Luca Enriques

Dual Class Shares in the Age of Common Ownership

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Mark Zuckerberg has virtually all his personal wealth invested in Meta Platforms (formerly Facebook). His incentives as controller of Meta are thus clear: Maximize firm value and private benefits of control, irrespective of the effect that might have on other firms. Meanwhile, BlackRock manages $10 trillion invested in thousands of corporations. Its incentives are equally clear: Maximize the value of its portfolio, irrespective of what happens to any given firm therein. Modern day corporations are thus dominated by two kinds of shareholders with drastically different objectives: Firm value maximizing (FVM) shareholders à la Zuckerberg and portfolio value maximizing (PVM) shareholders … Read more

Why Corporate America Should Pay Attention to the Proposed EU Directive on Corporate Sustainability Due Diligence

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On February 23, 2022, the European Commission issued its long-awaited proposal for a Directive on Corporate Sustainability Due Diligence (the Proposed Directive). Under the Proposed Directive, large companies operating in the EU market must identify, prevent, and mitigate any actual or potential adverse human rights and environmental impact in their own operations, in their subsidiaries, and at the level of their established direct or indirect business relationships in their value chain. Adverse human rights and environmental impacts are keyed to violations of a long list of human rights and environmental obligations laid out in international conventions and declarations, irrespective of … Read more

Mandatory Corporate Climate Disclosures: Now, but How?

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Climate change is one of today’s most salient policy challenges. Under the Paris Agreement, 195 governments agreed to limit temperature increases to well below 2, preferably 1.5, degrees centigrade relative to pre-industrial levels. Since the magnitude of global warming is roughly proportional to the amount of carbon in the atmosphere, the agreement in effect specified a “carbon budget.” To stay within that budget, emission reductions equivalent to what was forced upon us by the worst pandemic in 100 years need to occur every two years throughout the 2020s and beyond. Clearly, just “doing less” is not going to cut it … Read more

Rewiring Corporate Law for an Interconnected World

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The traditional view of corporate law can be summarized as follows. Shareholders have a single well-defined objective, namely “to maximize the net present value of the firm’s earnings per dollar invested” (Hansmann, 283). Managing companies in the interest of shareholders that aim at maximizing the net present value of their firm leads to a higher level of social welfare than any realistically available alternative. Within that framework, the goal of corporate law is straightforward: aligning managers’ preferences to those of shareholders.

In a recent paper of ours, we show that this view is premised on two assumptions that … Read more

Bank-Fintech Partnerships, Outsourcing Arrangements, and the Case for a Mentorship Regime

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Fintech firms, once perceived as disruptors of the traditional banking industry, are now increasingly seen as attractive partners for established financial institutions. Partnership arrangements between banks and new financial technology startups have therefore mushroomed over the last several years. Such partnership agreements, which come in different forms and contexts, are usually advantageous for both sides: Banks may ordinarily suffer from legacy issues and cumbersome internal processes, and therefore benefit from fintech firms’ superior technology to develop new business ideas. At the same time, a bank’s broad customer base may allow a startup to benefit at an earlier stage from economies … Read more

Extreme Times, Extreme Measures: Pandemic-Resistant Corporate Law

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These are exceptional times, and policymakers are taking exceptional measures in public health, public finance, monetary policy, and public law. Among the latter, of great relevance to corporate governance are the rules broadening governments’ powers to authorize large share block purchases (e.g., in Germany and Italy). Even stronger proposals are being aired, and in some cases adopted, to inject public funds into companies in exchange for equity (Germany), if not to nationalize businesses altogether (France).

But some incursions into private law have also been made. This is especially true with regard to insolvency (or bankruptcy) … Read more

Corporate Technologies and the Fallacy of Tech Nirvana

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Time and time again, corporate scandals remind us of the importance of the mechanisms aimed to ensure that agents within corporations perform their tasks and duties in line with the long-term interests of their shareholders (and other stakeholders, as the case may be), rather than pursuing their immediate self-interest. This prompts the question we seek to answer in a working paper accepted for publication in the Hastings Law Journal: If laws, best practices, ethical standards, and market pressures have so far been unable to tackle this core corporate governance challenge, can technology – more precisely algorithms and data-driven machines … Read more

COVID-19: A Global Moratorium for Corporate Bonds

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The alarming prospect of widespread defaults by viable firms caused by the COVID-19 pandemic has prompted various proposals for financial assistance from states. But firms might face financial distress before these measures become effective. Smaller firms with concentrated debt may be able to informally negotiate an extension of maturity with their lenders. Debtors with bonds outstanding may not be able to arrange workouts so easily. What they need is a novel form of relief.

