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                  LAWYERS AND ACCOUNTANTS:
                    A SEMIOTIC COMPETITION

                               Bernhard Grossfeld*

     For many, the law and lawyers have occupied a position of high
     esteem throughout much of history. Fewer have deemed the
     economy and the accountant’s calling worthy of such distinc-
     tion. As the author explains in this Article, however, this per-
     ceived relationship between law and economy may belie reality:
     Accountants and the power of numbers may hold ultimate
     sway. The author examines this changing dynamic through the
     lens of comparative, international corporate rules of law and
     accounting—concluding that, in many respects, evolving ac-
     counting principles may become the new codes of conduct for
     national and transnational corporations. Lawyers should rec-
     ognize this shifting balance of power and work with accoun-
     tants to ensure that the values and experiences that define our
     legal systems are not lost.

1.    Basic Error
    Lawyers belong to a time-honoured profession from Babylonian
and Roman times on. Their ―bibles‖ are the Codex Hamurabbi and
Justinian’s Corpus Iuris. Common opinion has it that accountants
are of a much younger breed, their bible being Luca Paciolo’s Vene-
tian book from 1494.1 However, these stories do not reflect reality.
In reality, accountants came first: They took care of the temple
economy and they invented numerals from which our alphabet was
an afterthought.2 The original power lies with the powers of num-

  * Professor of Law, Law School of Muenster, Germany.
         Editors’ Note: Because of Professor Grossfeld’s expertise on European
and German law on this topic, and because of his use of a number of sources
available only in German, the Editors of the Wake Forest Law Review have re-
lied on Professor Grossfeld to verify the citations for many of his international
         The Editors would like to express their appreciation to Klemens Koefer-
boeck for his assistance in the editing of this article.
     1. See Bernhard Grossfeld, Comparative Accounting, 28 TEXAS INT’L L. J.
235, 251 (1993) (discussing the origins of double entry accounting).
ferring to the work of Denise Schmandt-Besserat and the development of num-

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bers3 and, therefore, with accountants. Different semiotic systems
command different powers (the powers of signs as an ―invisible

2.    Upside Down
     The error has long been nurtured by biblical ideas about the re-
lationship between law and economy. Since the times of Moses the
written law had a touch of holiness (―The tablets were the work of
God: the writing was the writing of God, engraved on the tablets.‖).5
The written law had the flavour of fighting for freedom (from Egyp-
tian slavery), where economy came close to the ―golden calf‖ as a
symbol for return to Egyptian slavery.6 Thereafter, the higher repu-
tation went with the lawyers (―profession‖) while the accountants
(―business‖) stayed close to Mammon. This turned the real world
upside down. Concepts of ―law and economics‖ have helped us to
come closer to the older views.

3.    Winds of Change
     ―Law and economics‖ even seems to turn into ―economics and
law,‖ not in the Marxist sense but as a way of emphasizing the bal-
ance differently. The turn came with globalization and the Internet.
The shrinking of space and time brought about a new space-time
and shattered the position of the old lawgivers from above: the na-
tional sovereignties. Instead, markets took over in first shaping
customs and then creating rules. The International Accounting
Standards are a prime example of this proposition.7 Small wonder
that accountants are the major beneficiaries. In addition, they take
advantage of the common belief that numbers have a worldwide
meaning and that specialists in numbers are, therefore, global eco-
nomic engineers.8 Compared with this gorgeous view, lawyers look
like clerks restricted to their local bureaucracies. Comparative law
appears to be a burden for lawyers,9 whereas comparative number-

erals for accounting purposes in ancient cultures).
     3. See Bernhard Grossfeld, Comparative Legal Semiotics: Numbers in
Law, 53 J. S. AFR. L. (forthcoming 2001).
     4. Bernhard Grossfeld, The Invisible Hand: Patterns of Order in Compara-
tive Law, 49 J. S. AFR. L. 648 (1997).
     5. Exodus 32:16.
     6. See Exodus 32 (describing the Israelites melting down their gold to
create a golden idol in the shape of a calf).
     7. See Bernhard Grossfeld, Global Accounting: Where Internet Meets Geo-
graphy, 48 AM. J. COMP. L. 261, 274-75 (2000) [hereinafter Where Internet Meets
Geography] (discussing competing efforts to create accounting standards for the
new global economy).
     8. See id. at 268 (describing accounting as the ―centerpiece of internation-
al, global financing‖).
     9. Bernhard Grossfeld, Comparative Law as a Comprehensive Approach, 1
RICH. J. GLOBAL L. & BUS. 1, 1-2 (2000), at
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ing looks like a global passport (sometimes even Nobel Prize hon-

4.    Corporate Governance
     This dramatic change in outlook received support from the
changing concepts of corporate governance under the rubric of
―shareholder value.‖ For many years it has been known that the on-
ly long-term, efficient mechanism to control a publicly traded corpo-
ration (these artificial ―mortmains‖) is stock markets.10 They define
the capital costs of the firm, and they present management with the
risk of losing its position through a takeover. Global financial mar-
kets and the new information technology have greatly increased this
threat, making the stock market the most important actor in the
drama of corporate control.

5.    Accounting
     Global accounting is the king or the queen of global financial
markets. Accounting has long been belittled as number crunching,
but now it has lost its microeconomic image and has reappeared as a
macroeconomic instrument of formidable proportions. It triggers
the power of interests and compound interests, which Rockefeller
believed to be the ―eighth wonder of the world‖ and which Einstein
regarded as more powerful than the H-bomb. The rise of interna-
tional standards in accounting will increase this power once again,
notwithstanding whether the winner will be the (European favored)
International Accounting Standards or the (SEC supported) Gener-
ally Accepted Accounting Principles.11 The discussion is on-going,12
but the outcome is irrelevant for our topic.

