On September 27, President Trump, the House Committee on Ways and Means and the Senate Committee on Finance released their framework for tax reform (the “framework”), which represents the most detailed proposal for changes to the tax code issued during the Trump administration. The framework’s key elements include:
- a reduction in corporate tax rates to 20% and partial limitation on the deductibility of interest for corporate taxpayers;
- a shift to a modified “territorial” regime of corporate taxation that eliminates tax on dividends from foreign subsidiaries but subjects all foreign earnings to current taxation at a minimum rate to be determined;
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In the last two decades, anti-corruption has become a global norm, as the OECD and the United Nations have made clear in adopting anti-corruption conventions. As a result, combatting corruption in international business has joined upholding human and labor rights and protecting the environment as major aims of corporate social responsibility. Currently, however, anti-corruption responsibilities only require corporations to think about avoiding direct involvement in a corrupt transaction. In an article forthcoming in the Wisconsin Law Review, I argue that corporations’ responsibility to combat corruption extends beyond a duty to avoid paying bribes and requires corporations to fight corruption … Read more
On September 13, 2017, the European Commission issued a proposed Regulation establishing a framework for screening foreign investments into the European Union. The Commission also issued an explanatory memorandum and a communication to the European Parliament and other relevant EU bodies providing background about the proposed Regulation and suggesting a number of complementary measures.
The Regulation, if adopted in its proposed form, would authorize (not require) EU member states to maintain mechanisms to screen foreign direct investments on the grounds of security or public order, and would also authorize the Commission itself to screen foreign direct investments that … Read more
The degree to which business participants ought to be free to limit or eliminate fiduciary duties and associated liabilities remains a hotly contested matter in many jurisdictions. In a new chapter forthcoming in Edward Elgar’s Research Handbook on Fiduciary Law, I explore the extent of contractual freedom to opt out of the fiduciary governance paradigm in U.S. and U.K. business entities, including the U.S. corporation, general partnership, limited partnership, limited liability partnership, and limited liability company, and the U.K. limited company, general partnership, limited partnership, and limited liability partnership. I then consider potential explanations for observed divergences between two … Read more
Throughout the 1990s, the Big 5 accounting firms made a concerted effort to enter the legal services market. By the close of the twentieth century, legal networks directly owned or closely affiliated with the Big 5 were major players in many markets around the world, and were threatening to enter those like the United States from which they were still barred. However, after the wave of accounting scandals arising out of the 2001 financial crises—scandals that brought down Arthur Andersen and ushered in regulatory reforms in the United States and other major economies that appeared to place severe restrictions on … Read more
On July 27 of this year, Andrew Bailey, chief executive of the UK Financial Conduct Authority (FCA), delivered a speech in which he questioned the sustainability of the London Interbank Offered Rate (LIBOR) in its current form. The FCA has regulated LIBOR since April 2013 and while significant improvements have been made to LIBOR during that time, the continuing decline in liquidity in interbank unsecured funding markets has undermined confidence in the reliability of LIBOR. The message, in essence, is that the underlying market is not robust enough to allow the determination of LIBOR to be based on actual transactions. … Read more
On 29 August 2017, the UK Government published its response to the green paper on corporate governance reform that it issued at the end of November 2016. It intends to implement its reform proposals — so that they apply to accounting periods starting after June 2018 — by a mixture of secondary legislation and changes to the UK Corporate Governance Code (the “Governance Code”) coupled with the preparation of new guidance and certain other initiatives in related areas. Except for foreign premium-listed companies which may be affected by the Governance Code changes, the reforms (including the CEO pay ratio reporting) … Read more
Since the June 8 election in Britain, which saw the Prime Minister lose her majority in Parliament, there has been much speculation as to whether the British government would continue down the road of a “hard” Brexit or would move to a softer version of the “no deal is better than a bad deal” position that dominated the headlines for much of the spring. In the past few weeks, while continental Europe focused on other issues and vacations, the political class and the media in Britain were left to read between the lines as competing visions of Brexit, with a … Read more
On Wednesday, August 2, 2017, President Donald Trump signed into law the Countering America’s Adversaries Through Sanctions Act (the Act). The Act significantly expands and codifies US sanctions targeting Russia, and it adds several measures to the already comprehensive US sanctions on Iran and North Korea. The Act passed both houses of Congress last week, with a vote of 419-3 in the House of Representatives and 98-2 in the Senate.
The Act is particularly significant because it codifies many of the Russia-related sanctions measures introduced by President Obama through executive orders, effectively requiring President Trump to secure Congressional approval before … Read more
The May 2017 WannaCry ransomware attack affected more than 200,000 computers spread across 150 nations. The results of the attack made clear that computers whose software is not up to date can hurt not only the computers’ owners, but ultimately the larger internet ecosystem. This fact was brought into harsh relief a month later, when perpetrators of the NotPetya attack used the same vulnerability as WannaCry.
