[No. 86] Dutch Members of Parliament to Government: Limitation of Shareholder Influence, Please

In post No. 61, I wrote about the competing views on the relation between shareholder influence and the financial crisis (for Steve Bainbridge's response, see here). Some seem to believe that shareholders were part of the problem, while others believe they are part of the solution. Now, Dutch MP's are weighing in the debate.

What's the story? Earlier this month, a majority of MP's supported a motion by the socialists requesting the government to come up with proposals to limit the influence of shareholders on companies. As noted by Agnes Kant, leader of the socialist party, "each share is being  transferred, on average, once a year. This implies that shareholders' priority is not the future of the company, but their personal short term gains".

A few weeks ago, a majority of parliament supported the motion. Hardly a week later, the government submitted a long awaited legislative proposal to parliament, which will make it harder for shareholders to put items on the agenda. Instead of 1% of the shares, they will need 3% to be able to do so (the proposal also contains other measures, such as lowering the threshold for ownership disclosure from 5% to 3%).   

Given that a recent report by Eumedion indicates that in the 2008 shareholder meeting season, only eight such proposals were submitted, and that this number was reduced to zero (!) in the 2009 season, one can't help but wonder what all the fuss is about. The move is even more remarkable in light of the fact that proposals in the UK and US seem to be geared towards increasing shareholder influence, rather than decreasing it.

While, obviously, there are various possible explanations for this divergence, here's one. In the US and the UK, the financial crisis necessitated government bailouts of banks whose bankers had been taking home huge sums of money in the form of salaries and bonuses. This did not fare well with the public - recall the controversy surrounding the payouts at Merrill Lynch.

In the Netherlands, too, the financial crisis necessitated government bailouts of banks - yet, public outcry wasn't primarily invoked by excessive compensation, but by the painful loss of two giants of the Dutch financial landscape - ABN Amro and Fortis. While the demise of these institutions inevitably is the result of a complex chain of events, in the public eye, much of it can be traced back to one particular event: activist hedge fund TCI's proposal to break-up ABN Amro back in 2007.

So, how do politicians respond? You guessed it - in the US and the UK, they are tempted to give in to public sentiment by curbing managerial influence, while Dutch politicians are tempted to do the same by curbing shareholder influence. A cynical explanation perhaps, but an explanation nonetheless.

Comments

[Matthijs de Jongh]

Hi Bastiaan,
Although not undisputed (see the working paper by Brav et al.; http://ssrn.com/abstract=948907), a recent article published in the Journal of Finance by Klein/Zur suggests that there is some evidence that hedge fund activism has adverse mid/long term effects in terms of cash flow and profitability (see http://www3.interscience.wiley.com/cgi-bin/fulltext/121660520/PDFSTART?CRETRY=1&SRETRY=0).

I will briefly touch upon this issue in an article that will be published in Ondernemingsrecht next month.

[Sarah Wilson]

The legislation that you mention is the result of the Shareholder Rights Directive which seeks to harmonize rules across the EU. In Ireland, for example, there was no minimum shareholding required to submit proposals. It is disappointing sometimes to have to go backwards to go forards, but that is the problem with consultations and committees.