How are the interests of shareholders and other stakeholders factored into decisions of the governing body?
See question 27. Sometimes decisions that are in the best interest of the company (e.g. continuance in times of economic troubles) are not in the interests of other stakeholders, such as the employees (e.g. workers being laid off). Ultimately, from a legal perspective, the interest of the company prevails, although public opinion is also often crucial for a company’s success. Thus the management will usually consider other stakeholders’ interests while taking decisions.
Please refer to our comments on item 4.
See answers to questions 16 and 17.
Pursuant to section 4.1.1 of the GCGC the Management Board assumes full responsibility for managing the company in the best interests of the company, meaning that it considers the needs of the shareholders, the employees and other stakeholders, with the objective of sustainable value creation. This summarizes the prevailing view of the corporate governance literature, pursuant to which no individual stakeholder interest has priority over others, and that it is the task of the Management Board to come to decisions that appropriately consider all interests, including the interest of shareholders to maximize the share value.
There is no specific obligation for factoring in interests of shareholders and other stakeholders into decisions. However, the Law provides that in case (i) certain information regarding a General Meeting resolution are not provided to shareholders who have lawfully exercised such right or (ii) the majority shareholders has acted in abuse of its power, a General Meeting resolution can be annulled. Anullment can be requested by any shareholder holding at least 2/100 of the share capital, in case he/she did not participate at the meeting or objected to the decision, as well as any member of the Board. In case the lawsuit is filed by shareholders who did not receive the information requested, the minimum threshold is set at 1/20 of the share capital. In case there are shareholders who do not have the required amount of shares in order to file above lawsuit, they can request from the company restoration of their damage.
The board is expected to act in the best interest of the company and its shareholders. Shareholders, and employees who have subscribed for share option, will be given opportunities to voice out their opinions at the AGM. For other stakeholders which may not have the opportunity to directly communicate with the board, the senior management or executives responsible for a particular corporate function should actively obtain the views of the relevant stakeholders by means of periodic meetings and interviews. Although the board may have delegated the decision-making power of certain matters to committees and the senior management, they should always communicate with the function or personnel responsible to understand the needs of different stakeholders.
The governing body generally needs to make decisions considering how to maximise the interests of shareholders. The governing body should also consider other stakeholders as being very important and indispensable to increase corporate value in a sustainable manner pursuant to the CGC (see question 27).
The members of governing bodies shall act with due care and skill and in the company’s interest. As aforesaid, members of the administration bodies shall also take into account the shareholders’ long-term interests and consider other stakeholders’ interests (as employees, clients and creditors).
In general, the governing body of a Company is established pursuant to shareholders’ decision and approval at the GMS (please see Item 6 for more detail). Shareholders may also consider other requests from non-shareholder stakeholders, but are not legally bound to do so. If a Company adopts the executive officer system, its BOD would be formed by shareholders but the executive officers are elected by the BOD. After election, the directors and executive officers do take into account the interests of the shareholders and other stakeholders, but carry out their corporate actions in accordance with their fiduciary duties.
Swiss company law allows a board to take into account both the interests of shareholders as well as the interests of the company with all its stakeholders (see question 4). Accordingly and if consistent with the long-term interests of shareholders, a company's board of directors will typically appropriately consider all stakeholders within the framework of good corporate management.
Public companies are focusing much of their resources to identifying and understanding their shareholders, particularly large institutional investors. In recent years, large institutional investors have come to expect that boards of directors maintain a formal shareholder engagement policy in addition to shareholder engagement plans. Companies are also playing close attention to their retail investors by establishing policies and plans that are inclusive of all shareholders and broadening their scope to go beyond shareholder meeting agendas or large transactions.
With policies and plans in place, companies use their engagement efforts to determine the level of disclosure, beyond what is required by the SEC, to include in their SEC filings, and how they will report on recent transactions and company benchmarks, whether that be through investor meetings, investor calls, webcasts, or other use of social media platforms.
