In a forthcoming book chapter that I presented at Fordham Corporate Law Center in March, 2014, I contrast the recent European initiatives on regulating corporate groups with alternative approaches.
I find that the European Commission’s proposal to submit (significant) related party transactions to enhanced transparency, outside fairness review, and ex ante shareholder approval is flawed in its design and based on contestable assumptions that institutional investor voting is sufficiently informed. In particular, the contemplated exemption for transactions with wholly owned subsidiaries allows controlling shareholders to circumvent the rule extensively. Moreover, vesting voting rights with (institutional) investors will not yield the informed assessment that is hoped for because these investors will rationally abstain from actively monitoring controlling shareholders’ pertinent transactions. Institutional investors will also rely largely on proxy advisory firms, while the competency of these firms in analyzing non-routine related party transactions remains questionable.
I further delineate that the contemplated recognition of an overriding interest of the group requires strong counterbalances to adequately protect minority shareholders and creditors. Hence, if the Commission choses to go down this route it might end up with a comprehensive regulation that is akin to the unpopular Ninth Company Law Directive in spirit, though not in content.
More information on the book chapter: Troeger, Tobias H., Corporate Groups (September 22, 2014). SAFE Working Paper No. 66. Available at SSRN.
Tobias is a Professor of Private Law, Business and Trade Law at Goethe University, Frankfurt, Germany.
— Anastasia Tolu, Corporate Governance site administrator
November 19, 2014