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[No. 58] Bainbridge In a Nutshell

Steve added two posts to his fine blog, in which he presents his thoughts on (i) director primacy and (ii) corporate governance reform in a nutshell. Or as David Zaring puts it: the Bainbridge corpus in two posts. Reading this is 10 minutes very well spent.

[No. 57] Shareholder Fiduciary Duties and the Proportionality Principle

In post 54 I mentioned the conference on Responsible Shareholdership. Matthijs de Jongh, one of the speakers at the conference, shot me an e-mail with a link to SSRN where he has posted his lecture about shareholder fiduciary duties and the proportionality principle. The lecture can be found here. The abstract runs as follows.

Shareholders may put their own interests first when exercising their shareholder rights. Their position differs from directors, who shall be guided by their fiduciary duties to the company.

This lecture explores to what extent there are exceptions to the rule that shareholders may act in their own interest. Although it focuses on Dutch law, the arguments put forward can be relevant in other jurisdictions as well. It appears that, under Dutch law, the principles of reasonableness and fairness may require shareholders to keep an eye on the interests of the company and other corporate constituencies like minority shareholders.

Accordingly, Dutch law acknowledges two principles: the autonomy principle, which allows shareholders to act in their own interests, and the fairness principle, which requires shareholders to take regard to the interests of others. Although these principles go normally hand in hand, they may also clash at times. In order to solve a conflict between these two conflicting principles, Dutch law has not developed hard and fast (substantive) rules. It preferred a procedural solution which reduces legal uncertainty. This formal framework is offered by the proportionality principle: shareholders may act in their own interest, provided, however, that they do not disproportionally harm the interests of the company and of other constituencies. On the basis of Dutch case law, this lecture then develops three subrules that are helpful in resolving a conflict between the two principles. The first two subrules regard the proportionality and subsidiarity principle, and the third subrule regards the proportionality principle in relation to the interaction between board and shareholders.

 It's a good read.

 

[No. 56] Fiduciary Duties in Corporate Law

So I got a mail from Prof. Theo Raaijmakers the other day, with the request to participate in a conference in honor of Delaware Chancery Court's Chancellor Leo Strine, who is this year's Anton Philips Professor.

It did not take long for me to respond with a firm 'thank you and yes please'. Not only did I work at the Chancery Court in the second half of 2008 for Leo Strine (those days when the credit crunch kicked-in and Obama got elected, remember?), the theme of the day - fiduciary duties in corporate law and all that - is quite interesting as well.

So here is the schedule for the conference, that will take place on November 4, 2011 in Tilburg. There are big names on the ticket, including Prof. Vino Timmerman (Takeovers and Proxy Voting) and TDT's very own Michael Schouten (ditto). I will be talking from the Dutch angle about director's liability vis-a-vis the company (section 2:9 DCC), fiduciary duties and - introduction of a Dutch version of - the business judgment rule, sometime after Leo Strine's inaugural speech and before lunch.

The Anton Philips Fund is organizing a Conference on Fiduciary Duties in Corporate Law in honor of Leo E. Strine, Anton Philips Professor at Tilburg University (2011-2012).
The event will be held at Tilburg University on November 4, 2011.

The Annual Anton Philips Inaugural Address will take place at 10.15 sharp in the Auditorium of Tilburg University.
Professor Leo E. Strine, Chancellor of the Delaware Chancery Court and Professor at the University of Pennsylvania Law School, will deliver his inaugural address titled The Logical, but often Overlooked, Consequences of Corporate Governance reform and Prior Judicial Decisions for Current Corporate Litigation.

Upon the conclusion of Professor Leo Strine’s inaugural lecture, there will be a conference on Fiduciary Duties in Corporate Law. The conference will be divided in three panels.
The first panel, chaired by Theo Raaijmakers, will focus on Fiduciary Duties and Liabilities of Directors and Officers with paper presentations by Bastiaan Assink and Huub Willems.

