Beyond competition for incorporations

Georgetown Law Journal

Volumn 94, Issue 6, 2006, Pages 1725-1770

  Kamar, Ehud ^a  

^a UNIVERSITY OF SOUTHERN CALIFORNIA   (United States)

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[No Author keywords available]

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EID: 33750032776     PISSN: 00168092     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (313)

1. Compare Lucian A. Bebchuk & Assaf Hamdani, Vigorous Race or Leisurely Walk: Reconsidering the Competition over Corporate Charters, 112 YALE L.J. 553, 580 (2002) (arguing that no American state but Delaware is actively pursuing incorporations),
2. and Marcel Kahan & Ehud Kamar, The Myth of State Competition in Corporate Law, 55 STAN. L. REV. 679, 684 (2002) (same),
3. with Mark J. Roe, Delaware's Competition, 117 HARV. L. REV. 588, 607 (2003) (arguing that Delaware's real competition is the federal government),
4. and Roberta Romano, Is Regulatory Competition a Problem or Irrelevant for Corporate Governance?, 21 OXFORD REV. ECON. POL'Y. 212, 217-23 (2005) (arguing that all American states pursue incorporations).
5. Compare Daniel R. Fischel, The "Race to the Bottom" Revisited: Reflections on Recent Developments in Delaware's Corporation Law, 76 NW. U. L. REV. 913, 921 (1982) (arguing that competition produces efficient law),
6. Roberta Romano, Law as a Product: Some Pieces of the Incorporation Puzzle, 1 J.L. ECON. & ORG. 225, 279-81 (1985) (same),
7. and Ralph K. Winter, Jr., State Law Shareholder Protection, and the Theory of the Corporation, 6 J. LEGAL STUD. 251, 290 (1977) (same),
8. with Lucian A. Bebchuk, Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law, 105 HARV. L. REV. 1435, 1509 (1992) (arguing that competition produces undesirable results for shareholders),
9. and William L. Cary, Federalism and Corporate Law: Reflections Upon Delaware, 83 YALE L.J. 663, 705 (1974) (arguing that competition results in deteriorating standards).
10. The theory of competition for incorporations has also been applied to Canadian provinces. See generally Douglas J. Cumming & Jeffrey G. MacIntosh, The Role of Interjurisdictional Competition in Shaping Canadian Corporate Law, 20 INT'L REV. L. & ECON. 141 (2000);
11. Ronald J. Daniels, Should Provinces Compete? The Case for a Competitive Corporate Law Market, 36 MCGILL L.J. 130, 188 (1990).
12. See Eddy Wymeersch, The Transfer of the Company's Seat in European Company Law, 40 COMMON MKT. L. REV. 661, 666-73 (2003) (reviewing legal barriers to incorporation abroad).
13. See BRIAN R. CHEFFINS, COMPANY LAW: THEORY, STRUCTURE, AND OPERATION 443 (1997) (arguing that the English judiciary has attributes that would help the United Kingdom succeed if it chose to compete for incorporations);
14. Simon Deakin, Regulatory Competition versus Harmonization in European Company Law, in REGULATORY COMPETITION AND ECONOMIC INTEGRATION: COMPARATIVE PERSPECTIVES 190, 204-05 (Daniel C. Esty & Damien Geradin eds., 2001) (arguing that lawyers and accountants may drive member states to compete for incorporations);
15. Jens C. Dammann, Freedom of Choice in European Corporate Law, 29 YALE J. INT'L L. 477, 507 (2004) (arguing that member states are likely to compete for incorporations once firms are free to incorporate abroad);
16. Luca Enriques, EC Company Law and the Fears of a European Delaware, 15 EUR. BUS. L. REV. 1259, 1273 (2004) (arguing that a freedom to choose where to incorporate may pressure national legislators in the European Union to emulate other jurisdictions' rules in order to retain existing corporations, though not in order to attract incorporations from abroad);
17. Gerard Hertig & Joseph A. McCahery, Company and Takeover Law Reforms in Europe: Misguided Harmonization Efforts or Regulatory Competition?, 4 EUR. BUS. ORG. L. REV. 179, 187 (2003) (arguing that small member states may compete for incorporations to obtain chartering revenue);
18. Eddy Wymeersch, Company Law in the Twenty-First Century, 1 INT'L & COMP. CORP. L.J. 331, 339 (1999) (arguing that a freedom to choose where to incorporate is certain to stimulate competition between member states).
19. But see Matthias Baudisch, From Status to Contract? An American Perspective on Recent Developments in European Company Law, in THE EUROPEAN UNION AND GOVERNANCE 23, 54 (Francis Snyder ed., 2003) (arguing that sufficient incentives to compete for incorporations exist in the United States but not in the European Union).
20. See Case C-212/97, Centros Ltd. v. Erhvervs- og Selskabsstyrelsen, 1999 E.C.R. I-1459 (requiring the Danish authorities to recognize a British company operating in Denmark); see also Case C-167/01, Kamer van Koophandel en Fabrieken voor Amsterdam v. Inspire Art Ltd., 2003 E.C.R. I-10155, ¶¶ 137-38, 143 (requiring the Dutch authorities to recognize a British company operating in the Netherlands); Case C-208/00, Überseering BV v. Nordic Const. Co. Baumanagement GmbH (NCC), 2002 E.C.R. I-9919, ¶¶ 94-96 (requiring the German authorities to recognize a Dutch company operating in Germany). While these three decisions are most commonly cited in describing the trend, earlier decisions with similar holdings exist. See, e.g., Case 79/85, D.H.M. Segers v. Bestuur van de Bedrijfsvereniging voor Bank en Verzekeringswezen, Groothandel en Vrije Beroepen, 1986 E.C.R. 2375, ¶ 19 (requiring the Dutch authorities to recognize the right of access to a Dutch national sickness insurance scheme for the director of a British company operating in the Netherlands).
21. See supra note 1 and accompanying text. Some scholars note initiatives in Germany, the Netherlands, and France to lower incorporation costs in response to an influx of incorporations in the United Kingdom by small, privately-held firms based in these member states. See Marco Becht, Colin Mayer & Hannes F. Wagner, Corporate Mobility and the Costs of Regulation (Eur. Corp. Gov. Inst.-Working Paper Series in Law, Working Paper No. 70/2006, May 2006), available at http://ssrn.com/abstract=906066 (concluding that member states compete to retain domestic incorporations even without tangible benefits). In contrast, this Article focuses on reforms in the core areas of corporate law, which tend to encounter more political resistance and matter to larger, publicly-held firms.
22. See Lucian Bebchuk & Mark Roe, A Theory of Path Dependence in Corporate Ownership and Governance, 52 STAN. L. REV. 127, 170 (1999) (noting that important differences persist);
23. see also William W. Bratton & Joseph A. McCahery, Comparative Corporate Governance and the Theory of the Firm, 38 COLUM. J. TRANSNAT'L L. 213, 213-14 (1999).
24. See Henry Hansmann & Reinier Kraakman, The End of History for Corporate Law, 89 GEO. L.J. 439, 439 (2001) (arguing that corporate laws converge);
25. see also Ronald J. Gilson, Globalizing Corporate Governance: Convergence of Form or Function, 49 AM. J. COMP. L. 329, 331-32 (2001).
26. Previous commentators have anecdotally mentioned changes in corporate laws in the European Union driven by competition for investments as part of their analysis of competition for incorporations. See Joseph A. McCahery & Erik P.M. Vermeulen, Limited Partnership Reform in the United Kingdom: A Competitive, Venture Capital Oriented Business Form, 5 EUR. BUS. ORG. L. REV. 61, 74-75 (2004) (suggesting that different corporate law and tax treatment may lead to competition for investments in the European Union). This Article reverses the focus. It argues that competition for investments is far more important than competition for incorporations as an explanation of corporate lawmaking in the European Union, and analyzes the fundamental differences between the two types of competition.
27. Competition for investments is different from yardstick competition - efforts by governments to satisfy voters by matching foreign corporate laws - in that it involves competition for mobile capital. For an analysis of yardstick competition in the European Union, see Pierre Salmon, Political Yardstick Competition and Corporate Governance in the European Union, in INVESTOR PROTECTION IN EUROPE: REGULATORY COMPETITION AND HARMONIZATION (Guido Ferrarini & Eddy Wymeersch eds., forthcoming 2006).
28. Concomitantly, the European Court of Justice has limited the ability of member states to use tax incentives to stimulate their economies. See generally Michael J. Graetz & Alvin C. Warren, Jr., Income Tax Discrimination and the Political and Economic Integration of Europe, 115 YALE L.J. 1186 (2006).
29. See William W. Bratton & Joseph A. McCahery, Tax Coordination and Tax Competition in the European Union: Evaluating the Code of Conduct on Business Taxation, 38 COMMON MKT. L. REV. 677, 701 (2001) (noting that Ireland and the Netherlands are known for their hospitable tax regimes);
30. Gimme Shelter: Is Tax Competition Among Countries a Good or a Bad Thing?, THE ECONOMIST, Jan. 29, 2000 at Special Section 5-17 (reporting widespread tax competition around the world and naming Ireland, the Netherlands, and Luxembourg as the member states of the European Union engaged in tax competition).
31. For a discussion by corporate lawyers of the tax advantages their member states offer to companies, see generally, for example, Menelaos Kyprianou, Cyprus as a Venue for the Establishment of a Holding Company, 32 INT'L BUS. LAW. 66 (2004);
32. Bente Møll Pedersen & Michael Hertz, Legal Aspects of Acquiring a Publicly Traded Danish Company, 28 INT'L BUS. LAW. 365, 368 (2000).
33. The term "corporate law" is used in this Article in a broad sense and includes both corporate governance and securities regulation. While in the United States the former is part of state law and the latter is part of federal law, in member states of the European Union the two are less distinct.
34. The ability to cross-list stock in a foreign jurisdiction with better law is not a sufficient alternative. First, it is unaffordable to many firms. Second, it does not guarantee enforcement of the foreign law on the cross-listed firm. See Jordan Siegel, Can Foreign Firms Bond Themselves Effectively by Renting U.S. Securities Law?, 75 J. FIN. ECON. 319, 356 (2005) (arguing that reputation, rather than enforcement of the foreign law, constrains cross-listed firms).
35. It is likely for this reason that the British takeover code applies only to companies that are both listed and headquartered in the United Kingdom. See THE PANEL ON TAKEOVERS & MERGERS, THE CITY CODE ON TAKEOVERS AND MERGERS, at A2-10 (7th ed. 2002) (U.K.), http://www.thetakeoverpanel.org.uk/new/codesars/ DATA/code.pdf.
