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The model characterized by domination of the interests of small shareholders (or with a sharp focus of the legislation on absolute protection of small shareholders) apparently is not as impossible as impractical. Realization of such a model, to a considerable extent based on the Anglo-Saxon practice, precedent law and ideas of self-sufficiency of corporate law in Russia (the mid-90s) would require a serious economic overhauling of the established relations (although at the same time it is hard to agree that such relations are beneficial). A sharp bias in favour of minority shareholder interests shatters the balance of interests of all the rest of the subjects of corporate relations who have an equal right to be protected from the point of view of the general principle of protection of ownership rights. Nevertheless the role played by small shareholders is of critical importance for ensuring company transparency.

Note that inadequate legal protection of (small) shareholders and the relatively low level of the securities market development are likely to be interconnected in a direct and an inverse ways:

liquidity of many shares at less developed markets makes their holders still less protected which in its turn fosters concentration of corporate ownership and reduces market mobility of the shares.

In the USA in 1984-1990 the stake of the biggest shareholder in companies with various types of ordinary shares was 32 %. (Zingales, 1995). The stakes of 3 top shareholders in 10 largest corporations of 49 countries were on average % (La Porta et al., 1997.).

Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK Moreover, it could be argued that in Russia (in spite of the above contradiction in the approaches) an objective (by its economic reasons) gravitation towards the European model of corporate legislation is taking place. This conclusion is based on similarity of the key problems facing Russia and the continental EU Member States.

As K. Hopt mentions, the original conflict in terms of principal-agent in the European company legislation is not a conflict between shareholders and the Board of Directors (which, in accordance with the American tradition of the 30s, is the most widely discussed in the framework of the modern economic theory59), but the conflict between majority and minority shareholders (Hopt, 2000). The situation is based on the differences between Europe on the one hand and the USA and Great Britain on the other in the area of corporate ownership and control structure that make it possible to identify two different types of corporate governance systems insider and outsider systems. In the USA and Great Britain neither private shareholders nor institutions have a considerable stake in corporations. On the continent shareholder ownership is highly concentrated in the hands of families, other big companies or universal banks (the groups phenomenon). Reciprocal and cross holdings are also widespread. In such companies Boards are often nothing but puppets in the hands of the controlling shareholder or the parent company. European company law reacts to this challenge (if it does this at all) by offering various measures aimed to protect minority shareholders.

Apparently, Russia finds itself in the situation typical for the continental insider model with puppet Boards of Directors. Of less importance is the difference in the area of enforcement.

Although, as mentioned above, there are also serious differences between the Western countries (Table 6) a reform in this area in Russia is most urgent (see also Radygin, Entv, 2002);.

In the long term, the world tendency towards approximation of the corporate governance models (mutual borrowing of various components and mechanisms, i.e. not as much a one-way borrowing as convergence) should be taken into consideration. In certain sense this confirms the point of view that by itself legal formulation of the model of corporate governance (legal instrument) is of secondary nature and based on real economic processes, including the global ones.

In general, it is obviously necessary to move in the direction of a certain mixed model that will take into consideration the principles and tendencies described above and at the same time offer a balance of interests of all the shareholders and the stakeholders.

In practical terms it means that at this particular moment of time legal formulation of a national model of corporate governance that would correspond to any of the classical standards (that become increasingly blurred themselves) is not expedient (possible). The key task from the view of the state should be reviewing corporate governance in the context of protection and guaranteeing ownership rights (rights of investors and shareholders) and ensuring a balance of interests (rights) of all the participants in corporate relations. Corporate governance as an essential institutional precondition of economic growth should be considered exactly in this context.

In particular, emphasis is made on how company legislation can compel directors to be more responsive to shareholder interests. Normally such reforms do not take account of the Board structure (whether it is one-tier or twotier) but instead focus on such issues as the Board size, independent directors, conflict of interests, Board committees, frequency and efficiency of meetings, Board members remuneration, etc. The key problem is finding a reasonable balance between the right of making business-decisions delegated to the Boards members on the one hand, and control over them through application of structural and other legal norms and establishing a certain level responsibility on the other. Only recently a discussion has started about comparative advantages and disadvantages of one-tier and two-tier Board systems, the influence, and independence of the Board members.

Other aspects of internal control (cooperation with employees and banks role) are also under review to a considerable degree one-sidedly depending on what country the authors are from. Arguments for and against are most often unconvincing (see also Hopt et al, 1998).

See also: Radygin, Entv, 2001.

Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK However, the fight for control over and redistribution of ownership (both by virtue of objective processes of the transition economy and due a range of subjective factors) will continue in the years to come. Therefore, creating a well-defined legal framework for such redistribution remains a priority task.

At the same time, the above considerations concerning economic limitations make it possible to suppose that a relatively long transitional period is needed to size up at least to the European formal norms of company legislation and applied standards of corporate governance.

