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[No. 26] Stakeholder Value Theory v. Shareholder Value Theory

I just read Moving Towards Stakeholderism? Constituency Statutes, Enlightened Shareholder Value and All That: Much Ado About Little?, an interesting paper by Prof. Andrew R. Keay (HT PB.com). The title pretty much covers what the paper deals with, but here's the abstract.

Abstract: 
    
While Anglo-American jurisdictions have seen shareholder primacy dominate as the theory which provides what the objective of the large public company is to be, there are indications in the past 20 years that the stakeholder theory, the other leading theory that addresses the objective of the company, has become increasingly popular in many Anglo-American jurisdictions, and there is some suggestion that this approach is developing support in academic and practitioner circles. A number of factors have been identified to support this view and are adverted to in the paper. This paper focuses on legal developments in Anglo-American jurisdictions (and particularly the US and UK) to assess whether there is a movement in these jurisdictions to more of a stakeholder approach as far as its corporate governance is concerned. To this end the paper examines so-called constituency statutes in the US and their impact, and the concept of enlightened shareholder value as it has been developed in the UK (under the Companies Act 2006), as well as referring briefly to developments in Canada and Australia. The paper concludes that the pieces of legislation examined in the paper only appear to provide greater stakeholder focus and they really add, from a strict legal viewpoint, little in a drive towards stakeholderism. This is due to a number of reasons but a major one is the lack of power in stakeholders to challenge directorial actions in the courts or in any other way.

Keywords: corporate governance, enlightened shareholder value, constituency statutues, stakeholder theory, shareholder primacy, corporations

JEL Classifications: G3, K22, L21

Although issues like these have been debated ad nauseam in legal literature worldwide, the paper offers interesting insights as it focuses in part on section 172 of the UK Companies Act 2006, that is said to capture the enlightened shareholder value theory (but hasn't been dealt with to date in UK case law). The exact scope of section 172 CA 2006 isn't clear, as Keay illustrates nicely.

One could read this section to mean that it takes a route in between (i) pure shareholder value theory ("US style") and (ii) pure stakeholder value theory (still firmly rooted in Dutch law), as it puts shareholders' interests at the front, but at the same time requires directors to take into account other factors (like the interests of the company's employees), making it possible under certain circumstances to push shareholders' interests a bit more to the back of the row, to modulate between the interests of certain constituency groups. For a nice reasoning why we should think about embracing such an approach in the Netherlands, go here. Another way of looking at it, is that the shareholders' interests ("the members as a whole") should be the dominant concern of directors, be it that directors - by also taking into account the factors mentioned under sub (a)-(f) - should look primarily at value promoting in the long term. By looking at it this way, section 172 CA 2006 doesn't really embody a third way, in addition to (i) and (ii), but actually hinges rather firmly to (i).

Different takes are feasible, but I'll leave it at that; if you want more, go and read the paper. At a seminar that I attended January 29, 2010 in Amsterdam, Lord Goldsmith - who was involved in the legislation process of this section - explained in passing what the section apparently intends to make clear. What I remembered from that session (DISCLAIMER: I'm not claiming any verbatim report here about what was said then) is that, in short, directors are expected as per section 172 CA 2006 to act in a way that they consider, in good faith, would be most likely to promote shareholder value in the long run. This would imply there is no significant gap between the US (Delaware) and the UK approach as to what the policy focus point of corporate directors generally should be, but that it's more a matter of semantics.

However that may be, in the Netherlands any form of shareholder value theory is certainly not the leading approach, although some argue for some rather drastic measures in this respect. That doesn't mean things are clear over here. After many years - well decades - of discussion between learned commentators, there is still no consensus on what the term 'best interests of the company' (the thing directors are supposed to have in mind when acting on behalf of the company) means. Neither in literature nor in case law, where the term is used regularly but never explained. That's a bit weird: directors are expected to act in the best interests of the company, but nobody really knows what these words actually cover. For my take on things (this is where I reach the pointe of this post...), check out my inaugural speach presented on January 21, 2010 at the Erasmus University Rotterdam and published in De Januskop van het Ondernemingsrecht (in stores very very soon; art work courtesy of my 4-year old son).

[No. 25] Eye of the Tiger

Today, De Nederlandsche Bank (the Dutch national bank) published its supervisory themes of 2010, aspects of the financial sector that will receive special attention.

