The new European shareholder rights directive: removing barriers and creating opportunities for more shareholder activis
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The new European shareholder rights directive: removing barriers and creating opportunities for more shareholder activism and democracy Caspar Rose
Published online: 11 May 2010 Springer Science+Business Media, LLC. 2010
Abstract Shareholder activism has increased within the last years. Traditionally, minority shareholders voted by their feet if they disagreed with managements actions. However, this has certainly changed due to the development of Internet based technologies as well as the emergence of hedge funds and other active institutional investors. As a consequence, listed firms’ costs of communicating with investors globally have increased, specifically the budget of investor relation departments. The EU Commission has recently issued a Directive on shareholders rights which will become part of European Law next year recognizing that crossborder voting should be solved as a matter of urgency. This article analyses the nature of shareholder activism in the light of the new Directive arguing that the Directive is only the first step in a legal process that is expected to substantially increase shareholders0 rights in the coming years. The article also presents the notion of shareholder democracy that is crucially dependent on active minority shareholders. It is argued that the notion of shareholder democracy may serve as guidance for how future legislation should be designed. Keywords Corporate governance Shareholder activism Shareholder democracy Managements duty of loyalty and the new EC Shareholder Rights Directive
1 Introduction There is no clear definition of what shareholder activism means or represents. However, one may define it as activities initiated by minority shareholders to C. Rose (&) Department of International Economics and Management, Copenhagen Business School, Frederiksberg, Denmark e-mail: [email protected]
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influence directly or indirectly the decisions on the general agenda as well as in the board room. This may involve building alliances with other more influential shareholders behind the scene or publicly criticize a particular decision by management. In some instances, shareholders may launch a media campaign e.g. showing pictures of the board in newspapers under the header ‘‘Badly-performing assets’’ arguing why management should be replaced. The formal scene for shareholder activism is at the general meeting where all major issues must be voted on e.g. electing board members, increasing the capital, approving in a merger. In some jurisdictions, such as Sweden and Denmark (see e.g. Lau Hansen 2006), the general meeting must also approve the overall principles for management’s remuneration such as stock options programs. As a consequence, making it easier to participate and influence the agenda of the general meeting increases the power of the shareholders e.g. by proxy voting or electronic means. Powerful shareholders may promote an agenda that benefits certain shareholders at the expense of others. In some cases shareholder control is obtained without large
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