36. Moreover, cross-listing does not relieve firms of cumbersome legal institutions in their home jurisdiction. This is a significant drawback. In the relatively uniform landscape of state corporate laws in the United States, flexibility and efficient administration of corporate law tip the scales for incorporation decisions. See Marcel Kahan, The Demand for Corporate Law: Statutory Flexibility, Judicial Quality, or Takeover Protection?, J.L. ECON. & ORG. (forthcoming 2006) (presenting evidence suggesting that firms prefer states with flexible corporate statutes and effective courts).
37. In the European Union, these attributes figure prominently in lawyers' discussions of foreign incorporations. See David F. Hickok & Thomas Schürrle, Debevoise & Plimpton, The "Inspire Art" Judgment of the European Court of Justice: New Ways to Structure Acquisitions in the European Union? 2-3 (2004) (client memorandum), http:// www.debevoise.com/ newseventspubs/publications (search keyword "Inspire Art" and follow hyperlink) (discussing the benefits for bilateral joint ventures of avoiding supermajority voting requirement for issuing new stock, and the benefits for private equity investors of avoiding restrictions on the issuance of redeemable or convertible preferred stock).
38. Cross-listing can also force firms to comply with conflicting rules in their home jurisdiction and the cross-listing jurisdiction. See Larry E. Ribstein, Cross-Listing and Regulatory Competition, 1 REV. L. & ECON. 97, 124-27 (2005) (discussing the conflict between the Sarbanes-Oxley Act of 2002 and corporate law in the European Union);
39. Hal S. Scott, A Global Perspective on Corporate Governance, CREDIT WEEK, Nov. 30, 2005, at 18, 20 (same).
40. Finally, cross-listing can reinforce the competition for investments by driving securities professionals to endorse reform to avoid losing stock listing to a foreign jurisdiction. See John C Coffee, Jr., Racing Towards the Top?: The Impact of Cross-Listings and Stock Market Competition on International Corporate Governance, 102 COLUM. L. REV. 1757, 1808-11 (2002) (describing lobbying by the securities industry in Brazil and Mexico to stem listing migration to the New York Stock Exchange).
41. See Linda L. Tesar & Ingrid M. Werner, The Internationalization of Securities Markets Since the 1987 Crash, in BROOKINGS-WHARTON PAPERS ON FINANCIAL SERVICES 281, 296 (Robert E. Litan & Anthony M. Santomero eds., 1998).
42. See Lieven Baele et al., Measuring European Financial Integration, 20 OXFORD REV. ECON. POL'Y. 509, 528 (2004). The share of foreign investments by these funds within Europe increased over that period from about 18% to about 30%. See id. at 529. The integration of European equity markets is also manifested in a tripling of the part of the variance of European stock returns explained by news common to all Europe from about 8% in 1973-1986 to about 23% in 1999-2003. See id. at 527. The part of the variance of European stock returns explained by American news doubled over that period from about 11% to about 20%, suggesting that European equity markets integration proceeded faster than global equity markets integration. See id. at 527 fig. 12;
43. see also Geert Bekaert et al., Market Integration and Contagion, 78 J. BUS. 39, 56 (2005) (reporting evidence of integration of equity markets within Europe and between Europe and the United States).
44. See FEDERATION OF EUROPEAN STOCK EXCHANGES, SHARE OWNERSHIP STRUCTURE IN EUROPE 3 (2002), http://www.fese.org/statistics/studies/share_ownership.pdf [hereinafter Share Ownership Survey] (reporting that globalization and the introduction of the euro have resulted in the emergence of foreign institutional investors as the driving force of European markets and in the increase of foreign holdings by domestic institutional investors).
45. A well-known example is the acquisition of United States carmaker Chrysler by German carmaker Daimler-Benz in 1998, which was helped by the fact that Daimler-Benz had switched to United States accounting principles prior to the acquisition. See Elizabeth MacDonald, Proposed Deal Faces Rocky Road Due to Different Accounting Rules, WALL ST. J., May 7, 1998, at A10.
46. See Alexander Dyck & Luigi Zingales, Private Benefits of Control: An International Comparison, 59 J. FIN. 537, 589-90 (2004) (arguing that product market competition lowers monopoly rents and leaves less room for extracting private benefits of control);
47. Mark J. Roe, Rents and their Corporate Consequences, 53 STAN. L. REV. 1463, 1489 (2001) (arguing that the availability of monopoly rents helps to explain the persistence of weak shareholder protection in European corporate law).
48. The interest in corporate law taken by governments during privatization is illustrated by the frustration in the Italian government with the 1997 ouster of the Chairman of the privatized firm Telecom Italia by directors averse to reform. See Paul Betts & James Blitz, At the Head of Italy's Table, FIN. TIMES (London), Dec. 22, 1997, at 14 (quoting the Italian prime minister saying: "We are carrying out privatisations but we still have not done enough to create a proper financial market . . . . We do not have guarantees for small shareholders, no rules for public companies.").
49. See RICHARD DEEG, FINANCE CAPITALISM UNVEILED: BANKS AND THE GERMAN POLITICAL ECONOMY 90-93 (1999) (describing the transition of major German banks from lending to investment banking, the penetration of the German banking industry by foreign investment banks, and the lobbying by both groups of banks for corporate reform). Perhaps no German bank has changed more than Deutsche Bank, which has filled its top posts with U.S.-trained investment bankers and reduced corporate lending.
50. See Janet Guyon, The Trials of Josef Ackermann, FORTUNE, Jan. 26, 2004, at 111.
51. Recently, the chairman of its supervisory board joined the growing criticism of employee representation on supervisory boards. See Deutsche Bank Sichtet Fusionskandidaten [Deutsche Bank Looks for Merger Candidates], FRANKFURTER ALLGEMEINE ZEITUNG, June 5, 2004, at 11 (F.R.G.).
52. See RUSSEL HARDIN, COLLECTIVE ACTION 35-37 (1982) (discussing political entrepreneurs as public figures who advance their own careers by promoting a certain public or group interest).
53. See Richard Deeg, Remaking Italian Capitalism? The Politics of Corporate Governance Reform, 28 W. EUR. POL. 521, 529 (2005) (listing government officials who played key roles in corporate reform).
54. Thus, in a 1998 article titled Corporate Governance and Competitiveness, Treasury Director, Commissioner of Privatization, and drafter of the new corporate code Mario Draghi described his vision of corporate law and financial regulation as drivers of national economic growth through "increasingly competitive market rules and standards of company law" where "the ability of national enterprises to raise funds will depend to an ever greater extent on the efficiency of Italy's 'financial centre' and the 'quality' of the products, representing administrative as well as property rights, that are traded." See Mario Draghi, Corporate Governance and Competitiveness, SEPT.-DEC. 1998 REV. ECON. CONDITIONS IN ITALY 341, 344 (1998).
55. Institutional investors vote with their feet against countries with inadequate law. See Kalok Chan et al., What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide, 60 J. FIN. 1495, 1527 (2005);
56. Mariassunta Giannetti & Yrjö Koskinen, Investor Protection and the Demand for Equity 31 (Eur. Corp. Gov. Inst.-Fin. Research Paper Series, Working Paper No. 64/2004, Dec. 2004), available at http://ssrn.com/abstract= 554522;
57. Christian Leuz et al., Do Foreigners Invest Less in Poorly Governed Firms? 29 (Eur. Corp. Governance Inst.-Fin. Research Paper Series, Working Paper No. 43/2004, Feb. 2005), available at http://ssrn.com/abstract=512042.
58. See, e.g., Matthew Valencia, Good Heavens, Good Governance, THE ECONOMIST, Apr. 29, 2000, at S13 (quoting the editor of a corporate governance newsletter referring to an "enormous uptick" in both legislation and practice in continental Europe during the previous year).
59. See Dammann, supra note 5, at 530-31; Hertig & McCahery, supra note 5, at 187.
60. In some cases, member states copied foreign law at local companies' request. In 1998, for example, Germany passed a law (Kapitalaufnahmeerleichterungsgesetz, or KapAEG) allowing companies to balance their books using international or American accounting standards to enable listing stock overseas without having to prepare two sets of financial statements. See Eric Nowak, Recent Developments in German Capital Markets and Corporate Governance, 14 J. APPLIED CORP. FIN. 35, 44 (2001) (linking the legislation to the listing of Daimler-Benz in the United States as part of its merger with Chrysler).
61. See Martin Höpner, European Corporate Governance Reform and the German Party Paradox 20 (Max-Planck-Institut für Gesellschaftsforschung, Discussion Paper 03/4, Mar. 2003), available at http://www.mpi-fg-koeln.mpg.de/ pu/mpifg_dp/dp03-4.pdf.
62. See Jürgen Beyer & Martin Höpner, The Disintegration of Organised Capitalism: German Corporate Governance in the 1990s, 26 W. EUR. POL. 179, 191 (2003).
63. See Richard Deeg, Change from Within: German and Italian Finance in the 1990s, in BEYOND CONTINUITY: INSTITUTIONAL CHANGE IN ADVANCED POLITICAL ECONOMIES 169, 180 (Wolfgang Streeck & Kathleen Thelen eds., 2005).
64. See id.
65. See Gesetz zur Stärkung des Finanzplatzes Deutschland [Law Bolstering the Financial Center Germany], also known as Erstes Finanzmarktförderungsgesetz [First Financial Market Promotion Law], July 11, 1989, BGB1. I at 1412 (F.R.G.); Eric Nowak, Investor Protection and Capital Market Regulation in Germany, in THE GERMAN FINANCIAL SYSTEM 425, 429 (Jan Pieter Krahnen & Reinhard H. Schmidt eds., 2004).
66. See Deeg, supra note 32, at 180.
67. See generally id.; Gesetz über Wertpapier-Verkaufsprospekte und zur Änderung von Vorschriften über Wertpapiere [Law Governing Sales Prospectuses for Securities and Revising Securities Regulation], Dec. 13, 1999, BGB1.I at 2749 (F.R.G.).
68. See Zweites Finanzmarktförderungsgesetz [Second Financial Market Promotion Law], July 26, 1994, BGB1.I at 1749 (F.R.G.); Nowak, supra note 34, at 429-33. In 2002, the agency was combined with the banking and insurance agencies to form a single financial services agency.
69. See Gesetz über die Bundesanstalt für Finanzdienstleistungsaufsicht [Law Establishing the Federal Financial Supervisory Authority], Apr. 22, 2002, BGB1.I at 1310 (F.R.G.).
70. See Gesetz zur Verbesserung der Wettbewerbsfähigkeit deutscher Konzerne an Kapitalmärkten und zur Erleichterung der Aufnahme von Gesellschafterdarlehen [Law for Improving the Competitiveness of German Companies in Capital Markets and Facilitating the Taking of Loans by Shareholders], also known as Kapitalaufnahmeerleichterungsgesetz [KapAEG, Capital Raising Facilitation Law], Apr. 20, 1998, BGB1.I at 707 (F.R.G.); Nowak, supra note 34, at 435.