One rationale of this approach is the need to restore faith in the sector, after the credit crunch, some special discussion topics (like excessive bonuses, irresponsible risk-taking and the sale of dubious financial products) and international discussions at the last G20 summit (also see here).

Another may be - well duh - to restore faith in the supervisory capabilities of DNB itself, as a pre-emptive strike against the pretty predictable outcome of the ongoing research by the investigative Committee De Wit into the financial crisis and the role played by DNB (for some background, go here).

The key issues for 2010, according to DNB that is?

• There will be more focus on integrity and governance, in line with the approach taken in previous years. Besides dealing with actual behavior and culture in talks with financial institutions and through a number of in-depth investigations, DNB also plans to re-review pay policies (checking early this year whether these policies are in line with DNB principles and good practices).
• There will be more focus on those institutions that incline to move to the margins of tax regulation.
• There will be more focus on strategies and business models of institutions subject to DNB supervision, as these are subject of discussion in all sectors in this day and age (in part due to restructuring activities). DNB aims to prevent moves by institutions, geared towards unhealthy risk-taking in response to pressure for profit maximization by certain players (like investors and credit rating agency's). Coined as "a new search for yield" by DNB.

In addition, DNB highlights changes in applicable regulation, including capital/liquidity demands by the Bazel II framework for banks and the Solvency II framework that applies to insurance companies (operational as from 2012).

Sounds promising, but there's a difference between saying and doing. We'll see in the course of this year whether it's mostly muscle-flexing, or actually involves some punching also by DNB. As the supervisor has some lost ground to make up for, I wouldn't be surprised to even see the gloves go off at some point. In the meantime, imagine Eye of the Tiger steadily getting louder in the background...

[No. 24] Brothers in Arms

The life of a PhD-candidate can be solitary. I was reminded of this last evening (Saturday), when I was doing some late night writing and backed up my work by e-mailing the file to my own account. At an hour that most people would probably find themselves either in a bar or in their beds, I went on to do some more thinking and made some half-hearted attempts at putting it all on paper. I may have felt slightly sorry for myself, I can't remember exactly and if I could I would probably deny it. In any case, suddenly I heard that joyful (or annoying, depending on whether you're focusing or looking for distraction) 'ping' sound of my Apple Mail program, announcing that I had received a message. I kind of got excited that someone would e-mail me at this hour, meaning I was not alone. I quickly switched screens, only to find out that the person crazy enough to send an e-mail at this hour was me.

At times like that, there is one place I can go for some consolation without having to leave my desk. It's the fine folks at PhD-Comics. They got it right so often it makes one laugh about one's life. And you can subscribe to their daily delivery service, meaning that at least someone will e-mail you during those solitary early morning hours...     

[No. 23] Re De Boer Makelaardij en Assurantiën Flevoland and AHAM Inquiry Proceedings

During January 2010, the Enterprise Chamber produced some interesting rulings in inquiry proceedings. I highlight two of them here.

1. Re De Boer Makelaardij en Assurantiën Flevoland B.V. (published in ARO 2010, 21)

In this case, decided on January 14, 2010, the requesting shareholder had asked for an inquiry into the policy and state of affairs at De Boer Makelaardij en Assurantiën Flevoland B.V. (not for any provisional measures referred to in section 2:349a (2) DCC).

This seems to be a case in which the lawyer representing the requesting shareholder is not very familiar with the mechanism of inquiry proceedings. Leaving aside the fact that the Enterprise Chamber had to help the shareholder by interpreting his briefs favorably in search for grounds to the complaints (see 3.1), the court ruled:

(i) that the grounds advanced could not result in a finding of 'well founded reasons to doubt the correctness of the company's policy and state of affairs' (see 3.7);

(ii) that as to two of those grounds, the shareholder had not provided a sufficient factual basis (see 3.3-3.6);

(iii) that as to the other two grounds, being (a) disagreement between shareholders on the price to be paid for the shares of one of them and (b) the prospect of one shareholder filing a section 2:343 DCC claim (a claim aimed at obtaining a court ruling that the other shareholders must buy-out the litigating shareholder), those grounds in itself cannot result in a finding of those 'well founded reasons' (see 3.2); and

(iv) that in any event, the shareholder had failed to present to management board of the company with his complaints before filing the request for an inquiry at the Enterprise Chamber, as required by section 2:349 (1) DCC (one of those rare situations in which the court decides that a claim must fail due to a violation of section 2:349 (1) DCC); in view of this, the court doesn't reach the stage of denial of the claim, as the shareholder isn't even allowed up to bat (see 3.7-3.9).

