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Competition Law and Corporate Ownership Structure: a European Research Agenda

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Abstract

There is historical evidence which suggests that mergers can be a potent agent for change in a transition towards a US-style corporate governance system where widely-held companies play a pivotal role. Moreover, past events suggest that competition law can influence whether ‘transformative’ acquisition activity will occur. Despite this, little has been said in the contemporary discourse on comparative corporate governance about how competition law and mergers might be catalysts for change. This paper seeks to familiarise a European audience with the relevant dynamics. For expository purposes, the analysis will focus on historical events occurring in the United States and the United Kingdom, the country with corporate governance arrangements which resemble America’s more closely than any other nation. Nevertheless, there will also be discussion of questions which merit attention from a Continental European perspective, accompanied for illustrative purposes by references to circumstances in Germany.

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  55. Ibid., at pp. 30, 32, setting out data for a sample of companies incorporated in 1900 and a sample of companies incorporated in 1960. The only exception to the pattern was for companies incorporated in 1900, where flotations and rights issues had a greater impact on insider (i.e. director) share ownership during the 1960s.

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  58. Freyer, op. cit. n. 56, at pp. 22–23.

  59. On the terminology, see Tippetts and Livermore, op. cit. n. 57, at p. 367.

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  61. United States v. Trans-Missouri Freight Ass’n, 166 US 290 (1896); United States v. Joint Traffic Ass’n, 171 US 505 (1898).

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  65. Northern Secs. Co. v. United States, 193 US 197 (1904).

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  71. Freyer, op. cit. n. 56, at p. 25.

  72. Arthur F. Lucas, Industrial Reconstruction and the Control of Competition: The British Experiments (1937) pp. 3, 65; Helen Mercer, Constructing a Competitive Order: The Hidden History of British Antitrust Policies (1995) p. 49; Sidney Pollard, The Development of the British Economy 1914–1990, 4th edn. (1992) pp. 79–81.

  73. Mowery, loc. cit. n. 68, at pp. 516–517; G.C. Allen, British Industry (1944) p. 21.

  74. Walshe, loc. cit. n. 46, at pp. 338, 342, 361; Lucas, op. cit. n. 72, at pp. 2, 64–65; Allen, op. cit. n. 73, at pp. 20–21.

  75. On the opening decade of the 20th century, see Freyer, op. cit. n. 56, at pp. 21–22; Turner, op. cit. n. 52, at pp. 33–34; Carter, op. cit. n. 60, at pp. 146–159. On the interwar period, see Hannah, op. cit. n. 43, at pp. 29, 31; G.C. Allen, Monopoly and Restrictive Practices (1968) p. 54; James Foreman-Peck, ‘Industry and Industrial Organisation in the Inter-War Years’, in Roderick Floud and Donald McCloskey, eds., The Economic History of Britain Since 1700, Volume 2: 1860–1939 (1994) p. 386 at p. 386.

  76. Foreman-Peck, loc. cit. n. 75, at p. 389; Allen, op. cit. n. 75, at p. 54; Ranald C. Michie, ‘The Stock Exchange and the British Economy, 1870–1939’, in J.-J. van Helten and Youssef Cassis, eds., Capitalism in a Mature Economy: Financial Institutions, Capital Exports and British Industry, 1870–1939 (1990) p. 95 at p. 105 (noting the effect the business climate had on profits).

  77. Turner, op. cit. n. 52, at p. 55; John F. Wilson, British Business History, 1720–1994 (1995) pp. 155–156; Charles More, The Industrial Age: Economy and Society in Britain 1750–1995, 2nd edn. (1997) p. 347.

  78. On the interwar period, see Mowery, loc. cit. n. 68, at p. 517; Leslie Hannah, ‘Introduction: Business Development and Economic Structure in Britain since 1880’, in Leslie Hannah, ed., Management Strategy and Business Development: An Historical and Comparative Study (1976) p. 1 at pp. 12–13.

  79. Alfred D. Chandler, ‘The Development of Modern Management Structure in the US and UK’, in Leslie Hannah, ed., Management Strategy and Business Development: An Historical and Comparative Study (1976) p. 24 at p. 48.