More than half of European corporate bond issues are governed by UK or U.S. law. We suggest that emergency legislation be introduced to extend the maturity … Read more

Why Stock Markets Are Essential at the Time of Coronavirus

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If stocks were still traded in pits, stock exchanges would have been shut down in China, Korea, Italy and possibly elsewhere a while ago. A bunch of men shouting and feverishly passing each other sheets of papers would have spread coronavirus faster than the now infamous Korean sect.

But stock exchange trading was automated everywhere long ago, including at the Borsa Italiana in Milan. Nowadays, the only virus that can be transmitted by trading shares is panic selling. Is that an even better reason for shutting down stock markets, as some high-profile Italians politicians, including former Prime Minister … Read more

Welcome to Vilnius: Regulatory Competition in the EU Market for E-Money

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If you google “Lithuania e-money,” the auto-fill function will suggest that you search for ”Lithuania e-money license.” If you accept the tip, the first result will be Ecovis, which describes itself as “the most experienced finance institution and FinTech licensing advisor” for Lithuanian licenses. The second Google result is SB-SB Legal Services, which has a more global reach and boasts of being “capable of proposing a wide choice of countries suitable for the registration of payment systems. We offer electronic money licenses in European countries, including Lithuania, Malta, Czech Republic, Cyprus, Estonia, Bulgaria, Switzerland, Great Britain and Gibraltar,” in addition … Read more

Network-Sensitive Financial Regulation

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Shocks to only part of the financial system, such as the collapse of the subprime mortgage market in 2007, can spread and intensify through the complex interconnections among financial and non-financial institutions to become systemic threats. The consequences can be catastrophic, prompting economists and regulators to study and find ways to curtail such threats by using network theory. Legal scholars, however, have so far largely overlooked that approach, as have policymakers. Most financial regulation remains atomistic, in that it fails to account for the fact that each individual is part of, and plays a role in, a wider network.

In … Read more

Institutional Investor Voting Behavior: A Network Theory Perspective

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It is received wisdom that institutional investors have insufficient incentives to cast informed votes because they compete on relative performance. If BlackRock invests in the monitoring of one of its portfolio companies, it will become relatively less competitive vis-à-vis the other institutional investors that hold shares in that company. In fact, other institutions would reap roughly the same benefits as BlackRock from its monitoring effort, without incurring any cost. Yet, there is evidence that institutional investors, whether actively or passively managed, no longer rubberstamp any proposal managers put to a vote. While that is not, in itself, evidence that institutional … Read more

Financial Supervisors and RegTech: Four Roles and Four Challenges

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Financial institutions and their regulators have long been early adopters of new information technologies (IT). In a short essay based on two posts for the Oxford Business Law Blog (available here and here), I first identify four uses of regulatory technology, or RegTech, and then describe four roles for financial regulators in RegTech, and the challenges they face.

The various ways that regulators and policymakers use forms of IT such as data scraping tools, big data analysis, artificial intelligence, and machine learning algorithms can be divided into four categories. The first is Operations RegTech, which targets illegal behavior, such … Read more

Investor Choice in Global Markets for Securities

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In a recent paper, we explore how globalization has affected the operation of securities markets and the challenges this poses for their regulation. The paper is part of the first phase of the New Special Study of the Securities Markets Project.

Securities markets have experienced unprecedented levels of cross-border activity over the past 30 years. Three secular trends have contributed to this phenomenon of globalization. First, liberalization: the removal of national foreign exchange controls and barriers to trade and investment. Second, the growth of collective investment, encouraged by favorable tax treatment of retirement saving. This has fostered a shift … Read more

The Promise and Perils of Crowdfunding

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In the last few years, a source of financing for start-ups, known as crowdfunding, has become widely available. It involves raising capital from a large number of individuals, each of whom typically contributes a small sum. The internet has lowered the costs of crowdfunding by facilitating the dissemination of information about small projects, and its use has grown exponentially, with some $34 billion being raised worldwide through crowdfunding in 2015 alone.

While the availability of crowdfunding is clearly good news for entrepreneurs, its merits for those providing the funding are less certain. Because funders typically put only small sums into … Read more