This Article examines an issue of regulatory competition that seems to be of greater interest for the corporate governance of large, publicly traded firms: the position of the employees. The Article proceeds in three parts. Part I sets out the basic premise of the analysis by describing why employees may be relevant to the corporate governance structure. This Part will briefly draw on economic theory to explain why, at least under certain circumstances, it can be beneficial to create an institutional structure that facilitates long-term commitment between firms and their employees. Part II identifies aspects of European corporate law that are relevant to labor and corporate law arbitrage opportunities. After delineating the scope of regulatory arbitrage, this Part describes the three main issues that surround regulatory arbitrage. The most important of these are employee participation systems, which give employee representatives a say in corporate governance. The second issue relates to the controversial issue of directors' duties, with special attention to the extent that directors may defend against hostile takeovers. A third and often overlooked issue is the degree to which directors are independent from shareholder intervention. Finally, Part III presents the core of the analysis by describing the economic consequences of ex ante and ex post regulatory choice. Regulatory arbitrage provides the advantages of increased flexibility and possibilities to avoid some obviously inefficient regulation. On the other hand, mechanisms that may help to foster long-term commitment of firm employees are undermined by ex post arbitrage opportunities because of shareholders inability to permanently commit to a particular system. This Article argues that employee participation systems are at risk, in spite of the arbitrage limitations set by secondary EU law.
Tilting the Balance Between Capital and Labor? The Effects of Regulatory Arbitrage in European Corporate Law on Employees,
33 Fordham Int'l L.J. 792
Available at: http://ir.lawnet.fordham.edu/ilj/vol33/iss3/3