71. For the positive response to the law in business circles, see generally Martin Glaum, Bridging the GAAP: The Changing Attitude of German Managers Towards Anglo-American Accounting and Accounting Harmonization, 11 J. INT'L FIN. MGM'T & ACCT. 1 (2000).
72. See Drittes Finanzmarktförderungsgesetz [Third Financial Market Promotion Law], Mar. 29, 1998, BGB1.I at 529 (F.R.G.); Nowak, supra note 34, at 434-35.
73. See Gesetz zur Kontrolle und Transparenz im Unternehmensbereich [KonTraG, Law on Control and Transparency in Business Enterprises], Apr. 27, 1998, BGB1.I at 786 (F.R.G.); Nowak, supra note 34, at 435-37.
74. See Gesetz zur Senkung der Steuersätze und zur Reform der Unternehmensbesteuerung [Law on the Reduction of Tax Rates and Reform of Business Taxation], also known as Steuersenkungsgesetz [StSenkG, Tax Reduction Law], Oct. 23, 2000, BGB1. I at 1433 (F.R.G.); Nowak, supra note 34, at 437-38.
75. See Wertpapiererwebs-und Übernahmegesetz (WpÜG) [Securities Acquisition and Takeover Law], Dec. 20, 2001, BGB1. I at 3822 (F.R.G.).
76. Responding to management concerns raised by the takeover of German telephone company Mannesmann by British rival Vodafone a year earlier, the law authorized supervisory boards to resist takeovers. See Jeffrey N. Gordon, An American Perspective on Anti-Takeover Laws in the EU: The German Example, in REFORMING COMPANY AND TAKEOVER LAW IN EUROPE 541, 541-59 (Guido Ferrarini et al. eds., 2004).
77. Many other aspects of the law, however, such as the mechanism for cashing out minority shareholders, have streamlined takeovers and prompted legal practitioners to describe the law as "a critical step toward a fairer, more open environment for potential acquirors of German public companies," which "appears to signal foreign investors that German capital markets are now ready to treat unsolicited tender offers, sophisticated LBOs and other going-private transactions as routine." See Skadden, Arps, Slate, Meagher & Flom LLP, New German Takeover Scheme: Reshaping Germany's Market for Corporate Control 1 (Apr. 2002) (client memorandum), http://www.skadden.com/ content/publications/809library.pdf.
78. See Viertes Finanzmarktförderungsgesetz [Fourth Financial Market Promotion Law], June 21, 2002, BGB1. I at 2010 (F.R.G.); Nowak, supra note 34, at 439-40.
79. See Gesetz zur weiteren Reform des Aktien- und Bilanzrechts, zu Transparenz und Publizität [Law to further Reform Stock Corporation and Accounting Legislation on Transparency and Disclosure], also known as Transparenz- and Publizitätsgesetz [TransPuG, Transparency and Disclosure Law], July 19, 2002, BGB1.I at 2681 (F.R.G.).
80. See Gesetz zur Verbesserung des Anlegerschutzes [AnSVG, Investor Protection Improvement Law], Oct. 28, 2004, BGB1.I at 2630 (F.R.G.).
81. See Gesetz über Musterverfahren in kapitalmarktrechtlichen Streitigkeiten [Law on Model Case Proceedings in Disputes under Capital Markets Law], also known as Kapitalanleger-Musterverfahrensgesetz [KapMuG, Capital Markets Model Case Law], Aug. 10, 2005, BGB1.I at 2437 (F.R.G.).
82. See Gesetz zur Unternehmensintegrität und Modernisierung des Anfechtungsrechts [UMAG, Law on Corporate Integrity and Modernization of Rescission Proceedings], Sept. 22, 2005, BGB1. I at 2802 (F.R.G.).
83. See generally Theodor Baums, Company Law Reform in Germany, 3 J. CORP. LEGAL STUD. 181, 181-82 (2003) (noting that the reasons for Germany's corporate law reform were corporate scandals involving German companies, the need to reconcile the law with foreign law that applies to cross-listed German companies, the need to meet the expectations of foreign institutional investors who buy shares of German companies, the transformation of the German pension system into one partly based on institutional investors managing privately-invested capital, competition among regulators to offer corporate law that meets the need of the market, and the need to offer flexibility to German companies financed by venture capital);
84. Janet Guyon, The Trials of Josef Ackermann, FORTUNE, Jan. 26, 2004, at 111 (noting that Germany is "struggling to liberalize its labor laws, overhaul its pension system, cut unemployment benefits, and reform its corporate governance rules in order to boost growth, which was flat in 2003").
85. See Jeffrey N. Gordon, Pathways to Corporate Governance? Two Steps on the Road to Shareholder Capitalism in Germany, 5 COLUM. J. EUR. L. 219, 220-21 (1999) (describing the board failures at Daimler-Benz, Metallgesellschaft, Schneider, and Klöckner-Humboldt-Deutz that precipitated the 1998 reform); Nowak, supra note 34, at 433-34, 438-39 (noting that the 2002 reform was partly a response to the scandals that had brought down in 2001 the Neuer Markt, the Frankfurt Stock Exchange's trading platform for high-growth companies).
86. See Jeffrey N. Gordon, An International Relations Perspective on the Convergence of Corporate Governance: German Shareholder Capitalism and the European Union, 1990-2000 (Eur. Corp. Governance Inst. Law Working Paper No. 6/2003; Harvard Law Sch. Ctr. for Law, Econ. & Bus., Discussion Paper No. 406, Feb. 2003), available at http://ssrn.com/abstract=374620 (linking the expansion of stock ownership in public companies, the launch of a stock trading platform for young companies, the tightening of legal protection of shareholders, and the growing acceptance of a market for corporate control to the privatization of Deutsche Telekom in 1996).
87. See Sigurt Vitols, Changes in Germany's Bank-Based Financial System: Implications for Corporate Governance, 13 CORP. GOV. 386, 390 (2005) (noting that the overhaul sought to increase investment in Germany's capital markets).
88. See supra note 44 and accompanying text.
89. According to the bill that adopted the commission's recommendations, the commission had been asked to propose how to modernize the law in light of the globalization of capital markets. See BTDRUCKS. 14/8769, at 10 (F.R.G.), available at http://dip.bundestag.de/btd/14/087/1408769.pdf ("[S]ollte sie im Hinblick auf den durch Globalisierung und Internationalisierung der Kapitalmärkte sich vollziehenden Wandel unserer Unternehmens- und Marktstrukturen Vorschläge für eine Modernisierung unseres rechtlichen Regelwerkes unterbreiten.").
90. See Government Commission in the German Corporate Governance Code, http://www.corporate-governance-code.de/index-e.html (last visited June 7, 2006).
91. The code has thus far been amended thrice. See id., http://www.corporate- governance-code.de/eng/archiv/index.html (last visited June 7, 2006) (displaying previous versions).
92. See id., http://www.corporate-governance-code.de/index-e.html. This is consistent with the bill that introduced the 2002 law, which noted that, "especially for informing foreign investors, it appeared inevitable to adopt a corporate governance code for Germany." See BTDRUCKS. 14/8769, at 21 ("Gerade im Hinblick auf die Information ausländischer Anleger erschien es unvermeidlich, einen maßgebenden Corporate-Governance-Kodex für Deutschland zu initiieren.").
93. See supra note 47.
94. Bertrand Benoit & Patrick Jenkins, Germany Looks to Call Time on Its Business War Games, FIN. TIMES (London), Dec. 30, 2004, at 32.
95. See Law No. 218, July 30, 1990, Gazz. Uff. No. 182, Aug. 6, 1990 (Italy).
96. See Deeg, supra note 32, at 187. The need to compete with foreign banks resulted from the European Union Investment Services Directive, which required member states to allow foreign banks to operate inside their borders. See id.
97. See id.
98. See, e.g., Niccolo d'Aquino, Italy Prepares for EMU, 368 EUROPE 14 (1997) (noting that Italy's ability to meet the euro qualification criteria is "repeated everyday in the newspapers," that the Prime Minister and his coalition members "are betting all their international - and a great deal of their national - credibility on whether or not they can do it," and that "what counts most is the first and most important parameter: the percentage of the public deficit with regard to the gross national product");
99. Romano Prodi, Italy's Would-Be Record-Breaker, THE ECONOMIST, Oct. 10, 1998, at 58 (noting that Italian Prime Minister Prodi, formerly an economics professor, "pushed ahead with privatisation . . . [,] liberalised shopping hours and licences, tried to shake the fat out of the economy, and made bureaucrats jump" to meet the euro qualification criteria).
100. See Deeg, supra note 32, at 188. In addition to adding the public float on the market, the privatization of Borsa Italiana created a powerful new supporter of corporate reform. See id.
101. See Paul Betts, Market Half the Size It Should Be, FIN. TIMES (London), Dec. 10, 1997, at 2.
102. See Alexander Aganin & Paolo Volpin, The History of Corporate Ownership in Italy, in A HISTORY OF CORPORATE GOVERNANCE AROUND THE WORLD: FAMILY BUSINESS GROUPS TO PROFESSIONAL MANAGERS 325 (Randall K. Morck ed., 2005); Deeg, supra note 32, at 188;
103. th Century: A View from Italy, in CORPORATE GOVERNANCE IN CONTEXT: CORPORATIONS, STATES, AND MARKETS IN EUROPE, JAPAN, AND THE US 31, 46-48 (Klaus J. Hopt, Eddy Wymmersch, Hideki Kanda & Harald Baum eds., 2005).
104. See Law No. 366, Oct. 3, 2001, Gazz. Uff. No. 234, Oct. 8, 2001 (Italy); Decree-Law No. 61, Apr. 11, 2002, Gazz. Uff. No. 88, Apr. 15, 2002 (Italy); Decree-Law No. 5, Jan. 17, 2003, Gazz. Uff. No. 17, Supp. Ord. 8, Jan. 22, 2003 (Italy); Decree-Law No. 6, Jan. 17, 2003, Gazz. Uff. No. 17, Supp. Ord. 8, Jan. 22, 2003 (Italy); Decree-Law No. 37, Feb. 6, 2004, Gazz. Uff. No. 37, Supp. Ord. 24, Feb. 14, 2004 (Italy).