  80. Cheffins, loc. cit. n. 21 and accompanying text.

  81. The Monopolies and Restrictive Practices (Inquiry and Control) Act 1948, 11 & 12 Geo. 6, c. 66; Dennis Swann et al., Competition in British Industry: Restrictive Practices Legislation in Theory and Practice (1974) p. 51.

  82. 4 & 5 Eliz. 2, c. 68; Allen, op. cit. n. 75, at pp. 90–92; E. Victor Morgan, Monopolies, Mergers and Restrictive Practices: UK Competition Policy 1948–87 (1987) pp. 17–21; David G. Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus (1998) pp. 217, 220.

  83. Allen, op. cit. n. 75, at p. 96; D.C. Elliot and J.D. Gribbin, ‘The Abolition of Cartels and Structural Change in the United Kingdom’, in A.P. Jacquemin and H.W. de Jong, eds., Welfare Aspects of Industrial Markets (1977) p. 345 at p. 354; J.D. Gribbin, ‘The Post-War Revival of Competition as Industrial Policy’, Government Economic Service Working Paper No. 19 (1978) p. 24.

  84. Gerber, op. cit. n. 82, at p. 219; Gribbin, loc. cit. n. 83, at pp. 24–25; Morgan, op. cit. n. 82, at p. 23. For a detailed breakdown of agreements registered up to 1963, see Stephen Broadberry and Nicholas Crafts, ‘Competition and Innovation in 1950s Britain’, 43 Business History (2001) p. 97 at pp. 101–104.

  85. Walshe, loc. cit. n. 46, at p. 363; Broadberry and Crafts, loc. cit. n. 84, at p. 102 (saying that, up to 1963, of the 140 restrictive practice agreements that were taken to court that involved price-fixing arrangements, 132 were struck down or modified).

  86. Allen, op. cit. n. 75, at pp. 96–97, 101; Elliot and Gribbin, loc. cit. n. 83, at pp. 354–355; Gribbin, loc. cit. n. 83, at pp. 24–25.

  87. There would only be a penalty if an affected party sought to bring a private action for damages: Walshe, loc. cit. n. 46, at p. 364. On the fact that the possibility of non-disclosure was a loophole, see Derek F. Channon, The Strategy and Structure of British Enterprise (1973) p. 26.

  88. Walshe, loc. cit. n. 46, at p. 364; Allen, op. cit. n. 75, at p. 101.

  89. Freyer, op. cit. n. 56, at p. 297. For additional background on contemporary opinion, see Wilson, op. cit. n. 77, at p. 199; William Mennell, Takeover: The Growth of Monopoly in Britain, 1951–61 (1962) p. 113; Ronald W. Moon, Business Mergers and Take-Over Bids, 5th edn. (1976) p. 26.

  90. Hannah, op. cit. n. 43, at p. 149; Walshe, loc. cit. n. 46, at pp. 338, 364; Swann et al., op. cit. n. 81, at pp. 174–175.

  91. Gerber, op. cit. n. 82, at p. 220; Gribbin, loc. cit. n. 83, at pp. 28, 33–34.

  92. Chapter 51.

  93. Wilson, op. cit. n. 77, at p. 199; Gerber, op. cit. n. 82, at p. 220.

  94. Wilson, op. cit. n. 77, at pp. 199–201; Gribbin, loc. cit. n. 83, at pp. 32–34, 38; James Fairburn, ‘The Evolution of Merger Policy in Britain’, in James Fairburn and John Kay, eds., Mergers and Merger Policy (1989) p. 193 at pp. 195–200.

  95. Fair Trading Act 1973, c. 41; Hannah, op. cit. n. 43, at pp. 154–155; Gribbin, loc. cit. n. 83, at pp. 32–33, 38.

  96. See, for example, Hannah, op. cit. n. 43, at pp. 148–150; Freyer, op. cit. n. 56, at pp. 272–273, 297, 330; Thomas Kempner et al., Business and Society: Tradition and Change (1974) p. 106. Not all commentators agree, however. See, for example, Steve Toms and Mike Wright, ‘Corporate Governance, Strategy and Structure in British History’, 44 Business History (2002) pp. 91, 101, 120.