6.    Accountants vs. Lawyers
    What counts, however, is the changing positions of lawyers and
accountants along with this landslide in space, time, and normative
aspects.13 The change in corporate governance and corporate control
benefits accountants as the masters of global accounting, and might
restore the very original pecking order. Lawyers beware!14
    Corporate lawyers, for a long time, have looked with disdain on
these number-bureaucrats. They saw themselves on the side of

    10. Where Internet Meets Geography, supra note 7, at 267.
    11. Id. at 275.
    12. See International Accounting Standards, 65 Fed Reg. 8896, at 8899-
8900 (proposed Feb. 23, 2000).
    13. Bernhard Grossfeld, Wirtschaftsprüfer und Globalisierung: Zur Zubunft
des Bilanerechts, 54 DIE WIRTSCEHFTSPRUEFUNG 129 (2001).
    14. See Toby Brown, Accounting 101 for Lawyers or Too Late, You Lose?, 12
UTAH B.J. 8 (1999) (arguing that accountants have already won the multidiscip-
linary practice ―war‖ and that lawyers need to adjust their business structures
to be able to compete).
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management against anything that could hurt management’s posi-
tion.15 The lawyer’s traditional role was to be loyal to inside senior
management and to maintain their confidences.16 The corporate
entity as such, as well as the voice and loyalty of other shareholders,
were often regarded as not being their business.17 The American
Bar Association’s Model Rules have done little to change this unila-
teral view of legal ethics.18
     That opened wide opportunities for accountants, whose reputa-
tions increased with the rise of global financial markets. They pre-
sented themselves as trustees for shareholders, pension funds, and
analysts. Their routine experience with worldwide group accounts
also lends them the knowledge and the flair to be the global ex-
perts—men for all seasons. Accordingly, accountants stepped in
where lawyers did not dare to walk. Today, accounting firms have
grown enormously in size and international reach, leaving lawyers
far behind.19 They provide corporate clients with all sorts of legal
services, calling themselves ―multidisciplinary practices.‖20 Attor-
neys are now a significant component of their staffs (unfortunately
not the partners).
     The difference with law firms lies in the fact that accounting
firms do not appear in court on behalf of their clients, but almost
everything else will be done.21 Accounting firms are now, world-
wide, tough competitors for law firms. The charm for financial mar-
kets lies in the fact that these accountants—though no blood-
hounds—have a ―watchdog‖ duty under the Securities Exchange
Act, which requires them to notify the Securities and Exchange
Commission of suspected frauds.22 It is unsettled whether this duty

    15. Peter C. Kostant, Exit, Voice and Loyalty in the Course of Corporate Go-
vernance and Counsel’s Changing Role, 28 J. SOCIO-ECON. 203 (1999).
    16. Id. at 213.
    17. Id.
    18. Id. at 214; cf. Balla v. Gambro, Inc., 584 N.E.2d 104 (Ill. 1991) (holding
that in-house counsel could not sue for retaliatory discharge after the in-house
counsel was fired for telling management that he would do whatever was neces-
sary to stop the sale of defective dialysis machines). The Gambro court recog-
nized attorneys’ duty to reveal client confidences in certain situations under the
Illinois Rules of Professional Conduct, but reasoned that allowing such a cause
of action would chill attorney-client communications in the corporate setting.
584 N.E.2d at 109-10.
    19. See John E. Morris, The Global 50, AM. LAW., Nov. 1998, at 45 (issue
devoted to the globalization of the legal profession); cf. Detlev F. Vagts, Profes-
sional Responsibility in Transborder Practice: Conflict and Resolution, 13 GEO.
J. LEGAL ETHICS 677, 685 (2000) (noting that multidisciplinary practices are
flourishing in Europe, while still prohibited in the United States by the Model
Rules of Professional Conduct).
    20. Peter C. Kostant, Paradigm Regained: How Competition from Account-
ing Firms May Help Corporate Attorneys to Recapture the Ethical High Ground,
20 PACE L. REV. 43, 43 (1999).
    21. Id.
    22. Id. at 45-46.
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to disclose includes information that attorneys working for them
have learned, but it could be so.23 Lawyers worry that this will fos-
ter conflicts between the obligation to report irregularities and the
duty to maintain client confidence.24 The public has voted against
these concerns.25
     In the meantime U.S. and European accountancy firms have
grabbed ―sizable chunks of the European legal market.‖26 They are
avidly acquiring law firms in many European cities and they re-
structure their operations to ―provide a broad array of legal services,
including counseling on such [] matters as corporate finance and
mergers and acquisitions.‖27 Their ultimate desire is to become in-
ternational law firms, and they are well ahead on this track.28 In
Europe, long-standing relations with accountants are a superb plat-
form to get additional legal business—an attraction that does not
work the other way around.

7.    Stonewalling
    It goes without saying that lawyers hurry to stonewall these in-
trusions onto their turf. As lawyers are trained to do, they argue
along normative and traditional lines. They invoke ethical rules
against non-lawyers owning law firms or against operating joint
businesses with non-lawyers.29 But these ―high ethical standards‖
are easily denounced as self-serving rules to ―shield lawyers from
healthy competition.‖30 Lawyers also indulge in the confidence that
these newcomers lack the experience of the long-established ―old
boys.‖ But they probably need to wake up: apparently the public
again regards the accountants’ experience as sufficient.31 The public
is aware that the experience of lawyers was not gained in today’s
global financial markets and that the old experiences do not help
with new facts.