105. For details of the reforms, see generally Guido Ferrarini, Paolo Giudici & Mario Stella Richter, Company Law Reform in Italy: Real Progress?, 69 Rabels Zeitschrift fuer auslaendisches und internationales Privatrecht 658 (2005) (F.R.G.);
106. Paolo Montalenti, The New Italian Corporate Law: An Outline, 1 EUR. CO. & FIN. L. REV. 368 (2004).
107. See Marco Ventoruzzo, Experiments in Comparative Corporate Law: The Recent Italian Reform and the Dubious Virtues of a Market for Rules in the Absence of Effective Regulatory Competition, 40 TEX. INT'L L.J. 113, 114 (2004); Ferrarini, Giudici & Richter, supra note 66.
108. Roberto Ulissi, Company Law Reform in Italy: An Overview of Current Initiatives 2 (unpublished manuscript, presented at the Conference on Company Law Reform in OECD Countries: A Comparative Outlook of Current Trends), available at http://www.oecd.org/dataoecd/21/32/1857507.pdf. Elsewhere, that author reiterates, "Making Italy a more attractive environment for investors can be considered the idea lying behind the reform initiatives: this has meant revising securities, company and bankruptcy law. The judicial mechanism for enforcing shareholders' and creditors' rights also need [sic] to be improved." Id.
109. See Law No. 366, art. 2(1)(a), Oct. 3, 2001, Gazz. Uff. No. 234, Oct. 8, 2001 (Italy) ("La riforma del sistema delle società di capitali . . . è ispirata ai . . . perseguire l'obiettivo prioritario di favorire la nascita, la crescita e la competitività delle imprese, anche attraverso il loro accesso ai mercati interni e internazionali dei capitali.").
110. See Law No. 262, Dec. 28, 2005, Gazz. Uff. 301, Dec. 28, 2005 (Italy); Cleary, Gottlieb, Steen & Hamilton, Reform of Italian Corporate and Securities Law: The Investor Protection Act (Mar. 6, 2006) (client memorandum), http://www.cgsh.com/files/tbl_s5096AlertMemoranda/FileUpload5741/355/ 19-2006.pdf.
111. See Roberta Romano, The Sarbanes-Oxley Act and the Making of Quack Corporate Governance, 114 YALE L.J. 1521, 1525-26 (2005) (presenting a Gallup poll that reflects public opinion of confidence in Big Business).
112. See Not So Super Consob, THE ECONOMIST, Feb. 7, 2004, at 78 (reporting that the government "is keen to rush through a new law to reform financial regulation in Italy because of the collapse of Paramalat," which "destabilised Italy's fragile banking sector and left the reputation of the country as a wise place in which to invest more than a little dented");
113. Turning Sour, THE ECONOMIST, Jan. 3, 2004, at 8 (discussing effects of Parmalat scandal).
114. See James A. Fanto, The Role of Corporate Law in the Adaptation of French Enterprises, 1998 COLUM. Bus. L. REV. 97, 112 ("French legal policy-makers substantially modified the law in 1984 to increase the verification responsibilities of the commissaire and to ensure his or her independence from management.").
115. See Leslie A. Goldman, Note, The Modernization of the French Securities Markets: Making the EEC Connection, 60 FORDHAM L. REV. S227, S237-40) (1992) ("This law broadened the COB's oversight responsibilities by rendering the Commission responsible for the proper functioning of the Bourse and the Matif. . . and expanded the definition of insider trading to include transactions involving futures contracts. The 1998 law also modified the structure of the regulatory system by establishing the CBV and SBF").
116. See id.
117. See Law No. 2001-420 of May 15, 2001, Journal Officiel de la République Française [J.O.] [Official Gazette of France], May 16, 2001, p. 7776.
118. See PHILIPPE MARINI, LA MODERNISATION DU DROIT DES SOCIÉTÉS 20 (1996) (Rapport au Premier Ministre, July 13, 1996) [Report to the Prime Minister on the Modernization of Corporate Law] (Fr.) ("[L]a compétition économique met également en concurrence les systèmes juridiques. De ce point de vue, la lourdeur et les rigidités du droit français des sociétés constituent un handicap. Parmi les éléments pris en considération dans le choix du pays d'accueil d'une société commerciale, nul doute que la faculty d'adaptation de l'instrument juridique aux besoins spécifiques de l'entreprise et aux modifications de l'environment économique et social soit un factuer important."); see also id. at 6 ("[I]l faut a present envisager d'assurer la compétitivité juridique de la France par rapport aux systèmes d'inspiration anglo-saxonne d'un côté et germanique de l'autre, dans le contexte de marchés financiers totalement interconnectés et d'une liberté de plus en plus large de localisation des activités économiques." [It is now necessary to plan to ensure the legal competitiveness of France relative to Anglo-American systems on the one hand and German systems on the other hand, in the context of completely interconnected financial markets and increasingly broad freedom where to place economic activity.]).
119. See Law No. 2003-706 of Aug. 1, 2003, Journal Officiel de la République Française [J.O.] [Official Gazette of France], Aug. 2, 2003, p. 13220.
120. See Nicolas Bombrun & François Mary, France, in THE INTERNATIONAL FINANCIAL LAW REVIEW GUIDE TO MERGERS AND ACQUISITIONS 2004, available at http://www.iflr.com/?Page=17&ISS= 16378&SID=515244.
121. See Ordinance No. 2004-604 of June 24, 2004, Journal Officiel de la République Française [J.O.] [Official Gazette of France], June 26, 2004, p. 11612.
122. See Cleary, Gottlieb, Steen & Hamilton, France Adopts New Legislation to Modernize its Securities Laws (July 8, 2004) (client memorandum), http://www.cgsh.com/files/tbl_s5096Alert Memoranda%5CFileUpload5741%5C188%5C55- 2004.pdf.
123. See Company Law Reform Bill, 2005 H.L. Bill [34] (U.K.).
124. See Dept. of Trade & Indus., Company Law Reform Bill (U.K.), http://www.dti.gov.uk/bbf/co-law-reform-bill/clr-review/page22794.html (last visited June 7, 2006).
125. The reform was presented as part of a broader policy of "promoting enterprise and raising productivity" by fitting corporate law "for the twenty-first century and beyond." See Patricia Hewitt, Preface by the Secretary of State to DEP'T OF TRADE & INDUS.'S MODERNISING COMPANY LAW, 2002, Cm. 5553, at 3 (U.K.), available at http://www.dti.gov.uk/companiesbill/ prelims.pdf;
126. see also Kevin Brown & Michael Peel, Blueprint to Help Bring Business 'Into 21st Century', FIN. TIMES (London), July 27, 2001, at 4 (reporting that the trade and industry Secretary explained the need for the reform by saying that "UK company law, once regarded as the best in the world, has fallen well behind that of other countries" and that "[y]ears of neglect have left us with an archaic Victorian system that is holding British business back"). The initiative received industry support. See id. (reporting support by the Institute of Directors and the Trade Union Congress).
127. See DEP'T OF TRADE & INDUS., MODERNISING COMPANY LAW, 2002, Cm. 5553 (U.K.), at 15-16, available at http://www.dti.gov.uk/companiesbill/part2.pdf.
128. See Eilís V. Ferran, The Company Law Reform in the United Kingdom: A Progress Report, 69 RABELS ZEITSCHRIFT FUER AUSLAENDISCHES UND INTERNATIONALES PRIVATRECHT 629, 641-52 (2005) (F.R.G.) (discussing recent legislative developments and proposals).
129. See Directors' Remuneration Report Regulations, 2002, S.I. 2002/1986 (U.K.).
130. See Companies (Audit, Investigations and Community Enterprise) Act, 2004 (U.K.).
131. According to the official notes to the act, it "forms part of the Government's strategy to help restore investor confidence in companies and financial markets following recent major corporate failures." See DEP'T OF TRADE & INDUS., EXPLANATORY NOTES TO COMPANIES (AUDIT, INVESTIGATIONS AND COMMUNITY ENTERPRISE) ACT, 2004, ¶ 4 (U.K.), available at http://www.opsi.gov.uk/acts/en2004/2004en27.htm.
132. See Companies Act 1985 (Operating and Financial Review) (Repeal) Regulations 2005, S.I. 2005/3442 (U.K.).
133. See Companies Act 1985 (Operating and Financial Review and Directors' Report etc.) Regulations 2005, S.I. 2005/1011 (U.K.).
134. For a survey of corporate reforms in twenty-one European countries prepared for the British Department of Trade and Industry, see CTR. FOR LAW & BUS., UNIV. OF MANCHESTER, COMPANY LAW IN EUROPE: RECENT DEVELOPMENTS (1999), available at http://www.dti.gov.uk/cld/milman.pdf.
135. See Nick Callister-Radcliffe, Rejection of the EU Takeover Directive - The Implications, 29 INT'L BUS. LAW. 337, 339-40 (2001);
136. Peter M. Polak, Austria, in THE INTERNATIONAL FINANCIAL LAW REVIEW GUIDE TO MERGERS AND ACQUISITIONS 2004, available at http://www.iflr.com/?Page= 17&ISS=16378&SID=515234.
137. See Jan Louis Burggraff & Joyce Winnubst, The Netherlands, in THE INTERNATIONAL FINANCIAL LAW REVIEW GUIDE TO MERGERS AND ACQUISITIONS 2004, available at http://www.iflr.com/?Page=17&ISS=16378&SID=515251.
138. See id.
139. See Weil, Gotshal & Manges, COMPARATIVE STUDY OF CORPORATE GOVERNANCE CODES RELEVANT TO THE EUROPEAN UNION AND ITS MEMBER STATES 2 (2002), http://europa.eu.int/comm/internal_market/company/docs/corpgov/ corp-gov-codes-rpt-part1_en.pdf.
140. For a detailed list of codes by country, see European Corporate Governance Institute, Index of Codes, http://www.ecgi.org/codes/all_codes.php (last visited June 7, 2006).
141. Another difference between competition for incorporations and competition for investments is that only the former can theoretically be replicated by private actors. The politics involved in any public lawmaking have led commentators to conclude that private actors competing for incorporations would produce better corporate law than would elected officials. See generally Gillian Hadfield & Eric Talley, On Public Versus Private Provision of Corporate Law, 22 J.L. ECON & ORG. (forthcoming 2006). Private actors, however, cannot capture the gains from economic development, and thus they cannot replicate the competition for investments.
142. See Guhan Subramanian, The Influence of Antitakeover Statutes on Incorporation Choice: Evidence on the "Race" Debate and Antitakeover Overreaching, 150 U. PA. L. REV. 1795, 1813 (2002) (examining Delaware's share of American public companies in 2000). Delaware public companies also tend to be bigger than other public companies. While constituting half the public companies in the sample, they account for fifty-nine percent of net sales. See id.