After lunch the second panel, chaired by Joseph McCahery, will focus on Takeovers and Proxy Voting, with paper presentations by Vino Timmerman, Michael Schouten and Theo Raaijmakers.

The final panel, chaired by Leo Strine, will be on EU Takeover Regulation with paper presentations by Alessio Pacces, Joseph McCahery and Jaap Winter.

The morning session will be held in the Auditorium of Tilburg University. The afternoon session, to be held in the Dante Building, will be finished at 17.00h with drinks in the foyer.

Attendance is free of charge. More information on the registration for these events you can find in the practical information.

Attendance is free of charge. For online registration go here.

[No. 55] Legislative Maneuvering - Doe Es Effe Normaal Man!

Okay, so there are some issues on point to report and reflect on here. I confine myself to the former for now.

First, the formal bill to tweak the right of inquiry was sent to parliament (Stcrt. 2011, 16586). The bill does not differ that much from the draft proposal, that was open for consultation for some time late 2009/early 2010 and discussed at TDT, e.g., here. I am mildy positive here, as explained elsewhere.

Now things turn a bit grim.

Second, the minister of Justice and the minister of Economic Affairs have come up with the idea to no longer require notarial involvement with creation of certain - I guess: one-person - BV's. A troubling idea for many reasons, that raises many, many questions and - again - does not seem to be the outcome of thoughtful deliberation (taking into account the current system and the pending Flex-BV bill) but of political opportunism. The word 'mind-boggling' seems to fit in nicely here.

Third, and things turn really bad here, the minister of Justice announced he has the intention to withdraw the bill on Titel 7.13 (personenvennootschappen) concerning alternative entities. This sad result is the outcome of some very succesful lobby work by the VNO organisation of entrepreneurs, based on the reasoning - a non sequitur, really - that introduction of Titel 7.13 would be too costly of a venture. That bill has a very, very long legislative history. This version was worked on for roughly ten years, had already passed the second chamber of parliament, was anticipated widely in legal practice and academia for years, and was waiting only for adoption by the first chamber of parliament. Talk about a waste of money and effort, that in my view really isn't in the best interest of Dutch company law (and I'm willing to bet a nice bottle of wine that most if not all, except one or maybe two, of my colleagues agree). Withdrawing this bill would also mean - there is even a cherry on the cake - that we will be stuck with our current statutory provisions on alternative entities, that date from early 19th century (no, that is not a typo), are written in pre-historic Dutch prose and whose time for replacement by Titel 7.13 has long come. Sometimes the legislator does things that boggle the mind; this maneuvre, for sure, lists on the top of that mind-boggle list (as well as the opportunism list for that matter). Although far stronger words come to mind, I will leave it at that, at least for now.

One question though, also in view of the fact that the pending bill on the Flex-BV has not gone anywhere for months and months: why is the legal community standing at the sidelines and looking at things heading for a train-wreck here, without doing anything really? Fire away all those columns, people, and let's try to turn things around when it is still possible; stranger things have happened in this - shall we say: dynamic - political era. Here's one suggestion for a column header (*tongue firmly in cheeck*): "Doe es effe normaal man!"

[No. 54] Responsible Shareholdership

In post 36 I mentioned that the Center for European Company Law was hosting a conference on responsible shareholdership. Steef Bartman, who chaired the event that took place on September 16, 2011, sent me the following wrap-up text - which I guess will also be published in the magazine called European Company Law - with the request to post it on TDT as a service to our readers. Well, sure Steef, the mike is yours.

The 4^th biennial conference organized by the Centre for European Company Law ("CECL"), a cooperation between the Dutch law faculties of the universities of Leiden, Utrecht and Maastricht, was held in Leiden on 16 September last. The conference was devoted to the topical theme of Responsible – sometimes also referred to as “engaged” – Shareholdership. Distinguished academics from several universities tried to find different incentives to steer investors into a more long-term, company oriented attitude, in particular as regards the behavior of proxy advisers and institutional investors.

