Corporate Governance and the Shareholders' Meeting: Voting and Litigation

Abstract

This paper explores the shareholders' meeting's corporate governance role. We argue that the functions performed by the shareholders' meeting are highly dependent on companies' ownership structure, and we focus on the case of jurisdictions, like those in Continental Europe, with a majority of companies with concentrated ownership structures. In theory, the shareholders' meeting is the time and place where shareholders' property rights are protected and where shareholders aim, through, e.g., voting and litigation rights, to protect their investments in the firm. Consequently, attention should be drawn to the development of efficient tools to accomplish this objective. In this respect, the main corporate governance challenge is to combat expropriation and tunnelling by controlling shareholders. We attempt to contribute to the current debate on the shareholders' meeting's governance role by providing some basic regulatory guidelines that may inspire the legislative proposals that are now being drafted in Spain as well as in other parts of Continental Europe. On the one hand, we explore possible ways to empower (minority) shareholders through voting at the shareholders' meeting. On the other hand, we conduct an empirical study of rulings applying the section of the Spanish Public Companies Act governing challenges to shareholder resolutions. The data provide evidence that this litigation mechanism, as is often claimed, faces both under and over-enforcement problems and is therefore in need of reform. We offer a tentative roadmap for improvement, based on the idea of incentivising value-increasing litigation without favouring the development of opportunistic suits. We also highlight the importance of disclosure and information rights and their impact on the litigation strategy.