143. See Lucian Arye Bebchuk & Alma Cohen, Firms' Decisions Where to Incorporate, 46 J.L. & ECON. 383, 386 (2003) (arguing that Delaware's "dominance of this market is greater than is commonly recognized");
144. Robert Daines, The Incorporation Choices of IPO Firms, 77 N.Y.U. L. REV. 1559, 1562 (2002) (examining Delaware's share of initial public offerings in the United States between 1978 and 2000).
145. See An Act Making Appropriations for the Expense of the State Government for the Fiscal Year Ending June 30, 2005, S.B. 320, 142nd Gen. Assem., at 4, 19 (Del. 2004), available at http://www.state.de.us/budget/budget/fy2005/fy2005- sb320-budget-bill.pdf (budgeting outlays of approximately $10.7 million for the Division of Corporations and $2.4 million for the Court of Chancery);
146. STATE OF DEL., OFFICE OF THE GOVERNOR, POLICY AND FINANCIAL OVERVIEW: FISCAL YEAR 2005, at 12 (Jan. 29, 2004), http://www.state.de.us/budget/budget/ fy2005/misc/FinancialOverview.pdf (forecasting a revenue of $523.2 million from franchise tax out of $2742.6 million in total revenue).
147. See Baudisch, supra note 5, at 51-52 (arguing that such a tax might violate Council Directive 69/335/EEC, raise constitutional concerns in many member states, and be resisted by business).
148. See World Bank, Key Development Data & Statistics, http://www.worldbank.org/data/ countrydata/countrydata.html (last visited June 7, 2006).
149. See World Federation of Exchanges, Domestic Market Capitalization, http://www.world-exchanges.org/WFE/home.asp?menu=315&document=2490 (last visited June 7, 2006) (reporting stock market capitalization of domestic companies by stock exchange).
150. See infra Part II.B.1.
151. See ROBERTA ROMANO, THE GENIUS OF AMERICAN CORPORATE LAW 59-60 (1993) (noting that Delaware has a diverse political constituency).
152. See id. at 60 (arguing that Delaware corporate law is minimally affected by an individual firm's lobbying because of the large number of Delaware incorporated companies and because most Delaware companies operate outside the state).
153. See Kahan & Kamar, supra note 1, at 694-98 (estimating that the additional income per Delaware lawyer from incorporations was roughly $35,000 per year in 2000).
154. See U.S. CENSUS BUREAU, STATE RANKINGS - STATISTICAL ABSTRACT OF THE UNITED STATES: STATE GOVERNMENT GENERAL REVENUE PER CAPITA 2003, http://www.census.gov/statab/ranks/rank24.html.
155. See Asli Demigrüç-Kunt & Vojislav Maksimovic, Law, Finance, and Firm Growth, 53 J. FIN. 2107, 2134 (1998) (finding that active stock markets are associated with externally financed firm growth);
156. Ross Levine & Sara Zervos, Stock Markets, Banks, and Economic Growth, 88 AM. ECON. REV. 537, 537 (1998) (finding that stock market liquidity predicts growth, capital accumulation, and productivity improvements);
157. P.L. Rousseau & P. Wachtel, Equity Markets and Growth: Cross-Country Evidence on Timing and Outcomes, 1980-1995, 24 J. BANKING & FIN. 1933, 1955 (2000) (finding that liquid stock markets promote economic growth).
158. For the link between corporate law and stock markets, see Rafael La Porta et al., Legal Determinants of External Finance, 52 J. FIN. 1131, 1140-45 (1997) (finding that countries that protect shareholders have more valuable stock markets, larger numbers of listed securities per capita, and a higher ratio of initial public offerings man other countries).
159. See Jeffrey Wurgler, Financial Markets and the Allocation of Capital, 58 J. FIN. ECON. 187, 188-89 (2000) (finding that investor protection and developed stock markets improve capital allocation).
160. See Stefano Rossi & Paolo F. Volpin, Cross-Country Determinants of Mergers and Acquisitions, 74 J. FIN. ECON. 277 (2004) (finding that acquirers are based in countries with better corporate governance);
161. Malcolm Baker, C. Fritz Foley & Jeffrey Wurgler, Multinationals as Arbitrageurs? The Effect of Stock Market Valuations on Foreign Direct Investment (Working Paper, Dec. 14, 2005), available at http://www.people.hbs.edu/ffoley/ bakerfoleywurgler.pdf (finding that acquirers are based in countries with higher stock market valuations).
162. See Wendy Carlin & Colin Meyer, How Do Financial Systems Affect Economic Performance?, in CORPORATE GOVERNANCE: THEORETICAL AND EMPIRICAL PERSPECTIVES 137, 156 (Xavier Vives ed., 2000) (finding that equity markets are associated with national economic growth through research and development).
163. See Draghi, supra note 25, at 356.
164. The privatization of Deutsche Telekom stock in 1997 illustrates the international dimension of privatizations driven by budgetary needs. See Greg Steinmetz & Michael R. Sesit, Bigger Bang: Rising U.S. Investment in European Equities Galvanizes Old World, WALL ST. J. Aug. 4, 1999, at A1 ("When Germany privatized Deutsche Telekom AG two years ago in one of the largest initial public offerings in history, it marketed the stock to American investors, as well as Europeans. It did the same earlier this year when it carried out a secondary offering. By plugging the stock to Americans, it increased demand and so boosted the value of Telekom shares. Deutsche Telekom is now worth three times what it was two years ago. And when Berlin begins selling the rest of its stake, the proceeds will give a much-needed boost to the government's finances.").
165. A telling example is the success that American mutual fund Fidelity had in 1997 dissuading the French government from using its control over mining company Eramet to placate New Caledonian separatists by swapping one of the company's mines for an inferior one controlled by the separatists. It helped that the skirmish took place less than three months before a $7 billion initial public offering of France Telecom. All Fidelity had to do was to remind the French government that American investors would shun French privatizations if it did not back down. See id.
166. See Richard Evans, Applying Pressure: European Funds Increasing Corporate Activism, PENSIONS & INVESTMENTS, Feb. 23, 2004, at 14 (reporting growing activism by British pension fund manager Hermes, Dutch pension fund managers ABP and PGGM, and French pension fund manager Caisse des Depots at Consignations following a string of corporate governance scandals);
167. see also Craig Karmin & James Hookway, Calpers to Reverse Position on Investing in Philippine Market, WALL ST. J., May 13, 2002, at C1 (reporting a widespread belief among stock market participants that the decision by CalPERS to liquidate its stock investments in the Philippines in 2002 had a more negative impact on the Manila stock exchange because it came at the heels of a stock manipulation scandal one year earlier).
168. See, e.g., Nicholas George, Sweden in Business Law Move, FIN. TIMES (London), Jan. 19, 2004, at 24 (reporting that the Swedish Minister for financial markets expressed disappointment with the failure of business leaders to take effective measures to restore the confidence in Swedish business, which "has been rocked by several corporate scandals, the most high-profile domestic example involving huge bonus payments and management perks at Skandia, the financial services group" and expressed resolve to address the crisis in legislation if this failure continued).
169. Turning Sour, THE ECONOMIST, Jan. 3, 2004, at 8;
170. see also Richard Heller, Parmalat: A Particularly Italian Scandal, FORBES.COM, Dec. 30, 2003, http://www.forbes.com/2003/12/30/ cz_rh_1230parmalat_print.html ("Parmalat is reminiscent of several other florid Italian scandals, especially the Banco Ambrosiano affair . . . . The Parmalat story simply does not fit into a global corporate-governance argument. It's beyond the pale; it's very Italian.").
171. See DEP'T OF TRADE & INDUS., CORPORATE LAW AND GOVERNANCE: POST ENRON INITIATIVES (U.K.), http://www.consumer.gov.uk/cld/post_enron.htm (last visited June 7, 2006);
172. see also Paul Davies, Post-Enron Developments in the United Kingdom, in REFORMING COMPANY AND TAKEOVER LAW IN EUROPE 185 (Guido Ferrarini, et al. eds., 2004) (documenting the legislative response in the United Kingdom to Enron).
173. See Robert Galbraith, Disappointment and Dissatisfaction in Italy, THE ACCOUNTANT, Sept. 25, 2002, at 16 (reporting that stories of accounting scandals in the United States are fueling calls for accounting reforms in Italy).
174. See THOMAS A. BIRKLAND, AN INTRODUCTION TO THE POLICY PROCESS 116 (2001) ("Focusing events can lead groups, government leaders, policy entrepreneurs, the news media, or members of the public to pay attention to new problems or pay greater attention to existing but dormant (in terms of their standing on the agenda) problems, and, potentially, can lead to a search for solutions in the wake of perceived policy failure.");
175. see also JOHN W KINGDON, AGENDAS, ALTERNATIVES, AND PUBLIC POLICIES 94 (2d ed. 1995).
176. See Thorsten Beck, Ross Levine & Norman Loayza, Finance and the Sources of Growth, 58 J. FIN. ECON. 261, 265 (2000) (finding that financial intermediaries increase factor productivity and gross domestic product growth);
177. Klaus Neusser & Maurice Kugler, Manufacturing Growth and Financial Development: Evidence from OECD Countries, 80 REV. ECON. & STAT. 638, 645 (1998) (finding that financial intermediaries increase factor productivity);
178. Raghuram G. Rajan & Luigi Zingales, Financial Dependence and Growth, 88 AM. ECON. REV. 559, 584 (1998) (finding that industrial sectors in need of external financing develop faster in countries with more developed financial markets).
179. Draghi, supra note 25, at 345.
180. See Deeg, supra note 32, at 180.
181. See FED. MINISTRY OF FIN., DRAFT OF A FOURTH FINANCIAL MARKET PROMOTION ACT (trans., Nov. 14, 2001) (F.R.G.), http://www.bundesfinanzrmmsterium.de/ nn_13044/EN/10420.html. The proposal further explains that to achieve this objective the government intends "to improve investor protection by enhancing market integrity and transparency, to afford market participants extended and more flexible scope for action, and to close gaps in the defences against money laundering." Id.
182. See generally Colin Gordon, The Business Culture in France, in BUSINESS CULTURES IN EUROPE 86 (Collin Randlesome et al. eds., 1990).
183. See DEP'T OF THE ENV'T, TRANSP. & THE REGIONS, COMPETITIVENESS: FORGING AHEAD 1995, Cm. 2867, at 3.3, available at http://www.archive.official- documents.co.uk/document/dti/dti-comp/tchap3.htm#t3-25.
184. In the years 2000 and 2001, foreign institutional investors held between 30% and 40% of publicly traded stock in the United Kingdom, Spain, Norway, France, Sweden, and Poland; between 20% and 30% in Germany, Greece, Portugal, and Denmark; 15% in Italy; and 5% in Estonia. See Share Ownership Survey, supra note 19, at 40.
