Corporate Finance and Governance: Japan-Europe Comparisons

Colin MAYER, Professor at Oxford University and CEPR Fellow, made the following presentation titled "Corporate Governance: Mobility and Convergence."

There are substantial variations in the corporate ownership structures of European countries. In the UK, institutional investors such as pension funds and insurance companies hold block shares, while in many other European countries there are high levels of concentration of ownership in the hands of dominant block shareholders. In many cases, families and individuals maintain dominant ownership, and cross-shareholding among corporations is common.

Traditional family and inter-corporate shareholding structures are no longer appropriate and need to be broken up. The European Commission (EC) is attempting to create a more unified financial market that will further encourage cross-border transactions in financial services. One of the cross-border trading patterns the EC is trying to establish is a system to allow corporations in one European country to take over other companies in other European countries. To allow cross-border takeovers, it is essential to create a level playing field.

The mandatory bid rule, the equal price rule, and the squeeze-out rule are important in creating a fair corporate takeover market. These rules help make the takeover process more transparent and protect the rights of minority shareholders by preventing different prices from being offered to different classes of shareholders.

Under the Corporate Takeover Directive and the Corporate Takeover Code (City Code) in Europe, all corporate takeovers follow uniform rules and there is no need to protect minority shareholders through the courts as is the case in the United States.

The EC tried not only to create a fully functioning corporate takeover market but also to introduce changes to the structure of corporate governance in Europe, and in particular to dissolve the existing ownership structure. These EC initiatives have proven unsuccessful for the most part, but they have produced important developments relating to corporate ownership and corporate control.

These changes resulted not so much from the decisions made by the EC but more from the rulings rendered by the European Court of Justice. These court rulings are related especially to the ability of corporations to choose from different legal systems. In other words, the goal should be the promotion of diversity and experimentation rather than the imposition of a uniform structure of governance as the EC has attempted.

The characteristics of corporate governance and policies that are being implemented in Europe are closely related to those currently being discussed in Japan. In particular, issues relating to the diversity of corporate governance that exist in Europe and the improvements in corporate efficiency generated by this diversity are quite similar to the issues currently under discussion in Japan. Japan should recognize diversity in systems of corporate control and strengthen the protection of shareholder rights while promoting reform experiments.