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Corporate Governance and Investor Protection in Greece: Regulatory and Supervisory Reform from a Law and Finance Perspective

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Abstract

The paper employs law and finance analysis to critically discuss the quality of corporate governance and investor protection in Greece. The paper argues that the Greek corporate governance framework is fragile not only because investor protection standards are inconsistent and insufficient, but also because institutional inefficiencies undermine the effectiveness of enforcement mechanisms. The paper recognises that institutional reform should proceed in tandem with regulatory and supervisory modernisation. Nonetheless, acknowledging that the former requires significant political commitment and takes time, several proposals with a more immediate and direct effect on improving the investor protection regime are made. In particular, the paper: (a) favours the streamlining of minimum, legally binding, bright-line corporate governance norms reflecting internationally accepted standards in conjunction with a ‘comply or explain’ approach, while also considering the upgrading of corporate gatekeepers’ liability — especially that of accountants and lawyers; (b) argues for the enhancement of private enforcement as a supplement to public enforcement mechanisms; and (c) supports the shifting of supervisory and enforcement attention to corporate managers’ liability.

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References

  1. Commission on Corporate Governance in Greece (under the auspices of the Hellenic Capital Market Commission), Corporate Governance Principles In Greece (Athens, 1999).

  2. HCMC CG Principles, at p. 4.

  3. This may be because Greek firms view voluntary corporate governance principles as imposing additional operational costs without bringing offsetting benefits.

  4. See, for example, Supreme Court Decision 1219/2001, Nomiko Vima (2002), at p. 354, and Athens Court of First Instance Decision 1119/2002, Business and Company Law (2003), at p. 422, which merely refer to the Banking Code of Conduct promulgated as a soft-law instrument by the Hellenic Bank Association; yet, the aforementioned decisions avoid conferring any, explicit or implicit, legal force on the Code’s principles whatsoever. The limited legal impact of the HCMC CG Principles is further underlined by the fact that, contrary to other soft-law instruments issued by associations as a form of self-regulation for their members (e. g., the Banking Code of Conduct was issued after being ratified by the general meeting of the banks that were members of the Hellenic Bank Association), they were issued on the initiative of the competent supervisory authority (i. e., the HCMC) and addressed to regulated entities (i. e., listed firms).

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  11. CGA, Art. 1. See also HCMC CG Principles, at pp. 5-10.

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  15. Ibid.

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  24. See infra section 2.1 of the present paper and the subsequent discussion.

  25. Cf., UK Combined Code, s. A 2.2.

  26. Commission Recommendation 2005/162/EC, Annex II. Cf., UK Combined Code, s. A.3.1. See also International Organisation of Securities Commission, supra n. 22, at pp. 32-39. The HCMC CG Principles, para. 6.3.1, provide that an independent director should not have served as an executive officer or director of an associated company within the year preceding the appointment as independent director.

  27. Commission Recommendation 2005/162/EC, paras. 13.2, 13.3, 13.3.1, 13.3.2. See also HCMC CG Principles, note 11.

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  29. HCMC CG Principles, para. 5.6.

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  32. For a detailed discussion see Staikouras, supra n. 12, at pp. 1132-1133, 1138-1142.

  33. CGA, Art. 2(1).

  34. HCMC CG Principles, para. 5.12.

  35. Ibid., para 3.

  36. Cf., OECD Corporate Governance Principles, supra n. 21, at pp. 21, 24, 48, 58; UK Combined Code, s. A.1, in conjunction with the UK Companies Act 2006, s. 172.

  37. For a detailed discussion see Staikouras, supra n. 12, at pp. 1138-1142.

  38. CGA, Arts. 2(2) and (3). Regarding the term ‘associated company’, the definition of Art. 42e(5) of the Greek PLC Act (cf., Directive 83/349/EEC, OJ 1983 L 193/1, Art. (1)) applies.

  39. See infra nn. 53-59 and accompanying text.

  40. Thorton and AUEB, supra n. 18.

  41. CGA, Art. 2(4).

  42. HCMC CG Principles, paras. 5.9-5.10.

  43. Ibid., para. 5.1.

  44. Thorton and the AUEB, supra n. 18.

  45. For a detailed discussion see Staikouras, supra n. 12, at pp. 1157-1158.

  46. Greek PLC Act, Art. 24.

  47. CGA, Art. 5. Cf., UK Combined Code, s. B.1.3. See also HCMC CG Principles, para. 6.1.

  48. HCMC CG Principles, para. 6.1.

  49. CGA, Art. 5.

  50. Commission Recommendation 2004/913/EC, s. III. Cf., OECD Corporate Governance Principles, supra n. 21, at pp. 51-52; UK Companies Act 2006, ss. 420-422.