Ouch.

The upshot of thise case, aside from the clarification mentioned under (iii), is the court's remark that a raise in director pay - even in times of negative results - is insufficient in itself to raise doubts as to the correctness of the company's policy and state of affairs (see 3.4).

2. Re B.V. Amsterdamsche Huizenhandel en Administratiemaatschappij (published in ARO 2010, 24, available here)

In this procedurally complex case, decided on January 12, 2010, the requesting shareholder had asked the Enterprise Chamber to establish mismanagement (wanbeleid) and take certain measures at AHAM. This is a case to centers around the question whether the general meeting shareholders acted reasonably when trying to fire the management board, in view of the fully deteriorated relationship between the shareholders and the board. I touched on that subject in Facetten van verantwoordelijkheid in hedendaags ondernemingsbestuur, Deventer: Kluwer 2009, no. 3.3.2.

According to the court, the general meeting has acted reasonably as its reasons to get rid of the incompetent board were understandable (although it did not act flawlessly in the process), reason why the court denied to establish mismanagement and denied the request. Here's the money quote.

3.4 Gelet op het voorgaande, de verdere inhoud van het verslag en de stellingen van partijen over en weer is de Ondernemingskamer van oordeel,
- dat Sint Antonius als grootaandeelhouder – en in overwegende mate met haar: de andere aandeelhouders – AHAM naar een hoger niveau van professionalisering heeft willen brengen,
- dat niet gezegd kan worden, dat de wensen van Sint Antonius op dit punt onredelijk waren,
- dat het bestuur niet adequaat op die wensen heeft gereageerd, noch door – tijdig – aan die wensen uitvoering te geven noch door – tijdig – toereikende alternatieven aan te dragen,
- zodat er inderdaad ernstig aan getwijfeld moet worden of het bestuur van AHAM in staat is om AHAM naar voormeld hoger niveau te brengen.

Hoewel moet worden toegegeven dat ook Sint Antonius niet steeds gelukkig heeft geopereerd, moet niettemin geconcludeerd worden dat het niet onbegrijpelijk was, dat Sint Antonius in de gegeven situatie haar koers niet meer met dit bestuur wilde vervolgen, zodat niet gezegd kan worden dat zij in redelijkheid in de gegeven omstandigheden niet kon aansturen op het ontslag van het bestuur. Daarbij heeft de Ondernemingskamer nog in aanmerking genomen dat inmiddels is gebleken dat Sint Antonius ter vervanging van de zittende bestuursleden wel degelijk serieuze kandidaten met voldoende gewicht op het oog had (verslag 15.2 en 4).

3.5 De Ondernemingskamer overweegt ten slotte nog dat de problemen weliswaar niet onmiddellijk voorbij zullen zijn – de onderzoeker spreekt van een 'instabiele situatie' –, indien de algemene vergadering van aandeelhouders inderdaad zal besluiten tot vervanging van het bestuur (verslag 17.1). Ook aan de zijde van de aandeelhouders schort het immers aan professionaliteit (verslag 17.3). Aangenomen mag echter worden dat de intrede van meer professionele bestuurders bij de aandeelhouders op dat punt tot verbetering zal leiden (verslag 17.3), zodat niet bij voorbaat ervan kan worden uitgegaan dat de aandeelhouders niet in staat zullen zijn om – rekening houdend met de omstandigheden zoals zich die thans voordoen – de stabiliteit te doen weerkeren.

3.6 Het voorgaande brengt de Ondernemingskamer tot de slotsom – enerzijds – dat zich bij AHAM een moeizaam op verandering gericht proces heeft voorgedaan, dat gepaard ging met een impasse in de verhoudingen tussen de aandeelhouders en het bestuur, maar – anderzijds – dat de aandeelhouders een koers hebben willen volgen en doorzetten die een uitweg uit de impasse kon bieden, zodat niet gezegd kan worden dat die impasse en de overige omstandigheden de kwalificatie wanbeleid rechtvaardigen.

