In the last fifteen years, the words ‘globalization’, ‘internationalization’ and ‘Europeanization’ have been seen and heard everywhere. The legal discussion has been no exception: on the one hand, it has sometimes been claimed that national legal systems are increasingly convergent. On the other hand, advocates of the counterhypothesis maintain that convergence of legal systems is neither realistic nor necessary. This book takes a look at how to approach this issue in relation to shareholder law. Although there are already some publications which deal with company law convergence, the reader is often left disappointed. With respect to similarities and differences between countries, the previous literature is dominated by broad statements about different corporate governance systems and anecdotal stories of convergence. A detailed legal analysis is, however, lacking. Similarly, with respect to convergence forces and hurdles, there has often been only a perfunctory analysis of particular topics, such as regulatory competition or shareholder ownership. But, again, a coherent and comprehensive account is missing. Thus, this book aims at filling that gap. Its structure is as follows. First, it compares the company laws of the United Kingdom, the USA, Germany, France, Japan and China. Secondly, it analyzes economic and political factors, which might (or might not) lead to convergence. Finally, it assesses this development.

I started writing the German version of this monograph in June 2001 when I was just finishing my LLM in Edinburgh.

The study so far has shown that, from a number of viewpoints, a convergence of the legal systems can even now be seen. This finding must, however, be further refined, so as also to bring out the connection with future development trends and development patterns (Part III below). Following a survey of indications of divergence and convergence (section I below), I will accordingly consider whether there is true convergence or merely a one-sided reception of US rules (section I below), or whether continuing factual differences mean there is merely artificial convergence (section II below).

Divergence and convergence

There are divergent developments to the extent that the traditional subdivision into different legal families in current shareholder law is no longer a convincing criterion of differentiation. For instance, there are clear differences between UK and US company and securities law. While the two countries have common roots and show basic similarities in the development of capital markets and in shareholding structures, for instance, the powers of their regulatory authorities, the federal structures, the extent of mandatory law, the availability of appraisal rights and the rules on derivative suits clearly differ. The same is true between France and Germany, for instance on questions of shareholder anonymity, of substantive review of decisions and of derivative suits. For Japan and China, apart from many differences in detail (for instance, on the powers of the general meeting and provisions on the distribution of profits), it is generally to be noted that China is in a transitional stage, whereas Japan has in the last 100 years established Western-influenced law.

The term ‘shareholder as such’ refers to those elements in the shareholder's position that relate to his typical original rights. These involve, first, the expectation that his investment will pay off at some time in the future, through selling his shares or receiving dividends (section I below: ‘the profit-oriented shareholder’). Secondly, shareholders, by contrast with creditors, typically have a legal entitlement to become active through their vote (section II below: ‘the active shareholder’). Both options are enhanced by the information the shareholders receive, or must furnish about themselves (sections III and IV: ‘the informed shareholder’; ‘the anonymous shareholder’). For, if a shareholder had no information about, say, the company's situation or other shareholders, he would have difficulty deciding when to become active or to realize his profit. In contradistinction to these aspects, when it comes to the ‘shareholder's position in the power structure of the company’ (Ch. 5), the focus shifts to the shareholder's relationship to other people or institutions of the company (‘the deciding shareholder’, ‘the protected shareholder’, ‘the litigating shareholder’).

The profit-oriented shareholder

The profit-oriented shareholder is interested, first, in avoiding claims being made on him for the company's expenditure (subsection 1 below). Secondly, he wants his investment to bring a profit in the short, medium or long term (subsections 2 and 3 below) – although he is not certain of this profit expectation, since investment in a firm's equity is closely tied to the firm's fate and not limited to the credit risk.

When social circumstances change, adjustments to law often occur too. It might therefore be concluded from advancing ‘globalization’ that national legal systems would come ever closer together. Yet both sides of this causal relationship can be attacked. On the one hand, on the factual side, one conceivable objection is that even today differing natural, economic, cultural and technical circumstances from country to country stand in the way of a uniform society. On the other hand, as regards the consequences, the effect of, for instance, path dependencies and differences in political systems might prevent a convergence of law. Whether internationalization and globalization trends will lead to a fundamental shift in legal systems is therefore an open question.

As regards the protection of shareholders in joint stock companies, current developments suggest further investigating the extent of ‘convergence’ and ‘globalization’. For instance, the increasing cross-border movement of goods, services and capital and the use of the new media may also affect the shareholder's position and lead to a paradigm shift. The shareholder was even earlier often at the centre of the organizational structure of company law, but in the course of the twentieth century had to abandon that position in a number of legal systems, for one of more of a ‘passive observer’. Now, however, the new media and the internationalization of shareholder circles might mean expectations of an internationally similar re-evaluation of shareholders' rights to participation, protection and information.

