion of Innovation, Free Press, 1995.

[154] As regard the main difference between the two models, see, C. A. Mallin, Corporate Governance, Oxford 2004, at pp. 43-52.

[155] Peter Drucker, Managing In The Next Society: Beyond the Information Revolution, 2002.

[156] Theoretically, a company as a legal person can survive forever in the legal aspect, while whether a company can continue to survive depends much on its size and its expression in the product market. As regard legal personality, see Henry Hansmann & Reinier Kraakman, What is Corporate Law, The Anatomy of Corporate Law, R. R. Kraakman ed., Oxford 2003, at pp. 6-8.

[157] Lusian Arye Bedchuck, Federalism and Corporation: The Desirable Limits on State Competition in Corporate Law, 105 Harv. L. Rev., (1992), at pp. 1435-1442,

[158] Peter Dodd & Richard Leftwich, The Market for Corporate Charter: Unhealthy Competition Versus Federal Regulation, 53 J. Bus., at pp. 281-286.

[159] John C. Coffee, Jr., The Future of Corporate Federalism: State Competition and the new Trend De Facto Federal Minimum Standards, 8 Cardozo L. Rev., (1987), at p. 767.

[160] See, William L. Cary, Federalism and Corporate Law: Reflection Upon Delaware, The Yale Law Journal, Vol. 83, No. 4, (1974), at p. 705.

[161] See, William L. Cary, Federalism and Corporate Law: Reflection Upon Delaware, The Yale Law Journal, Vol. 83, No. 4, (1974), at pp. 698-701.

[162] Kahan, M., Rock, How I learned to stop worrying and love the pill: adaptive responses to takeover law, University of Chicago Law Review 69, (2002), at pp. 871-915.

[163] Guhan Subramanian, The Disappearing Delaware Effect, Harvard Law and Economics Discussion Paper, No. 391, October 2002, at pp. 1-2.

[164] Roberta Romano, Foundations of Corporate Law, Foundation Press, 1993, at pp. 86-89.

[165] In this chapter, as regard the discussion of state competition in the U.S., state means the components of the federal nation. While, in the aspect of EC, states mean the members of EC, but still are nations or nation states.

[166] Roberta Romano, Foundations of Corporate Law, Foundation Press, 1993, at p. 84.

[167] Roberta Romano, The State as a Laboratory: Legal Innovation and State Competition for Corporate Charters, 23 J. Yale Journal on Regulation, 209. 2006, at p. 211.

[168] Roberta Romano, Law as a product: Some Pieces of the Incorporation Puzzle, 1 J. L. ECON. & ORA. (1985), at p. 225, p. 224.

[169] The list of sates as adopting the Model Act by its legislatures can be found in MODEL BUS. CORP. ACT ANN. Intro. At xxvii. See Roberta Romano, The State as a Laboratory: Legal Innovation and State Competition for Corporate Charters, 23 J. Yale Journal on Regulation, 209. 2006, at p. 214.

[170] William J. Carney, Federalism and Corporate Law: A Non-Delaware View of the Results of Competition, in International Regulatory Competition and Coordination, William W. Bratton eds., 1996, at pp. 153-183.

[171] Roberta Romano, Law as a product: Some Pieces of the Incorporation Puzzle, 1 J. L. ECON. & ORA. (1985), at pp. 236-241.

[172] G. Moodie, Forty Years of Charter Competition: A Race to Protect Directors from Liability? (Harvard Law Sch. John M. Olin Ctr. for Law, Econ.. and Bus. Fellow’s Discussion Paper No. 1 2004).

[173] Roberta Romano, Is Regulatory Competition a Problem or Irrelevant for Corporate Governance, 21 Oxford ECON. REV. 212, (2005), at pp. 218-221.

[174] Roberta Romano, The State as a Laboratory: Legal Innovation and State Competition for Corporate Charters, 23 J. Yale Journal on Regulation, 209. 2006, at p. 211.

