17 Colum. J. Eur. L. 23 (2010)

Tomas Richter, Of Counsel, Clifford Chance LLP, Prague; Lecturer, Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague.

Between the years 1996  and 2006,  the Czech parliament and supreme court, in an attempt to protect shareholders from the consummation of private benefits of control, essentially shifted the agency costs embedded in internal governance of corporations from the corporations’ outside shareholders to the corporations’ counterparties. In this article, I hypothesize that this idiosyncratic outcome came about as an ill-considered, knee-jerk reaction to the asset-stripping excesses, often dubbed “tunneling,” that resulted from the country’s voucher privatization scheme in the early 1990s.

To test the hypothesis, I compare-against the backdrop of Czech corporate law-selected corporate law rules of three other Central European jurisdictions: Hungary, Poland and Slovakia; two Benelux jurisdictions: Luxembourg and the Netherlands; as well as Germany.

In addition to providing useful comparative material, the survey also detects a slight shift beginning in 2006  in Czech case and parliamentary law. The shift seems to turn away from rules and interpretations that externalize governance risks by  moving them from the company’s counterparties to those that keep the risks where they properly belong: the corporation’s managers and its shareholders. This shift is consistent with the paper’s hypothesis: as the aftershock of the post-privatization tunneling scandals slowly settles, so do idiosyncratic indigenous regulatory strategies, unknown in comparable legal systems.