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Justin Borg-Barthet

The substantive weaknesses discussed in other chapters of this book point to a lack of clarity concerning the nature and extent of shareholders’ duties, and ambiguous legal provision for the domestic enforcement of such obligations as do exist. The weaknesses in national substantive laws are exacerbated by the present state of transnational harmonisation. There is a lack of focused attention on specific problems arising from the corporate form, particularly insofar as the negative externalities of limited liability and separate legal personality are concerned. Coupled with intrinsic risks and costs of transnational litiga¬tion, this renders cross-border enforcement a costly and uncertain route for the attainment of justice. Essentially, the law fails to address the full spectrum of relationships arising from the corporate form in a coherent fashion, or to view significant market failures as much more than an ‘unfortunate wrinkle in the economic perfection of the law’.

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Justin Borg-Barthet

This chapter theorises mutual recognition and the attendant redistribution of prescriptive sovereignty as agency problems between the Member States. It takes corporate mobility as an illustrative example of mutual recognition as it operates in politically contentious aspects of internal market regulation. Worryingly, there are few mechanisms to align the interests of principal and agent. Quite the contrary. In a market for laws, a regulatory agent may be motivated to seek to maximise self-utility by undercutting the principal with a view to rendering its legal product more attractive to consumers of that product. The situation is exacerbated as a consequence of a lack of robust ex post and ex ante mechanisms which would enable the principal to limit the effects of the agent’s behaviour. In political terms, mutual recognition of companies raises two distinct questions concerning corporate decision-making. The first requires an inquiry into the nature of companies; the other related question concerns the distribution of power in the market as between European demoi. It is argued in conclusion that, while agency analysis provides lawmakers with the means to identify the extent of the democratic disconnect in the Union’s present regulatory landscape, the resolution of that disconnect requires sustained and systematic engagement with corporate law and theory with a view to replacing wholesale market-driven judicial reordering with deliberative adjustment of the choice of law and substantive rules governing European corporations.