Does the Strength of Investor Protection Laws Predict Capital Market Development?

Which countries provide the strongest investor protection laws? How are such laws related to the level of capital market development and ownership concentration in public companies? In a series of influential works, La Porta, Lopez-de-Silanes, Shleifer and Vishny (1997, 1998, 1999) report that investor protection laws are largely determined by a country’s legal origin, with common law countries generally providing the strongest ones.[1] These scholars also contend that countries with the strongest such laws tend to have the most developed capital markets and the least concentrated ownership of shares in their largest public firms.  Further, the scholars advance a … Read more

Debevoise & Plimpton Discusses Impact of UK Climate-Related Financial Disclosures on Asset Managers

The Financial Conduct Authority recently announced a proposal for a climate-related financial disclosure regime for UK asset managers, as well as life insurers and FCA-regulated pension providers. This is an important step in the United Kingdom’s implementation of a regime that is similar to the European Union’s Sustainability Finance Disclosures Regulation (“SFDR”), although the United Kingdom’s regime for the time being focuses exclusively on climate-related disclosure, whilst the European Union’s regime encompasses environmental, social and governance considerations.

As under the EU regime, the FCA focuses on disclosure, with a view to influencing investors to commit capital to companies and projects … Read more

The Impact of Mandatory Gender Pay Gap Disclosure in the UK

Firms are coming under increasing pressure to close and disclose their gender pay gaps. The pressure stems from several sources, including, (i) socially conscious investors; (ii) interest groups advocating the incorporation of ESG factors into corporate decision-making and stakeholder capitalism more broadly; (iii) influential capital market intermediaries such as index providers; and (iv) regulators. For example, in recent years the U.S. Securities and Exchange Commission (SEC) has implemented new rules requiring firms to make disclosures about human capital and, more generally, has increased its focus on diversity, equity, and inclusion (DEI) initiatives within public companies.[1]

Advocates argue that there … Read more

Skadden Discusses Blowing the Whistle Under EU Law

On October 23, 2019, the European Parliament and the European Council adopted the Whistleblower Protection Directive (Directive) to set a minimum standard for the protections EU member states must provide to whistleblowers.

For the first time, whistleblowers are protected under EU law, but implementation at the member state level has been slow. While 19 of the 27 member states had prepared draft legislation by the one-year anniversary of the Directive coming into force, no member state has implemented the new regime at a national level. A report by Transparency International in March 2021 ranked only the Czech Republic as having … Read more

Davis Polk Discusses New Standard Contractual Clauses for Moving Personal Data Outside the EU

On June 4, 2021, the European Commission (“EC”) released a final working draft, along with its implementing decision, for a new set of Standard Contractual Clauses (“New SCCs”) for the transfer of personal data to countries outside of the European Economic Area (“EEA”) whose laws the EC has determined do not provide an adequate level of data protection.  In this memo we highlight three key developments that contracting parties should be aware of with regard to the New SCCs: (i) the timing for implementation, (ii) the new modular approach and additional use cases covered, … Read more

Cleary Gottlieb Discusses EC’s Corporate Sustainability Reporting Directive

On April 21, 2021, the European Commission published an ambitious new package of “sustainable finance” regulation proposals. By far the most awaited element of this release concerned the Commission’s proposal for the review of the Non-Financial Reporting Directive (“NFRD”) – soon to become the Corporate Sustainability Reporting Directive (“CSRD”).

Under the NFRD, large “public-interest” entities (that is: large listed companies, large credit and insurance institutions, and other entities designated as such by Member States) are currently required to report certain non-financial information as part of their annual management report, largely on a comply-or-explain basis.

