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WP359: Shareholder Protection around the World (“Leximetric II”)
This article analyses how shareholder protection has developed in 20 countries from 1995 to 2005. In contrast to traditional legal research, it draws on a quanti-tative methodology to law (“leximetrics”, “numerical comparative law”). Some of its results are that in most countries shareholder protection has improved in the last years; that developed countries perform better than developing countries in protecting shareholders; that shareholder protection in common law countries is relatively similar whereas there is no comparable similarity within the Ger-man and French civil law families; that German corporate law is “more main-stream” and US corporate law is “more eccentric” than the law of the other countries; and that in general there has been convergence in the last decade. In order to explain these results, the distinction between origin and transplant countries can be useful. However, in contrast to previous studies, this does not mean that all depends on the distinction between English, French and German origin and transplant countries. Rather it is decisive (a) which “version” of the corporate law the transplant country copied, (b) whether transplant countries continue to take developments in the origin countries into account and (c) whether transplant countries have left the path of their (former) origin countries.
WP358: Shareholder Protection & Stock Market Development: An Empirical Test of the Legal Origins Hypothesis
John Armour, Simon Deakin, Prabirjit Sarkar, Mathias Siems and Ajit Singh
We test the ‘law matters’ and ‘legal origin’ claims using a newly created panel dataset meas-uring legal change over time in a sample of developed and developing countries. Our dataset improves on previous ones by avoiding country-specific variables in favour of functional and generic descriptors, by taking into account a wider range of legal data, and by considering the effects of weighting variables in different ways, thereby ensuring greater consistency of cod-ing. Our analysis shows that legal origin explains part of the pattern of change in the adop-tion of shareholder protection measures over the period from the mid-1990s to the present day: in both developed and developing countries, common law systems were more protective of shareholder interests than civil law ones. We explain this the result on the basis of the head start common law systems had in adjusting to an emerging ‘global’ standard based mainly on Anglo-American practice. Our analysis also shows, however, that civil law origin was not much of an obstacle to convergence around this model, since civilian systems were catching up with their counterparts in the common law. We then investigate whether there was a link in this period between increased shareholder protection and stock market devel-opment, using a number of measures such as stock market capitalisation, the value of stock-trading and the number of listed firms, after controlling for legal origin, the state of economic development of particular countries, and their position on the World Bank rule of law index. We find no evidence of a long-run impact of legal change on stock market development. This finding is incompatible with the claim that legal origin affects the efficiency of legal rules and ultimately economic development. Possible explanations for our result are that laws have been overly protective of shareholders; transplanted laws have not worked as ex-pected; and, more generally, the exogenous legal origin effect is not as strong as widely sup-posed.
WP357: UK Corporate Governance & Takeover Performance
Andy Cosh, Paul Guest and Alan Hughes
This chapter addresses the changing nature of corporate governance in the United Kingdom over recent decades and examines whether these changes have had an impact on the UK market for corporate control. The disappointing outcomes for acquiring company shareholders in the majority of corporate acquisitions, public discontent with some pay deals for top executives and some high profile corporate scandals led in the early 1990s to a call for governance reform. The scrutiny of governance in UK companies has intensified since the publication of the Cadbury Report in 1992 and has resulted in calls for changes in the size, composition and role of boards of directors, in the role of institutional shareholders, the remuneration and appointment of executives, and in legal and accounting regulations. We review the background to these changes and the consequences of the changes since 1990 for governance structures. Finally, we examine whether these changes have affected takeover performance in recent years. Our analysis is specific to the institutional circumstances of the UK although we refer where appropriate to takeover studies in other countries.
WP356: Resurrecting the UK Historic Sector National Accounts
The UK national accounts do not provide a full long-run set of historic data describing the behaviour of the UK’s private sector. Although comprehensive figures are available from 1987, the pre-1987 historic sector national accounts are marred by discontinuities, gaps and error.
WP355: Corporate Governance & Employment Relations
Suzanne J. Konzelmann, Frank Wilkinson and Neil Conway
Using the 2004 United Kingdom Workplace Employment Relations Survey (WERS 2004), this paper examines the impact of corporate governance on HRM practices and employment relations outcomes within organisations in the UK. The analysis suggests that when a remote external stake-holder is assigned dominance, particularly in the case where their liability is limited and the organisation is large, the conditioning of managerial commitments on the requirements of the dominant stake-holder has the potential to undermine the effectiveness of the HRM system in achieving its objectives.