[175] Roberta Romano, The State as a Laboratory: Legal Innovation and State Competition for Corporate Charters, 23 J. Yale Journal on Regulation, 209. 2006, at p. 216.

[176] William J. Carney, The Production of Corporate Law, 71 S. CAL. L. REV. (1998), at p. 715; Jonathan R. Macey & Geoffrey P. Miller, Towards an Inter-Group Theory of Delaware Corporation Law. 65 TEX. L. REV. (1987), at 469.

[177] William J. Carney, The Production of Corporate Law, 71 S. CAL. L. REV. (1998), at p. 725.

[178] Roberta Romano, The State as a Laboratory: Legal Innovation and State Competition for Corporate Charters, 23 J. Yale Journal on Regulation, 209. 2006, at pp. 246-247.

[179] Ralph Winter, The “Race for the top” Revised: A Comment on Eisenburg, 89 Colum, L. Rev., (1989), at pp. 1526-1529.

[180] Jeffry Netter & Annette Poulsen, State Corporation Law and Shareholders: The Recent Experience, 18 Financial Management, (1989), at pp. 29-39. 

[181] Elliot Weiss & Lawrence White, Of Econometric and Indeterminacy: A Study of Investor’s Reaction to ‘Changes’ in Corporate Law, 75 Cal. L. Rev., (1987), at pp. 602-607.

[182] Robert Daines, Does Delaware Law Improve firm’s value, Journal of Financial Economics 62, (2001), at p. 555.

[183] Lawrence M. Friedman, American Law-An Introduction, (W. W. Norton & Company 1998, New York), at pp. 156-157.

[184] The terminology of multi-level regulation refers to internationalization, Euopeanization, decentralization, satellite institutions, and privatization, see Rames Wessels & Jan Wouter, The Phenomenon of Multi-level Regulation: Interactions between Global, European and National Regulatory Spheres, in Multi-level Regulation and the EU, R. A. Wessels, A. Follesdal, and J. Wouters ed., (Leiden: Martinus Nijhoff Publishers, 2007), at pp. 9-12.

[185] Davies contended that it is a trade off for managers and controlling shareholders to consider whether it is worth to form a SE with labor participation, see Paul Davies, Themes from the Conference Discussion, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: Intersentia, 2002), at p. 134.

[186] Klaus J. Hopt & Patrick C. Leyens, Board Structures in Europe: Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France and Italy, VOC 1602-2002-400Years of Company Law, Ella Gepken-Jager, Gerard van Solinge, and Levinus Timmerman ed., Kluwer 2005.

[187] Klaus Hopt, Themes from the Conference Discussion, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: Intersentia, 2002), at p. 136.

[188] Klaus J. Hopt & Patrick C. Leyens, Board Structures in Europe: Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France and Italy, VOC 1602-2002-400Years of Company Law, Ella Gepken-Jager, Gerard van Solinge, and Levinus Timmerman ed., Kluwer 2005.

[189] Paul Davies, A Note on Labor and Corporate Governance in the U.K., in K. J. Hopt/ H. Kanda/ M. J. Roe/ E. Wymeersch/ S. Prigge, ed., Comparative Corporate Governance, Oxford 1998, at pp. 378-386.

[190] Jaap Winter, Thalassa! Thalassa! The SE as a Glimpse of the Future, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: Intersentia, 2002), at pp. 118-120.

[191] For small and medium sized corporations, it is unfamiliar for them to use the alternative board, but current German unitary system of SE is created for them. Thus, legal uncertainty can also be deemed as a chance for Member States to reform their domestic laws, see Christoph Teichmann, Germany, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann ed., (Berlin: De Gruyter Recht, 2004), at p. 120.

[192] Garrido take the legal practice of Spain for example to explain that the different legal regimes in Spain work in the similar way. Thus, in practice, it is hard to distinguish the functional differences between them, see José Garrido, Themes from the Conference Discussion, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: Intersentia, 2002), at p. 141.

