!Корпоративное право 2023-2024 / 2013-study-analysis_en

1.6 Shareholder power

1.6.1 Managerial insulation

Based on the data collected in relation to the factors mentioned above, one can group the jurisdictions covered by this report according to the influence shareholders have with regard to the composition of a company’s board of directors.

The influence over the composition of a company’s board can have an important influence on how the company’s business will be managed in practice. The ability to change the board composition “ad hoc” also has important implications for the exposure of boards – and, hence, companies – to outside pressures,39 including pressures by activist shareholders with a short-term investment horizon. Likewise, these rights also affect the accountability of managers to shareholders.40

In categorising the company laws of the Member States, we focus in particular on factors such as the rights of shareholders to dismiss directors without cause, the majority requirements for dismissal, and the presence of employee representatives on the board. Where a two-tier board structure also requires management board members to be appointed and dismissed by supervisory board members,41 the resulting mediatisation of shareholder power is also taken into account. Likewise, we also take into account how the “interests of the company” are defined under national company law.

We would expect that where the interests of the company are defined in a way that includes multiple constituencies, this multi-interest model will result, at the margin, in a higher degree of managerial discretion.42 Overall, our categorisation can best be interpreted as focussing on “managerial insulation” – i.e. the degree to which managers can, at least in the shortand medium-term, withstand pressure from shareholders as to the corporate and business strategy pursued by the company.

The relevance of our categorisation does, of course, also depend on a number of structural factors that cannot be regarded as direct consequences of the legal rules examined. Most importantly, a highly concentrated ownership structure may well render limitations of shareholder rights meaningless.43 Thus, the three categories may be most relevant in situations where share ownership is dispersed or at least no single shareholder, and no (coordinated) group of shareholders, has de facto control over the company.

39See the discussion Ferreira et al as to the possible impact of ad hoc removal rights on corporate risk taking (D Ferreira, D

Kershaw, T Kirchmaier, EP Schuster, ‘Shareholder Empowerment and Bank Bailouts’ (2012) ECGI - Finance Working Paper No. 345/2013, available at http://ssrn.com/abstract=2170392).

40The impact of managerial “entrenchment” has received particular attention in US legal and economic research; see e.g. LA Bebchuk and A Cohen, ‘The cost of entrenched boards’, 78 Journal of Financial Economics 409; PA Gompers, JL Ishii, and A Metrick, ‘Corporate governance and equity prices’ (2003) 118 Quarterly Journal of Economics 107.

41Which is not the case in all jurisdictions, as can be seen above, Section 1.5.

42See e.g. the discussion in M Gelter, ‘Taming or Protecting the Modern Corporation - Shareholder-Stakeholder Debates in a Comparative Light’ (2011) 7 NYU Journal of Law & Business 641. See also the “Varieties of Capitalism” approach (PA Hall and D Soskice (eds.) Varieties of Capitalism [Oxford: Oxford University Press 2001]); see also MC Jensen, ‘Value Maximization, Stakeholder Theory, and the Corporate Objective Function’ (2001) 14 Journal of Applied Corporate Finance 8, for a very critical view of multi-dimensional approaches to defining the objectives managers should pursue.

43See above, text to n 9.

21 Directors’ Duties and Liability in the EU

1.6.2 Classification of national company laws on the basis of “managerial insulation”

Map 1.6.2.a: Classification of national company laws on the basis of “managerial insulation”

	Legend	Country
	Group I	AT, DE, EE, HR, LV, PL, SI
	Group II	BG, CZ, DK, FI, FR, HU, LT, LU, NL, RO, SK,
		SE
	Group III	BE, HR, CY, EL, IE, IT, MT, PT, ES, UK

Rather than attaching an “index value” to each examined jurisdiction, we form three groups of countries, with each group assigning, in our view, a similar set of rights to shareholders of national companies. The reason we do not attach exact numerical index values to national company laws is that we want to avoid the wrong impression of precision. The effectiveness of shareholder rights is the result of a plethora of factors, only few of which are within the scope of this report. The possible interactions between the legal rules assessed and the diverse social, cultural, institutional and economic factors render a precise “ranking” of company law unfeasible, in our view. Also, the differences between the described legal systems should not be exaggerated, as – even in the absence of controlling shareholders – a number of other factors may lead to convergence in firm

22 Directors’ Duties and Liability in the EU

behaviour.44 For example, economic pressures stemming from executive compensation or from the product markets certainly play an important role not reflected in our description below. Nevertheless, we believe that the grouping of jurisdictions may make it easier to compare the different legal systems covered by our study.