  51. HCMC CG Principles, paras. 6.1 and 7.1.

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  54. Commission Recommendation 2005/162/EC, para. 5.

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  66. Florou and Galarniotis, supra n. 5.

  67. CGA, Art. 8.

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  70. CGA, Art. 10.

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  72. R. La Porta, F. Lopez-de-Silanes, A. Shleifer and R. Vishny, ‘Investor Protection and Corporate Governance’, 58 Journal of Financial Economics (2000) p. 3; R. La Porta, F. Lopez-de-Silanes, A. Shleifer and R. Vishny, ‘Corporate Ownership around the World’, 54 Journal of Finance (1999) p. 471.

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  76. Act 3604/2007, Official Gazette of the Greek Government A 189.

  77. Cf., 2006 UK Companies Act, s. 306.

  78. Greek PLC Act, Art. 39(2), in conjunction with Art. 39(3).

  79. Ibid., Art. 39(3).

  80. Ibid., Art. 39(4).

  81. Ibid., Art. 39(7).

  82. Ibid., Arts. 40(1) and (2), as well as Art. 40a.

  83. Ibid., Art. 22b(1). The 2007 Company Law Reform Act reduced the relevant percentage from 1/3 of the paid-up share capital to 10%.

  84. Cf., UK Companies Act 2006, ss. 260-269 and ss. 994-996.

  85. Greek PLC Act, Arts. 23a(1) and (5). This is a novel insertion by the 2007 Company Law Reform Act. The relevant right is assigned to shareholders possessing 5% of the paid-up share capital in the case of companies with securities traded on an organised market (Greek PLC Act, Art. 23a(1)).

  86. Ibid., Art. 24(2).

  87. Ibid., Art. 39(5). The 2007 Company Law Reform Act reduced the relevant percentage from 1/3 of the paid-up share capital to 20%.

  88. Ibid., Arts. 40(3) and 40a. The 2007 Company Law Reform Act reduced the relevant percentage from 1/3 of the paid-up share capital to 20%.

  89. Ibid., Art. 22a(4). The 2007 Company Law Reform Act reduced the relevant percentage from 1/4 of the paid-up share capital to 20%.

  90. Ibid., Arts. 23a(2) and (3). The contractual arrangements may be rectified by the general meeting after they have been concluded, unless minority shareholders representing 5% of the paid-up share capital refuse to consent (Greek PLC Act, Art. 23a(4)). Arrangements falling within the ordinary course of the company’s business do not require approval by the general meeting.

  91. Ibid., Art. 48a.

  92. Ibid., Art. 49b. This is a novel insertion by the 2007 Company Law Reform Act. The reverse situation is also possible (‘squeeze-out right’): a shareholder with 95% of the share capital has the right to demand from the remaining shareholders that they dispose of their holdings in the company (Greek PLC Act, Art. 49c).

  93. Ibid., Art. 49a. This is a novel insertion by the 2007 Company Law Reform Act.

  94. Ibid., Art. 48. This is a novel insertion by the 2007 Company Law Reform Act.

  95. Ibid., Art. 39(4). Before the adoption of the 2007 Company Law Reform Act, this particular right was retained for shareholders possessing at least 5% of the paid-up share capital.

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  99. Act 3461/2006, Art. 7(1). Before the adoption of Act 3461/2006, the threshold was 50% (see Hellenic Capital Market Commission Decision 2/258/2002, Official Gazette of the Greek Government B 19, Art. 4).

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  102. The ‘reciprocity’ principle is also in full force where it concerns the application of the ‘breakthrough’ rule.

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  115. Ibid., Art. 39(2).

  116. Directive 2007/36/EC, OJ 2007 L 184/17, Arts. 7 and 10-12.

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  145. Jackson, supra n. 140, especially at pp. 25-29. As regards the enforcement of the legally binding corporate governance requirements of the Greek CGA, it is interesting to note that no enforcement action was taken by the competent supervisory authority (i. e., the HCMC) in the years between 2003 and 2005, while 45 fines were imposed for violations of the CGA during 2006 (see the Hellenic Capital Market Commission Annual Reports for the years 2003-2006, available at http://www.hcmc.gr). This concentration of enforcement intensity is really puzzling and cannot be explained by any differences in terms of staffing and regulatory budget. The only plausible, theoretical (yet not empirically tested) justification may be a shift in supervisory philosophy towards more rigorous monitoring and enforcement, especially following the promulgation of the 2004 OECD Corporate Governance Principles and the concomitant heightened interest attached to the corporate governance discussion.