WP354: The Impact of Mergers & Acquisitions on Executive Pay in the United Kingdom
We examine the impact of acquisitions on executive pay in UK acquirers over 1984-2001. For the overall sample, which includes foreign, domestic, public and private targets, there is a significant transitory pay increase. Pay changes are not affected by target nationality or organisational form, although initial cross-border acquisitions do result in higher pay. Pay increases are higher following acquisitions of targets with high pay, but not of targets in high pay countries. CEOs are rewarded equally for bad and good acquisitions, and those well rewarded are more likely to reacquire. However, bad acquisitions do not on average increase CEO wealth because of an offsetting decline in CEO shareholding value. Pay impacts are not affected by the corporate governance characteristics of the acquiring firm.
WP353: Labour Law, Judicial Efficiency & Informal Employment in India
This study assesses the effects of industrial disputes legislation and the dispute settlement process on informal versus formal employment in India. It uses indicators of pro-worker court awards and court efficiency as well as amendments to the Industrial Disputes Act (IDA) at the level of Indian states. The state-level IDA amendments are classified as pro-worker or pro-employer and enforcement enhancing. Three complementary empirical approaches and data sources are used. These include a quasi-panel dataset constructed from four household employment surveys (NSSO) between 1983-1999, a state-industry level panel dataset for organised (formal) sector industrial units (ASI) for 1980-1997 and a cross-sectional survey of unorganised (informal) manufacturing firms for 2000/2001. The significance of the judicial indicators varies by indicator and the magnitude of relationship with formal employment remains rather small. The evidence is neither robust, nor consistent, enough to confirm that pro-worker judicial change would be related to a lower degree of formal work in the entire service or industrial sectors. However, pro-worker judicial change and judicial efficiency can be linked more consistently to a formalisation of work within the organised industrial sector. More efficient courts are also associated with a lower tendency of unorganised firms to produce for a sub-contractor. Finally, education, personal attributes and social status are found to be significant correlates of employment type, which implies that policies aiming to raise formality should also focus on such factors.
WP352: The Evolution of Labour Law: Calibrating & Comparing Regulatory Regimes
Simon Deakin, Priya Lele and Mathias Siems
We present evidence on the evolution of labour law in five countries (the UK, USA, Germany, France and India) using a newly-created dataset which measures legal change over time. The results cast light on the claim that legal origin, or the influence of common law and civil law regulatory styles, affects the content of labour law regimes. We find some divergence between common law and civil law countries at the aggregate level but a more complex picture when the index is decomposed so as to identify changes in specific areas of labour law. We discuss the potential significance of this relatively new approach to the measurement of law for understanding the forces at work in the evolution of labour law.
WP351: Japan’s Paradoxical Response to the New ‘Global Standard’ in Corporate Governance
John Buchanan and Simon Deakin
We suggest, on the basis of empirical research into the implementation of recent legal reforms, that Japan is not moving inexorably towards a ‘global standard’ in corporate governance, based on external monitoring and a market for corporate control. Japanese corporate governance is nevertheless changing: in part as an indirect response to legal initiatives, new structures and practices are emerging, aimed at providing greater flexibility in decision-making, while retaining the organisational core of the Japanese firm. The paradoxical effect of legal reforms aimed, in large part, at transplanting the global standard, may be to renew the distinctive Japanese model of the corporation.
WP350: The Regulation of Women’s Pay: From Individual Rights to Reflexive Law?
Simon Deakin and Colm McLaughlin
Legislation mandating equality of pay between women and men was among the earliest forms of sex discrimination legislation to be adopted in Britain. However, the model embodied in the Equal Pay Act 1970 is increasingly being questioned: the law is, at one and the same time, highly complex and difficult to apply, while apparently contributing little to the further narrowing of the pay gap. As a result there is a growing debate about whether a shift in regulatory strategy is needed, away from direct legal enforcement to a more flexible approach, based around the concept of ‘reflexive law’. This paper provides an assessment of whether reflexive approaches are likely to work in the equal pay area’
WP349: The Legal Framework of Employment Relations
Simon Deakin and Wanjiru Njoya
The aim of this paper is to reassess the place of labour law in the wider area of employment relations research and to argue the case for labour law’s importance to social scientists. We give an analytical account of the principal institutional features of labour law as a form of legal regulation, from an interdisciplinary perspective which takes into account both the internal workings of the labour law system and the social and economic context within which it has evolved. We analyse, in the manner of an internal or ‘immanent’ critique, the categories which are generally used within labour law discourse to describe the social and economic relations of employment; account for their emergence and evolution in historical terms; consider the origins of their diversity across different national systems; and look at future prospects for convergence or divergence.
