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It would be an illusion to believe that under the conditions of a developed economy irrespective of the by-country differences all the problems of corporate governance have been resolved. Forming a specific model is a permanent process of conceptual and narrow-subject discussions, of bringing out new and new offences against the law, of adequately improving the mechanisms of internal and external controls in the corporation, of providing the legal framework and protection of investor rights. Realities of the economic development also affect the practices of corporate governance. It should be noted that none of these models is perfect. Both the German and the Japanese models draw criticism for being to closed and too shielding managers too much (Gray, Hanson, 1994). In Germany criticism is increasingly leveled at the banks carrying out exclusive operations on the stock market and holding large blocks of shares of corporations for damaging the interests of the depositors. At the same time there is an obvious conflict: () between the interests of banks as credit organizations and their interests as strategic investors; (b) between the interests of banks as strategic investors and the interests of small shareholders-financial investors. Predominance of bearer shares One of the most demonstrative examples of the 90-s the discussion in the USA about repealing the Glass-Steagall law that separated commercial and investment banks after the Great Depression of the 30-s. At present, the abolition of rigid restrictions makes more urgent the issue of the role banks play in corporate governance (in the USA included).

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

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK is an obstacle to effective realization by shareholders (foreign shareholders, in particular) of their rights.

The Japanese system of affiliated shareholders in fact discredits the rights of independent shareholders. Additional problems of portfolio investors in Japan are caused by the practice of holding all the shareholders meetings at the same time, by the negative attitude towards the shareholders initiative (proposals).

At the theory level, as far as the English-American model is concerned it is customary to assume that dispersion of ownership results in the shareholders becoming passive (which is particularly characteristic of large companies with greater numbers of shareholders, a clear-cut separation of ownership and control, and higher costs of industrial actions). The takeovers market viewed within the American model as the most important tool of corporate control draws criticism for its potential to destabilize the situation in the companies affected. The conventional criticism of the American model is focused on the passive behaviour of outsiders-members of the Board of Directors. It is assumed that the trend shall further develop. One more trend characteristic of the USA is concentration of corporate affairs in the hands of a narrow group of persons i.e. managers.

There is also a long list of issues of practical and legal nature that have been and remain the subject of discussion. Here are some of them:

- to what extent the degree of ownership (control) concentration affects relationship between the shareholders and corporations performance;

- what is the relationship between the functions of the Board of Directors, the distribution of shareholders membership in the Board of Directors, and the actual distribution of ownership (shares) within corporations; - to what extent Boards of Directors should be accountable to the shareholders, what incentives they have to represent the interests of the shareholders effectively, what is the measure of their responsibility for developing (adopting) corporate strategy;

- what is the optimum ratio of internal executive directors to independent directors in the Board, how to ensure adequate efficiency of independent directors and delineate reasonable boundaries for their interference;

- where lies the divide between corporate governance and management, between managers accountability to the Board of Directors and the Boards interference into their day-to-day activities; - what should be the solution (is it needed at all) to the free rider or the sleeping partner problem i.e. the situation where every small shareholder in a big corporation seeks to shift his responsibility for control over managers to the other shareholders;

- contrariwise, how to secure effectively the rights of small shareholders without permitting them to behave in a destabilizing way;

- whose interests (the shareholders, all the financial investors, all the partners in the corporation) should the Board of Directors represent, what costs are involved, who should bear the costs, how to distribute the costs between the various groups of the partners This is of principle importance as the characters of Boards of Directors controlled by a host of small shareholders and those in corporations under unambiguous control of one or more large shareholders differ significantly. In the former case the role of the Board is much more important.

One of the individual but important questions here is the one how detailed should be a contract between the corporation and the hired managers. On the one hand a detailed contract is necessary for control, on the other no contract can provide for every eventuality.

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

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK - should the interests of small and large shareholders, of owners of ordinary and preference shares be represented separately The above list of the current problems alone makes it possible to state that in a certain sense a corporation is a potential mix of various conflicts of interests:

- conflict of interests of shareholders and managers (profits - wages, savings prestige, portfolio investment permanent job, high profits being prepared for all eventualities, etc., correspondingly);

- personal conflict of interests of the Board directors and managers (by virtue of the residual principle of the executive directors authority);

- conflict of interests (in the English-American model) arising when the positions of Chairman of the Board of Directors and Director General (Executive Director) of the corporation are held by the same person;

- conflict of interests between various groups of shareholders depending on the aims: shortterm or long-term profits, security and secure long-term investment, strategic control and financial investment;

- conflict of interests between various groups of shareholders depending on the size of the block of shares (actions by large shareholders to the detriment of the interests of small shareholders, up to ownership redistribution);

- the latter conflict potentially manifests itself in the shareholders (group of shareholders) Board of Directors conflict (depending on what type of shareholders have their interests represented by the Board of Directors);

- conflict of interests between the shareholders and owners of the corporations debentures (maximization of the residual profits - fixed yield on borrowed capital, high propensity to risk - conservative line of behaviour, all the earnings from risky operations - major losses from bad investment);

- similar conflict of interests between shareholders and other financial investors providing borrowed capital (banks, etc.).

