New Agency Problems, New Legal Rules: Rethinking Takeover Regulation in the US and Europe

Abstract

The main agency problem traditionally existing in the US corporation has been the risk of opportunism of managers vis-a-vis shareholders. In Continental Europe, however, the primary concern in corporate law has been the opportunism of controlling shareholders vis-a-vis minority shareholders. These divergences in agency problems and the design of corporate law in the US and Europe has been mainly explained or, at least, justified by the different corporate ownership structures in both regions. On the one hand, the US has been traditionally classified as a jurisdiction with dispersed shareholders where collective action problems, asymmetric information and rational apathy were considered crucial problems in corporate law. On the other hand, European countries have been more concerned with the protection of minority shareholders from the expropriation of controlling shareholders. However, the rise of shareholder activism, the reconcentration of corporate ownership structures in the hands of institutional investors, and the use of dual-class shares have changed those agency problems traditionally existing in US corporations. Likewise, the development of capital markets, the improvement of corporate governance practices and the rise of shareholder activism have also modified, though to a lesser extent, those agency problems existing in European corporations. Therefore, these new agency problems should lead to rethink European and US corporate law, especially in the context of hostile takeovers, where weighted agency problems may arise among corporate actors. On the basis of this exercise, we draw conclusions about those rules governing hostile takeovers that should be amended in order to effectively address the agency problems existing in the European and US corporation of the 21st century.