WP348: Innovation Policy as Cargo Cult: Myth & Reality in Knowledge-led Productivity Growth
This paper questions the current emphases in innovation policy on a particular interpretation of US performance which emphasises R&D intensive high technology producing sectors, spin-offs from the science base and private sector venture capital. Whilst recognising the important role they may play it is argued that it has been greatly exaggerated to the neglect of other key factors. One is the importance of the diffusion and use of ICT as a general purpose technology beyond the ICT and other R&D intensive high-tech producing sectors. A second is the dominant role which performance transformation in existing firms plays in driving industry level productivity compared with the direct role of new entrants. A third is the diversified role played by universities in knowledge exchange which extends beyond a narrow focus on spin offs and licensing to encompass the creation of human capital and a wide range of formal and informal business interactions. Finally there is the major role that public R&D procurement policy has played in the US in the effective provision of public rather than private sector venture capital. The paper provides a broad overview of evidence on each of these factors and considers some broad implications for innovation policy which might be drawn on the basis of that review. In particular it concludes by arguing that the crafting of innovation policy in the context of any specific national innovation system requires a careful consideration of the structural features of that context and the particular opportunities and challenges facing policy practitioners in it. An imperfect interpretation of the experience of one country’s system is unlikely to be an appropriate guide to innovation system failure or success elsewhere.
WP347: Varieties of Capitalism & the Learning Firm: Corporate Governance & Labour in the Context of Contemporary Developments in European & German Company Law
Research in corporate governance and in labour law has been characterised by a disjuncture in the way that scholars in each field are addressing organisational questions related to the business enterprise. While labour has eventually begun to shift perspectives from aspirations to direct employee involvement in firm management, as has been the case in Germany, to a combination of ‘exit’ and ‘voice’ strategies involving pension fund management and securities litigation, it remains to be seen whether this new stream will unfold as a viable challenge to an otherwise exclusionary shareholder value paradigm. At the same time, recent suggestions made by Delaware Chancery Court Vice Chancellor Strine, to dare think about potentially shared commitments between management and labour – and UCLA’s Stephen Bainbridge’s response – underline the viability – and, the contestedness – of attempts at moving the corporate governance debate beyond the confines of corporate law proper.
WP346: Reflexive Governance & European Company Law
The use of reflexive forms of regulation is growing within the EU, in particular as the open method of coordination (‘OMC’) is applied to a growing number of contexts including employment policy, social inclusion, enterprise promotion, environmental protection, energy policy, and fundamental human rights. Company law, however, seems to be an exception to this: recent activity has taken the form of ‘hard law’ harmonisation through directives, coupled with the stimulation of regulatory competition through judgments of the European Court of Justice in relation to freedom of movement, stemming from the Centros case. There is a very limited ‘company law OMC’ in the form of the deliberations of the European Corporate Governance Forum, but there is little evidence here of what proponents of the OMC call ‘learning from diversity’; instead, the Forum appears to envisage the elimination of country-specific practices which it refers to as ‘distortions of competition’. This paper argues that the lack of a meaningful company law OMC is likely to prove a more serious longterm obstacle to capital market integration than the persistence of inter-country variations in corporate governance practices. The example of labour law shows how functional convergence and a coordinated raising of standards can be achieved by the dovetailing of the OMC with social policy directives. By contrast, the recent failure of the Takeover Directive to impose a uniform model of takeover regulation indicates the limits of top-down modes of harmonisation. At the same time, the case of labour law highlights the importance of placing the OMC within a wider framework of legal support for fundamental rights, of the kind which is capable of providing a countervailing force against court-led deregulation.
WP345: Work Intensification & Employment in Security in Professional Work
Suzanne J Konzelmann, Frank Wilkinson and Roy Mankelow
Professional work is a category of employment that has traditionally been associated with high levels of worker autonomy, economic and social status. During the past decade, changes in customer expectations, government policy and technology have generated pressures resulting in enhancement of the quality and efficiency of service provision, expansion in task requirements and a need for higher levels of discretion. In this sense, professional work has been upgraded. However, the changes have also led to a deterioration in the economic and social status of professional work, adversely impacting on the social and psychological well-being of professional workers. This paper examines these developments in five professions including two established professions (lawyers and pharmacists), one aspiring profession (midwives) and two emerging professions (counselling psychologists and human resource managers). The empirical findings are based on a survey of 1270 professional workers conducted in 2000 and 2001.
WP344: NHS Reforms & the Working Lives of Midwives & Physiotherapists
Frank Wilkinson, Anna Bullock, Brendan Burchell, Suzanne J Konzelmann and Roy Mankelow
From 2000 the NHS was subjected to a series of far reaching reforms, the purposes of which were to increase the role of the primary care sector in commissioning and providing services, promote healthier life styles, reduce health inequality, and improve service standards. These were seen as requiring a greater leadership role from health professionals, closer and more cooperative working between health professionals, and between health professionals, social services, and community and other service providers. The project surveyed a random sample of midwives and physiotherapists to investigate their perceptions of the effectiveness of the reforms, and their effects on working lives. The predominant perception was that NHS reforms had negatively affected the funding of their services; and had done little to improve service quality, delivery or organisation. Although the potential existed for the reforms to improve services, the necessary resources and required staffing were not made available and the objectives of the reforms were only partially secured by intensifying of work. The downside of this was a deterioration of the socio-psychological wellbeing of midwives and physiotherapists, especially the former, exacerbating the shortage of skilled and experienced. Shortage of staff and the associated increased work burdens were demoralising and demotivating; morale and job satisfaction declined, and job insecurity and labour turnover increased.
