Archive

Archive for June, 2017

Voice: the perspective of Minority Shareholders

June 18, 2017 1 comment

In firms with concentrated structure, (be it because of the economic stake or as a result of multiple-share capital structures, or as a result of the retail shareholders´apathy), the fact that controlling shareholders can extract private benefits from other shareholders, who still remain passive is appealing, and constitutes the theme for Dov Solomon´s “The voice: the minority shareholder´s perspective”, published in May 2017, (1).

Minority_Shareholders

Rational apathy (2) has been identified as a main factor for the passive attitude, and measures addressing it try to (i) increase the benefits arising from participating and voting: rising the influence in the voting outcome pushing institutional investors to vote; (ii) decrease the costs of voting, introducing online voting for instance. If voting reality improved, all other activism tools would be enhanced also, thus its relevance. Read more…

Controlled Companies and Independent Directors

Lucien Bebchuk and Assaf Hamdani have recently published an article, (1) in which they present an alternative to current director elections so that true independence is assured, in particular at controlled companies, where beyond the fact that Nomination Committees are responsible for the selection, controller shareholders usually de facto fully control the procedures so that independence does no actually happen, (as it may be thought to be the case at widely held companies).

Enhanced Independence (as they call it) may emerge if directors are held accountable by public investors; Bebchuk and Hamdani think that not only controller shareholders are to be dispossessed of their complete influence in the nomination process, but that some influence must be granted to public investors, at least regarding some of the independent directors. Their influence can be executed in appointment, reelection and termination decisions.

Bebchuk and Hamdani state that even with director nomination restricted to Nomination Committees populated only with independent directors, controller shareholders have a big say in the process. Independent directors cannot be elected or reelected without their decisive voting rights as shareholders, and also find it difficult to remain when controlling shareholders leave the company. Apart from the social gratitude stemming from having been elected, directors very often suffer the direct or indirect, explicit or not pressure from controller shareholders regarding decisions that affect them and value, particularly related-party transactions. Read more…