This type of scenario - the general meeting trying to fire directors - isn't reviewed that often by the court (see for another case here). The analysis applied here makes sense to me.

As an aside

Oh, for those of you interested in section 2:403/404 DCC disputes, check ARO 2010, 28-30 for decisions by the Enterprise Chamber re Hoeveholding B.V. (all three decided on January 12, 2010).

[No. 22] Risk Taking, Hindsight Bias and Delaware Corporate Case Law

Jay Verret, an American Corporate Law Professor and former Court of Chancery clerk (not in 2008, the year in which I had the chance to work at the Chancery and Supreme Court), provides some useful insights here in the way Delaware corporate case law is viewed and discussed in some circles outside the state. The trigger of the discussion here was Chancellor Chandler's opinion In re Citigroup, Inc. Shareholder Derivative Litigation, highlighted at TDT here.

His post is pretty long, but right below are the key parts. Must read stuff for those interested in Delaware corporate law dynamics.

A number of the discussants at the panel focused their attention on Delaware.  This is certainly appropriate, as Delaware is the corporate home of nearly 70% of the Fortune 500 and half of the 14,000 publicly traded companies in the United States.  Most of the academy has a contentious relationship with the Delaware courts and an inordinate number of academics dedicate their time to attacking the Delaware model of corporate law.  (For the Don Quixote of anti-Delaware scholarship, see Jay Brown at U. Denver)  The AALS panel discussion on Business Associations this year mirrored that tendency in the corporate law scholarship.

(...)

The theme of the AALS panel on Business Associations was “The Financial Collapse and Recovery Effort: What Does it Mean for Corporate Governance?”   A summary of Lisa Fairfax’s excellent discussion on clawbacks for executive compensation can be found here.  Erik Gerding has also compiled a great summary of the full discussion here and here.  The portion of the discussion relating to Delaware was focused around the question of: “Can we rely on Delaware to solve the crisis?”  and “Can Delaware serve as a regulator of systemic risk?”  The specifics of that discussion focused on the outcome of the Citigroup case.  I will save my response to the panel’s particular comments on the Citigroup case for a moment, and first take issue with the broader question presented by the panel.  Is Delaware the appropriate forum for regulating systemic risk?  Absolutely, definitively, no.  Delaware is not designed to deal with that question, and it does not assert such jurisdiction.

The confusion is easily explained: the Delaware Courts are designed to deal with large scale business transactions, and rarely does a week go by without a Delaware Court of Chancery case appearing in the Wall Street Journal.  Issues of systemic risk relating to large publicly traded investment banks have also tended to make the front pages of the Wall Street Journal during the crisis.  This is however merely a matter of coincidence.  Delaware adjudicates conflicts between shareholders, companies, their boards of directors, and their executives.  These conflicts are decided on a case-by-case basis.  The Delaware judiciary does not have the constitutional authority, nor does it possess a policy advantage, to serve as a nation-wide regulator of systemic risk.  For that matter, neither does the SEC (which is often described by Delaware critics as Delaware’s antipode).  The SEC has a mandate to protect investors and encourage capital formation under the 33 and 34 Acts, but it possesses neither a mandate nor sufficient expertise to regulate the investment community to police leverage.  This is particularly true in light of the Department of Housing and Urban Development’s superseding authority over the leading source of systemic risk (to the tune of a recent $400 billion dollar backstop from the Treasury Department), namely Fannie Mae and Freddie Mac.

The AALS panel also focused on the Citigroup case as its shining example of Delaware corporate law gone astray.  I feel compelled to respond accordingly.  In that case, the plaintiff sought to evade Section 102(b)7 of the Delaware General Corporation Law, which permits Boards to opt out of liability for good faith violations of the duty of care, by arguing that the Board of Citigroup “failed to act” in its oversight of risk management.  The subject of the Citigroup plaintiff’s challenge was essentially subprime mortgage bets by Citigroup.  Chancellor Chandler noted that the plaintiff’s reading would have eviscerated the Delaware legislature’s intent in enacting 102(b)7 by allowing plaintiffs to allege that, despite an initial good faith and well considered decision to undertake an investment opportunity, a board could be found liable after the fact for its failure to “oversee” the progress of that opportunity.