Spurred on by such attacks, more firms are viewing cybersecurity as essential to corporate social responsibility (CSR). Some contend that cybersecurity promotes human rights, on and offline, by protecting privacy, free expression, and the … Read more
Brexit has set the stage for a retaliatory trade war that neither the U.K. nor the E.U. wants and that will injure consumers (and others) on both sides. Moreover, it could threaten the U.S. as well, if it leads the U.K. to relax its financial regulatory requirements and return to its former “regulatory-lite” policies in order to compete more effectively (and thereby lead a regulatory race to the bottom).
In a paper just posted on SSRN (available here) that I deliver at the University of Paris/Sorbonne in two weeks, I analyze how trade wars begin and play out, applying … Read more
Although a bedrock of the financial markets for over 30 years, LIBOR has been under pressure ever since the Wheatley Review, and a speech given by Andrew Bailey, Chief Executive of the UK’s Financial Conduct Authority (FCA) on July 27th heralds its potential demise. Market participants need to prepare for the possible transition away from LIBOR by the end of 2021. This briefing explains why and assesses the practical and documentary implications for the US market.
- UK regulatory support for LIBOR is likely to be withdrawn by the end of 2021.
- The development of suitable alternatives for
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Following the recommendations of the Basel Committee on Banking Supervision, most financial systems around the world have imposed new capital requirements for banks in recent years. These moves seem to be justified on two powerful economic grounds. First, better capitalized banks promote financial stability by reducing banks’ incentives to take risks and increasing banks’ buffers against losses. Second, lack of compliance with a set of rules established by an internationally recognized institution such as the Basel Committee may harm confidence in a country´s financial system.
In a recent paper (available here), however, we argue that the implementation of Basel … Read more
It has been well documented that in the U.S. and other countries with developed stock markets, sound public disclosure practices strengthen the reputation and credibility of firms. However, it’s unclear whether good disclosure practices are also beneficial in emerging markets that have weak systems of financial controls. Does disclosure build investor confidence? If so, are public disclosures the most effective way to disseminate information?
In my paper, “Catering through Disclosure: Evidence from Shanghai-Hong Kong Connect,” I use China to explore these questions and find that, although firms operating in developing markets use disclosure to boost investor confidence, it … Read more
With trillions of dollars in assets, sovereign wealth funds (SWFs) play a major role in financial markets around the world. With billions (and perhaps trillions) of dollars’ worth of equity investments around the world, the investment behavior of SWFs is of primary concern to regulators, portfolio firms, and other investors. Most work on SWF equity investments has focused on the challenges that SWFs present to regulators, portfolio companies, or their own domestic constituencies. In a forthcoming essay, I seek to provide a realistic appraisal of the benefits and potential costs of SWF investment for other investors.
As numerous scholars have … Read more
The corporate governance literature has shown a strong link between good governance practices and firm value. The mechanisms, however, that determine the choice of effective corporate governance and board arrangements in a changing global market are not well studied. In our new working paper “Governance Transfer Through Directors’ Foreign Board Experiences,” we examine one such potential mechanism—whether firms learn about corporate governance and board practices from their directors’ foreign board experiences.
Directors with international board experiences have access to a much larger and more diverse set of governance practices than directors who only sit on domestic firms’ boards. For example, … Read more
The fluidity of labor markets depends on the ease with which one side of the market can fulfill the needs of the other: whether workers can find employment that suits their skills and firms can find adequate substitutes for workers who leave. Today much is known about the worker’s perspective. A large body of empirical literature documents that workers suffer persistent earnings losses after they have been displaced from their job – in line with Becker’s (1962) idea that human capital has firm-specific components (see, e.g., Topel 1991; Jacobson et al. 1993; and Dustmann and Meghir 2005).
The other side … Read more
After a period of public consultation, the European Central Bank (the “ECB”) published its final Guidance on Leveraged Transactions (the “Guidance”) on May 16, 2017. Twenty-four organisations (comprising credit institutions and market associations) commented directly on the ECB’s draft guidance. Most comments focused on ensuring consistency between the ECB’s Guidance and the 2013 Interagency Guidance on Leveraged Lending in the US (the “US Guidance”) and ensuring market viability in Europe. We wrote about potential issues raised by the ECB’s draft guidance in our last briefing; here, we discuss the most relevant changes that made the final … Read more
Tax planning by multinational enterprises (MNEs) is estimated to generate a worldwide loss of corporate tax revenues of between $100 billion and $240 billion. U.S.-based MNEs alone are believed to retain a total of $2 trillion in earnings outside the U.S., largely for tax reasons. Over the last few years, the Organization for Economic Cooperation and Development (OECD) has been trying to come to grips with the tax reduction strategies of MNEs. Its results, presented in the 2015 final reports of BEPS (Base Erosion and Profit Shifting) have disappointed many. That is understandable: Most of the proposals depend on further … Read more
The United States has long offered its domestic industrial base preferential treatment in the Federal government marketplace through laws and regulations requiring agencies to prefer purchase of American-made products and contracts with American companies, and only resort to other sources in circumstances of genuine need. On April 18, 2017, President Trump issued an Executive Order (Order) intended to emphasize and potentially strengthen these policies. The Order, entitled “Buy American and Hire American,” defines “Buy American Laws” as “all statutes, regulations, rules, and Executive Orders relating to Federal procurement or Federal grants”—including those that refer to “Buy America” or “Buy American”—“that … Read more