  97. Wilson, op. cit. n. 77, at p. 199.

  98. Elliot and Gribbin, loc. cit. n. 83, at pp. 356–365; George Symeonidis, ‘The Evolution of UK Cartel Policy and Its Impact on Market Conduct and Structure’, in Stephen Martin, ed., Competition Policies in Europe (1998) p. 55 at pp. 68–71. For summaries of other empirical work on the impact of the 1956 legislation, see Gribbin, loc. cit. n. 83, at pp. 25–26; Symeonidis, supra, at pp. 65–66.

  99. On merger activity, see Klaus Gugler et al., ‘The Effects of Mergers: An International Comparison’, unpublished working paper (2002) p. 1. See also Bernard S. Black, ‘The First International Merger Wave (and the Fifth and Last U.S. Merger Wave)’, 54 University of Miami Law Review (2000) p. 799 at pp. 799–806.

  100. Gugler et al., loc. cit. n. 99, at p. 10.

  101. Chandler, op. cit. n. 25, at pp. 409–411, 428, 496–497; George W. Edwards, The Evolution of Finance Capitalism (1938) pp. 64–66.

  102. Chandler, op. cit. n. 25, at pp. 428, 595–596.

  103. Ibid., at pp. 12, 500–501.

  104. J. Riesser, The Great German Banks and Their Concentration in Connection with the Economic Development of Germany (1911) pp. 168–169.

  105. Chandler, op. cit. n. 25, at pp. 479–480; Robert Liefmann, Cartels, Concerns and Trust (1932) p. 259.

  106. Richard Tilly, ‘Mergers, External Growth, and Finance in the Development of Large-Scale Enterprise in Germany, 1880–1913’, 42 Journal of Economic History (1982) p. 629 at pp. 640–641.

  107. Liefman, op. cit. n. 105, at pp. 10–11, 60–62, 278–279; Tilly, loc. cit. n. 106, at p. 641.

  108. Gerber, op. cit. n. 82, at pp. 70–73; W.F. Bruck, Social and Economic History of Germany from William II to Hitler 1888–1938: A Comparative Study (1938) p. 93.

  109. Gerber, op. cit. n. 82, at p. 75.

  110. Wilson, op. cit. n. 77, at p. 72; Liefman, op. cit. n. 105, at pp. 60–61; Fritz Voigt, ‘German Experience with Cartels and Their Control During the Pre-War and Post-War Periods’, in John P. Miller, ed., Competition, Cartels and Their Regulation (1962) p. 169 at pp. 171–172.

  111. Wilson, op. cit. n. 77, at p. 72; Gerber, op. cit. n. 82, at p. 74.

  112. See nn. 26, 30 to 34 and related discussion.

  113. On the insider/control-oriented label, see Cheffins, ‘Does Law Matter?’, loc. cit. n. 21, at pp. 461–462. On the family aspect, see Wilson, op. cit. n. 77, at p. 71.

  114. Chandler, op. cit. n. 56, at pp. 495, 500–501; Gregory Jackson, ‘The Origins of Nonliberal Corporate Governance in Germany and Japan’, in Wolfgang Streek and Kozo Yamamura, eds., The Origins of Nonliberal Capitalism: Germany and Japan in Comparison (2001) p. 121 at p. 132; Roy Church, ‘The Family Firm in Industrial Capitalism: International Perspectives on Hypotheses and History’, 35(4) Business History (1993) p. 17 at p. 29.

  115. Chandler, op. cit. n. 56, at pp. 395, 424, 500–501; Jackson, loc. cit. n. 114, at p. 134; Thomas K. McCraw, ‘Rethinking the Trust Question’, in Thomas K. McCraw, ed., Regulation in Perspective (1981) p. 1 at pp. 17–18.

  116. See nn. 56, 60 to 66, 68 to 79, 81 to 98 and accompanying text.

  117. Cornish, loc. cit. n. 70, at pp. 299–300; Gerber, op. cit. n. 82, at pp. 89–95.

  118. Various commentators have made this point. See, for example, Chandler, op. cit. n. 25, at pp. 395, 398, 423–424, 427, 496, 501; Thorelli, op. cit. n. 25, at p. 266; Porter, op. cit. n. 27, at pp. 76–78.