[193] Volkmar Gessner, Globalization and Legal Certainty, Emerging Legal Certainty: Empirical Studies on the Globalization of Law, Volkmar Gessner and Ali Cem Buidak ed., Dartmouth 1998, at pp. 444-447.

[194] Rickford, Themes from the Conference Discussion, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: Intersentia, 2002), at pp. 140-141.

[195] J. C. Dammann, Freedom of Choice in European Corporate Law, 29 The Yale Journal of International Law (2004), at pp. 477-544; K. Heine and W. Kerber, European Corporate Law, Regulatory Competition and Path Dependence, 13 European Journal of Law and Economics, (2002), at pp. 47-71.

[196] Inspire Act, C-167-01, Rec. 2003, at p. 10155.

[197] Christoph Teichmann, Law as a Product-Regulatory Competition in the Common Market and the European Private Company, in: European Company Law in Accelerated Progress, Steef M. Bartman ed., Kluwer Law International 2006, at pp. 146-147.

[198] M. J. Roe, Delaware’s competition, 117 Harvard Law Review, (2003), at p. 644.

[199] Article 3 (1) of the SE Regulation.

[200] Joseph McCahery & Erik Vermeulen, Does the European Company Prevent the ‘Delaware effect’? The European Company-Corporate Governance and Cross-Border Reorganization from a Legal and Tax Perspective, (Boom Juridische uitgevers, Den Haag, 2005), at p 217.

[201] Roberta Romano, The State as a Laboratory: Legal Innovation and State Competition for Corporate Charters, 23 J. Yale Journal on Regulation, 209. 2006, at p. 211.

[202] However, the Netherlands is viewed as the Delaware of Europe, see Jaap Winter, Thalassa! Thalassa! The SE as a Glimpse of The Future, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: Intersentia, 2002), at p. 113.

[203] Jonathan R. Macey & Geoffrey P. Miller, Towards an Interest Group Theory of Delaware Corporate Law, 65 Texas Law Review, (1987), at p. 469-523.

[204] Bedchuck, Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law, 105 Harvard Law Review, (1992), at pp. 1436-1442.

[205] José Garrido, Company Law and Capital Market, The European Company-Developing a Community Law of Corporations, Jonathan Rickford ed., (Antwerp: Intersentia, 2002), at p. 109.

[206] Guhan Subramanian, The Disappearing Delaware Effect, Harvard Law and Economics Discussion Paper, No. 391, October 2002, at pp. 1-2.

[207] Ralph Winter, The ‘Race for the top’ Revised: A Comment on Eisenburg, 89 Columbia Law Review, (1989), at pp. 1526-1529.

[208] Wilhelm Haarmann & Clemens Philipp Schindler, Germany, The European Company-Volume I, Dirk Van Gerven and Paul Strom ed., Cambridge 2006, at p. 253.

[209] Michael Huizingal & Martha Meinema, The Netherlands, The European Company-all over Europe: A state-by-state account of the introduction of the European Company, Krzysztof Oplustil & Christoph Teichmann eds., (Berlin: De Gruyter Recht, 2004), at p. 216-217.

[210] It is easier for Non-EU multinationals to attain the agreed involvement without labor participation, due to the unbinding legal culture and its strong bargaining power, see Chapter 2.

[211] Michael G. Faure, Private interest theory of regulation, Environmental Law and Economics, Metro 2001, at pp. 126-130.

[212] It can be seen as a cure in the Nash equilibrium, see Robert Cooter and Thomas Ulen, Law and Economics, Pearson Addison Wesley, New York, 2004, at p. 41.

[213] Michael G. Faure, External effects for firms and states, Environmental Law and Economics, Metro 2001, at p. 9.

[214] Paul Storm, Can employee participation be avoided, The Societas Europaea: a new opportunity? The European Company, Vol. 1, Dirk Van Gerven & Paul Storm ed., Cambridge 2006, at pp. 18-24.