8.    New Facts
     New facts are, indeed, the name of the game. The most impor-

    23. See id. at 45 (noting that the ―duty to disclose presumably includes in-
formation that attorneys working for the MDP attorneys have learned‖).
    24. See id. at 50-51; cf. Reinhard Damm & Elena von Mickwitz, Koopera-
tion und Haftung in interprofessionellen Sozietaeten, JZ (forthcoming 2001).
    25. See Kostant, supra note 20, at 72. (concluding that large public corpora-
tions indicate their support of multidisciplinary practice by ―voting with their
feet‖ and employing MDPs).
    26. Margaret A. Jacobs, Hybrid Law Practices in U.S. Debated, WALL ST. J.
(Europe), May 31, 2000.
    27. Id.
    28. See id. (quoting an Arthur Andersen executive, stating that the ac-
counting firm is currently ―developing an international law firm‖).
    29. See id.
    30. Id.
    31. Id.
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174                    WAKE FOREST LAW REVIEW                        [Vol. 36

tant fact is the change in the point of view from which we see corpo-
rations. Whereas traditionally the market for products and services
was regarded to be the major incentive for corporate structures,
shareholder democracy was played down as long as the banks were
the main providers of corporate financing. Accounting was more a
kind of internal control, not an instrument for attracting money
from public markets.
     For corporate restructurings, rules of accounting were impor-
tant in order not to lose track of more or less complicated proce-
dures; they were not regarded as vital for the restructuring process.
This has changed dramatically. Over time the concept of ―merger of
equals‖—an accounting concept—became a prime mover in corpo-
rate consolidation. The international public became aware of it in
the Daimler/Chrysler deal, but the prime example for the secret
power of this concept is, probably, Cisco Systems, which grew
through multiple ―mergers of equals‖—always avoiding showing ac-
quired good wills and the following depreciations. The future life of
the rules on ―merger of equals‖ is a core issue in today’s corporate
law. Of equal importance are the standards for stock options to
management: they are a clever device to hide the dilution of future
income to present shareholders. All this shows once again that rules
of accounting no longer have a life of their own, but that they are
corporation law in the truest sense—building a cornerstone of corpo-
rate governance which is no longer the lawyers’ exclusive domain.
     The most important factor, however, seems to be that account-
ing creates currency. Shares are used to buy up other firms, and to-
day they often constitute the most important acquisition currency.
But whoever has the power to define the purchasing power of cur-
rency sits on top, almost like a private Federal Bank—like a private
Alan Greenspan in disguise. Is there any law firm that reaches this
summit of social power outside the public eye and largely outside le-
gal scrutiny?

9.    Deficiencies

      a.    Proper Accounting
     A closer analysis thus shows the reasons for the lawyers’ predi-
caments: They lost sight of the changing concepts of trusteeship and
of the changing concept of comparative law. By compartmentalizing
social dynamics according to their letter-addicted concepts, they lost
touch with new social realities. Global markets care very little for
priests of national holy grails, but make facts, facts, facts reign su-
preme again.32

    32. Jack Hiller & Bernhard Grossfeld, Comparative Legal Semiotics and
the Divided Brain: Are We Educating Half-Brained Lawyers?, 49 AM. J. COMP. L.
(forthcoming 2001).
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2001]                LAWYERS AND ACCOUNTANTS                               175

     The rise of accountants runs parallel with the rise of securities
law. Certainly, it is still a major concern for lawyers whether Dela-
ware law allows certain poison pills, but a short glance into the Wall
Street Journal tells us that the action is in securities law. Take for
example the question of how treated the large stock
payments from other Internet companies that are promoted by
Amazon.33 The stock options are shown as revenue.34 But what
happens when the value of the securities falls? Does Amazon go
back and restate its revenue? No, ―[i]nstead, it records the losses in
other less-scrutinized areas of its financial statements, including
lines devoted to investment gain and losses‖ (noncash loss).35 Thus,
the stock is determined by its publicly traded share price at the time
that Amazon concludes the deal, though the stock is a serious risk
compared with cash payment.36 The reason for this treatment is
that ―money-losing operations . . . are generally valued as a multiple
of revenue, rather than of earnings.‖37 Revenues are the closely
watched gauges of performance. Amazon’s bookkeeping is a wonder-
ful example of how creative accounting creates acquisition currency.
     However, what is striking for our subject of lawyers/accountants
is that accountants, and professors of accounting and finance, are
regarded to be the authorities in this field. As the Wall Street Jour-
nal states: ―Treating the stock payment as revenue, which account-
ing experts say is legal, raises questions.‖38 Is it not the lawyer’s job
to give an opinion on what is legal? Is there any lawyer prepared to
do so? Is he accepted as an authority in this field? Is he the creator
of currency? Is creating currency a matter of law? Yes, certainly.

     b.     Proper Valuations
     The power of creating currency is closely connected with the
power to turn stocks into cash without market interference. This is
the most important art when squeezing out minority shareholders
(appraisal rights). How to evaluate the payment of cash? Here ac-
countants reigned supreme for a very long time as lawyers regarded
this ―art‖ as a kind of arcane mathematics to be left to more highly
qualified mathematical minds.
     The question became a major legal issue because of Weinberger
v. UOP, Inc.,39 Michael R. Schwenk’s essay, Valuation Problems in