WP343: Legal Origin, Shareholder Protection & the Stock Market: New Challenges from Time Series Analysis
Sonja Fagernäs, Prabirjit Sarkar and Ajit Singh
This paper uses a new time series dataset of shareholder protection consisting of 60 annual legal indicators for the period 1970-2005 for France, Germany, the UK and the US. On the basis of these data it examines developments in shareholder protection and reassesses the claims that common-law countries have better shareholder protection than civil law countries. Furthermore it examines the relationship between legal changes and stock market development. It casts serious doubt on the claim that common-law countries have better shareholder protection which in turn leads to more stock market development.
WP342: The Productivity-enhancing Impacts of the Minimum Wage: Lessons from Denmark, New Zealand & Ireland
There has been increasing interest of late in the question of whether minimum wage regulations can raise productivity through the ‘shock effect’. This paper explores this question in comparative perspective, by examining the impact of minimum wage regulations and institutions in Denmark, New Zealand and Ireland. It argues that while they are important, a supportive institutional framework plays a far more crucial role in providing coordinated solutions to issues of market failure, such as inadequate levels of training. The paper suggests that sectoral bargaining institutions in low-paid sectors may have the potential to facilitate such coordination and enable the high-productivity model to emerge. For the UK context, this raises the question as to whether Wages Councils in a modernised form might have some future role to play.
WP341: Fiscal Policy in a Stock Flow Consistent (SFC) Model: A Comment
This comment provides a simple analytical exposition of the stock-flow consistent closed economy model used by Godley and Lavoie (2007b) to argue a case for fiscal stabilisation policy. We show that the government spending stabilisation rule proposed by Godley and Lavoie (GL) is equivalent to an optimal-output budget deficit rule that automatically ensures budget solvency as long as private sector saving behaviour is itself stable. Assuming a non-inflationary full-employment objective, we derive an optimal government-spending rule. We endorse GL’s view that fiscal policy needs to be “appropriate” if monetary policy is to be actively pursued. The main requirement of fiscal policy is a government debt rule to avoid instabilities arising from the accumulation of debt interest payments. Godley and Lavoie (2007a) simulate such instabilities but do not propose a solution. We do so and derive an optimal monetary rule. The theoretical substitutability of policy rules raises important questions about the wisdom of macroeconomic stabilisation strategies that relegate fiscal policy to a purely supporting role
WP340: The End of Comparative Law
Following the 1900 congress in Paris, the beginning of the 20th century saw comparative law emerge as a significant discipline. This paper suggests that the early 21st century is seeing the decline, or maybe even the ‘end’, of comparative law. In contrast to other claims which see the 21st century as the ‘era of comparative law’, there are at least four trends which give rise to pessimism: ‘the disregard’, ‘the complexity’, ‘the simplicity’, and ‘the irrelevance’ of comparative law. These phenomena will be explained in the body of this paper; the concluding part considers suggestions as to how to proceed further.
WP339: The Eclipse of Private Equity
Brian Cheffins and John Armour
Private equity, characterised by firms operating as privately held partnerships organising the acquisition and ‘taking private’ of public companies, is currently dominating the business news due to deals growing rapidly in number and size. If the trend continues unabated, the 1989 prediction by economist Michael Jensen of ‘the eclipse of the public corporation’ could be proved accurate soon. This paper argues matters will work out much differently, with private equity being at least partially eclipsed. One possibility is that current market and legal conditions, which are highly congenial to public-to-private transactions, could be disrupted in ways that cause the private equity surge to stall or even go into reverse. The paper draws on history to make this point, discussing how the spectacular rise of conglomerates in the 1960s was reversed in subsequent decades and how the 1980s buyout boom led by LBO associations — the private equity firms of the day — collapsed. Factors that undercut conglomerate mergers and buyouts by LBO associations (e.g. the tightening of debt markets and increased regulation) potentially could do the same with the current wave of private equity buyouts, and cause at least a temporary eclipse of private equity deals. Even if conditions remain favorable to private equity, its eclipse is likely to occur in a different way. Privacy has been a hallmark of private equity, with industry leaders operating as secretive partnerships that negotiate buyouts behind closed doors and restructure portfolio companies outside the public gaze. However, assuming market conditions remain sufficiently favorable, top private equity firms, following the lead of the Blackstone Group, may well carry out public offerings. If this happens, then even if the taking private of publicly quoted companies remains a mainstream pursuit, the exercise will occur largely under the umbrella of public markets.