Centre for European Company Law
Centre for European Company Law
Centre for European Company Law

3rd CECL Conference

Held in Maastricht, 18 September 2009


In the recent years hedge funds have played an increasingly important role in corporate life. The acquisition by the Consortium of ABN AMRO and the subsequent break-up of the bank, as well as the failure of the Fortis Bank followed by its forced nationalization, are examples of the far reaching effects of shareholders’ influence on corporate existence.
The role of hedge funds and the influence of shareholders in general (when striving for short term financial goals) cause a challenge of the traditional views on company law. Of course shareholders have important rights which they can exercise democratically at the general meeting and they have the ultimate power to control management of the company, but these developments and cases fuel the discussions about the rights and obligations of shareholders.
The term shareholder democracy relates to the different ways in which shareholders can influence or even determine a company’s strategy. One of the disadvantages of shareholder democracy is a risk that most democratic systems face: it can lead to opportunistic behaviour of, in this case, influential shareholders with personal interests conflicting with the interests of the company. Globalising financial markets call for a general debate of this topic in an international context. Shareholder democracy does not only play a part in takeover situations, it touches the very core of every company law system. The position of shareholders within the corporate model, for example, influences the corporate interest definition, which in turn has significant consequences for the position of the board of directors.

International context

The conference placed the topic of shareholder democracy in an international context. Academics and legal practitioners from several jurisdictions were brought to stimulate the debate on shareholder democracy. In this respect the conference focused on three main areas: 1) the position of shareholders with regard to defence mechanisms, 2) the position of shareholders within the corporate interest definition and 3) the rights and responsibilities of shareholders in the general meeting.

The opening remarks by Prof. Aalt Willem Heringa were followed by the keynote speech of Prof. Dan Prentice. Other speakers included Prof. Philip Sutherland, Mr. Laurent Arnauts, Dr. Pierre Glozbach, Prof. Steef Bartman and Prof. Adriaan Dorresteijn. Several members of the Institute for Corporate Law, Governance and Innovation Policies (ICGI) participated in this event as well. Dr. Mieke Olaerts gave a speech on the topic Shareholder democracy in the European Private Company and Professor Bas Steins Bisschop moderated the discussions at the end of both sessions. Professor Kid Schwarz chaired the first part of the programme, Mr. Johan Kleyn the second.


In his opening speech, Heringa confronted the audience by introducing the constitutional law perspective. Why do corporate lawyers relate the concept of (political) democracy to corporations? And – from a corporate law perspective – does the notion of shareholder democracy relate to justice or to representation? Heringa left the answers to his questions to the speakers, who, as it turned out, all gave their own conceptual interpretation.

Opening the first session, Professor Prentice voiced the Anglo-Saxon approach in which the capital supplier plays a principal role within capital companies. There may be an increasingly generally shared view that there is convergence between the stakeholder model and the stockholder model and this might view be supported by the so-called ‘enlightened shareholder model’, these views are fiercely disputed by Prentice. In his view this enlightened shareholder model does not bring any material change in the central position of capital suppliers within the achievement of the corporate goal.

Professor Sutherland pointed at the tendency towards corporate transparency and good governance in the South Africa. Achieving the goals of modern corporate governance, however, is impaired by the non univocal legislation in the South African mixed legal system. As an example he referred to the new South African corporate law system which attributes to the general meeting the power to alter the articles of association while, at the same time, these powers can also be with the management board. Sutherland is convinced that the new political order in South Africa will stimulate shareholder democracy further as a result of its endeavors towards transparency and democracy in general.
Glozbach is of the opinion that also in Germany a shift in the direction of the shareholder model can be observed, as a result of the strengthening of the shareholder position and the recognition of international accounting standards. In his opinion this is a change to be marked as the German system used to be a prime example of the true stakeholder model. According to Glozbach there is convergence between both models resulting in hybrid forms and structured through the balance of powers between (institutional) investors and labor representatives.
Also the Belgian model may, according to Arnauts, be traditionally defined as an example of the stakeholder model. The shift from the stakeholder towards the shareholder model was specifically demonstrated in the recent Fortis case, in which the court ruled that the shareholders have a preponderant position in strategic policymaking, which power was traditionally with the board. In conclusion, the developments of the French and Belgian models are comparable.

The second part of the conference had a more theoretic character. Professor Bartman kicked-off with a comparison between societal voting rights and voting capacity within corporate structures. In his analysis of equality of shareholders and institutional duties of care, he referred to the theories of Dworkin, and especially to the principle of intrinsic value. Bartman transposed these principles to corporate theory and specifically to the principles of reasonableness and fairness. In his view these principles form the basis for assuming the necessity of duties of care, especially towards minority shareholders. In his opinion also other principles developed by Dworkin can be of use for the understanding and further development of corporate law systems, such as the principle of personal responsibility.

Olaerts studied shareholder democracy from within the Societas Privata Europaea (SPE). She points out that one of the characteristics of democracy, namely the majority rule, can be especially problematic for minority shareholders in closely held corporations. As for these types of companies a market for the shares is almost non-existent, the interests of these minority shareholders deserve specific protection. This observation must lead to a stronger emphasis on the ways in which majority decisions can be influenced by the minority. The draft regulation on the SPE empowers the shareholders meeting to decide on all crucial decisions, but the definition of corporate interest is insufficiently clear as the regulation makes no choice between the stakeholder and shareholder model for the SPE. Another problem is that the regulation leaves room for discussions on questions such as the possibility to annul decisions of corporate organs. The specific protection of minority shareholders depends on the national law of the country where the SPE has its registered office. This fact may influence the decision where to establish the registered office of the SPE. Her conclusion is that we must strive for balancing the majority rule using the principles of good faith, also within the regulation of the SPE.
Professor Dorresteijn reviewed various national discussions on improving Corporate Governance. His conclusion is that in most jurisdictions the focus is on strengthening of the position of shareholders and on providing for a certain balance between the positions of the capital suppliers and management. Such a balance is to contribute to improving the quality of corporate governance. In this respect certain questions remain to be answered, including the question whether or not instruments and techniques eliminating proportional voting rights should be allowed. These techniques may lead to situations in which the board is dependent of certain factions of shareholders, whilst research shows that the interest of minority shareholders is best protected strictly independent board members.