First, the AALS panel’s view seems to encourage judicial activism on the part of the Delaware Court of Chancery to ignore the Delaware General Corporation Law.  Even more surprisingly, they begin from a clearly hindsight-biased view of Citigroup’s risks.  The tenor of the discussion was in the order of “well, clearly, Citigroup’s board made bad decisions, because they lost lots of money.”  This is precisely the sort of thinking that the DGCL, in particular Section 102(b)7, is designed to avoid.  Hindsight bias built into corporation law would cripple the ability of boards to invest resources in risky propositions, because boards would fear ex ante the potential liability of good faith but uncertain investments that subsequently lost money.

And if you don’t think the AALS panel’s view on Citigroup’s investments is overwhelmingly colored by hindsight bias, consider remarks by Chairman Ben Bernanke, who in 2006 said that the housing market “will most likely experience a gradual cooling rather than a sharp slowdown” and who in 2007 noted that “the impact of subprime loans on the broader economy and financial markets are likely to be contained.”  Readers should certainly not take my quotes of Bernanke as a critique of him.  Though I personally feel the Fed is overly lax in monetary policy these days, that’s another issue.  My point is that one of the smartest, most informed, and least conflicted financial regulators felt in 2006 and 2007, at the height of the events of the Citigroup case, that subprime was a relatively riskless bet.  As such, I take severe issue with the “conventional wisdom” at the AALS that the Citigroup case was a slam dunk against Chancellor Chandler’s decision.

Let’s also not forget that the Delaware Court of Chancery decided to permit the waste claim to survive at that stage in the litigation, and it survives to this day.  I realize that waste claims rarely result in ultimate judgment against the defendants, but then again most all claims in civil court rarely result in ultimate judgment against the defendants.  If Delaware was such a rigged game in favor of defendants, as the AALS panel seemed to suggest, why would Chancellor Chandler have permitted the waste claim to survive, knowing it would give the plaintiffs continued leverage to demand some form of award in settlement negotiations?

I will close with two general critiques of Delaware’s critics that applies both to some of the recent commentators at the AALS panel and also to the anti-Delaware vein of scholarship generally.  Don’t get me wrong… I won’t argue that Delaware is perfect, but I will take issue with a lack of sophistication in much of the criticism.  My first point is that the anti-Delaware crowd lumps the various institutions of Delaware together as though it were a single entity.  This could not be more inaccurate.  In the interest of brevity in this blog post, I will only note 10 relevant institutional players in Delaware, although to respond justly I should dedicate a summer to an article that atomizes the players in more depth.  There are significant conflicts of interest among the Delaware Court of Chancery, the Delaware Supreme Court, the Delaware litigation defendant’s bar, the Delaware litigation plaintiff’s bar, the Delaware deal advisory bar, the out of state (particularly NY) deal advisory bar, the Delaware Committee on Corporate Laws, the Delaware Legislature, the Delaware Governor’s office, and the Delaware Secretary of State (responsible for incorporating entities).

My second broad critique of the anti-Delaware crowd is that they seem to ignore that if Delaware were such an anti-shareholder jurisdiction, we would expect to see a share price discount for Delaware publicly traded entities against shares in other companies.  As such, we should also expect to see new IPOs featuring non-Delaware corporations in the hopes of obtaining a premium.  We see neither.  In fact, 70% of all IPOs in 2005 were Delaware corporations.  Furthermore, the only empirical evidence on point is in precisely the opposite direction… empirical evidence suggests that Delaware firms trade at a substantial premium to other firms (see Roberta Romano’s work here and Robert Daines’ work  here)

(HT Steve Bainbridge, who stresses that Chandler "got Citigroup exactly right")

[No. 21] In Search of the Smoking Gun

This post comes from

Annemetje Koburg

Dutch Minister of Finance Wouter Bos has doubts – as does Nout Wellink – about the information provided by the Belgian CBFA) and British (FSA) financial supervisors as to the ABN Amro takeover, especially the position of Fortis and Royal Bank of Scotland. Apparently the FSA did not inform Wellink about RBS’ liquidity problems and 36,6 billion euro’s of financial support provided by the British government. Wellink also wondered whether the CBFA gave sufficient and timely information about the problems at Fortis.

