Cheng: The Reform of the Corporate Duty of Care in China — From the Introspection of Delaware and Taiwan

Abstract:

The concept of fiduciary duty, derived from common law, was introduced to the Company Law of People’s Republic of China in 2005. The fiduciary duty plays an extremely important role in common law, particularly in U.S. corporate law. For this reason, one might have expected dramatic consequences from its introduction to Chinese law. In reality, however, few fiduciary lawsuits have been brought to the courts of China since 2005. There are three main reasons for the rarity of due care lawsuits. First, Chinese fiduciary law has neither clear content nor a practical enforcement. This is especially true of the body of fiduciary law that deals with the duty of care. This makes it difficult for lawyers to decide whether pursuing a due care lawsuit is worthwhile and for judges to establish a legal doctrine for applying and enforcing the law. Second, the traditionally harmonious culture of China discourages filing lawsuits against directors. Shareholders thus prefer other ways to solve problems, such as simply selling their stocks. Third, Chinese law imposes severe restrictions on derivative lawsuits. One such restriction is the requirement for shareholder(s) to have held at least 1% of company stock for at least 180 consecutive days in order to be eligible for filing a derivative lawsuit. This dissertation examines China’s problematic duty-of-care law and demonstrates that it is in dire need of revision by introspecting the duty of care in Delaware and the obligation of care of a good administrator in Taiwan. In any case, however, one cannot simply transplant a common law concept to civil law without also making a substantial effort to explain the law and adapt it to fit its new context. Otherwise, the law will inevitably suffer either from vagueness or ambiguity, both of which are sure sources of confusion. Therefore, the ambition of this dissertation is to provide the Chinese world a practical reform of the duty-of-care law that fits in the Chinese society.

Available for download here.

Advertisements

Clark & Monk: The Geography of Investment Management Contracts | the UK, Europe and the Global Financial Services Industry

ABSTRACT:

Contract is crucial for governing the relationships between asset owners and the many types of agents that underpin the production of financial services. We distinguish between discrete contracts for financial services and investment management contracts that are better described as relational in the sense that they are open-ended and subject to renegotiation between the parties. Emphasis is placed upon the significance of risk and uncertainty in financial markets and the ways in which the parties to contracts adapt to these conditions. This provides the backdrop for understanding three different types of contractual arrangements apparent in the investment management industry, bringing to the fore the significance of the choice-of-jurisdiction when writing contracts for investment services. We explain how and why the UK is a favoured destination for European institutions just as offshore jurisdictions, such as the Cayman Islands, may be the favoured ‘home’ jurisdictions for certain types of UK and global investment managers.  At the heart of the relationship between asset owners and asset managers is the power of these parties when choosing the type of contract and the jurisdiction which is the favoured location for formalising these relationships.

 

Available for download here.

Gennaioli, Shleifer & Vishny: Money Doctors

ABSTRACT:

We present a new model of investors delegating portfolio management to professionals based on trust. Trust in the manager reduces an investor’s perception of the riskiness of a given investment, and allows managers to charge fees. Money managers compete for investor funds by setting fees, but because of trust fees do not fall to costs. In equilibrium, fees are higher for assets with higher expected return, managers on average underperform the market net of fees, but investors nevertheless prefer to hire managers to investing on their own. When investors hold biased expectations, trust causes managers to pander to investor beliefs.

 

Available for download here.