   33. See generally Nick Wingfield, Heard on the Street: Analysts Read Be-
tween the Lines of Amazon’s Books, WALL ST. J. (Europe), Nov. 9, 2000, at 18
(describing Amazon’s accounting procedures for recording payments in stock by
   34. Id.
   35. Id.
   36. Id.
   37. Id.
   38. Id. (emphasis added).
   39. 457 A.2d 701 (Del. 1983) (en banc).
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176                    WAKE FOREST LAW REVIEW                         [Vol. 36

the Appraisal Remedy,40 and Robert B. Thompson’s article, Exit, Li-
quidity, and Majority Rule: Appraisal’s Role in Corporate Law.41
The matter has also recently been discussed in depth by Carsten
Schikowski.42 Again, the absence of both lawyers as experts and of
articles in law reviews is appalling.
     The history of this story of things is demonstrated by Weinberg-
er v. UOP, Inc.,43 decided by the Delaware Court of Chancery and
reversed by the Delaware Supreme Court.44 There, a ―chartered in-
vestment analyst‖ had used two basic approaches to valuation: A
comparative analysis of the premium paid over market in ten other
offers, and a discounted cash flow analysis.45 The Chancellor re-
jected these methods as not corresponding with ―either logic or the
existing law‖46 and he did so ―consistent with precedent.‖47 He sup-
ported instead the so-called ―Delaware block,‖ or weighted average
method, which had been in use ―for decades.‖48 Under this ap-
proach, the ―elements of value, i.e., assets, market price, earnings,
etc., were assigned a particular weight.‖49 Then the resulting
amounts were added to determine the value of the shares.50 The
method had been out of touch with investment concepts but had
prevailed with innocent lawyers.51 The Delaware Supreme Court
finally struck down this dinosaur:

      However, to the extent it excludes other generally accepted
      techniques used in the financial community and the courts, it
      is now clearly outmoded. It is time we recognize this in ap-
      praisal and other stock valuation proceedings and bring our
      law current on the subject.
      . . . Accordingly, the standard ―Delaware block‖ or weighted
      average method of valuation, formerly employed in appraisal
      and other stock valuation cases, shall no longer exclusively
      control such proceedings. We believe that a more liberal ap-

   40. Michael R. Schwenk, Valuation Problems in the Appraisal Remedy, 16
CARDOZO L. REV. 649 (1994); see also Joe Seligmann, Reappraising the Appraisal
Remedy, 52 GEO. WASH. L. REV. 829 (1984).
   41. Robert B. Thompson, Exit, Liquidity, and Majority Rule: Appraisal’s
Role in Corporate Law, 84 GEO. L.J. 1 (1995).
   43. 426 A.2d 1333 (Del. Ch. 1981), rev’d, 457 A.2d 701 (Del. 1983).
   44. Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983).
   45. Id. at 712.
   46. Weinberger, 426 A.2d at 1360.
   47. Weinberger, 457 A.2d at 712.
   48. Id.
   49. Id.
   50. Id.
   51. See id. (calling the method ―clearly outmoded‖).
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     proach must include proof of value by any techniques or me-
     thods which are generally considered acceptable in the finan-
     cial community and otherwise admissible in court . . . .52
     In our context, however, it should be noted, that the answer is
left to the ―financial community‖ where—probably—accountants
have the upper hand.

     c.     Gaps
     This brief survey shows that there are wide gaps left by lawyers
with regard to questions that are of vital legal importance. This gap
is easily detectable in any merger report. If we take, for example
the Daimler/Chrysler case, the Daimler report, on the one hand, is
widely dominated by aspects of accountancy, including fifteen pages
(out of 102) on exchange ratios. The Chrysler report, on the other
hand, refers summarily to the standards of the ―Business Valuation
Committee‖ of the German ―Institut der Wirtschaftsprüfer‖ and to
possible corrections by German courts, using just 2 pages for it (out
of 143).53

     Transnational Corporations
     The gaps are even more important when we concentrate on
transnational corporations. Here the main instruments of global
control are worldwide consolidated statements.54 They alone are the
instruments that pierce the multitude of corporate members to ar-
rive at the accumulated economic and cultural power of the group.
Such accounts are therefore the center of gravity in any serious ap-
proach to come to grips with the legal implications and the legal
adaptations of these powerful global ―payers.‖ However, in his book
Transnational Business Problems, Detlev Vagts deals with financial
statements under the heading ―Notes on the Accountant’s View of
the Multinational Enterprise.‖55 If lawyers give away the prime
―ocular‖ to find out about facts, how do they expect to handle the
normative aspects? An old Latin adage tell us Da mihi facta, dabo
tibi ius (give me the facts, I will give you the law). Fact finding is
the vital basis of any legal discussion, as ―facts are sacred, opinions
are free.‖

    52. Id. at 712-13
81-82 (Aug. 6, 1998).
    54. See Frank C. Devlin, Jr., Exceptions to the LIFO Conformity Require-
ment in a Worldwide Consolidated Financial Statement, 20 TAX ADVISER 807,
808 (1989) (discussing the limited circumstances in which the worldwide finan-
cial statement is subject to an exception).
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178                    WAKE FOREST LAW REVIEW                          [Vol. 36