It seems that appropriate scape goats can also be found abroad. Which makes me wonder whether the CBFA and FSA could face potential liability.

Although the CBFA is granted legal immunity, it nevertheless can be held accountable for fraud or gross negligence (bedrog of grove nalatigheid). Also the FSA is granted immunity concerning supervisory actions or negligence, with two exceptions: (i) acts in bad faith and (ii) violation of ECHR provisions. Thus, no full immunity, which is in line with the Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision, that recommends protecting supervisors from personal and institutional liability for supervisory actions taken in good faith. The Dutch situation is a bit different, in that we don’t know this whole immunity concept as to financial supervisor liability. Under Dutch law, supervisor liability is basically rooted in tort.

Het Nederlands beleid is dat toezichthouders aansprakelijk kunnen worden gesteld indien zij door een toerekenbare onrechtmatige daad schade veroorzaken. In tegenstelling tot de situatie in enkele andere Europese landen (Verenigd Koninkrijk, Duitsland, België) is er voor financiële toezichthouders geen immuniteit geregeld. DNB loopt zowel de kans om aansprakelijk te worden gesteld door degenen op wie zij toezicht houdt als door derden indien deze schade lijden door inadequaat handhavingstoezicht. De kosten zijn daarbij uiteindelijk voor de Nederlandse Staat. Uit jurisprudentie en onderzoek blijkt dat een redelijk handelend toezichthouder geen groot aansprakelijkheidsrisico loopt.

So, in Belgium and the UK it’s possible in theory to hold financial supervisors liable. But in practice? We’re basically talking about bad faith behavior here, as the exception to the rule of immunity. Aside from the proverbial ‘smoking gun’, that will be an uphill case to make in court, to say the least.

[No. 20] Timing is Everything, Right?

Okay, so in Post No. 221/09 I wrote the following about the bill on private company law reform, an important chunk of legislation practitioners in business and law have  been quite eagerly waiting for for some years now.

We've been discussing the reshaping of Dutch corporate law in the field of private companies several times (see, e.g., here with links). Now that the first tranche of the legislation process in parliament has been completed (the Second Chamber has accepted the proposal with some amendments), the waiting is for the second and last tranche, to be completed by the First Chamber (that chamber can only say yes or no, it cannot amend); if the process is picked-up and completed before April 1, 2010, the expectation is that the new regime for private companies will be operational as of July 1, 2010. So we're actually getting somewhere here, or so it seems.

Uhm, or not.

Apparently, the committee on justice of the First Chamber of parliament seems to be delaying discussions on the bill, because the Ministry of Justice doesn't provide the full text of this bill and of others (especially some tax stuff). By delaying discussions on this bill, the committee is putting pressure on the ministry to come forward with the full text of bills in the future, when requested. The committee now, again: apparently, is aiming at continuing discussions on the bill in April 2010, but this may well also depend on the way the quarrel with the ministry turns out.

Huh? Well, that's a weird twist, I guess timing isn't everything always. To be sure, for you sceptics out there, I'm not making this up. Here's the key part from the notes by the "Vergadering van de vaste commissie voor Justitie" (roughly: the meeting of the regular committee on Justice) of February 2, 2010, confirming this course of events.

Via ambtelijke weg is begrepen dat het ministerie van Justitie geen doorlopende wettekst zal verstrekken met betrekking tot de wetsvoorstellen 28746 Vaststelling van titel 7.13 (vennootschap) van het Burgerlijk Wetboek 31065 Aanpassing van de wetgeving aan en invoering van titel 7.13 (vennootschap) van het Burgerlijk Wetboek (Invoeringswet titel 7.13 Burgerlijk Wetboek) en 31058 Wijziging van Boek 2 van het Burgerlijk Wetboek in verband met de aanpassing van de regeling voor besloten vennootschappen met beperkte aansprakelijkheid (Wet vereenvoudiging en flexibilisering bv-recht). De commissie wil - gelet op het feit dat eerder in andere commissies soortgelijke verzoeken zijn afgewezen - aan het College van Senioren het verzoek voorleggen dat de Voorzitter in overleg treedt met de regering om de toezegging te verkrijgen dat in voorkomende gevallen wel aan zo’n verzoek om een doorlopende wettekst gehoor zal worden gegeven. Vooralsnog wordt het voorbereidend onderzoek met betrekking tot de twee laatstgenoemde wetsvoorstellen opgeschort.

