Part I - Brief History

"Controlling Family Shareholders in Developing Countries: Anchoring Relational Exchange"

RONALD J. GILSON
RGILSON@LELAND.STANFORD.EDU
Auth-Page:  http://ssrn.com/author=17982

Full Text:  http://ssrn.com/abstract=957895

ABSTRACT: The Law and Finance account of the ubiquity of controlling shareholders in developing markets is based on conditions in the capital market: poor shareholder protection law prevents controlling shareholders from parting with control out of fear of exploitation by a new controlling shareholder who acquires a controlling position in the market. This explanation, however, does not address why we observe any minority shareholders in such markets, or why controlling shareholders in developing markets are most often family-based. This paper looks at the impact of bad law on shareholder distribution in a very different way. Developing countries typically provide not only poor minority protection, but poor commercial law generally.
Specifically, the paper considers the impact on the distribution of shareholders of conditions in the product market, where the driving legal influence is the quality of commercial law that supports the corporation's actual business activities, and where the presence of a controlling family shareholder may help support reputation-based trading in a bad commercial law environment.

Vincy Fon Judicial Precedents in Civil Law Systems: 
A Dynamic Analysis" (April 2004) SSRN 534504

            

The effect of Civil law doctrines of precedent on the process of
 formation and evolution of case law is examined. Unlike the
 Common law systems, Civil law jurisdictions do not adopt a stare
 decisis principle in adjudication. In deciding any given legal
 issue, precedents serve a persuasive role. Civil law courts are
 expected to take past decisions into account when there is a
 sufficient level of consistency in case law. Generally speaking,
 no single decision binds a court and no relevance is given to
 split jurisprudence. Once uniform case law develops, courts
 treat precedents as a source of "soft" law, taking them into
 account when reaching a decision. The higher the level of
 uniformity in past precedents, the greater the persuasive force
 of case law. Although Civil law jurisdictions do not allow
 dissenting judges to attach a dissent to a majority opinion,
 cases that do not conform to the dominant trend serve as a
 signal of dissent among the judiciary. These cases influence
 future decisions in varying ways in different legal traditions.
 Judges may also be influenced by recent jurisprudential trends
 and fads in case law. The evolution of case law under these
 doctrines of precedents is modeled, considering the possibility
 for consolidation, corrosion and stability of legal rules. The
 effect of different doctrines of precedent on the patterns of
 evolution of the legal system is studied.

Corporate governance has become a popular topic in recent years. Although much attention has been given to corporate governance in the United States and other Western countries as a result of recent scandals, and in Japan and other East Asian countries because of the financial crisis that occurred there a few years ago, much has also been going on in Russia and other transition
economies in the area of corporate governance. This paper discusses recent developments in corporate governance in Russia and includes information gathered during interviews conducted in Russia during the summer of 2003.

The paper undertakes a comparative study of the set of laws affecting corporate governance in the United States and Germany, and an evaluation of their design - if one assumes that their objective were the protection of the interests of minority outside shareholders. The rationale for such an objective is reviewed, in terms of agency cost theory, and then the institutions that serve to bound agency costs are examined and critiqued. In particular, there is discussion of the applicable legal rules in each country, the role of the board of directors, the functioning of the market for corporate control, and (briefly) the use of incentive compensation. The paper concludes with the authors' views on what taking shareholder protection seriously, in each country's legal system, would require.

Instead, this essay suggests that, once basic societal and business institutions are in place, such as rule of law, sophisticated and uncorrupted courts, an independent accounting profession, liquid financial markets and an adequate securities regulation system, the principle element needed to foster wealth creating productive activity may be a powerful set of cultural norms emphasizing personal and group integrity, cooperative behavior among team members, and responsibility in the team's relationships to the larger communities in which it operates.

We discuss the "vigilance duties" of American outside directors under various bodies of law (including company, securities, bankruptcy, labor, and environmental law). We point out that, once procedural rules, indemnification, directors' and officers' (D & O) insurance and the settlement incentives of affected parties are taken into account, outside directors of U.S. public companies who are acting in good faith almost never face "actual liability" (i.e. end up out of pocket). In this paper, we consider whether this pattern exists on a cross-border basis and conclude that it does.

The analysis focuses primarily on Britain and Germany. We find that, as compared with the United States, there are various differences with respect to the legal details. Still, the window of actual personal liability is roughly equivalent: extremely small, but present. The paper then seeks to verify how robust this pattern is in cross-border terms by offering a summary of the position in two additional common law jurisdictions (Australia and Canada) and two additional civil law jurisdictions (France and Japan). It transpires that in these countries, as with the U.S., Britain and Germany, honest outside directors face a narrowly open window of actual liability.

The fact that the pattern of outside director liability is replicated across borders implies that it is sensible public policy to expose honest outside directors to a tiny (though real) risk of actual liability. After all, if the situation was otherwise, how could so many countries get it wrong? Still, there is a nagging question: if the prospect of ending up out-of-pocket is highly remote, what will motivate outside directors to "do the right thing"? The concluding section of the paper identifies various candidates, and highlights how cross-border analysis potentially sheds light on their disciplinary capabilities.

The future looked bright for Argentina in the early twentieth century. It achieved high levels of income per capita and was moving towards a true democracy, with respect for the rule of law. Unfortunately, the 1930s witnessed a reversal in the rule of law in Argentina. To stay in power in the 1930s, the Conservatives in the Pampas resorted to electoral fraud, which neither the legislative, executive, or judicial branches checked. The decade of unchecked electoral fraud lead to the support of citizens for the populism of President Juan Peron and the impeachment of the majority of the Supreme Court. The aftermath of Peron has been political and economic instability, which partially accounts for the fall of Argentina from the top ten of income per capita countries in the world.

NUNO M. GAROUPA & ANTHONY I. OGUS "A Strategic Interpretation of Legal Transplants" SSRN 480744 (2003)

Eleonora Rajneri "Interaction Between the European Directive on Product Liability and the Former Liability Regime in Italy".