We form three distinct groups of company laws, based on the factors mentioned above. As mentioned above, the rights we focus on will typically only be relevant in companies with at least modestly dispersed ownership structures. We thus restrict the analysis on rules applicable to public limited companies. Where shareholders may choose between several board structures, we focus on the prevalent choice made in the relevant jurisdiction to avoid focussing on governance structures that have little or no relevance in practice.

Below is a description of the three groups we formed, as well as an explanation for the assignments we have made in relation to each jurisdiction covered.

Description of the three “Groups”

Group I

Group I contains the company laws that offer the highest degree of managerial insulation to company directors. The Member States assigned to Group I prevent shareholders from directly removing the executive directors (managers) of a company before the end of their respective terms, except for cause.45

Group III

Group III contains the jurisdictions whose company laws offer shareholders the highest degree of power over management. The Member States assigned to Group III allow shareholders to (almost) immediately remove the managers of a company without cause before the end of their respective terms. In addition, company laws assigned to this group also lack additional features that may dilute the shareholder-centric orientation of the company, such as board level employee participation or a clear multi-interest approach in relation to the “interests of the company”.

Group II

This group contains the “intermediate cases” – jurisdictions that cannot easily be assigned to either of the two aforementioned categories, with managerial insulation between what we find for Groups I and III.

Table 1.6.2.a: Classification of national company laws on the basis of “managerial insulation”

	Country	Classification	Explanation of assignment to group
		(Group)
			Austria’s company law is assigned to Group I because
			the management board members cannot be removed
			without cause by the shareholders.
	Austria	Group I	In addition, even the supervisory board cannot remove
			members of the management board, except for cause.
			While a vote of no confidence by the shareholders may
			constitute good cause for dismissal by the supervisory
			board, this is not the case where shareholders pass the

44 See also M Gelter, ‘The Dark Side of Shareholder Influence: Managerial Autonomy and Stakeholder Orientation in Comparative Corporate Governance’ (2009) 50 Harvard International Law Journal 129, who describes differences in shareholder influence as only “variations in degree”.

45 Removal “for cause”, in this context, typically requires proving a breach of directors’ duties.

23 Directors’ Duties and Liability in the EU

	Country	Classification	Explanation of assignment to group
		(Group)
			relevant resolution for unjustified reasons. Even where a
			cause for dismissal exists, the supervisory board still has
			discretion as to the exercise of the right (subject to the
			supervisory board members’ duties).
			Additional factors we considered are the “inclusive”
			definition of the interest of the company,46 the mandatory
			rules on employee representation, and the inability of
			shareholders to give binding directions to management
			Belgium is classified as Group III-country, since all
			directors, including the executive directors, may be
	Belgium	Group III	removed by the general meeting of shareholders without
			cause at any time.
			An additional factor we considered was the absence of
			mandatory rules on employee representation.47
			Bulgaria is classified as Group II-country for the following
			reasons: members of the management board may only
			be removed by the supervisory board, but the
			supervisory board may remove members of the
			management board without cause at any time. In effect,
			shareholders cannot exercise removal rights directly in
	Bulgaria	Group II	the two-tier structure, but since without cause removal
			rights are available to the supervisory board, the
			insulation of management is not as high as in the typical
			company subject to a law we classify as Group III.
			Additional factors we took into account are the absence
			of mandatory rules on employee representation as well
			as a shareholder-focussed definition of the interests of
			the company.
			In the prevalent two-tier system, shareholders do not
			have the right to remove management board members
			directly.
			In addition, even the supervisory board cannot remove
	Croatia	Group I	members of the management board without cause.
			Additional factors we considered are the definition of the
			interest of the company,48 the mandatory rules on
			employee representation,49	and the inability of
			shareholders as well as the supervisory board to give
			binding directions to management.
			Cyprus is classified as Group III-country, since all
			directors may be removed by the general meeting of
			shareholders without cause at any time. This right can be
	Cyprus	Group III	exercised with a simple majority of the votes cast.
			Additional factors we took into account are the absence
			of mandatory rules on employee representation, the
			shareholder-focussed definition of the interests of the
			company, as well as the right	of shareholders to give

46See also Section 2.2.2 below.