185. See supra note 99 and accompanying text (stating that the 2005 budget forecasted outlays of $15 million).
186. See, e.g., Leo E. Strine, Jr., "Mediation-Only" Filings in the Delaware Court of Chancery: Can New Value Be Added by One of America's Business Courts?, 53 DUKE L.J. 585, 586 (2003) (noting that the chancery court can provide value to its business citizens through judge-conducted mediation).
187. See Charles M. Tiebout, A Pure Theory of Local Expenditures, 64 J. POL. ECON. 416, 419-20 (1956) (describing a model in which communities attract individuals by offering services until they reach an optimal community size).
188. Previous analyses of corporate lawmaking in federal systems, including my own, have analogized the competition for incorporations to the Tiebout model. See, e.g., John C. Coffee, Jr., Competition Versus Consolidation: The Significance of Organizational Structure in Financial and Securities Regulation, 50 BUS. LAW. 447, 453 n.27 (1995);
189. Frank H. Easterbrook & Daniel R. Fischel, Mandatory Disclosure and the Protection of Investors, 70 VA. L. REV. 669, 691 n.29 (1984);
190. Ehud Kamar, A Regulatory Competition Theory of Indeterminacy in Corporate Law, 98 COLUM. L. REV. 1908, 1948 n.156 (1998);
191. Roberta Romano, The Future of Hostile Takeovers: Legislation and Public Opinion, 57 U. CIN. L. REV. 457, 466 n.21 (1988). Competition for investments, however, is closer to the Tiebout model because, in both, jurisdictions face increasing costs of providing services as the number of users grows. While in theory jurisdictions should also face increasing costs of providing incorporation services, in practice these costs are small.
192. In 2002, when Indonesia, Malaysia, the Philippines, and Thailand went out of favor as worthy places for investment, CalPERS decided to reallocate some of its investments in the four Southeast Asian countries to Hungary and Poland. See Craig Karmin & Kara Scannell, Calpers's Withdrawal Hits Markets in Asia, But Fallout May Be Brief, WALL ST. J., Feb. 25, 2002, at C12. CalPERS presumably did not reallocate the freed-up funds to jurisdictions with stronger records of investor protection because the quality of investor protection was only one of its investment criteria.
193. See Kahan & Kamar, supra note 1, at 730-35.
194. See Dammann, supra note 5, at 528-30 (listing Estonia, Hungary, Cyprus, the Czech Republic, Latvia, Lithuania, Malta, Poland, and Slovakia as potential competitors).
195. See IVANA JABLONSKA, GENERAL GOVERNMENT EXPENDITURE AND REVENUE IN THE EU IN 2004, at 2 tbl.1 (May 30, 2005), http://epp.eurostat.cec.eu.int/cache/ ITY_OFFPUB/KS-NJ-05-024/EN/KS-NJ-05-024-EN.PDF.
196. While corporate law is not their strongest point, all of the new member states have historically offered foreign businesses an array of tax incentives regarded by the European Commission as harmful. See Daniel Dombey, New EU Entrants Fail to Cut Tax Breaks, FIN. TIMES (London), Jul. 22, 2003, at 6.
197. Malta, for example, is better known for its advantageous taxation of offshore holding companies than for its corporate law. See Good Havens, THE ECONOMIST, Sept. 30, 1995, at 90 (noting tax exemptions for offshore holding companies);
198. Godfrey Grima, Malta Aspires to Become a Leading Financial Centre, FIN. TIMES (London), Dec. 9, 2003, at 3 (noting displeasure of the European Commission with the taxation of offshore holding companies in Malta).
199. See Marie-Agnes Arlt et al., The Status of the Law on Stock Companies in Central and Eastern-Europe: Facing the Challenge to Enter the European Union and Implement European Company Law, 4 EUR. BUS. ORG. L. REV. 245, 247 (2003) (describing the corporate laws of Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia, and stating that "[m]ost Central and Eastern European company law can be traced back to the German . . . or French legal tradition").
200. See World Bank Institute, Aggregate Governance Indicators 1996-2004, http://www.worldbank. org/wbi/governance/pdf/2004kkzcharts.xls (last visited June 7, 2006) (ranking these member states in the bottom half of the European Union on government effectiveness and control of corruption, and ranking Slovenia and Latvia in the bottom half of the European Union for rule of law in 2004);
201. see also Transparency International, Corruption Perceptions Index 2005, http://www.transparency.org/policy_research/surveys_indices/cpi/2005 (last visited June 7, 2006) (ranking these member states in the bottom half of the European Union in perceived corruption).
202. Cf. Marcel Kahan & Ehud Kamar, Price Discrimination in the Market for Corporate Law, 86 CORNELL L. REV. 1205, 1251 tbl.3 (2001) (reporting that about 1600 large public companies out of more than 200,000 Delaware companies generated more than half of the state's franchise tax revenue in 1997-1999).
203. See Dammann, supra note 5, at 528-30 (mentioning Luxembourg, along with Ireland, Portugal, and Greece, as potential candidates); Hertig & McCahery, supra note 5, at 187 (mentioning Luxembourg and Ireland as potential candidates).
204. See Service Central de la Statistique et des Études Économiques, Luxembourg in Figures 37 (2004) (Lux.), http://www.statec. lu/html_fr/publications/luxenchiffres2004EN.pdf.
205. See STATE OF DEL., OFFICE OF THE GOVERNOR, FINANCIAL SUMMARY: FISCAL YEAR 2005, at 2 (2004), http://www.state.de.us/budget/budget/fy2005/operating/ 05opfinsumcharts.pdf (noting a revenue of $2.4 billion in 2003). The exchange rate in 2003 ranged between 0.94 and 0.81 euro for one U.S. dollar. Some commentators argue that the relevant figure for a state's incentive to compete for incorporations is gross domestic product because it reflects the extent of economic activity that could be taxed should the need arise, and note that Luxembourg's gross domestic product is one-half of Delaware's. See Dammann, supra note 5, at 528. As a practical matter, however, public officials tend to consider existing budgetary sources and needs, rather than hypothetical ones.
206. Of 127 responses to the call by the European Commission in 2004 for comments on the proposal, 52 responses came from Germany; 21 from France; 9 from the Netherlands; 7 from Belgium; 6 from Spain; 5 from the United Kingdom; 4 from Finland and Portugal; 3 from Austria, Greece, and Italy; 2 from the Czech Republic and Estonia; 2 from undisclosed countries; and 1 from Denmark, Ireland, and Sweden. No responses came from Luxembourg, Cyprus, Hungary, Lithuania, Latvia, Malta, Poland, Slovakia, or Slovenia. See Public Consultation on the Outline of the Planned Proposal for a European Parliament and Council Directive on the Cross Border Transfer of the Registered Office of a Company, http://europa.eu.int/yourvoice/results/transfer/index_en.htm (last visited June 7, 2006).
207. Note that a market in which only one state attempts to attract incorporations is quite different from a market in which many states compete. See Kahan & Kamar, supra note 1, at 736-47 (comparing a market with a single competing state among many inactive ones which a market in which several states compete).
208. See Rafael La Porta et al., Law and Finance, 106 J. POL. ECON. 1113, 1139 (1998) (noting that "French-civil-law countries protect [investors] the least").
209. See The Galling Rise of English, THE ECONOMIST, Mar. 1, 2003, at 42 (noting that English has become the language of business in the European Union). It is irrelevant that many Luxembourgians speak English because this language is not used in courts.
210. See Kahan & Kamar, supra note 1, at 727-35; cf. R. DOUGLAS ARNOLD, THE LOGIC OF CONGRESSIONAL ACTION 68-71 (1990) (describing the difficulty of mobilizing an inattentive electorate).
211. See Marco Pagano & Paolo Volpin, The Political Economy of Corporate Governance, 95 AM. ECON. REV. 1005, 1027 (2005) (finding that employee protection tends to be stronger, and shareholder protection tends to be weaker, proportionally, as opposed to majoritarian, electoral systems);
212. Mark J. Roe, Political Preconditions to Separating Ownership from Corporate Control, 53 STAN. L. REV. 539, 541 (2000) (arguing and presenting evidence that social democracies tend to have weaker shareholder protection).
213. See, e.g.. Banco Bilbao Vizcaya Argentaria: Italian Bank Endorses Offer, Moving Closer to a Final Deal, WALL ST. J., Apr. 11, 2005, at 1 (noting that the Bank of Italy "stymied previous attempts at foreign takeovers");
214. Paul Betts & Victor Mallet, A French Solution, FIN. TIMES (London), July 3, 2002, at 18 (describing the political opposition that blocked the acquisition of French oil company Elf Aquitaine by Italian group Eni in 1999 and the acquisition of Belgian company Société Générate de Belgique by Italian financier Carlo De Benedetti in 1988);
215. Andrew Bulkeley & Ross Tieman, Fighting the Inevitable in France, CORP. CONTROL ALERT, June 2004, at 20 (describing the intervention by the French government to stir French pharmaceutical maker Aventis away from Swiss acquirer Novartis and into the hands of its domestic rival Sanofi-Synthelabo in 2004);
216. Daniel Dombey & Hugh Williamson, Germany Tells Brussels It Will Not Alter VW Law, FIN. TIMES (London), July 13, 2004, at 11 (describing a showdown between Germany and the European Commission over a law to protect carmaker Volkswagen from foreign acquisitions);
217. Patrick Jenkins, Ackermann's Agenda: Deutsche Bank Grapples With Divisions Over Strategy, FIN. TIMES (London), Sept. 16, 2004, at 19 (describing the lobbying by German powerhouses Siemens, Deutsche Telekom, and SAP to prevent foreigners from buying Deutsche Bank);
218. Carlta Vitzthum, Madrid Exercises Its 'Golden Shares' on Foreign Deals, WALL ST. J., May 18, 2000, at A23 (describing the government blocking of an acquisition of the Spanish company Telefonica by Dutch company KPN, an acquisition of the Spanish company Hidroelectrica del Cantabrico by Electricité de France, and an acquisition of Telecom Italia by Deutsche Telekom).
219. See Gail Edmondson, Cut Labor's Clout on German Boards; The "Co-determination" System is Hobbling the Nation's Economy, Bus. WK., NOV. 15, 2004, at 84 (noting that relaxing the decades old codetermination rules "could be a secret bullet against outsourcing and high unemployment");
220. David Gow, Chill Enters Cosy German Boardrooms; Industry Chiefs Want to Consign to History British-Inspired Era of Co-Determination, THE GUARDIAN (London), Oct. 25, 2004, at 22 (noting the President of Kiel's Institute for the World Economy opining that Germany's codetermination "must be adapted to meet modern demands for entrepreneurial flexibility, especially among foreign investors" and adding that "[t]he most telling business argument for change is that co-determination is an obstacle to cross-border mergers or, as in the case of Hoechst and Rhone-Poulenc (now Aventis), forces the transfer of the company headquarters outside Germany");
221. Matthew Karnitschnig, German Board Law Targeted; Industry Seeks to Cut Seats of Workers to Reduce Unions' Power, WALL. ST. J., Oct. 28, 2004, at A13 (reporting a "declaration of war" by the German Industry Association and the German Employers Association on a "pillar of the German workers' movement that has defined labor relations for a generation" - the rights of employees to half of the seats on supervisory boards of big corporations - "as companies increasingly shift factories and jobs from Germany to cheaper, less regulated markets").