  146. E. Berglöf and S. Claessens, Corporate Governance and Enforcement, World Bank Policy Research Working Paper 3409/2004.

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  148. Proposals for reform have covered the areas of board composition, operation and remuneration, issuer’s disclosure policy and internal audit system, minority shareholders’ rights and institutional activism.

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  150. Disciplinary measures against auditors may also be imposed by the Committee of Accounting Standardisation and Monitoring (akin to the US Public Company Accounting Oversight Board or the UK Financial Reporting Council) which is assigned, inter alia, with the task of supervising the Association of Chartered Accountants. See Act 3148/2003, Official Gazette of the Greek Government A 136.

  151. Presidential Decree 226/1992, Official Gazette of the Greek Government A 120.

  152. Presidential Decree 226/1992, Art. 19(1).

  153. Cf., US Securities Act of 1933, s. 11. See also J. Coffee, Gatekeeper Failure and Reform: The Challenge of Fashioning Relevant Reforms, Berkeley Program in Law & Economics Working Paper No 160/2004, at pp. 73-74.

  154. Directive 2003/71/EC, OJ 2003 L 345/64.

  155. Act 3401/2005, Art. 24.

  156. Ibid., Art. 25(1).

  157. Ibid., Arts. 25(2) and (3).

  158. Act 3461/2006, Arts. 13 and 29.

  159. Act 3340/2005, in conjunction with Hellenic Capital Market Commission Decision 4/347/2005, implemented Directive 2003/6/EC (Market Abuse Directive), OJ 2003 L 96/16, and the implementing measures of Commission Directive 2003/125/EC, OJ 2003 L 339/73, respectively.

  160. Act 3340/2005, Art. 23(2). The law does not provide for a specific tort law action in the event of securities analysts’ misbehaviour. Of course, there is the ‘traditional’ tort law apparatus of the Civil Code; yet, the pleading requirements render its applicability rather limited as regards securities market misconduct. More specifically, Art. 914 of the Civil Code states: ‘Any person illegally and culpably causing harm to another person is liable to damages’. The burden is on the plaintiff to prove, cumulatively, that: (a) the defendant violated a legal or regulatory requirement; (b) the defendant was culpable (i. e., acted with negligence or intent); (c) a causal relationship existed between the defendant’s illegal act or omission and the plaintiff’s injury.

  161. Cf., Sarbanes-Oxley Act of 2002, s. 307. The SEC promulgated the rules pursuant to s. 307 in January 2003 (17 CFR Part 205).

  162. Cf., SEC Release Nos. 33-8185.

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  170. Regulation of the Athens Stock Exchange (ASE), Arts. 215 and 217.

  171. Directive 2006/46/EC, Art. 1(7).

  172. C. McCarthy (Chairman, FSA), speech at the Financial Services Skills Council 2nd Annual Conference (31 October 2006, available at http://www.fsa.gov.uk). See also Financial Services Authority, Principles-Based Regulation: Focusing on the Outcomes That Matter (FSA, April 2007, available at http://www.fsa.gov.uk/pubs/other/principles.pdf), at p. 2.

  173. Briault, supra n. 169. See also Financial Services Authority, ibid.

  174. Indeed, the core concern in a principles-based regime like the one in the UK has to do with the need to establish a condition for predictability, which essentially entails increased costs. See Briault, supra n. 169; McCarthy, supra n. 172; Wilson, supra n. 169.

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  188. Act 3556/2007, Art. 26(2).

  189. Act 3401/2005, Art. 6.

  190. Act 3340/2005, Art. 7(3)(d).

  191. Directive 2006/46/EC, Art. 1(8).

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  195. Ibid.

  196. Ibid. See also US Department of Justice, supra n. 193, para. IV.

  197. Ibid. See also US Department of Justice, supra n. 193, para. V.

  198. Ibid.

  199. Ibid.

  200. Ibid. See also US Department of Justice, supra n. 193, para. IX.

  201. Ibid. See also US Department of Justice, supra n. 193, paras. VI and VII.

  202. US Department of Justice, supra n. 193, para. VIII.

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  1. Department of Banking and Financial Management, University of Piraeus, 80 Karaoli & Dimitriou Street, 18534, Piraeus-Greece, Greece

    Panagiotis K. Staikouras (Lecturer in Law)

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Staikouras, P.K. Corporate Governance and Investor Protection in Greece: Regulatory and Supervisory Reform from a Law and Finance Perspective. Eur Bus Org Law Rev 9, 383–425 (2008). https://doi.org/10.1017/S1566752908003832

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