Investment expenditure in Europe collapsed in the aftermath of the 2008 global financial crisis. This collapse followed a boom during which the corporate sector borrowed heavily (Gopinath, Kalemli-Ozcan, Karabarbounis, Villegas-Sanchez, 2017). Figures 1 and 2 illustrate the extent of the increase in leverage and the collapse of investment in Europe as compared with the United States. These developments were particularly pronounced in peripheral European economies.
In a new paper (Kalemli-Özcan, Laeven, Moreno, 2018), we investigate whether the corporate debt accumulated during the boom years held back investment by non-financial corporations after the crisis. Specifically, we consider whether high levels of … Read more
On March 15, 2019, China’s top legislature, the National People’s Congress, passed the long-anticipated new Foreign Investment Law (the “FIL”). Promulgation of this legislation is widely held to have been accelerated in response to changes in China’s economic conditions, in particular cross-border trade tensions and increasing pressure on China’s domestic economy in recent years.
The FIL, which will become effective on January 1, 2020, will replace the primary laws that have been governing foreign-invested enterprises (“FIEs”) in China for the last four decades: the Sino-foreign Equity Joint Venture Law, the Sino-foreign Cooperative Joint Venture Law and the Foreign Enterprise Law … Read more
March 29 was meant to be Brexit Day, marking the UK’s departure from the EU. Instead, it was yet another day of Brexit high drama as Prime Minister Theresa May’s Brexit deal was voted down for a third time, leaving the possibility of (i) the UK leaving the EU on April 12 in a “no deal” scenario or (ii) the EU granting a long Brexit delay (with conditions attached).
Third Time Unlucky. In a turn of events that treaded that delicate line between tragedy and comedy:
- DUP: The DUP (Northern Ireland’s Democratic Unionist Party) voted against the proposed Brexit
… Read more
Employee participation in corporate decision-making is a trending issue for politicians on both sides of the pond. In the U.S. and the UK, politicians and the popular press are debating whether assigning board seats to workers by law could be transferred to their corporate governance systems. In August 2018, U.S. Senator Elizabeth Warren proposed legislation requiring 40 percent of the board of directors of any large American corporation be selected by the company’s employees. Similarly, UK Prime Minister Theresa May proposed renewing the British corporate governance system and mandating UK corporations include employee representatives on all British company boards.
The … Read more
More Brexit chaos unfolded last week as the UK Parliament voted (1) for a second time to reject Theresa May’s Brexit deal, (2) to reject a no-deal Brexit and (3) in favor of Brexit delay. Yet these actions seem to have accomplished very little: A third vote on May’s Brexit deal is looming – perhaps as early as Tuesday –a no-deal Brexit is technically still on the table, and whether Brexit gets delayed is now up to the EU. With each attempt to clarify the UK’s Brexit strategy, the same options (deal, no-deal, delay) keep bouncing back to Parliament, as … Read more
On February 21, 2019, the U.K. Competition and Markets Authority (CMA), at the U.K. government’s request, set out “wide-ranging and radical” proposals to reshape U.K. competition enforcement and consumer protection regime.1
These are proposals at the very earliest stage, and they remain far from becoming government policy. Still, the CMA has been vocal in positioning itself as a consumer champion and ties this effort to its role within a post-Brexit U.K. Some of these proposals may therefore have traction. If enacted, they would represent a step change in U.K. antitrust enforcement.
The proposals mark a significant intensification of … Read more
In a forthcoming paper in Arizona State Law Journal, I argue two main points regarding Deferred Prosecution Agreements (DPAs) negotiated between federal prosecutors and corporations accused of misconduct: First, since the recent appellate court ruling in United States v. Fokker Services B.V. (which narrowly circumscribes a court’s role in reviewing and approving DPAs), cases have begun to arise in which district courts express strong misgivings about having to approve DPAs they would otherwise reject as overly-lenient. Second, numerous countries around the world—including Australia, Canada, France, Ireland, Singapore, and the United Kingdom—appear to be rejecting U.S.-style corporate DPAs as … Read more
The countdown to Brexit on March 29 brings new twists and turns every day. On Wednesday, the UK’s House of Commons voted on amendments to the Brexit process, establishing a March timetable for decisions on whether to seek a deal, no deal, or delay, while dangling the possibility of a second referendum. In light of these developments, and with apologies to U.S. college basketball’s championship tournament, here is a brief guide to the “Final Four” Brexit options.
A Brexit Deal: The only Brexit deal on the table is a UK-EU negotiated Withdrawal Agreement and Political Declaration, which proposes an orderly … Read more
European private equity fund managers are well aware that demonstrating a commitment to responsible investment is becoming an essential component of a smooth and successful fundraising. Regulation is only one of the drivers for that change, but it is an increasingly significant one, and two recent developments are characteristic of the changing regulatory landscape. They also highlight an opportunity for private equity fund managers – many of whom are already focused on ESG (“environmental, social and governance”) considerations when making and managing portfolio investments.
The first development comes from the UK’s Financial Reporting Council (FRC), a body that regulates accountants … Read more
In a long-awaited but widely-expected development, the UK Financial Conduct Authority (“FCA”) has issued a new consultation paper proposing that Heads of Legal do not need to be designated as Senior Managers under the Senior Managers Regime (“SMR”). Ever since the introduction of SMR in 2016, the FCA has delayed formally confirming whether heads of legal should be allocated the SMF18 role (Other Overall Responsibility Function).