The CSRD … Read more

Venezuela: Prospects for Restructuring Sovereign Debt and Rebuilding a National Economy

Venezuela is facing not only a grave humanitarian crisis, but an acute financial and economic one as well–including a massive debt burden.  Moreover, Venezuela is in the throes of an extended political stalemate between the forces aligned with the regime of Nicolás Maduro and those led by opposition leader and so-called “interim” Venezuelan president Juan Guaidó.  However, as long as the Maduro regime remains in power, it seems unlikely that Venezuela will be able to negotiate a restructuring deal with its foreign creditors, due in no small part to certain restrictions provided for in the current U.S. sanctions regime vis-à-vis … Read more

Who Will Regulate Central Bank Digital Currencies?

Though a bit provocative, this headline raises a liminal question on the various projects of Central Bank Digital Currencies (CBDBs): Which  governance will apply to them? Or as Juvenal, the poet in ancient Rome, famously asked, “Who will guard the guards themselves?”[1]

What Is a Central Bank Digital Currency?

A CBDC is the digital form of a country’s fiat currency and, like traditional currency, represents a claim on that country’s government. Instead of printing money, the central bank issues electronic coins backed by the full faith and credit of the government.[2] As a result, for the first time, … Read more

How Open Banking May Affect the Legality of Screen Scraping

Screen scraping – the technique of automatically collecting, parsing, and organizing data from the web – has over the past two decades been used for everything from targeted advertising to price aggregation to academic research. It can, however, be detrimental to the data host and consumer. Scraping is parasitic when it undercuts a website’s revenue by republishing data without requiring users to view supporting advertisements. It can also facilitate copyright infringement or overload the data host’s servers. What’s more, screen scraping can raise privacy concerns for consumers if it collects identifiable information or enables new forms of surveillance. In the … Read more

Debevoise & Plimpton Discusses UK Global Anti-Corruption Sanctions Regime

On April 26, 2021, the United Kingdom implemented a new sanctions regime that allows the UK government to impose asset freezes on public officials and other persons involved in serious corruption. The regime replaces, and expands, the Misappropriation of State Funds sanctions regime that the United Kingdom implemented in January 2021. The restrictions have initially targeted 22 persons from Russia, South Africa, Guatemala, South Sudan and Honduras.

The sanctions regime gives the UK authorities an additional tool in their arsenal, which, along with legislation such as the UK Bribery Act 2010 (“UKBA”) and the Proceeds of Crime Act 2002 (“POCA”), … Read more

A Call for Reflection on Sustainable Corporate Governance

Together with other European Corporate Governance Institute (ECGI) research members, we have recently issued a Call for Reflection on Sustainable Corporate Governance to express our concerns over the risk that new legislation on EU companies’ governance is adopted without properly considering the concerns raised by many academics and interested parties during the consultations that have taken place so far. These concerns, as detailed below, focus on the three misconceptions in the approach of the European Commission and the Study on directors’ duties and sustainable corporate governance it has commissioned: (1) the conflation of two separate issues, namely corporations’ horizons and … Read more

Can Excess CEO Confidence Increase Risk of Corporate Failure?

A recent report by KPMG [1] on the behavior of chief executive officers (CEOs) suggests that 67 percent of UK CEOs trust their intuition over data. The impact of intuition may become problematic if it is driven by biased perception. One of the most common biases among CEOs is overconfidence, a tendency to believe that they are better than they objectively are, particularly in their judgment, ability, and knowledge.

In a recent paper, we investigate whether CEO overconfidence can help explain the probability of corporate failure. Despite extensive research exploring the consequences of managerial overconfidence for corporate policies and outcomes, … Read more

Shearman & Sterling Discusses How UK Banking Is Affecting Global FinTech

In an increasingly virtual world, law and regulation act as a vital safety net for businesses. The nature of that safety net varies, depending on the particular legal jurisdiction where the businesses are located. Global providers in the FinTech arena can be mobile and nimble and must choose their home country for these purposes carefully. The U.K. has leading-edge regulators, world class courts, a liberal regulatory landscape and a predictable legal system, based on the “common law” precedent-based method which is preferred globally. As such, the U.K. is uniquely positioned to develop reliable and trustworthy FinTech services and to build … Read more

Skadden Discusses New EU Merger Regulation Guidance

The new Article 22 EU Merger Regulation (EUMR) Guidance[1] released by the European Commission (EC) enables the EC to review any acquisition, even those that do not qualify for notification under national (or EU) merger control rules.