47The classification is based on the prevalent one-tier structure. See K Geens and M Wyckaert, ‘Het gebruik van het facultatief duaal systeem in Belgische beursgenoteerde vennootschappen: enkele facts and figures’ (2010) 7 TRV 527.

48See also Section 2.2.2 below. Croatian law does seem to attach a higher weight to shareholder interests than other stakeholder interest, but shareholder interests are not assigned over-riding priority.

49Note that the Croatian system of employee participation mandates only one employee representative on the supervisory board.

24 Directors’ Duties and Liability in the EU

	Country	Classification	Explanation of assignment to group
		(Group)
			binding directions to shareholders.
			We assigned Czech company law to Group II for the
			following reasons:
			In the prevalent two-tier system, shareholders may
	Czech		reserve the right to remove management board members
		Group II	without cause in the articles of association. However, the
	Republic
			default rule is that only the supervisory board may
			remove members of the management board. The articles
			may also make the removal right subject to additional
			conditions.
			Denmark is categorised as Group II company law for the
			following reasons: Under the prevalent “Nordic Model”,
			shareholders may remove members of the board of
	Denmark	Group II	directors at any time without cause, typically with simple
			majority. However, the CEO is not necessarily or typically
			a member of the board.
			In addition, Denmark adopts a mandatory system of
			employee participation.
			Estonia’s company law is assigned to Group I because
			the management board members cannot be removed
			without cause by the shareholders, and even the
			supervisory board can only remove members of the
	Estonia	Group I	management board with cause.
			An additional factor we considered is the “inclusive”
			definition of the interest of the company. Board-level
			employee participation is not, however, mandatory in
			Estonia.
			Finland is categorised as Group II company law for the
			following reasons: Under the “Nordic Model”,
			shareholders may remove members of the board of
			directors at any time without cause, typically with simple
	Finland	Group II	majority. However, the CEO is not necessarily or typically
			a member of the board.
			In addition, Finland adopts a mandatory system of
			employee participation, albeit subject to company level
			negotiations between the company and the employees.
			French company law is categorised as Group II. While
			shareholders may remove members of the board of
			directors without cause, they can only do so with cause in
	France	Group II	relation to the CEO in companies not adopting the PDG-
			model.50
			In addition, the interests of the company seem to include
			interests other than those of the shareholder body as a
			whole.
			German company law is assigned to Group I because the
			management board members cannot be removed without
	Germany	Group I	cause by the shareholders.
			In addition, even the supervisory board cannot remove
			members of the management board, except for cause.

50 One may argue that France is a Group III company law, depending on the importance one attaches to employee participation (which is absent in France), and depending on the adoption of the PDG system.

25 Directors’ Duties and Liability in the EU

	Country	Classification	Explanation of assignment to group
		(Group)
			While a vote of no confidence by the shareholders may
			constitute good cause for dismissal by the supervisory
			board, this is not the case where shareholders pass the
			relevant resolution for unjustified reasons. Even where a
			cause for dismissal exists, the supervisory board still has
			discretion as to the exercise of the right (subject to the
			supervisory board members’ duties).
			Additional factors we considered are the “inclusive”,
			stakeholder oriented definition of the interests of the
			company, the mandatory rules on employee
			representation, and the inability of shareholders to give
			binding directions to management
			Greek company law is categorised as belonging to Group
			III, since shareholders can remove any member of the
			board of directors at any time without cause, and they
			can do so with simple majority (mandatory law).
	Greece	Group III	Additional factors we		took into	account	in	our
			classification are the rather shareholder centric
			understanding of the interests of the company, the
			absence of mandatory rules on employee representation,
			and the right of shareholders to give binding directions to
			management
			In the prevalent two-tier structure, the supervisory board
			typically appoints the management board members.
			However, shareholders may preserve the right to appoint
			the members of both boards.
			Additional factors we took into account				in	our
	Hungary	Group II	classification are the mandatory board-level				employee
			participation system and the lack of a clear shareholder-
			centred definition of the interests of the company. The
			case could, however, be made that Hungary properly
			belongs to Group III, not least because of a right of
			shareholders to give binding directions to management.
			Ireland clearly belongs into Group III. Shareholders can
			remove directors without cause with a simple majority of
			the votes cast (mandatory rule), and they may give
	Ireland	Group III	binding directions (albeit with qualified majority).
			Shareholder interests are clearly given overriding priority
			in case they conflict with the interests of another
			constituency. Moreover, no system of mandatory
			employee participation applies.
			We classify Italy as belonging to Group III for the
			following reasons. Under the traditional				system,
			shareholders have the right to remove directors at any
	Italy	Group III	time without cause. A		mandatory	simple majority
			requirement applies.
			The interests of the companies are defined with a clear
			shareholder focus, and no system of board-level
			employee participation applies in Italy.
			Latvian company law is assigned to Group I because the
	Latvia	Group I	management board members cannot be removed without
			cause by the shareholders, and even the supervisory
			26	Directors’ Duties and Liability in the EU