  119. See nn. 59 to 61 and accompanying text.

  120. McCraw, loc. cit. n. 115, at p. 5; Jeremiah W. Jenks and Walter E. Clark, The Trust Problem, 5th edn. (1929) p. 275.

  121. Gerber, op. cit. n. 82, at pp. 277, 302–303; Voigt, loc. cit. n. 110, at pp. 190–200. Subsequently, merger control became the central focus of German competition law: Gerber, op. cit. n. 82, at pp. 305–306, 327.

  122. With respect to merger activity, 1,068 British mergers were reported in the financial press during 1967, compared to 12 from Germany: Gerald D. Newbould, Management and Merger Activity (1970) p. 29. On Germany’s governance arrangements and the insider/control-oriented label, see Wilson, op. cit. n. 77, at p. 71; Cheffins, ‘Does Law Matter?’, loc. cit. n. 21, at pp. 461–462.

  123. Hannah, op. cit. n. 43, at p. 146; Maurice W. Kirby, ‘The Corporate Economy in Britain: Its Rise and Achievements Since 1900’, in Maurice W. Kirby and Mary B. Rose, eds., Business Enterprise in Modern Britain: From the Eighteenth to the Twentieth Century (1994) p. 158.

  124. Blackford, op. cit. n. 68, at p. 191; Chandler, loc. cit. n. 79, at p. 49.

  125. Walshe, loc. cit. n. 46, at p. 346; S.J. Prais, The Evolution of Giant Firms in Britain: A Study of the Growth of Concentration in Manufacturing Industry in Britain 1909–70 (1981) pp. 69–71, 85–86; Alan Peacock and Graham Bannock, Corporate Takeovers and the Public Interest (1991) p. 29.

  126. Hannah, op. cit. n. 43, at p. 149; Swann et al., op. cit. n. 81, at pp. 173; Moon, op. cit. n. 89 at pp. 26, 35–38. See Newbould, op. cit. n. 122, at pp. 107–108, 116–117 (acknowledging the point but relying on survey evidence to say that most managers during the late 1960s did not explicitly compare the merits of internal v. external growth before proceeding with a merger).

  127. See nn. 121 to 122 and related discussion.

  128. Newbould, op. cit. n. 122, at p. 206. See also Wilson, op. cit. n. 77, at p. 208; Swann, op. cit. n. 81, at pp. 174.

  129. Newbould, op. cit. n. 122, at pp. 162–175. See also Swann, op. cit. n. 81, at pp. 176.

  130. For an overview of the evidence, see Walshe, loc. cit. n. 46, at pp. 352–354.

  131. Cheffins, loc. cit. n. 9, at pp. 11–12, 31–32.

  132. Markham, loc. cit. n. 66, at pp. 166–167; George J. Stigler, ‘Monopoly and Oligopoly by Merger’, 40 American Economic Review (1950) p. 23 at pp. 28–29; Ralph L. Nelson, Merger Movements in American Industry 1895–1956 (1959) pp. 93–95.

  133. Chandler, op. cit. n. 56, at pp. 331–332; Navin and Sears, loc. cit. n. 16, at pp. 106–107.

  134. Navin and Sears, loc. cit. n. 16, at pp. 129, 133; Edward D. Durand, The Trust Problem (1915) p. 61.

  135. Jenks and Clark, op. cit. n. 120, at pp. 186, 194; Eliot Jones, The Trust Problem in the United States (1924) pp. 283–284.

  136. Roy, op. cit. n. 25, at pp. 249–250; Porter, op. cit. n. 27, at pp. 82–83.

  137. Navin and Sears, loc. cit. n. 16, at pp. 129–130; Larry Neal, ‘Trust Companies and Financial Innovation, 1897–1914’, 45 Business History Review (1971) p. 35 at p. 41.

  138. Nelson, op. cit. n. 132, at p. 92.

  139. Ibid., at pp. 92–93.

  140. Ibid., at p. 92.

  141. Lamoreaux, op. cit. n. 27, at p. 111; Nelson, op. cit. n. 132, at pp. 94–95; Alexander D. Noyes, Forty Years of American Finance (1907) pp. 286–287.