Summary

  • The new guidance indicates that the EC will actively monitor deal activity to identify transactions that may be candidates for an Article 22 referral. While a formal referral request should be made by a national competition authority (NCA), the EC will “encourage and accept” referrals and may proactively “invite” NCAs to make referrals, even if national merger control thresholds are not met.

Read more

The Shareholder in France and the U.S.: Comparing Corporate Legal Priorities

The fundamental question in the law of business organizations – what is the purpose of the corporation? – contains a related question of constituencies and, therefore, priorities among them: Whom does the corporation serve?  If, for example, the purpose that justifies the existence of the corporation is the maximization of share price, then it follows that the corporation exists to serve the shareholders that are the beneficiaries of share price increases.  The answers to such questions are encoded in the laws governing the decisions of a corporation’s directors and managers and regulating the transactions that allocate the benefits and the … Read more

The Information Mechanism in Corporate Citizenship: Evidence from COVID-19

When governments fail to respond quickly and effectively to a crisis, can companies help address the issue? In a recent article, we explore an important mechanism through which firms can do so as corporate citizens: information transmission within organizations. Specifically, we study whether U.S. firms’ business networks with China and Italy, including trade, executive, and branch-office networks, become information networks that can be used to mitigate the negative impacts of COVID-19.

COVID-19 and measures intended to contain its spread resulted in significant societal change and required governments to take unprecedented measures. Meanwhile, for companies, the pandemic made employee safety a … Read more

Why Some Covid-19 Mitigation Strategies Fail

As the Covid-19 pandemic continues to disrupt the global economy, regulators are struggling to find cost-effective mitigation strategies. The goal of such strategies should be simple: Reduce the spread of the virus, while causing the least amount of damage to people’s everyday lives, including economic activity. Yet, the diverse measures taken by governments only seem to have limited success in achieving that goal. Given that current estimates of the economic damage are tens of trillions of dollars, figuring out why some Covid-19 mitigation strategies still fail should be a top priority. In a new paper, we attempt to do exactly … Read more

How Stricter Disclosure Rules for Private Meetings Affect Stock Price Informativeness and Volatility

Private meetings between management and investors occur worldwide and are generally held at corporate headquarters with invited investors and sell-side analysts (a.k.a., site visits).  Ng and Troianovski (WSJ, 2015) report that U.S. investors pay $1.4 billion a year to securities firms that can arrange face time with executives.  These meetings differ from other management-investor interactions such as investor conferences and analyst or investor days in that they are generally not publicized in advance and their content may never become public unless hosting firms are required to publish the meeting details by regulation.  Since 2009, the Shenzhen Stock Exchange (SZSE) in … Read more

The Myth of Dual Class Shares: Lessons from Asia

Companies with dual class shares have, as the term suggests, two (or more) classes of common stock. One class gives its holders voting power proportionate to their equity shareholdings. The other offers a group of shareholders, normally corporate insiders, weighted voting rights, which allow the insiders to retain control with less than majority ownership of the company.

The recent wave of high-profile technology giants, from Google to Facebook, that have gone public with dual class shares in the U.S. has led to the revival of the use of such share structures. Dual class shares have also gained traction among policymakers … Read more

Gibson Dunn Discusses EU Developments in Corporate Human Rights Due Diligence

The concept of mandatory corporate human rights due diligence is gaining momentum, both within Europe and on the international stage

In this two-part alert, we examine key global legislative developments and proposals on this important topic. In Part One, we look at very recent steps taken by the institutions of the EU towards implementation of legislation at a pan-European level. In Part Two, we will consider developments at a national level within the EU and also look beyond Europe as we discuss the position in APAC, the US and Canada.

Mandatory Corporate Human Rights Due Diligence: EU Developments

What exactly … Read more