	Country	Classification	Explanation of assignment to group
		(Group)
			board can only remove members of the management
			board with cause.
			An additional factor we considered is the lack of a clear
			shareholder-centric definition of the interest of the
			company. Board-level employee participation is not,
			however, mandatory in Latvia.
			Lithuanian company law is assigned to Group II.
			Although members of the management board cannot be
			removed without cause by the shareholders directly as a
			default position, such right can be provided for in or
			added to the articles of association. In addition, the
	Lithuania	Group II	supervisory board can remove members of the
			management board without cause.
			An additional factor we considered is the lack of a
			mandatory board-level employee participation system
			and a shareholder-centric definition of the interests of the
			company. Indeed, Lithuania may also be assigned to
			Group III.
			Under the two-tier system, shareholders may not directly
			remove the members of the management board without
			cause, unless the articles provide for this right. The
			supervisory board does not need to show cause to
			remove management board members.
	Luxembourg	Group II	Where the articles say so, the general meeting may also
			remove management board members directly and
			without cause, providing for a lower level of insulation
			than in companies in Group I.
			Mandatory board-level participation applies to (relatively
			few) large companies.
			Malta belongs into Group III, since shareholders can
			remove directors without cause with a simple majority of
			the votes cast (mandatory rule), and they may give
	Malta	Group III	binding directions to the company’s directors.
			Shareholder interests are given overriding priority in case
			they conflict with the interests of other constituencies.
			Moreover, no system of mandatory employee
			participation applies.
			Under the prevalent two-tier system, shareholders may
			not directly remove members of the management board
			without cause. The supervisory board can, however,
			exercise a without cause removal right, and its members
			are themselves subject to a without cause removal right
			exercisable by the general meeting.
			This leads to a lower degree of insulation than in our
	Netherlands	Group II	Group III company laws.
			However, a multi-interest approach to the interests of the
			company as well, the mediatisation of shareholder rights
			through the prevalent two-tiered structure, and the
			involvement of employees in the nomination of directors
			result in shareholders of Dutch companies having less
			power to effect immediate changes to the company’s
			management than can be observed in company laws we
			27	Directors’ Duties and Liability in the EU

	Country	Classification		Explanation of assignment to group
		(Group)
			classified as belonging to Group III.
			Polish company law is assigned to Group I because the
			management board members cannot be removed without
			cause by the shareholders.
			In addition, even the supervisory board cannot remove
			members of the management board, except for cause.
	Poland	Group I	Additional factors we considered are the lack of a clearly
			shareholder focussed definition of the interest of the
			company and the inability of shareholders or the
			supervisory board to give binding directions to
			management. Polish law does not, however, mandate
			board-level employee participation.
			We consider Portuguese law to belong to Group III
			because under the prevalent board model, shareholders
			have a mandatory without cause removal right in relation
			to all directors. This right may be exercised by the
	Portugal	Group III	general meeting with a simple majority of the votes cast
			(although this is a default rule).
			Portuguese law does not mandate board-level employee
			participation. The definition of the interests of the
			company seem to give priority to shareholder interests,
			but less clearly so than other members in this group.
			Romanian company law is assigned to Group II. Although
			members of the management board cannot be removed
			without cause by the shareholders directly as a default
			position, such right can be provided for in or added to the
			articles of association. In addition, the supervisory board
			can remove members of the management board without
	Romania	Group II	cause	and its members are themselves subject to a
			mandatory without cause removal right.
			An additional factor we considered is the lack of a
			mandatory board-level employee participation system
			and a shareholder-centric definition of the interests of the
			company.
			In the case of Romania, the decision whether the better
			assignment is to Group II or Group III is not entirely clear.
			Slovak company law is assigned to Group II. Members of
			the management board can be removed without cause
			by the shareholders, but this power is often assigned to
			the supervisory board, leading to a certain degree of
	Slovakia	Group II	mediatisation of shareholder power.
			An additional factor we considered is the mandatory
			board-level employee participation system and the lack of
			a clearly shareholder-centric definition of the interests of
			the company. It may also be argued that Slovak company
			law should rather be assigned to Group III.
			Slovenian company law is assigned to Group I because
			the management board members cannot be removed
	Slovenia	Group I	without	cause by the shareholders and even the
			supervisory board cannot remove members of the
			management board, except for cause.
			Additional factors we considered are the lack of a clearly
			28		Directors’ Duties and Liability in the EU

