Experiments in Comparative Corporate Law: The Recent Italian Reform and the Dubious Virtues of a Market for Rules in the Absence of Effective Regulatory Competition

Article excerpt

I. INTRODUCTION

Some comparative corporate law scholars have recently argued that a meaningful measure of the quality of a system's corporate law is its ability to innovate.1 "The more innovative and adaptable a legal system is," they argue, "the more likely it is able to respond to a changing environment and thereby give firms the possibility to explore new opportunities while ensuring a minimum level of investor protection."2 To demonstrate their thesis, these authors undertook a relatively comprehensive evaluation of ten different legal systems. While they addressed a range of common law and civil law systems, conspicuously absent from their analysis was the Italian system.3 This article fills this gap by analyzing a recent reform that profoundly overhauls Italian corporate law (hereinafter, the Reform) and thus undoubtedly represents both a dramatic innovation and movement toward flexibility, all of which are very much inspired by foreign experiences. Throughout the analysis and in my conclusions I will question, at a substantive level, whether this legislative innovation can be viewed on balance as an overall improvement, particularly in light of some of the new risks it creates for minority shareholders. These critiques also raise questions more generally about whether a high rate of innovation and flexibility in statutory corporate law can be considered a proxy for the quality and efficiency of its provisions.

The Reform came into effect on January 1, 2004. It is expressly inspired by comparative analysis in that a number of new governance and financing options for Italian companies were borrowed or "transplanted" from other systems.4 In addition, the Reform is premised on deliberate adoption of law and economics theories, both in its overall approach and in many of its individual provisions.

The Reform introduced profound changes to the rules contained in the Italian Civil Code, changes that dwarf the extent of all other corporate law reforms since the Code's enactment in 1942.5 Even more significant than its introduction of new instruments and rules, the Reform really revolutionizes some of the underlying principles of Italian corporate law.6 Prior to the Reform, Italian corporate law contrasted dramatically with the United States and other common law systems (but was consistent with its civil law cousins) by its systematic preference-in relative terms-for mandatory rules over enabling rules.7 In post-Reform Italy, by contrast, Italian corporate law is less rigid and the degree of contractual freedom allowed in drafting (or amending) corporate bylaws has increased significantly.8 In this way, the Reform represents a fundamental break from the past and is thus a truly unique attempt (by both European and Italian standards) to render corporate law more flexible.

This increased contractual freedom affects various areas of corporate law. With regard to financing the corporation, it creates opportunities for issuing new types of shares and financial instruments prohibited thus far, reduces or eliminates limitations on the issuing of bonds, and establishes the possibility for creating separate pools of assets.9 It profoundly reorients traditional Italian corporate governance by opening up the possibility to choose from among several possible corporate governance structures in addition to the traditional Italian model.10 The express purpose of the legislature in enacting these changes is to enable different stakeholders (controlling and minority shareholders, investors, creditors, managers, employees, and other constituencies), both in closely and in publicly held corporations, to select the most efficient rules within the broader "menu" offered by the Civil Code.

It is questionable whether greater Europe will provide such an opportunity since European corporate law is currently hovering between a limited harmonization11 and an apparently developing market for rules. A series of recent cases decided by the European Court of Justice appear to open opportunities for corporations to choose which national corporate regime will govern their internal affairs,12 but many scholars argue that freedom to choose the place of incorporation-a necessary predicate for competition among nationally determined corporate governance structures-is still far off. …