B) EU problems and recommendations for Russia First, the historic experience of the EU (in the area of establishing supra-national norms of company law) is evidence that the highest rates of unification were characteristic of the 60-70s while the 80s saw a marked slow-down of the process (see Asoskov, 1998). In the 60-70s unification covered first of all the norms that had already been developed at the national level (company participation in ownership turnover, guarantees to shareholders and creditors, etc.). The latter fact fostered adoption of First and Second Directives that contain very stringent provisions. In Russia, regulation in this area has been developed to a considerable extent.

In the 80s the EU governing bodies made an attempt to unify internal corporate relations (covering, first of all, structure of management bodies, employee involvement), i.e. areas where national differences are significant. To a considerable extent the problem of unification acquired a political dimension. Consequently, the nature of EU Directives has been markedly changed: they began to offer a choice among several variants (in fact, fixing the diversity of national approaches). The problem is easily traceable in the 30-year long discussion about the European company that resulted in 2001 in adoption of the multi-variant documents. Adaptation to the standards of the European company model presents no big difficulties for the Russian corporate law.

Second, a wide range of important company regulation issues (management bodies, liquidation of companies) remain outside the EU regulations. Some issues (company groups, for example) have different degrees of regulation in the EU Member States. In general, differences in company regulation across the EU remain wide.

Third, historically, law enforcement and judicial systems of the EU Member States differ significantly (see Potemkina, 2001). Correspondingly, one of the main areas of activities identified in the Amsterdam Treaty is to define the framework of the European legal space, i.e. to ensure efficient implementation of the conventions related to civil and criminal cases, equal opportunities for all to appeal to court, quick and efficient performing of judicial procedures. The Extraordinary EU Summit in Tampere (October 1516 1999) re-confirmed that the presence of 15 different national judicial systems impedes the internal market development, restricts the freedom of movement of the EU citizens and their freedom to engage in professional activities. This is why in order to implement the idea of the European space of freedom, security and legal protection the Treaty of Amsterdam envisages strengthening of cooperation between the EU Member States in the area of the third pillar and its partial communitarization, i.e, bringing some territorial law and judicial provisions to the supranational level.

Fourth, the general approach to the strategy of company law unification within the EU remains controversial. In particular, there is the idea that unification of all the areas of the company law is not needed. Some researches (see Harm-Jan de Kluiver, 1996, p. 86) hold the view that it would be enough to carry out harmonization in the area of protection of the rights of shareholders and stakeholders in general which was originally envisaged by the Treaty of Roma.

Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK The following issues mentioned above remain to be important topics of the discussions within the EU:

- the XXI century corporation and its standards, - expediency of orientation towards the English-American model, - role of private and institutional investors, - outsider role in company groups, - acceptability for the EU of certain internal (Board of Directors, employee involvement, banks role) and external (capital market, takeovers, audit, information disclosure) mechanisms of corporate governance, - role and effectiveness of government regulation and self-regulation systems, - role of litigation and courts in enforcing company legislation, - ratio between convergence and harmonization of company legislation, - priority of company legislation reform at the ERU level.

As mentioned above, the existing problems and the quest of the EC bodies for continuation of the unification process led to setting up in 2001 of the High Level Group of Company Law Experts.

Frits Bolkestein, member of the EU Commission formulated its tasks as: This High Level Group has been set up because the Commission wants to get top quality independent advice from leading European experts in the first instance on pan-European rules for take-over bids and subsequently on key priorities for modernizing company law in the European Union. A clear set of pan-EU rules for the conduct of takeovers stands to benefit European companies and shareholders, especially minority share holders, by clarifying their rights and obligations. It would also facilitate the goal set by the Lisbon summit of restructuring the European economy to make it the most competitive in the world by 2010. The problem of takeovers was analyzed above. As to modernization of company legislation (the second stage of the group activities) the most general objective is to develop a framework company legislation for the EU that would be flexible enough to meet the modern company needs and at the same time reflecting the effects of information technologies. In particular the following issues are planned to be studied:

- formation and functioning of companies and company groups, cooperatives and mutual enterprises, including issues of corporate management;

- shareholder rights, including cross-border voting and virtual general meetings;

- corporate restructuring and mobility (first of all, transfer of the official seat of the company);

- potential need in new legal company forms (first of all, close European Private Company that has a special importance for small and mid-size EU companies);

- possible simplification of corporate rules in view of the provisions of the report on Second Directive of 13 December 1976 (SLIM report) concerning formation and maintaining capital of public companies.

A look at the urgent problems of reforming corporate legislation in Russia reveals a lot of common features with the current problems of the EU reform in the area.

http://europa.eu.int/comm/internal_market/en/company Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK The following first priority issues deserve to be specifically mentioned: mergers and takeovers, control over large transactions, affiliated structures, beneficiary holdings and owners liability, company groups, bankruptcies that help retain governments stakes in the corporations. Apparently no progress will be possible if an effective infrastructure and political will to enforce legislation are lacking.

It is clear that even if the problem of Russias accession to the EU is positively resolved a long period of transition will be needed to adapt and harmonize legal norms and standards. Nevertheless, irrespective of the progress in the process of Russias accession, it is time already to discuss a number of positive innovations (at the level of adaptation) that are present in one way or another in the EU acts. Here are some of them:

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