	Country	Classification	Explanation of assignment to group
		(Group)
			shareholder-centric definition of the interest of the
			company, the mandatory rules on employee
			representation irrespective of the adopted governance
			structure, and the inability of shareholders to give binding
			directions to management.
			We classify Spain as belonging to Group III for the
			following reasons. Shareholders have the right to remove
	Spain	Group III	directors at any time without cause (mandatory rule).
			The interests of the companies are defined with a clear
			shareholder focus, and no system of board-level
			employee participation applies in Spain.
			Sweden is categorised as Group II company law for the
			following reasons: Under the “Nordic Model”,
			shareholders may remove members of the board of
			directors at any time without cause, typically with simple
	Sweden	Group II	majority. However, the CEO is not necessarily or typically
			a member of the board.
			In addition, Sweden adopts a mandatory system of
			employee participation, with employee representatives
			appointing members to the (quasi-unitary) board.
			The UK clearly belongs into Group III. Shareholders can
			remove directors without cause with a simple majority of
			the votes cast (mandatory rule), and they may give
	United	Group III	binding directions (albeit with qualified majority).
	Kingdom		Shareholder interests are clearly given overriding priority
			in case they conflict with the interests of another
			constituency. Moreover, no system of mandatory
			employee participation applies.

29 Directors’ Duties and Liability in the EU

2. Substantive provisions on directors’ duties

2.1. Regulatory approach to directors’ duties

Summary of the country reports

Table 2.1.a: Regulatory approach to directors’ duties

Country		Case law or statutory	General clause or		If statutory law:
		law?	different types of duty?		exhaustive
					enumeration of duties
					or also common law
					ones?
Austria		Statutory law	1) Company law: 4 duties		Exhaustive enumeration,
			explicitly regulated in the		but case law important in
			AktG:		shaping the exact scope
			a) duty to act in the best		of duties
			interests of the company,
			s. 70
			b) duty of non-
			competition, s. 79
			c) duty of care, s. 84(1)
			d) duty of confidentiality,
			s. 84(1) last sentence
			2) Tort law and various
			other acts
Belgium		Mixture of statutory law	1) Liability to the		- Art. 527 CC refers to
		and case law:	company based on		general principles of
		- Strictly speaking, duties	company law or contract		contract law, in particular
			law:		the obligation to act in
		are not codified in
					good faith (art. 1134, 3
		company law, but derived	a) Liability for faults
					Civil Code). This
		from the general duty to	committed in the exercise
					provision is interpreted as
		act in good faith (art.	of the directors’
					the basis of the duty to
		1134, 3 Civil Code), as	management according
					act in the company’s
		well as the sections of	to general law (i.e. law of
					interest. The duty to act
		the Companies Code	contract), Art. 527 CC.
					in the company’s interest
		providing for liability of	This duty includes cases
					gives rise to a general
		directors
			where the director acts
					duty of loyalty from
		- Substantial clarification	against the company’s
					which, in turn, a duty not
		has been given by case	interests. Several more
					to compete, a duty of
		law (e.g. conditions of	specific duties flow from
					confidentiality, and a duty
		liability, co-existence of	the company’s interests
					to avoid conflicts of
		liability, content of civil	(see right).
					interest derive
		law duty to act in good
			b) Liability for breaches		- Art. 1382 Civil Code is
		faith)
			of the CC and the
					an open-ended liability
			articles, Art. 528 CC
					provision
			c) Liability for non-		→ these provisions
			compliance with the
					capture all cases that do
			regulation on related-
					not fall within a specific
			party transactions (as laid
					duty
			down in Art. 523), Art.
			529 CC
			d) Liability in bankruptcy
			if the assets of the
			30	Directors’ Duties and Liability in the EU