EU Company Law Harmonization Between Convergence and Varieties of Capitalism

This working paper sketches the history of EU Company Law from its beginnings in the 1960s until the present today. I argue that company law harmonization efforts mirror prevailing fashions in corporate law. Harmonization came in two periods, in each of which was roughly linked to the success of a particular model of capitalism that was on the ascendancy during the respective time period. The first one began with the formation of the EEC. It was characterized by a dominance of the German model and a vision of corporate law that one could characterize as belonging to a “coordinated” variety of capitalism.

The second period began in the late 1990s and partly coincides with the “convergence in corporate governance” debate. This period was dominated by “liberal” capitalism oriented toward shareholders and increasingly the stock markets. Capital markets gaining in importance, and various forces led to an increased orientation towards the interests of investors in corporations around the world. Harmonization projects tended to shift to issues more strongly associated with capital markets. Even in other areas, harmonization focused less on minimum substantive standards, and more strongly on transparency and interaction with informed shareholders.

EC/EU harmonization has provided a vector for convergence far longer than the time period usually discussed in the convergence literature, which focuses on the 1990s and 2000s. However, the original harmonization model was not the shareholder model proposed by the convergence literature. Harmonization often helped to entrench rules that many scholars today consider inefficient (e.g. legal capital) and are not entirely in line with the shareholder model.

In line with the triviality critique proposed by critics of EU harmonization, one could argue that often the directives only led to formal convergence. The Fourth and Seventh Directives, which governed accounting, provide a good example. However, at a certain level, EC/EU harmonization also has helped “modern” convergence, even if proponents of the modern shareholder model typically describe EU company law harmonization as a weak force at best. A number of changes got caught up in what can be called a clash of different varieties of capitalism, which led to watered-down compromises (such as the Takeover Directive) or prevented harmonization entirely (e.g. the abandoned proposal for a Fifth Directive on board structure).

Looking beyond company law harmonization, the European integration as a whole has helped to foster trade, open markets and competition, which sometimes upset national socio-economic arrangements and bargains between interest groups. Competition sometimes erodes rents, including the portion captured by employees. European integration is often seen as a market-oriented project, and a good case can be made that the EU, as a whole, has indirectly helped convergence in corporate governance by markets integration. This is evident from the case law rooted in primary EU law, namely the freedom of establishment cases as well as the cases on Golden Shares. While primary law sought to eliminate national barriers, secondary law in the form of the directives often was intended to mitigate the effects of market forces. While primary law tended to promote aspects of liberal capitalism, the initial harmonization program sought to preserve elements of coordinated capitalism.

Throughout both the earlier and the later period of harmonization, EU company law remained largely a top-down, technocratic project that was considered imperative to realize the common market. However, there was rarely, if ever, a particular industry, lobby or country that pushed for harmonization. EU Company law harmonization thus developed a balance between proposals coming from Brussels and varying national resistance that provided a counterweight. In the early period, when company law harmonization was influenced mainly by Continental models, the UK stepped on the brakes after joining the EEC in 1973, whereas since the 2000s, when the UK law dominated as the model, Germany and other Continental jurisdictions have been the main objectors.