In my paper, The Political Economy of Cross-Border Voting in Europe, which was recently accepted for publication in the Columbia Journal of European Law, I study the issue of cross-border shareholder voting. Shareholder voting plays a pivotal role in the corporate governance of European public firms, even more so than in the US. At the same time, cross-border share ownership has increased dramatically over the recent years. Taken together, these circumstances underline the need for a system that facilitates cross-border voting. European policymakers recognize this, yet they seem reluctant to push through the reforms necessary to put such system in place. As a result, the status quo has so far prevailed.
In my paper, I analyze the legislative process and suggest that the prevailing of the status quo can be explained in terms of the European political economy. The analysis shows, first, that policymakers’ positions at the various stages of the process often appear to have been based on reports prepared by market practitioners and public consultations. Next, it shows that the conclusions emerging from those reports and consultations generally tend to reflect the interests of the groups of market practitioners (such as financial intermediaries) that are relatively strongly represented among the authors of the reports or the respondents to the consultations. Intermediaries, who have an interest in maintaining the status quo, appear to have had a particularly strong voice throughout the process. Together, these findings may go some way in explaining why the status quo has so far prevailed.
The analysis has important implications for the legislative process going forward. While the involvement of market practitioners has benefits, policymakers should not rely on expert groups and consultations to represent the interests of stakeholders in a balanced way, much less to devise solutions that are socially most beneficial. Regardless of the outcome of the recent consultation, the European legislature will need to make its own independent judgment on how to increase social welfare.
The full paper is available for download here.
UPDATE:
Manifest, the UK proxy voting agency, has dedicated a nice blog post to the paper - see here. Thanks.
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