Koen Geens (Leuven, Belgium) kicked off the conference by inter alia advocating a liquidity test, in addition to a balance sheet test, for paying out dividends in a listed company. He also criticized hybrid financial instruments, such as convertible bonds, as they create no real tier one capital because of their lack of loss capacity when the crisis-push comes to shove. Holger Fleisher (Max Planck Institute, Hamburg, Germany) pleaded for more transparency and accountability of proxy advisors, e.g. by binding them to a code of conduct and obliging them to disclose their conflicts of interests and voting policies on a regular basis, just like credit rating agencies and auditors. Iris Chiu (UCL, London, UK) analyzed the effect of the UK Stewardship Code on institutional investors. She noted that the Code was not clear at all on the meaning of the wider public good that institutional investors officially have to take into account and mentioned that the Code was “peppered with rhetoric”. Matthijs de Jongh (Supreme Court, The Hague, the Netherlands) took a more ex post, judge-oriented approach and tried to strike a balance between the principles of shareholder autonomy and fairness when defining the standard for shareholder behavior. He stressed that a growing factual influence of shareholders in the company should go hand in hand with a growing responsibility toward all other constituencies. In his opinion, good old Aristotle still has all the answers. Jaap Winter (Duisenberg School of Finance, Amsterdam, the Netherlands) once more stated his view that one of the fundamental problems lies in the widespread application of Modern Portfolio Theory (extreme diversification and index tracking) by fund managers. Jaap announced that he is currently involved in a legal experiment, in an attempt to distract companies from the short-term discipline of financial markets, by creating a social cooperative that can be listed. For the content of my own speech at the conference about expropriation of shareholders in a distressed financial institution in the Netherlands, I refer to my contribution further on in this issue of ECL. Finally Pavlos Masouros (PhD, Leiden, the Netherlands) took the audience to the economic sphere of statistics on capital accumulation over time in the western economies and its relation to equity short-termism. He advocated the introduction of loyalty shares in various forms. His speech ignited a lively and fierce debate, in which among others the president of the Dutch Shareholders Association (VEB), Jan Maarten Slagter, participated with great enthusiasm.

All in all the conference highlighted many complicated aspects of an essential feature of our economic system, i.e. shareholder autonomy, and the possible role of the law to commit investors to objectives beyond their short-term profit quests.

[No. 53] Prejudicial Question

So, it has been a while since my last post. Things have been kind of overwhelming on the research front, and the summer break did not help much either I'm afraid. Mea culpa. But I'm back, with good intentions blogging wise.

This morning my colleague Arnoud Pijls shot me an e-mail with a link to this Amsterdam Court of Appeals decision of September 13, 2011, in which the court asks the European Court of Justice a so-called 'prejudicial question': here a question as to the correct interpretation of a certain European guideline on consumer protection (Richtlijn oneerlijke bedingen in consumentenovereenkomsten (Richtlijn 93/13/EEG van de Raad van 5 april 1993 betreffende oneerlijke bedingen in consumentenovereenkomsten, Pb 1993, L 95/29).

Although this subject matter is not something typically discussed on TDT, the matter is relevant. Think for example of the Inter Access Group case discussed at nauseam here at TDT (see the last post here), in which I questioned whether the Enterprise Chamber was free - as it did - to not take into account in its decision to facilitate the massive dilution of a majority shareholder by means of several immediate measures, whether its decision was in sync with section 1 of the First Protocol to the European Treatise on Human Rights (the protection of property part, that is).

The case mentioned above touches on that interplay between EU law and national law, and whether the national courts are generally supposed to review the application of national law for compatibility with mandatory supra-national law if relevant, even if not brought into question by the parties to the national proceeding. It will be very interesting to see how this plays out.

The Inter Access Group case is also likely to pop-up again outside the Netherlands, be it not in Brussels (at the European Court of Justice) but in Strassbourg (at the EHRM court).