10. Comparative Aspects
    The situation in the United States represents a state of ―art‖
that stands for the traditional separation of craftsmanship between
lawyers and accountants. But in recent years the situation has
changed as far as Europe and Germany are concerned.

      a.    European Rules of Accounting
     In the European Community the turn of the tide came in the
1970s when the European Union initiated three directives on the
harmonization of rules of accounting.56 The directives made it crys-
tal clear that accounting is the center of corporation law and thus a
field of highest importance for lawyers. Accordingly, lawyers and
accountants jointly completed most of the work to turn the direc-
tives into German law. The idea behind these initiatives was that
the fledlging European financial market needed similar standards of
disclosure to give European corporations equal chances to attract
capital from investors. The German ―Michel‖ should appear as
beautiful as the French ―Marianne‖—at least accounting-wise. The
directives, as European statutes, demanded a transposition into the
national laws of the Member States—and it was here that many
lawyers came in. As a matter of fact, the transposition into the
German Commercial Code was largely engineered by lawyers under
the guidance of the Ministry of Justice and the law committee of the
parliament with a lawyer (Mr. Helmrich) as chairman.
     As it turned out, the interference of lawyers became crucial. I
witnessed their impact as a member of a very small ad hoc commit-
tee consisting of Mr. Helmrich and five to six other persons, half of
whom were lawyers. The committee’s influence could be felt in at
least five major areas:
     (1) The legislative structure followed the example set by the
German Civil Code: A ―General Part‖ containing rules applicable to
all business entities and a ―Special Part‖ with additional rules for
corporations only.57 The ―General Part‖ is preceded by a reference to
―generally accepted accounting principles,‖58 the ―Special Part‖
starts with the (European) requirement of a ―true and fair view‖59
     (2) The lawyers took care that the term for assets (―Vermögens-
gegenstände‖) kept a healthy distance from the term that was used
for tax purposes (―Wirtschaftsgueter‖) in order to avoid a tax-
influenced interpretation.

LAW 145-47 (2d ed. 1994) (detailing the harmonization directives).
   57. See Günter Seckler, Germany, in HBJ MILLER COMPREHENSIVE
EUROPEAN ACCOUNTING GUIDE 213, 216 (David Alexander & Simon Archer eds.,
U.S. ed. 1991).
   58. § 243 (1) HGB; see also Seckler, supra note 57, at 216.
   59. § 264 (2) HGB; see also Seckler, supra note 57, at 216; Overview, in HBJ
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2001]                LAWYERS AND ACCOUNTANTS                             179

    (3) The committee opposed ―hidden reserves‖ against the wishes
of accountants. It lost with regard to ―further depreciations‖ for
non-corporate businesses, i.e., depreciations that are permissible
within the framework of ―sound (reasonable) business judgment.‖60
The ―hidden reserves‖ were pressed into the statute by accountants,
who wanted to protect the remaining members of a partnership
when a partner leaves the firm with compensation. This low book
value concept, however, was not accepted by German courts—again
under the influence of lawyers.
    (4) The committee wanted to give teeth to the ―true and fair
view‖ that accountants and the highest tax court alike wanted to
keep at bay. The committee’s view gained acceptance by the Euro-
pean Court of Justice.61
    (5) Most importantly, however, was the fact that the original
draft from the Ministry of Justice was restructured and refined in
order to enhance simplicity. This was done under the guidance of
Ulrich Leffson, then the leading German professor of accounting,
who constantly cooperated with lawyers.
    The later development is in line with these beginnings. The
European Court of Justice62 has fully recognized rules of accounting
as rules of law and as an appropriate field for lawyers to work in.
The Federal Court of Taxation is still meandering,63 probably for
lack of international experience by most of the judges.

     b.     German Rules of Evaluation
    A similar development has taken place with regard to valuation
principles and methods in mergers, squeeze-outs, and other ap-
praisal situations. Whereas originally the questions were handled
as being matters for accountants alone, the legal character of the
basic principles is now firmly established by the courts, above all by
the German Constitutional Court.64
    The basic ideas behind this approach are twofold. First, evalua-
tions occur as a step towards a fair compensation for minority
shareholders. ―Fairness,‖ however, does not operate in a vacuum
but has to be found within an ongoing legal relation, taking into ac-
count concepts of good faith and loyalty. The value to be assessed is
a ―Normwert‖65 (normative value, law defined value). Second,

   60. § 253(4) HGB.
   61. See Case 234/94, Tomberger v. Gebruder von der Wettern GmbH, 1996
E.C.R. I-3133.
   62. See id.
   63. Bundessteuerblatt II (2000), at 632. But see also, BUNDESGERICHTSHOF
1222, 1224 (1999).
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shares of stock are property and participate in the constitutional
protection for property,66 which is why the compensation has to be
fair and complete under constitutional standards.67
     Though the courts do not require a particular method, the pre-
valent approach is the discounted cash flow method (Geldstromver-
fahren) or the discounted earnings method (Ertragswertverfahren).
The emphasis is on the surplus of expected future cash receipts over
expected future cash expenditures, or—when considering the alloca-
tion of receipts and expenses to the correct accounting periods—on
the surplus of expected future profits over expected future losses.
Risks and opportunities must be equally considered. The actual re-
sults from the past provide an initial indication for the future. The
future cash flows or earnings are to be discounted to the valuation
date. The reference point for the discount rate is the public capital
market in government bonds; an addition must then be made for en-
trepreneurial risks (―Risikozuschlag‖). Individual shareholders’ tax-
es must be taken into account by deducting a hypothetical income
tax burden of (until now) thirty-five percent.
     The average share price in the stock market during a reasona-
ble time before the valuation date sets the bottom line for the com-
pensation.68 The Constitutional Court became the moving actor in
the field. Against long-standing German tradition, the Court re-
quired taking into account the share price at the stock exchange and
established it as the minimum compensation for minority share-
holders.69 This latter aspect, however, is controversial: the Court
did not discuss the importance of ―noise trading‖ and ―chaos theory‖
on the ―walk‖ of share prices.70 In addition, the Court created new
appraisal rights in squeeze out situations that were not provided for
by statute.71

