The Financial Crisis: A Reason to Improve Shareholder Protection in the EU?
| Date | 01 March 2014 |
| DOI | http://doi.org/10.1111/j.1467-6478.2014.00656.x |
| Published date | 01 March 2014 |
JOURNAL OF LAW AND SOCIETY
VOLUME 41, NUMBER 1, MARCH 2014
ISSN: 0263-323X, pp. 51±72
The Financial Crisis: A Reason to Improve Shareholder
Protection in the EU?
Jonathan Mukwiri* and Mathias Siems*
The global financial crisis of 2008 has stimulated the debate on
corporate governance and shareholder protection. The intuitive reason
for the topicality of shareholder protection is that insolvencies mainly
harm shareholders as the companies' residual claimants. In addition,
ideally, shareholder empowerment may ensure better monitoring of
management and therefore better-run companies preventing corporate
failures and benefiting the economy as a whole. Yet, it is not self-
evident that shareholder participation has such a positive effect. This
article critically examines the discussion about the relations hip
between the financial crisis, shareholder protection, and law reform.
We also develop a central position: while there may be a need to
improve shareholder protection, we do not take the view that any
increase in shareholder rights is the right way forward; rather, such
reforms should aim to encourage shareholder engagement by
responsible long-term investors.
INTRODUCTION
Before the 2008 financial crisis, the world economy seemed to be founded on
a relatively secure platform, and even at the beginning of the crisis few
anticipated its destructive effects.
1
Now, however, policy debates have been
51
*Durham Law School, The Palatine Centre, Durham University, Stockton
Road, Durham DH1 3LE, England
jonathan.mukwiri@durham.ac.uk mathias.siems@durham.ac.uk
We thank Hatice Kubra Kandemir, Melih Sonmez, and the participants of the Workshop
on Post-crisis Trajectories of European Corporate Governance at Leeds Law School for
helpful comments.
1 See, for example, B.R Cheffins, `Did Corporate Governance ``Fail''During the 2008
Stock Market Meltdown? The Case of the S&P 500' (2009) 65 Business Lawyer 1,
at 4: `Too few regulators, stock market analysts, and journalists . . . foresaw the
havoc that would follow if and when it burst.'
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
mushrooming, for instance, on matters of bank bail-outs, international finan-
cial regulation, economic stimulus, and austerity, but also corporate govern-
ance and shareholder protection.
2
Regulators are struggling to place business
operations on a more secure basis. Yet, the question remains whether
improving corporate governance and shareholder protection is the right
answer. In the context of the recent financial crisis and shareholder
protection, views are diverse in regard to whether to blame or exonerate
corporate governance.
3
Our examination reveals the issues to be more complex than hitherto
understood. The intuitive reason for the topicality of shareholder protection
is that increases in insolvencies harm shareholders as the companies'
residual claimants. In addition, ideally, shareholder empowerment may
ensure better monitoring of management and therefore better-run companies,
benefiting the economy as a whole. Yet, it is not self-evident that the crisis
actually calls for improvements in shareholder protection. For instance, one
can make the point that shareholders of public companies are often only
interested in short-term benefits, and that such short-termism was precisely
what contributed to the financial crisis.
4
Specifically, we are interested in the relationship between shareholder
protection and the financial crisis in the context of EU corporate governance.
Taking the current law as a starting point, it is difficult to say that the EU has
`failed' to align corporate governance with shareholder protection. On the
one hand, the EU did address shareholder protection in the past, sometimes
directly ± namely in the Shareholder Rights Directive
5
± sometimes
indirectly in other directives and regulations.
6
On the other hand, the
question is whether these rules have really provided shareholders with a
strong voice in the corporate governance of public companies.
7
Moreover,
52
2 For the general discussion on regulation and the financial crisis see, for example, S.
Konzelmann and M. Fovargue-Davies (eds.), Banking Systems in the Crisis: The
Faces of Liberal Capitalism (2013); E. Avgouleas, Governance of Global Financial
Markets (2012); J. Gray and O. Akseli (eds.), Financial Regulation in Crisis?: The
Role of Law and the Failure of Northern Rock (2011).
3 Similarly, J. Armour and W.-G. Ringe, `European company law 1999±2010: renais-
sance and crisis' (2011) 48 Common Market Law Rev. 125, at 169 (no consensus
whether existing corporate governance is deficient or simply poorly implemented).
4 For details, see the discussion in the following sections.
5 Directive 2007/36/EC of the European Parliament and of the Council of 11 July
2007 on the exercise of certain rights of shareholders in listed companies.
6 Notably through the harmonization of securities law in terms of disclosure and
transparency. See, for example, Directive 2004/109/EC on the harmonization of
transparency requirements. For a useful overview, see Europ ean Parliament
Committee on Legal Affairs, Rights and obligations of shareholders ± National
regimes and proposed instruments at EU level for improving legal efficiency (2012)
PE 462.463, 21±36.
7 P.E. Masouros, `Is the EU Taking Shareholder Rights Seriously?: An Essay on the
Importance of Shareholdership in Corporate Europe' (2010) 7 European Company
Law 195, at 196.
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
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