Beyond voluntary shareholder engagement, boards of directors owe specific fiduciary duties to their shareholders. In fulfilling their managerial responsibilities, boards of directors are charged with certain fiduciary duties, primarily the duty of care and the duty of loyalty, which focus on the best interests of the shareholders. Courts, however, have generally held that board of directors generally do not owe fiduciary duties to other constituencies, like creditors, whose rights are contractually based. An exception arises when a company nears insolvency or becomes insolvent, in which case, directors may owe fiduciary duties to creditors. Additionally, some states have adopted statutes focusing on “other constituencies,” which allow directors to consider the interests of non-shareholder constituencies, such as creditors, employees, suppliers and others in making corporate decisions.
Directors are to have regard to the interests of various stakeholders when taking decisions. See questions 27.
Canadian corporate law requires that directors, when discharging their fiduciary duty, act honestly and in good faith with a view to the best interests of the corporation they serve. Canadian boards would be expected to give considerable attention to the interests of shareholders, among other stakeholders, when determining the best interests of the corporation. Corporate statutes also provide that shareholders and creditors may seek remedial orders in respect of action by the corporation which is oppressive, unfairly prejudicial or unfairly disregards their interests. In determining courses of conduct, corporate boards are required to consider the reasonable expectations of shareholders and creditors to ensure that their actions are not oppressive, unfairly prejudicial and do not unfairly disregard interests.
Management matters are reserved to the exclusive competence of the board of directors (Art. 2380-bis, par. 1, ICC, even though certain exclusions apply to limited liability companies under Art. 2479 ICC), which is not required – from a strictly legal standpoint – to factor into its decisions shareholders or stakeholders’ interests, unless on a voluntary basis.
Both the interests of shareholders and the stakeholders are taken into consideration in the GA resolutions by the ways stated above as examples.
- The information and explanations that can affect the rights of the shareholders are disclosed on the company website for investors (CGP, article 1.1.2).
- The company avoids the practices making use of voting rights difficult for the shareholders (CGP, article 1.4.1).
- The GA meetings shall be held in a way that it will not lead inequality among the shareholders and will ensure the participation of the shareholders with the lowest possible cost in order to increase the participation of the shareholders (CGP, article 1.3.3).
- A balanced policy is preferred between the interests of the shareholders and the interests of the company in the dividend distribution policy (CGP, article 1.6.4).
- The company protects the rights of the stakeholders stipulated in legislation and mutual agreements in its operations and activities. In case they are not protected by the legislation or the mutual agreements, the interests of the stakeholders are protected within the framework of the rules of good faith and the company opportunities (CGP, article 3.1.1).
Under Luxembourg law, the shareholders are in principle not taken into account in relation to decisions taken by the board which has to act in the best interest of the company. This being said, the shareholders have the right to act on behalf of the company in case of bad management of the company or breach by the board of the Companies' Act or the articles of association. They also are the body corporate that has authority to approve the annual accounts and the allocation of the annual results. In addition, an action may also be lodged against the directors of a SA (or members of the board of management or supervisory board in case of double tier system SA), as the case may be, on behalf of the company by minority shareholders, under the conditions provided for by the Companies' Act. Finally, the board must comply with the equal treatment of shareholders principal in certain circumstances provided for by law.
For qualifying listed companies, the LSE Principles indicate that the board as a collective body shall act in the corporate interest and shall take into account the interests of all stakeholders in their deliberations.
According to Ukrainian Principles of Corporate Governance, company officials should strike a delicate balance between the interest of shareholders and the interests of all other stakeholders (employees, clients, creditors, the state, public society etc.).
Majority shareholders generally exercise influence on the supervisory board through their representative directors (see question 7). It is common practice when a majority shareholder, often dominating, is the chairperson of the supervisory board of the company. Majority shareholders who are not board members are sometimes allowed to be present at the meetings and comment on important issues. Other stakeholders are usually not permitted to participate in board meetings unless upon specific invitation.
Naturally, the primary concern of both independent and representative directors are the interests of the company and its shareholders which, however, should be aligned with other stakeholders` interests to deliver truly sustainable decisions for the company in the long perspective.