      c.    Transplants?
    The discussion of these European and German standards should
not be interpreted as a recommendation for transplanting them into
the United States. Since Alan Watson’s studies on transplants, we
know all too well that transplants are not as easily made as ex-
pected by non-comparatists.72 They may become ―law without con-

   66. See GG art. 14.
   67. German Constitutional Court, JURISTENZEITUNG 342 (1999).
   68. Id.
   69. Id.
   70. Lawrence A. Cunningham, From Random Walks to Chaotic Crashes:
The Linear Genealogy of the Efficient Capital Market Hypothesis, 62 GEO. WASH.
L. REV. 546, 552, 565, 582 (1994); see also, e.g., IAN STEWART, DOES GOD PLAY
DICE? ch. 8 (1989).
   71. German       Constitutional     Court,      NEUE    ZEITSCHRIFT    FUER
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text‖73 and take unexpected twists. My intention in referring to Eu-
rope and Germany is simply to show that accounting and evaluation
can be seen as legal matters belonging in the hands of lawyers, not
to the exclusion of accountants, but as partners in cooperative activ-

11. Loss of Geography
     The lawyer/accountant dichotomy gets a new turn with the ―loss
of geography.‖ This term is chosen to indicate that the geographical
concepts that lie behind the lawyers’ concepts of ordering might
wither away. This is clearly visible in the European Union.74

     a.     Europe
     By tradition, most Continental European member states follow
the ―real seat theory‖ with regard to the applicable corporation law.
The theory requires incorporation under the law of the state where
the entity has its central administration.75 The consequences of
non-compliance are harsh: The entity will not be recognized as a ―le-
gal person‖ providing limited liability.76
     It has long been debated whether the seat theory is compatible
with the right of establishment in the European Union. In the fam-
ous Centros case,77 the European Court of Justice gave a cryptic opi-
nion that might seriously affect the seat theory.78 The Austrian Ob-
erste Gerichtshof saw it that way,79 whereas the German
Bundesgerichtshof (Federal Court of Justice)80 and a German Com-
munal Court81 referred the question again to the European Court of
Justice. The outcome is open.
     One thing, however, is clear: To the same degree as the seat
theory withers away, market-oriented points of attachment will rise,

    73. See generally ALAN WATSON, LAW OUT OF CONTEXT (2000) (concerning
―the complexity of the relationship between law and the society in which it op-
    74. See, e.g., Quentin Peel, Survey-Europe Reinvented: Rich Man’s Club
Prepares to Admit New Members, FIN. TIMES (London), Jan. 19, 2001, at 26
(―The enlarged EU will offer a huge single market to business, with common
standards, and without important trade barriers.‖).
    75. Bernhard Grossfeld, Loss of Distance: Global Corporate Actors and
Global Corporate Governance, 34 INT’L LAW. 962 (2001).
    76. Andreas Lachmann, Haftungs-und Vermögensfolgen bei Sitzverlegung
ausländischer Kapitalgesellschaften ins Inland, Frankfurt/M. 2000.
    77. Case 212/97, Centros, Ltd. v. Erhvervs-og Selskabsstyrelsen, 1999
E.C.R. I-1459.
    78. See generally Richard Buxbaum, Back to the Future? From “Centros” to
the “Ueberlagerungstheorie,” FESTSCHRIFT SANDROCK 149 (2000).
Die Sitztheorie in der Centros—Aera: Vermeintliche Probleme und unvermeid-
liche Aenderungen, RECHT DER INTERNATIONALEN WIRTSCHAFT 167, 178 (2000).
    81. Id. at 927.
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182                    WAKE FOREST LAW REVIEW                             [Vol. 36

and with them either the International Accounting Standards or the
Generally Accepted Accounting Principles will emerge as the main
instruments of corporate governance.

      b.    United States
     In the United States, you might tend to lean back with a feeling
of amusement. There, ―corporate homes away from home,‖ ―tramp,‖
and ―pseudo-foreign corporations‖ are familiar concepts, and the
balance between Delaware corporate law, federal securities law, and
Western Airlines82 seems to be well established.
     But concepts of geography are still clearly visible. The ―race to
laxity‖ started with New Jersey83 (―across the river‖ from New York
City), and Delaware cannot be dissociated from its location between
New York City and Washington, D.C. Even more decisive might be
the reference to Delaware Courts and to the expertise of the Dela-
ware bar. The idea to do away with location altogether by leaving
the choice of law issue to contractual agreements has not (yet) found
wide support. The terms ―pseudo-foreign corporations‖84 and ―feder-
al corporation law‖85 indicate an ongoing inclination. Detlev Vagts
based his seminal article on the ―Multinational Corporation‖ on the
notions of ―home state‖ and ―host state.‖86