The FCA came to its position in light of the potential difficulties created by legal professional privilege. A fundamental principle of the SMR is that if a firm breaches a FCA requirement, the … Read more
In recent decades, economies have become bound together through globalization, a phenomenon that integrates societies and creates business opportunities but also challenges tax policies. The amount of taxes corporations pay is a heatedly debated topic among policy makers, academics, and the media. An article in the Financial Times (Toplensky, 2018), for example, argues that multinational enterprises (MNEs) are paying significantly lower taxes now than they did prior the financial crisis. An important way MNEs reduce their taxes is to move profits from the countries where they’re based to countries where tax rates are lower, a practice commonly referred to as … Read more
The General Data Protection Regulation (GDPR) has been in effect since May 2018. Although the French data protection authority (CNIL) has imposed the highest fine to date — €50 million on 21 January 2019 — German federal data protection authorities have already imposed fines for GDPR infringements in 41 cases nationwide and say that they have “very many” additional fine proceedings in progress. This first wave of fines has come from five German authorities, with 11 authorities having not yet imposed any fines under the GDPR.
Under the former German data protection law, companies faced a maximum penalty of €300,000 … Read more
When it was enacted in August 2018, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) overhauled the US law governing CFIUS national security reviews for the first time in 11 years. Many of FIRRMA’s most significant changes, however, await implementing regulations or other action by the Trump Administration before going into force, a process that likely has been stalled due to the US Government shutdown. This CFIUS update focuses on what has been done to date.
In October 2018 regulations, CFIUS took the first step in implementing some of those FIRRMA provisions that were not effective immediately on … Read more
A key policy of UK financial regulation since the financial crisis has been the ring-fencing of retail banks into separate and independently operated entities, so-called “ring-fenced bodies” (RFBs), distinct from entities that carry on other, and especially investment, banking activities within the same corporate group. Such structural regulation of the banking sector – which went into effect on January 1, 2019, for all UK banks with more than £25 billion of retail deposits – was introduced to ensure that retail banks were less likely to fail. Proponents of ring-fencing argue that it does so in at least three ways. First, … Read more
Activist campaigns are on the rise on both sides of the Atlantic. Even large-cap companies are increasingly targeted by activists—particularly hedge funds—with remarkable success. A big reason for that success is the support that activist proposals attract from traditional institutions, such as actively managed mutual funds, pension funds, and passive index-tracking investors. Hence, hedge funds primarily seek targets whose shareholder base features a significant proportion of institutional investors. This does not mean, however, that activists only focus on companies with widely dispersed ownership; they also target controlled companies. Minority-empowering shareholder tools, such as the right to nominate and elect some … Read more
Investor protection has been an ideal in corporate and securities law ever since the early 20th century, when Berle and Means famously highlighted shareholder vulnerability in modern public corporations. In more recent times, investor protection has been treated as a litmus test for the quality of a jurisdiction’s corporate governance and as having a direct link to capital market structure.
Our recent working paper examines the adequacy of Australian law in protecting public company investors in a particular situation – namely, when they rely to their detriment on inadequate, false, or misleading information released by the company. As our … Read more
I suspect that most issues of contract interpretation call for the application of what Stefan Vogenauer has termed “universal hermeneutic truths”—that is, the search for meaning by going no further than “common sense” and how language is “commonly and naturally deployed.” An arbitrator does this not only by worrying the text of an agreement, but more broadly by attempting to identify the underlying narrative—the sense of the transaction. These are universal lawyerly skills. And should an agreement run out of guidance for settling a dispute, a further step would move from interpretation, as commonly understood, to the process of filling … Read more
Negotiators for the European Union and the United Kingdom have agreed a 585-page draft withdrawal agreement (the “Withdrawal Agreement”). A copy of the Withdrawal Agreement can be found here.
The draft Withdrawal Agreement sets out how and when the UK will leave the EU and will be legally binding. A separate, non-binding draft declaration (available here) sets out the aspirations for the future trading relationship between the UK and EU (this draft declaration is still being negotiated, with the UK and EU expected to agree a final draft this week).
This long-awaited “divorce deal” has been … Read more
Effective and sustainable shareholder engagement is a cornerstone of the corporate governance model of listed companies, which is based on a system of checks and balances among boards, management, and stakeholders. Enhancing the involvement of shareholders in corporate governance is therefore an important factor in improving the financial and non-financial performance of companies, particularly with respect to environmental, social, and governance issues, as set forth in the United Nations’ principles of responsible investment (Recital 14 of the Directive, available here). And this is even more the case in view of the fact that the increased involvement of all stakeholders, … Read more
As the U.K.’s March 29, 2019, exit date from the European Union approaches, companies involved in merger reviews or antitrust investigations should pre-emptively address the risk of a “no-deal” Brexit.
Both the U.K. and EU have antitrust laws that can apply simultaneously to the same merger or allegedly anti-competitive conduct. Currently, procedural rules determine how jurisdiction is divided between the European Commission (Commission), at the EU level, and the Competition and Markets Authority (CMA), at the U.K. level. But there are no transitional provisions dictating how jurisdiction for pending matters is to be handled in the event of a “no-deal” … Read more