222. Workers Cut Back: Germany's Codetermination Law Must Adapt to New Times, FIN. TIMES (London), Nov. 1, 2004, at 18 (noting that "global competition and European integration are finally putting pressure on . . . the 28-year-old law that gives employees equal representation on the supervisory boards of large companies").
223. For the claim by Germany's largest employer organizations that labor representation on the board deters foreign investors and makes German companies unattractive merger partners, see BUNDESVEREINIGUNG DER DEUTSCHEN ARBEITGEBERVERBÄNDE & BUNDESVERBAND DER DEUTSCHEN INDUSTRIE, MITBESTIMMUNG MODERNISIEREN [Union of the German Employers' Associations & Association of the German Industry, Modernizing Codetermination] 7-8, 19 (2004) (F.R.G.), http://www.bdi-online.de/dokumente/ berichtbdabdikommissionmodernisierungmitbestimmung.pdf.
224. For a similar claim by a leading German commentator, see Marcus Lutter, Perspektiven des Gesellschaftsrechts in Deutschland und Europa [Perspectives on Corporate Laws in Germany and Europe], 59 BETRIEBS-BERATER I (2004) (F.R.G.).
225. Gerhard Cromme, Status and Development of Corporate Governance in Germany, Address at the 3rd German Corporate Governance Code Conference 17 (June 24, 2004), http://www.corporate-governance-code.de/eng/download/ CGC_Conference_Berlin_2004_Dr_Cromme.pdf.
226. The danger of job loss was illustrated vividly in the threats made by the large German microprocessor maker Infineon to relocate into Switzerland to cut taxes and labor costs associated with Germany's codetermination. See A Warning Shot, WALL ST. J. EUR., Apr. 30, 2003, at A8;
227. Matthew Karnitschnig, Infineon May Shift Base from Germany, WALL ST. J. EUR., Apr. 29, 2003, at A1.
228. The pressure on German labor unions to accept a cutback on their codetermination rights is part of a general pressure on them and on labor unions in other member states to share the burden of economic recovery under threats of layoffs. See Matthew Karnitschnig & Marcus Walker, Firms in Germany Pressure Unions to Accept Change, WALL ST. J., Dec. 21, 2004, at A14.
229. The definitive work in this area is Romano, supra note 2. For updated empirical findings, see Roberta Romano, The States as a Laboratory: State Competition for Corporate Charters, in PROMOTING THE GENERAL WELFARE: AMERICAN DEMOCRACY AND THE POLITICAL ECONOMY OF GOVERNMENT PERFORMANCE (Alan S. Gerber & Eric M. Patashnik eds., forthcoming 2006);
230. see also William J. Carney, The Production of Corporate Law, 71 S. CAL. L. REV. 715, 760-77 (1998).
231. See U.S. CENSUS BUREAU, STATE RANKINGS - STATISTICAL ABSTRACT OF THE UNITED STATES: RESIDENT POPULATION - JULY 2005, http://www.census.gov/statab/ ranks/rank01.html (last visited June 7, 2006);
232. U.S. CENSUS BUREAU, STATE RANKINGS - STATISTICAL ABSTRACT OF THE UNITED STATES: GROSS STATE PRODUCT IN CURRENT DOLLARS 2004, http://www.census.gov/ statab/ranks/rank28.html (last visited June 7, 2006).
233. Other factors that may affect the propensity to compete for investments through corporate reform include budget deficit, privatizations, industry exposure to foreign competition, and demand by local industry for additional capital.
234. See Pagano & Volpin, supra note 147 (finding that over the 1990s shareholder protection improved on average in forty-five countries despite the absence of changes in electoral systems or legal origin, and concluding that in that decade there was international convergence in shareholder protection); UK Governance Is the Best in Europe, ACCOUNTANCY, Mar. 1, 2004, at 113 (citing a report by Brussels research firm Deminor that concludes that corporate governance standards are improving in Continental Europe as a whole).
235. The shareholder protection score is the so-called "antidirector rights" indicator constructed in La Porta et al., supra note 144, at 1134. It is tracked for every year from 1993 to 2002 in Table A3 of the Data Appendix to Pagano & Volpin, supra note 147, available at http://www.dise.unisa.it/ CSEF/people/pagano/pv_aer_data_appendix.pdf. The increase was the highest for Italy, which received a score of 1 in 1990 and 5 in 2002, consistent with the fact that Italian government officials had publicly cited that score as a benchmark for Italy's corporate reform. See Ulissi, supra note 68, at 2.
236. See Simon Targett, Custodians Are Casting Votes as They Take On a More Active Role, FIN. TIMES (London), July 6, 2001, at 8 (noting that investors are becoming increasingly active in corporate governance).
237. Continental European investors have gradually adopted Anglo-American shareholder activism and expectations themselves. See Sara Calian, Making Union Investment's List Isn't Pleasing to European Firms, WALL ST. J., Feb. 15, 2002, at C10 (reporting the German pension fund Union's use of public shaming to pressure underperforming companies); Evans, supra note 115 (reporting shareholder activism to improve voting rights and broader governance by ABP and PGGM in the Netherlands, Caisse des Dépôts et Consignations in France, and DWS, Union, and SEB in Germany);
238. Paula Garrido, Shareholders Want Their Voices Heard, FIN. TIMES MANDATE (London), Mar. 8, 2004 (describing the European Corporate Governance Service, an umbrella organization that comprises eight regional corporate governance organizations representing France, Germany, Italy, the Netherlands, Switzerland, the United Kingdom, and the Nordic Region);
239. Sylvia Pfeifer, Shell Investors Demand Royal Dutch Meeting, SUNDAY TELEGRAPH (London), Mar. 28, 2004, at 2 (reporting that institutional investors from the United States, the United Kingdom, and Germany requested a meeting with the chairman of Royal Dutch to discuss accounting irregularities).
240. Cf. Michael Klausner, Corporations, Corporate Law, and Networks of Contracts, 81 VA. L. REV. 757, 841-47 (1995) (arguing that Delaware's dominance in attracting corporations persists in part because of the presence of network externalities arising from legal precedents and services).
241. Compare Kahan & Kamar, supra note 138, at 1251 tbl.3 (reporting that 229,249 companies paid franchise tax in Delaware in 1999), with U.S. CENSUS BUREAU, STATISTICAL ABSTRACT OF THE UNITED STATES: 2002, at 471, http://www.census.gov/prod/2003pubs/02statab/business.pdf (reporting that 4,936,000 companies filed tax returns in the United States in 1999).
242. See Robert Daines, Does Delaware Law Improve Firm Value?, 62 J. FIN. ECON. 525, 526-27 (2001) (noting that public companies that incorporate in Delaware tend to have higher total assets than companies that incorporate in other states).
243. See Bebchuk & Roe, supra note 8, at 143-47 (arguing that entrenched participants in firms may block even efficient structural changes if these changes would harm them). Not all firms will be deadlocked by such divergence of interests because some could buy the consent of the participant blocking the reincorporation. See Hansmann & Kraakman, supra note 9, at 460-64. Time will tell how many firms will fall under this category.
244. See Hickok & Schürrle, supra note 16; Latham & Watkins, Inspire Art: New Opportunities for Corporate and Private Equity Structuring (2004) (client memorandum), http://www.lw.com/resource/Publications/_pdf/ pub931_1.pdf.
245. Both existing and proposed European Union legislation protects vested rights of creditors and employees of companies that merge with foreign companies or reincorporate abroad. See Directive 2005/56/EC of the European Parliament and of the Council of 25 November 2005 on Cross-Border Mergers of Limited Liability Companies, arts. 4, 16, O.J. (L 310) 1 (EC); Council Regulation 2157/2001, arts. 8(7), 24(1), 34, 2001 O.J. (L 294) 5, 8, 11 (EC); Council Directive 2001/86, art. 7, 2001 O.J. (L 294) 27 (EC); Company Law: Commission Consults on the Cross Border Transfer of Companies' Registered Offices, IP/04/270, available at http://ec.europa.eu/internal_market/company/seat- transfer/index_en.htm (follow "Press release" hyperlink) [hereinafter Reincorporation Consultation].
246. The Sarbanes-Oxley Act of 2002, which has been criticized in the United States on these grounds, is commonly viewed as the main reason for the decline in the popularity of American stock listing among foreign issuers. See Silvia Ascarelli, Citing Sarbanes, Foreign Companies Flee U.S. Exchanges, WALL ST. J., Sept. 20, 2004, at C1;
247. Craig Karmin & Kate Kelly, For Stock Listings, the U.S. Pull Gets Weaker, WALL ST. J., Nov. 12, 2002, at C1;
248. Andrew Parker & Tony Tassell, Rank Could Look at US Delisting, FIN. TIMES (London), Dec. 1, 2004, at 19;
249. Bob Sherwood, Long Arm of the US Regulator, FIN. TIMES (London), Mar. 10, 2005, at 14.
250. See U.S. CENSUS BUREAU, STATISTICAL ABSTRACT OF THE UNITED STATES, 2004-2005, at 21, available at http://www.census.gov/prod/www/statistical- abstract-2001_2005.html (ranking Delaware as the sixth smallest jurisdiction in population); id. at 213 (ranking Delaware as the third smallest jurisdiction in area); id. at 428 (ranking Delaware as the ninth smallest jurisdiction in gross state product).
251. See Kahan & Kamar, supra note 138, at 1251.
252. See N.Y. Bus. CORP. LAW § 630(a) (McKinney 2003) ("The ten largest shareholders . . . shall jointly and severally be personally liable for all debts, wages, and salaries due . . . .").
253. See Frederick Attea, State Has Hard Time Following a Lead, Bus. FIRST OF BUFFALO, Apr. 17, 2000, at 30 (noting that shareholder liability for wages and salaries is the main reason why many New York businesses incorporate in Delaware);
254. Michael M. Membrado & Christopher J. Gulotta, Navigating the Formation of Start-Up Companies, N.Y. L.J., Sept. 18, 2000, at S6 (same).