  142. Brian R. Cheffins, ‘The Metamorphosis of ‘Germany Inc.’: The Case of Executive Pay’, 49 American Journal of Comparative Law (2001) p. 497 at pp. 499–500.

  143. For background on German capital markets in the decades immediately following World War II, see Mary O’Sullivan, Contests for Corporate Control: Corporate Governance and Economic Performance in the United States and Germany (2000) pp. 243–244.

  144. Paul Betts, ‘The Educated Approach to a Well-Run Company’, Financial Times, 31 January 2002, p. 15.

  145. Ibid. (quoting Marco Becht). For a list of the inaugural fellows, see <http://www.ecgi.org/members_directory/fellows.htm>.

  146. Three examples are Julian Franks, Colin Mayer and Mark Roe. On their scholarship on mergers, see, for instance, Franks et al., loc. cit. n. 53; Mark J. Roe, ‘From Antitrust to Corporation Governance: The Corporation and the Law: 1959–1994’, in Carl Kaysen, ed., The American Corporation Today (1996) p. 102.

  147. Marco Becht et al., ‘Corporate Governance and Control’, ECGI Finance Working Paper No. 02/2002, p. 8 at nn. 9–10.

  148. See nn. 8, 10 and related discussion.

  149. For more detail on when control blocks will unwind under the assumption that diffuse ownership is the most efficient structure, see Bebchuk and Roe, loc. cit. n. 13, at pp. 143–149.

  150. See nn. 99 to 100 and accompanying text.

  151. Alan Hughes and Ajit Singh, ‘Mergers, Concentration, and Competition in Advanced Capitalist Economies: An International Perspective’, in Dennis C. Mueller, ed., The Determinants and Effects of Mergers: An International Comparison (Cambridge, Mass., Oelgeschlager, Gunn & Hain 1980) p. 1 at pp. 2, 6–8.

  152. Ibid., at p. 3.

  153. See n. 54 and related discussion.

  154. Alan Hughes et al., ‘Competition Policy in the 1980s: The Implications of the International Merger Wave’, in Dennis C. Mueller, ed., The Determinants and Effects of Mergers: An International Comparison (Cambridge, Mass., Oelgeschlager, Gunn & Hain 1980) p. 315 at p. 315.

  155. On sources that might assist with such an enquiry, see, for example, Gerber, op. cit. n. 82, at pp. 183–206, 226–227, 276–333 (discussing the development of the law in the post-war decades in France, Scandinavia, Italy, Spain and Germany); Stefan A. Riesenfeld, ‘The Protection of Competition’, in Eric Stein and Thomas L.Nicholson, eds., American Enterprise in the European Common Market: A Legal Profile (1960) p. 197 at pp. 203–294 (describing the evolution of legal principles affecting anti-competitive conduct in the six original Member States in the European Union).

  156. Dennis C. Mueller, ed., The Determinants and Effects of Mergers: An International Comparison (Cambridge, Mass., Oelgeschlager, Gunn & Hain 1980).

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Authors and Affiliations

  1. University of Cambridge, UK

    Brian R. Cheffins (S.J. Berwin Professor of Corporate Law, Faculty of Law, Visiting Fellow)

  2. Stanford Law School, USA

    Brian R. Cheffins (S.J. Berwin Professor of Corporate Law, Faculty of Law, Visiting Fellow)

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This paper is derived primarily from two working papers by the same author, ‘Investor Sentiment and Antitrust Law as Determinants of Corporate Ownership Structure: The Great Merger Wave of 1897 to 1903’ (2003) and ‘Mergers and the Evolution of Patterns of Corporate Ownership and Control: The British Experience’ (2003). The author gratefully acknowledges financial assistance provided by a John Simon Guggenheim Memorial Fellowship.

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Cheffins, B.R. Competition Law and Corporate Ownership Structure: a European Research Agenda. Eur Bus Org Law Rev 4, 3–30 (2003). https://doi.org/10.1017/S156675290300003X

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