Chapter Eight Conclusion and Proposals

CHAPTER EIGHT

CONCLUSION AND PROPOSALS

“Unhappy events abroad have retaught us two simple truths about the liberty of a democratic people. The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism – ownership of Government by an individual, by a group, or by any other controlling private power. … Among us today a concentration of private power without equal in history is growing”. —F.D. Roosevelt, 19381

8.1 – Summing up the Main Themes of the Research

Despite coming from a rather remote past, the above quote, and the overall speech given by the American president before Congress, reflects certain issues that, eighty years down the line, have remained extremely pressing and perhaps unresolved. The concentration of economic power among an increasingly smaller number of people and, even more importantly in the context of the research, the control exerted by finance over industry, are in the wake of the global financial crisis issues that still need to be addressed.2

The book has attempted to analyse the broad and far-reaching implications of the above questions by looking at financial scandals that have occurred over the last decade and by providing an examination of specific legal issues in corporate and financial law. Beyond the more traditional legal enquiry, research in this field has also allowed an assessment of more theoretical aspects of the problems, which inevitably entailed reflections on their politico-economic underpinnings and on the rationale behind the regulatory architecture of corporate and financial law. Ultimately the book purported to contribute to current policy debates by

1 F.D. Roosevelt “Message to Congress on Curbing Monopolies”, April 29 1938. Available at http://www.presidency.ucsb.edu/ws/index.php?pid=15637#axzz1Ze7GRv3W. 2 Ibid.

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proposing the ESC paradigm. This encompasses both a theoretical definition and more substantive proposals in the areas of corporate governance and structured finance.

Chapter two provides the theoretical platform of the study and explores historical as well as politico-economic arguments underlying the discussion of the identified corporate and financial law themes. These represent essentially the background of the research and are linked to the subsequent legal analysis and case studies.

Chapters three and four form the legal backbone of the research as they analyse legal issues related to corporate and financial law. In particular, the former highlights the emergence of a control problem over managerial actions, reflected in the functioning of statute-based directorial duties and in market-based mechanisms such as compensation structures. The predominance of shareholder value ethos in Anglo-American corporate law poses further problems of accountability, because wider spectrums of corporate and societal constituencies are found to remain isolated from corporate decision-making. In this respect the ESC proposes a two-tier classification of firms that concentrate state control over tier-one corporations which, by virtue of their status, are deemed to impact on a broader range of social interests.

Financial law issues are centred on the analysis of the legal risks related to capital market finance transactions, particularly with regards to the innovation of more traditional securitisation schemes into CDO and CDS contracts. Complementary examination of credit rating agencies within structured finance provides a comprehensive perspective of the problem and leads to advocating a stronger, more prescriptive role of states in the regulation of these transactions. Since states are deemed under the paradigm to better represent the interest of all social groups, regulation and supervision stemming from a national public authority are advocated as measures to rein in the excesses of the market and above all to redefine the role of financial markets vis-a-vis society, industry and the economy.

The case studies in chapters five and six provide the springboard for theoretical themes and legal issues analysed in the book. Moreover they expose the re-emergence of certain legal concerns at different historical times and the common denominators of two apparently different sets of financial scandals. This reflection corroborates the proposed hypothesis that modern financial scandals are the offspring of two main problems: a failure to govern big public corporations that probably finds its roots in the

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definition provided by Berle and Means3 in the 1930s; and an abuse of capital market finance as a consequence of the “financialisation”4 that over the past two decades has characterised, inter alia, the way in which public firms are run.

Chapter seven draws from the critical considerations previously laid down and introduces the ESC paradigm whose foundation draws from a selection of theories. The paradigm then focuses on institutional mechanisms and on the ideal regulatory body that should support it. The concept advocates a redefined role of states in the regulation of certain activities in the sphere of corporate and financial law. In particular, substantive proposals in the chapter address the aforementioned legal issues. The proposals converge towards the proposition of a more democratic and inclusive approach to regulation of key spheres of corporate and financial law. This stance counters the ideological underpinning of the scandals under examination namely the undisputed reliance on neoliberal tenets, financial-economic theories (both unchallenged since the 1970s) and on the unconditional trust on the market for regulatory and supervisory purposes.

8.2 – Proposals under the Enlightened Sovereign Control

The book assessed a number of theories in the field of corporate and financial law upon which the proposed paradigm is grounded. In the context of this concluding chapter, proposals will not be detailed again, but will be analytically summarised in the following charts.

3 A.A. Berle and G.C. Means “Modern Corporation and Private Property”, Original edition published in 1932 by Harcourt, Brace & World; New Brunswick London 1991. 4 L.E. Mitchell “Financialism. A (Very) Brief History”, 2010, available at http://ssrn.com/abstract=1655739; L. Gallino “Finanzcapitalismo – La Civiltà del Denaro in Crisi”, Einaudi 2011.

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