255. For the argument that countries can benefit from allowing local firms to piggyback more developed markets and corporate law abroad, see Bernard S. Black & Ronald J. Gilson, Venture Capital and the Structure of Capital Markets: Banks versus Stock Markets, 47 J. FIN. ECON. 243, 273 (1998);
256. Edward B. Rock, Greenhorns, Yankees, and Cosmopolitans: Venture Capital, IPOs, Foreign Firms, and U.S. Markets, 2 THEORETICAL INQUIRIES L. 711, 712 (2001).
257. See generally Deeg, supra note 32.
258. See Fred Kapner, An Emerging Generation of Business Leaders Is Promising to Sweep Away Secrecy and Cronyism, FIN. TIMES (London), Apr. 7, 2003, at 19. The internalization of shareholder values by corporate managers, even if widespread, does not obviate the need for corporate law because the law helps managers to commit to these values.
259. See Mediobanca on the Back Foot, THE ECONOMIST, June 23, 2001, at 70 (stating that "international investment banks, and not the Italian banking aristocracy, now dominate business in Italy").
260. See Heather O'Brien, IntesaBCI, Lazard Link in Italy, DAILY DEAL, Sept. 10, 2002.
261. See Deeg, supra note 32, at 188.
262. See supra note 23.
263. See John W Cioffi, Building Finance Capitalism: The Regulatory Politics of Corporate Governance Reform in the United States and Germany, in THE STATE AFTER STATISM: NEW STATE ACTIVITIES IN THE AGE OF LIBERALIZATION (Jonah D. Levy ed., forthcoming 2006) (describing the growing acceptance in the 1990s of shareholder primacy by managers of corporations with global operations, such as Daimler-Benz and Siemens).
264. See John C. Cioffi & Martin Höpner, Left-Wing Support for Shareholder Capitalism?, 51 DIE MITBESTIMMUNG 58 (2005).
265. For a recent account of the persistence of old traditions in German corporate boards, see Patrick Jenkins, The Clubby World of German Business Refuses to Accept New Membership Rules, FIN. TIMES (London), Aug. 28, 2004, at 20 (reporting that "corporate governance reformers are failing in Germany").
266. See supra Part III.A.3.
267. See Kahan & Kamar, supra note 1, at 688-90.
268. See supra note 5.
269. See supra note 6 (describing landmark cases in which the European Court of Justice required member states to recognize companies incorporated abroad).
270. See Case 79/85, D.H.M. Segers v. Bestuur van de Bedrijfsvereniging voor Bank- en Verzekeringswezen, Groothandel en Vrije Beroepen, 1986 E.C.R. 2375. A subsequent decision upholding British restrictions on the relocation to the Netherlands of the corporate headquarters of a company incorporated and headquartered in the United Kingdom caused temporary uncertainty about the direction that the court was taking. See Case 81/87, The Queen v. H.M. Treasury & Comm'rs of Inland Revenue ex parte Daily Mail & General Trust PLC, 1988 E.C.R. 5483.
271. See Case C-212/97, Centros Ltd. v. Erhvervs- og Selskabsstyrelsen, 1999 E.C.R. I-1459.
272. See Case C-208/00, Überseering BV v. Nordic Constr. Co. Baumanagement GmbH (NCC), 2002 E.C.R. I-9919.
273. See Case C-167/01, Kamer van Koophandel en Fabrieken voor Amsterdam v. Inspire Art Ltd., 2003 E.C.R. I-10155.
274. See supra note 5.
275. See ROMANO, supra note 104, at 37-44; Klausner, supra note 160, at 841-47.
276. See Reincorporation Consultation, supra note 165.
277. See supra notes 169-70 and accompanying text.
278. An important exception is Henry N. Butler, Nineteenth-Century Jurisdictional Competition in the Granting of Corporate Privileges, 14 J. LEGAL STUD. 129 (1985). This Part draws on that article and the sources cited in it.
279. See ROMANO, supra note 104, at 42-43; Christopher Grandy, New Jersey Corporate Chartermongering, 1875-1929,49 J. ECON. HIST. 677, 685 (1989);
280. William E. Kirk, in, A Case Study in Legislative Opportunism: How Delaware Used the Federal-State System to Attain Corporate Pre-Eminence, 10 J. CORP. L. 233, 246-58 (1984);
281. Joel Seligman, A Brief History of Delaware's General Corporation Law of 1899, 1 DEL. J. CORP. L. 249, 265-76 (1976).
282. See Romano, supra note 104, at 42-43; Grandy, supra note 194, at 688-91.
283. See Edwin Merrick Dodd, AMERICAN BUSINESS CORPORATIONS UNTIL 1860 WITH SPECIAL REFERENCE TO MASSACHUSETTS 179, 400 n.29 (1954).
284. See Butler, supra note 193, at 154 (arguing that technological innovation overcame distance barriers to out-of-state incorporation); see also GEORGE R. TAYLOR, THE TRANSPORTATION REVOLUTION, 1815-1860 (1962);
285. Richard B. Du Boff, Business Demand and the Development of the Telegraph in the United States, 1844-1860, 54 Bus. HIST. REV. 459 (1980).
286. See DODD, supra note 196, at 178-80; Edward Q. Keasbey, New Jersey and the Great Corporations, 13 HARV. L. REV. 198, 204 (1899);
287. Harold W. Stoke, Economic Influences upon the Corporation Laws of New Jersey, 38 J. POL. ECON. 551, 562 (1930). The Central American Transit Company, for example, secured a New Jersey charter on condition that its principal depot was in Jersey City. See An Act to Recognize and Authorize the Organization of, and to Incorporate the Central American Transit Company § 2, ch. 187, 1862 N.J. Laws 328, 329-30. This stipulation was required under a general law from 1849. See An Act to Authorize the Establishment, and to Prescribe the Duties of Companies for Manufacturing and Other Purposes, 1849 N.J. Laws 300.
288. The watershed decision requiring states to allow foreign corporations to do inter-state business was Paul v. Virginia, 75 U.S. (8 Wall.) 168 (1869). See HARRY G. HENN, HANDBOOK OF THE LAW OF CORPORATIONS AND OTHER BUSINESS ENTERPRISES 19 (2d ed. 1970) (describing the effect of the decision);
289. see also GERARD CARL HENDERSON, THE POSITION OF FOREIGN CORPORATIONS IN AMERICAN CONSTITUTIONAL LAW 116 (1918) (same).
290. See JOHN W. CADMAN, JR., THE CORPORATION IN NEW JERSEY: BUSINESS AND POLITICS, 1791-1875, at 18-23, 35, 422-23 (1949) (attributing New Jersey's enactment of a general incorporation law for manufacturing companies in 1816, duplicating New York's law of 1811, to the intention "to encourage manufacturing in the midst of depression as the New York legislators had seemingly hoped to encourage it in anticipation of war").
291. See DODD, supra note 196, at 378-81; CAROLINE F. WARE, THE EARLY NEW ENGLAND COTTON MANUFACTURE: A STUDY IN INDUSTRIAL BEGINNINGS 148 (1931). Proponents of limited liability claimed a hundred years later that limited liability was essential for attracting capital to California. The claim was no longer credible, however, given the freedom to incorporate California businesses in another state and the fact that the proponents were lawyers who stood to lose clients as a result of such incorporations, rather than industrialists.
292. See Mark I. Weinstein, Limited Liability in California 1928-31: It's the Lawyers, 7 AM. L. & ECON. REV. 439, 452-54 (2005).
293. See CADMAN, supra note 200, at 36-38, 174-77, 440 (discussing the efforts of lawmakers to attract business by encouraging incorporation); Stoke, supra note 198, at 553-55 (noting a trend of liberality).
294. See Message to the Senate and House of Representatives of the Commonwealth of Massachusetts (June 6, 1826), in 1826 Mass. Resolves 377, 383-84.
295. See An Act in Addition to the Several Acts Respecting the General Powers and Duties of manufacturing Corporations (Mar. 10, 1827), Mass. Laws, May Sess. 1825-Mar. Sess. 1828, ch. 137, p. 547.
296. See WARE, supra note 201, at 91-92.
297. Petition of Friends of American Industry and Home Manufactures to the Honorable Senate and House of Representatives in General Court Assembled, November 1829 (on file at the Commonwealth of Massachusetts Archives, in the bill jacket for Acts of 1830, ch. 103); see also WARE, supra note 201, at 148 (discussing the petition); DODD, supra note 196, at 378 (same).
298. See Corporations, 4 AM. JURIST 298, 307 (1830).
299. Manufacturing Corporations, 2 AM. JURIST 92, 104 (1829).
300. See Message to the Senate and House of Representatives of the Commonwealth of Massachusetts (Jan. 6, 1830), in 1830 Mass. Resolves 212, 228-30.
301. See An Act Defining the General Powers and Duties of Manufacturing Corporations, Mass. Laws, May Sess. 1828-Mar. Sess. 1831, ch. 53, p. 325.
302. See DODD, supra note 196, at 380-81.
303. See Legislature of New Jersey, NEWARK DAILY ADVERTISER, Jan. 29, 1847, at 2 col.5.
304. See Proceedings of the Legislature, NEWARK DAILY ADVERTISER, Feb. 3, 1864, at 2 col.7.
305. See Inaugural Proceedings and Address of His Excellency, Theodore F. Randolph, 25th New Jersey Cong. 185-86 (1869) (statement of Gov. Randolph).
306. See CADMAN, supra note 200, at 37, 177.
307. See 2 PROCEEDINGS AND DEBATES OF THE CONSTITUTIONAL CONVENTION OF THE STATE OF NEW YORK, HELD IN 1867 AND 1868, IN THE CITY OF ALBANY 1075 (1868).
308. See generally Tomotaka Fujita, Modernising Japanese Corporate Law: Ongoing Corporate Law Reform in Japan, 16 SING. ACAD. L.J. 321 (2004);
309. Ronald J. Gilson & Curtis J. Milhaupt, Choice as Regulatory Reform: The Case of Japanese Corporate Governance, 53 AM. J. COMP. L. 343 (2005);
310. Curtis J. Milhaupt, A Lost Decade for Japanese Corporate Governance Reform?: What Has Changed, What Hasn't, and Why, in INSTITUTIONAL CHANGE IN JAPAN (Magnus Blomström & Sumner J. La Croix eds., forthcoming 2006);
311. Takaya Seki, Legal Reform and Shareholder Activism by Institutional Investors in Japan, 13 CORP. GOV. 377 (2005).
312. See Gilson & Milhaupt, supra note 217, at 357, 363 (reporting that foreign ownership and financial distress is common to the firms that have adopted an optional governance structure introduced in 2002).
313. See ROMANO, supra note 104, at 59; Carney, supra note 154, at 754-55; Kahan & Kamar, supra note 1, at 740.