It follows from the findings of the social sciences that pressure from interest groups and other social forces can decisively influence the direction of the law. In the present case, it is accordingly initially conceivable to study the possibilities of influence by company founders, management, shareholders, other stakeholders, foreign countries and international organizations (sections I to V below). Finally, it will be asked what pressure is most likely to be reflected in legislation on shareholder law and whether this will lead to convergence (section VI below).

Pressure from company founders

Founders may exercise pressure on legislation on the one hand through regulatory competition. What this means is that someone will found a company in a particular legal system only when the law is positive for him, thus influencing legal developments (subsection 1 below). On the other hand, as with other groups, the possibility exists of asserting their interests with legislators by lobbying (subsection 2 below).

Regulatory competition

The phenomenon of regulatory competition for company founders has been well discussed, particularly in the US. The critical position assumes that, in conditions of competition, legislators are exposed to heavy pressure from company founders and management. There is therefore a threat of a ‘race of laxity’ or a ‘race to the bottom’, since the law is deregulated at the expense of other groups like shareholders, creditors or employees. By contrast, the counter-view stresses that there can be a ‘race to the top’, a spiral towards optimal protection.

It is not possible to consider all the details of the shareholder law of the various legal systems under review. Accordingly, proceeding in principled fashion, I will start with a consideration of what ‘type’ of shareholder the law focuses on. Using this methodology, I will then determine how the typical features of the shareholder's position have been reflected in the laws of the UK, the US, Germany, France, Japan and China (Chs. 5, 6).

The shareholder in the theoretical debate

Many approaches to classifying the shareholder into types can be found in the literature. One particularly exhaustive subdivision comes from Jennifer Hill, who distinguishes the shareholder as ‘owner/principal’, as ‘beneficiary’, as ‘bystander’, as ‘participant in a political entity’, as ‘investor’, as ‘cerberus’ and as ‘managerial partner’. Whether all these divisions can be applied to all countries could be doubted. In Bernhard Groϐfeld's words, the risk might be that we are looking at a foreign system through the spectacles of our own experience of the world, our language and our linguistic understanding. The subdivision below makes it clear, however, that in the present context there are internationally similar models for explaining the shareholder's position.

The shareholder as ‘owner’ or ‘quasi-partner’

In olden times particularly, but still today too, the terminology of the shareholder as owner of the company was and is widely used. There are many examples of this in the literature, in court decisions, in best-practice guidelines, and in legislative materials.

This introductory chapter addresses two important preliminary points for the future convergence of shareholder law. The first section analyzes how law-making functions and to what extent factual and political factors mark shareholder law (section I below). Secondly, it is clarified who exactly the decisive law-making institutions are. Thus, it is discussed whether in the future national acts of parliament or rather international and informal regulations will be of primary interest (sections II and III below).

The dependency of shareholder law

It appears to be likely that actual development and the influence of interest groups are reflected in the law. This causal relationship is not, however, a matter of course. It might also be that, conversely, law primarily influences reality, and political decision-makers feel committed to the common weal and not to private interests. Thus, it has to be clarified in which direction causality goes (subsection 1 below), why law-making institutions act in a particular way (subsection 2 below), and what role interest groups play (subsection 3 below).

The causality problem

There are differing views on the interaction between law and reality in company and securities law. One view stresses the importance of law (the ‘law matters’ thesis). First, the institutional advantages of the joint stock company as a legal form are highlighted. When in the nineteenth century restrictions on the establishment of joint stock companies were removed, waves of foundations followed, since it then became possible to pursue capital-intensive projects in a permanent, differentiated organizational form.

The delimitation of this book follows from the spatial, objective, temporal and legal methodological dimensions of convergence in shareholder law. The ‘spatial dimension’ (section 1 below) will include the legal bases of international organizations, the EU, the UK, the US, Germany, France, Japan and China. In the discussion on ‘objective dimension’ (section II below), it will be clarified what kind of companies and investors ‘shareholder law’ covers. In the discussion on ‘temporal dimension’ (section III below), the question of whether and how far the current process of convergence is to be regarded as a continuation or endpoint of the developments to date will be considered. Finally, the section on ‘methodological dimension’ (section IV below) will set out further steps of this monograph.

The spatial dimension: the legal systems covered

In selecting the legal systems to be studied, it is sensible to restrict their number, though without thereby narrowing the comprehensiveness of the study. Accordingly, I will consider the law of the US, the UK, Germany, France, Japan and China as well as international legal bases.

Further specification is needed for the EU, the US and China. At the European level, in addition to harmonization through directives, the European Company (Societas Europaea, SE) in particular now has to be taken into account. The focus here will be on the European law on the SE. This is not intended to give the impression that the SE is a uniform European legal form.