Resolving or at least mitigation of the conflicts can be viewed as one of the main objectives of reforming corporate governance alongside the general aim of protecting the shareholders interests.

Thus, even in the countries having stable models of corporate governance there are many problems complicating the institutional and legal framework of corporations activities. In one way or another, all of them are of utmost importance for the models emerging in the transitional economies.

Chapter 2. Specific features of company law unification within the EU 2.1. General The Treaty of Rome on establishing the European Community signed on March 27, 1957 envisages creation of a common market of goods, capital, labour and services. One of the areas of the Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK activities of the Community was defined as the approximation of the laws of Member States to the extent required for the functioning of the common market (Article 3(h)). The scope of the Treaty of Rome was widened by signing in 1986 the Single European Act (SEA).

The SEA introduced a number of important changes in the procedure. In particular, it allowed the Ministerial Council to pass decisions by majority vote. The text of the Treaty of Rome with the changes introduced by the SEA was considerably altered and amended with signing of the Maastricht Treaty on November 1, 1993.As far as corporate law is concerned the problem lies in the fact that the interested parties themselves (companies) fall under the jurisdiction of different national legal systems. Consequently, complex legal safeguards have to be incorporated into the contracts they sign. The contracts shall be written taking into account legal rules prescribes by different national law systems. This is why the EU attempts to harmonize a number of corporate legal rules.

One more problem is related to the fact that harmonization of the corporate law aims to realize fully the freedom of establishing undertakings which in its turn helps avoid market distortions. However, the EU Member States having a well-developed legislation in the area will find themselves disadvantaged. Until at least a minimum level of harmonization is achieved there is a danger of producing the Delaware effect, i.e. companied will prefer to be incorporated in the EU Member State having the most liberal corporate law.

It is obvious also that harmonization of company law is closely related to the entire set of measures in the area of company regulation. In particular, one of the serious obstacles is the abortive attempts to harmonize tax regimes although some progress has been made in the area recently. Three types of law unification within the EU are envisaged:

1) uniform rules in the text of the Treaty of Rome (for example, Articles. 85-87 on banning agreements, associations, etc. hampering freedom of competition and on prevention of abuse of dominant position on the market) that directly apply to all natural persons and legal entities and have priority over national rules;

2) law harmonization through signing international conventions (Article 220) that become an integral part of the Treaty of Rome (for example, the Convention on Mutual Recognition of Partnerships dated February 29, 1968);

3) Article 189 of the EU Treaty establishes a number of procedures of the Council and Commission legislative work resulting in adoption of documents known in general as acts. First of all we refer to the right of the EU governing bodies (the Council and the Commission) to issue special types of acts: regulations and Directives.

Apart from regulations and Directives the acts include decisions are addressed to the Member States and natural persons and are binding for them, recommendations and opinions. The latter are have no binding force but induce certain actions.

Hereinafter the overview of the relevant EU legal rules is based on the following sources: the EU official publications (OJ) and sites: (http://europa.eu.int/comm/internal_market/en/company and EUR-Lex Community Legislation, as well as: Asoskov, 1998; Kulagin, 1997; Shelenkov, 1998; Bermann et al., 1997; Buxbaum, Hopt, 1988; Dine, 1998, pp. 321349; Evans, 1998; Wooldridge, 1991; Dorresteijn et al., 1994; Favret, 1996; Zaphirien, 1970.

One of the basic changes was the European Community acquiring the name of the European Union. However, it is important to note that the term European Union was not substituted for the term European Community. While former term is used as a collective name for the governments of the Community Member States, the institutions of the Community retain their prerogative to initiate and enforce legislation.

Council Directive of June 23, 1990 The Common System of Taxation Guidelines in the Case of a Parent Company and Subsidiaries of Different Member States and Council Directive 91/308 EEC (OJ 1991 L166/77).

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

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK Regulations (rules of procedure) have direct application in each of the Member States (Article 189, p. 2). No national legislation is required to implement them. However, certain legal framework might be needed to transform its results into the notions well-understood at the national level and to fill-in lacunas in the legislations.

For researchers the Directives are a source of Community law as an autonomous legal system operating in parallel with national systems and the international common law. Directives (which are in fact laws adopted by the EU Council) are binding, as to the result to be achieved, upon each Member State to which it is addressed, but leaves to the national authorities the choice of form and methods (Article 189, p. 3).

It should be noted that according to the rulings by the European Court many of the Directives are of direct action (characterized by direct action or enforcement in relation to national laws of the Member States) and have precedence of over national laws in case of disagreements between them.13 For example, the ruling reached in the cases C-19 -20/90 Karella v. Minister of Industry, Energy and Technology (1991 OJ C166/12) proclaimed that certain provisions of the Second Council Directive on corporate law have direct action. It is possible also that in case of nonobservance of a Directive by the Member State a natural person can initiate against it a case that might result in compensation payments (see cases C-6 9/96 Frankovich and Bonifaci v. Italian Republic ([1992] ECR 133).

Directives can concern almost every section of commercial law although formally they are adopted to harmonize legislation or to remove differences between national acts violating the competition rules.

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