12. Cyber Gene87
     But modern technology might move us further away from geo-
graphical concepts. The delocalization of corporation law has
reached new dimensions by entering the world of cyberspace. ―Cy-
berspace, however, does not merely weaken the significance of phys-
ical location, it destroys it . . . .‖88 Events in cyberspace simply ig-

   82. Western Air Lines, Inc. v. Sobieski, 12 Cal. Rptr. 719 (1961) (holding
that the California Commissioner of Corporations has the discretion to prohibit
the sale of securities of a foreign corporation within California where the foreign
corporation’s charter did not comply with California law).
   83. Terence L. Blackburn, The Unification of Corporate Laws: the United
States, the European Community and the Race to Laxity, 3 GEO. MASON IND. L.
REV. 1, 41 (1994) (stating that ―New Jersey adopted the first liberal corporation
statute which included a provision that allowed corporations to own shares in
other companies‖).
   84. Elvin R. Latty, Pseudo-Foreign Corporations, 65 YALE L.J. 137 (1955).
   85. See Ralph C. Ferrara & Marc I. Steinberg, The Interplay Between State
Corporation and Federal Securities Law–Santa Fe, Singer, Burks, Maldonado,
Their Progeny, & Beyond, 7 DEL. J. CORP. L. 1, 4-5 (1982) (discussing the devel-
opment of federal corporation law).
   86. Detlev F. Vagts, The Multinational Enterprise: A New Challenge for
Transnational Law, 83 HARV. L. REV. 739, 743 (1970).
   87. The expression is taken from David Roche, The New Economy: The Cy-
ber Gene, WALL ST. J. (Europe), Mar. 28, 2000, at 10. See also Christoph Engel,
The Internet and the Nation State, Jena 1999; Michael Lehmann, Cyberlaw:
Rechtsevolution durch Globalisierung, FESTSCHRIFT FUER FIKENTSCHER 943
   88. David G. Post, Governing Cyberspace, 43 WAYNE L. REV. 155, 159
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nore the existence of borders. The cyber-revolution will change cor-
porate structures in dramatic ways by realigning the ―nerve system
of the corporation itself.‖89 David Roche calls it a ―deathblow to the
national corporate model‖ and to national regulators.90
     With delocalization, the concept of a mother country will vanish
and ―any national economic model that limits efficiency is
doomed.‖91 Markets for products and markets for capital have to be
seen in context. Given the power of interest and compound inter-
ests, capital markets might even gain the upper hand. International
dialogue functions for languages, currencies, and financial state-
ments will enable an always larger community of users to benefit
from global capital markets. We enter a whole new, uncharted

13. Cyber Corporation Law
     For corporations, the step into cyberspace is only a small step
away from their historical beginnings. In the Dartmouth College
case,92 Chief Justice John Marshall called them ―artificial being[s],
invisible, intangible, and existing only in contemplation of law.‖93
They are ―mere creation[s] of . . . [the] law.‖94 Given the nature of
corporations as invisible beings existing only by virtue of law, corpo-
rations are ―virtual‖ in the most original sense and therefore ―natu-
ral‖ subjects or objects in cyberspace.95 But where are cyberspace
actors located?
     The Court of Appeals in Frankfurt could not answer that ques-
tion.96 It was confronted with Nixtecs Ltd., a private limited com-
pany registered in England. When the company tried to collect a
debt in Germany, the defendant pleaded that the company had its
main administrative center in Germany and therefore (being incor-
porated in the wrong place—England), it had no standing to sue.
     It turned out that the company, indeed, had no ―seat‖ in Eng-
land. The company was managed by three pilots from various plac-
es outside of England.97 The Court came to the conclusion that the
company had no seat at all, and that, therefore, the seat theory was

   89. Roche, supra note 87, at 10.
   90. Id.
   91. Id.
   92. Trustees of Dartmouth College v. Woodward, 17 U.S. 518 (1819).
   93. Id. at 636.
   94. Paul v. Virginia, 75 U.S. 168, 181 (1868), overruled by Humana Inc. v.
Forsyth, 525 U.S. 299 (1999).
   95. Claus Luttermann, Bewertungsrecht im Internetzeitalter, AG 459
   96. Oberlandesgericht Frankfurt, RECHT DER INTERNATIONALEN WIRTSCHAFT
783 (1999).
   97. Id.
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184                    WAKE FOREST LAW REVIEW                      [Vol. 36

no longer applicable.98
     It goes without saying that the orientation on a central location
for the administration will decrease when Internet changes into
Intranet and when the whole corporate body will communicate on
all levels within a Napster-type web structure. The newly emerging
electronic shareholder meetings need no location and the same is
true for proxy fights—as shown by the Coho Energy case (over the
Yahoo Black Board).99 As technological innovations inevitably lead
to organizational innovations, cyberspace corporations and cyber-
space corporation law will enter the field.100
     The matter becomes even more complex when such a company
acts as the unlimited partner in a limited partnership, a possibility
available under German law.101 Cyberspace and real space entities
form hybrid ―marriages‖ of invisible and even more invisible part-
ners. Brave New World!