How about them apples?

July 1, 2010 as "D-day" for the bill to become operational seems less and less likely. Maybe, just maybe, 2011 is doable. Aah, the surprises of the legislative process...

[No. 19] The Big Blame Game [Updated II]

Post No. 17/10 had some nice authentic footage of Nout Wellink, giving his personal perspective on the credit crunch to the Committee De Wit.

Yesterday former ABN Amro CEO Rijkman Groenink came by, with a somewhat different appreciation of the course of events, including the hotly debated ABN Amro takeover (c.q. debacle). He, in turn, was followed today by Nout Wellink (who wasn't very impressed by Groenink's story) and Minister of Finance Wouter Bos (ditto). For a reaction by Groenink, go here.

The red thread of the sessions? You guessed it, bickering, bickering, bickering, with one bottom line: nobody is going to say sorry here, despite the attempts by the Committee De Wit in that direction. We're in "blame the other guy" land here. Instructive and entertaining nonetheless. Can't we do this for another week or so?

For live reports of the committee sessions - unfortunately no footage, only written stuff, but on a realtime basis - go here (and check the right side bar, it's self-explanatory).

UPDATE I

Although - well, just maybe - not wholly appropriate to mention in this post, I'm doing it anyway: here's a recent publication by Lucian Bebchuk and Holger Spamann about Regulating Banker's Pay.

UPDATE II

And now even the Committee De Wit itself is target of criticism, labeled by some as incompetent

Kamerleden zonder enige expertise bevragen betrokkenen die hun hele leven al in de financiële sector rondlopen. Die komen dan ook vreselijk makkelijk weg. Terwijl ze net zolang op hun huid gezeten moeten worden, totdat ze zeggen: ‘Hier kan ik niet op antwoorden.’ Alleen Jolande Sap van GroenLinks is in staat vervolgvragen te stellen. Dat zij het kundig doet, komt doordat ze econome is. Maar zo’n Dion Graus van de PVV: beschamend. In het gesprek met oud-Rabo-topman Bert Heemskerk zei Graus letterlijk: ‘Niets is onmogelijk, dat blijkt wel uit de crisis.’ Dat is kennelijk zijn niveau van expertise.’

and by others as way too focused on finishing the prepared Q&A, not on key issues that came up during the sessions but weren't part of the rehearsed Q&A.

De commissie is intens tevreden. Hoofdrolspelers nog eens horen, maar dan onder ede, vinden de commissieleden niet nodig. Alles wat ze wilden horen, hebben ze gehoord, zeggen ze. De vragenlijst is geheel afgewerkt.

We'll see what comes out of the committee's findings, but it won't be a shocker to anyone if its finger points in the direction of De Nederlandsche Bank and its president.

[No. 18] Start-Ups and Breakdowns

The Dutch Chamber of Commerce recently published some stats on start-ups and bankruptcies in the Netherlands.

Categorie	dec-2009	dec-2008	Verschil		Totaal 2009
Starters	9.372	8.225	1.147 (13,95%)		105.592
Nieuwe Inschrijvingen	33.669	18.068	15.601 (86,35%)		316.540
Opheffingen	19.357	16.248	3.109 (19,13%)		118.689
Faillissementen	619	551	68 (12,34%)		7.410
Surseances van betaling	36	5	31 (620%)		404

In December 2009, compared to the situation in December 2008, there was a rise of 13.95% in the number of start-ups (with a total number of 105.592 in 2009), but also a rise of 12.34% in the number of bankruptcies (with a total of 7.410 in 2009).

For a breakdown in various legal entity forms go here. For a breakdown of the annual numbers go here.

(HT Maarten Verbrugh)

[No. 17] And Now It Was the DNB's President Turn - Hindsight Bias, Anyone?

I believe Nout Wellink's answers and explanations were pretty solid actually, despite all the criticism against DNB's supervision activities in the past days. Go here and here for earlier posts at TDT about the Committee De Wit, that is diving into the questions how the credit crunch could happen and how a new one can be prevented (well, more or less). Snippets of the "Wellink session" are available directly below.