14. Changing Status of Accounting102
     The loss of locality and the web structures of trans-Internet cor-
porations change the status of accounting versus corporate law.
Semiotic systems become the prime basis of trust; semiotic logistics
define different interactions. New semiotic systems and new logis-
tical networks constitute a new reality. Comparative legal semiotics
and comparative legal logistics become the order of the day.
     The public cares little about not being able to check the exis-
tence of a corporation, its assets, or its management ―through the
senses.‖ The Infinion Corporation, for instance, advertises itself as
a company on the SWX Swiss Exchange. According to the presenta-
tion, Infinion is ―domiciled‖ in Switzerland and does business in Eu-
rope, Asia, and the United States.103 Infinion has its ―operative
headquarters‖ in Syracuse, New York. Strangely enough, ―the ad-
vertisement is not being placed in the United States of America and
should not be distributed to United States persons or publications
with a general circulation in the United States.‖104

    98. For a critical review, see Borges, supra note 82.
    99. Timm, Das Gesellschaftsrecht im Cyberspace, FESTSCHRIFT LUTTER 157,
168 (2000).
UNTERNEHMENS (2000); Jan Snaith, “Virtual” Co-operation: The Jurist’s Role,
FESTSCHRIFT MUENKNER 391 (2000); Bernhard Grossfeld, Cyber Corporation
Law, Comparative Legal Semiotics/Comparative Legal Logistics, 35 INT’L LAW.
(forthcoming 2001).
   101. Cf. Kammergericht, NEUE JURISTISCHE WOCHENSCHRIFT R-R 1997, 1126
1999, 387.
   102. Claus Luttermann, Mit dem Europäischen Gerichtshof (Centros) zum
Internationalen Unternehmens-und Kapitalmarktrecht, ZEITSCHRIFT FUER
   103. Advertisement in the SWISS FIN. REV., Finanz und Wirtschaft.
   104. Id.
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     Infinion’s geographical hotchpotch does very little to clarify the
legal status. Who could find out about it with a reasonable degree of
accuracy at reasonable cost? The main—and probably the only—
salvation is accounting. What counts when buying shares in such
corporations are the numbers presented in their financial state-
ments, certified by a reputable accounting firm, and acknowledged
by rating agencies. We trade in rubber-stamped certificates of num-
bers; we rely on a kind of ―WebTrust Seals‖ for shares.105 Interna-
tional standards of accounting are the primordial seals of quality.106
     International standards of accounting are thus more important
than legal structures and the refinements of shareholder actions.
Investors do not rely on actions before foreign courts, nor on foreign
juries. The most important factor in corporate governance for inves-
tors is the web structure of shareholder information and statistically
important shareholder reactions. Even today, court actions are
mainly used to trigger stock market reactions.

15. International Standards
     The delocalization makes international standards of accounting
a necessity. These standards will become the corporation law of the
future.107 But will they be ―law‖? International Accounting Stan-
dards and Generally Accepted Accounting Principles are not enacted
by parliaments, but by private organizations (sometimes with gov-
ernment support, as is the case with the SEC).
     These standards and principles are the new codes of conduct for
transnational corporations. However, their status as ―law‖ is fragile
because they are not formally enacted, are in a state of flux, and are
simultaneously elusive and osmotic. This is in line with our general
ideas of how markets make law.108 The Internet economy results
from self-organization and de facto binding conventions. The Inter-
net itself creates the rules.

  105. See Joerg Drobeck and Gerhard Gross, Das Web/Trust Seal als Symbol
fuer eine unabhängige Ueberpruefung, DIE WIRTSCHAFTSPRUEFUNG 2000, 1045.
AVAILABILITY      PRINCIPLES    AND     CRITERIA       (2001),   available    at (explaining principles and criteria for
participation in the WebTrust program).
  106. Hans Caspar von der Crone, Verantwortlichkeit, Anreize und Reputa-
tion in der Corporate Governance der Publikumsgesellschaft, Schweizerischer
Juristenverein, Referate und Mitteilungen, 2000, No. 2, at 235, 269.
  107. See Where Internet Meets Geography, supra note 7, at 268 (2000) (con-
templating the effect that Internet globalization will have on global accounting
  108. Werner Ebke, Maerkte machen Rechtauch Gesellschafts-und Unterneh-
mensrecht!, FESTSCHRIFT LUTTER 17 (2000).
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16. Standard Setters
     But as always, human actors act before and behind the scenes.
Therefore, it is of the highest importance to focus on the professional
group that shapes the new corporation law. Who is the ―standard
setter,‖ who is the de facto ―corporate lawmaker‖?
     So far, the answer is simple as accountants have the upper
hand in Germany, through the ―German International Accounting
Standards Committee‖ (under § 342 of the German Commercial
Code),109 and in the United States, through the Federal Accounting
Standards Committee. These groups control the rise and fall of ac-
counting concepts and they participate heavily in the ongoing dis-
cussion over the Internet. As far as this author can see, no bar asso-
ciation is involved. Accountants control the redirection and growth
of the most important part of the corporation law in a global cyber-
space corporate world. They give the new ―names‖ and new ―curren-
cies.‖ Corporations ―are‖ what accountants making the financial
statements tell us they ―are.‖

17. Conclusion
     Going from lawyers to accountants and from accountants to
lawyers has turned out to be a tour de force. But the ―force‖ is ne-
cessary to keep competition and cooperation alive between these vi-
tal actors in matters of corporate governance. Unfortunately, few
law schools see these contacts as vitally important, assuming that a
few courses on ―law and economics‖ and ―accounting for lawyers‖
will suffice. But that is not enough. Students should get the chance
to go deeper into the field of accountancy and to explore the great
opportunities for lawyers and accountants working together. This is
vital in keeping a balance between ―The Tyranny of Numbers‖110 in
a digital world and the cultural values and experiences that are the
core of our legal systems, with lawyers as trustees.

  109. GERMAN COMMERCIAL CODE (Simon L. Goren trans., 1998).

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