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Active Ownership and the Competition for International Capital – Recent Trends and Some Implications for Company Law

Published online by Cambridge University Press:  17 February 2009

Mette Neville
Mette Neville
Affiliation:
Ph.D., Professor of Law, Department of Law, the Aarhus School of Business, Denmark and Vice-President of the Danish Securities Council.
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Extract

An integrated financial market raises the fundamental question of how enterprises should organise themselves in order to succeed in the competition for international capital. There is strong evidence that, in the future, corporate governance, including the possibility of exercising active ownership, will be a parameter in the competitive market for capital.

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Articles
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European Business Organization Law Review (EBOR) , Volume 3 , Issue 2 , June 2002 , pp. 439 - 477
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Copyright © T.M.C. Asser Press and the Authors 2002

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References

1 See, for example, James, Fanto, “France”, in: The Legal Basis of Corporate Governance in Publicly Held Corporations: A Comparative Approach (Pinto, Arthur R. and Gustavo, Vinsortini [eds.]) (Kluwer Law International 1998) p. 13ffGoogle Scholar; Shareholder Voting Rights and Practices in Europe and the United States (Baums, T. and Wymeersch, E. [eds.]) (Kluwer Law International 1999)Google Scholar. For further references see footnotes in Chapter 4.

2 The characterisation of shareholders as owners can be debated, cf. for example Paddy, Ireland, “Company Law and the Myth of Shareholder Ownership”, 62 Modern Law Review (1999) 32Google Scholar, and Sarah, Worthington, “Shares and Shareholders: property power and entitlement”, 22 The Company Lawyer (2001) 258 (part I), 307 (part II)Google Scholar. Ownership is based on the possession of a share. However, the concept of a share does not have any normative content and can be difficult to categorise, cf., for example, Gower who states that a share is difficult to categorise in a “normal legal category.”

3 The background to the Cadbury Report and its increased focus on the protection of shareholders' rights and, consequently, the possibility of exercising active ownership can be explained, among other things, by the growing recognition that the mechanisms of the market were inadequate to solve the agent-principal problem, cf. for example, Mike, Wright, Steve, Thomas and Ken, Robbie in: Corporate Governance – Economic, Management and Financial Issues (Kevin, Keasey, Steve, Thompson, Mike, Wright [eds.]) (OUP 1997) p. 145Google Scholar. This is closely linked to the fact that the markets for corporate control and managerial labour are not fully effective.

4 §6.1 reads: “…Thus the shareholders as owners of the company elect the directors to run the business on their behalf…”

5 The German Corporate Governance Code was issued by the Goverment Commission in 2002. According to the Code the company shall facilitate shareholders' personal exercising of their voting rights and their use of proxies. The TransPuG (Transparenz- und Publizitätsgesetz) from July 2002 introduce a new Section 161 into the German Stock Corporation Act. According to this new provision, all German listed companies must state whether they comply with the Corporate Governance Code or identify which Sections they do not comply with. The statement has to be published together with the annual accounts and filed with the Commercial Register.

6 The Report on Corporate Governance in Denmark (2001) p. 53.

7 Cf. Davis, Stephen M., “Bridging the Accountability Gap: An Agenda for Global Voting Reform Bridging the Accountability Gap: An Agenda for Global Voting Reform”, in: Baums, and Wymeersch, (eds.)Google Scholar, supra n. 1, 386.

8 Formed in 1995 and representing institutional investors (with more than 6 trillion US dollars in assets) and others involved in the development of global corporate governance pratices.

9 Cf. Comparative Study of Corporate Governance Codes Relevant to the European Union and its Member States (January 2002) Final Report by Weil, Gotshal and Manges.

10 See for example Klaus, Gugler, “International Comparison of Identities of Investors”, in: Klaus, Gugler (ed.), Corporate Governance and Economic Performance (OUP 2001) 48Google Scholar and Institutional Investors Statistic Yearbook (Paris: OECD 2002).Google Scholar

11 Cf. Ramsey, , Stapledon, and Fong, , “Corporate Governance: The Perspective of Australian Institutional Investors”, 18 Company and Securities Law Journal (2000) 110Google Scholar; According to 62-SUM Law & Contemp. Probs. 9, in 1997 there were only 427 registered public mutual funds in the US representing a total of forty-five billion dollars and 8.5 million shareholders (separate accounts). By 1996 there were 5.305 registered mutual funds representing 2.6 trillion dollars and almost 120 million separate accounts and institutional investors accounted for more than eighty percent of all shares traded.

12 Cf. Rolf, Skog, “Sweden”, in: Baums, and Wymeersch, (eds.)Google Scholar, supra n. 1,290.

13 Cf. the Danish Report Aktivt Ejerskab (1999).

14 Cf. Rolf Skog, supra n. 12.

15 Cf. Rolf Skog at a seminar at the Aarhus School of Business, spring 2002.

16 Cf. the Danish Report, supra n. 13, at p. 53.

17 Cf. Winter, Japp W., “The Powers of the Shareholders Meeting and Cross-Border Voting in Europe”, working paper presented at a Corporate Governance Conference in Brussels on 16-17 November 2000, p. 3Google Scholar. The conference was organized by the European Corporate Governance Forum.

18 Quoted from Xavier, Vives, Corporate Governance – Theoretical & Emperical Perspectives (Cambridge University Press 2000) p. 6.Google Scholar

19 For example, ABI (Association of British Insurers) and NAPF (the National Association of Pension Funds). They run shareholder voting services analyzing the resolutions which listed companies propose to put to shareholders and recommend to subscribers how they should vote, cf., Juliet, Schmeldine and Michael, Walter, “A review of corporate governance in the UK”, Financial Law Review (2001) 141–148.Google Scholar

20 See Schmeldine and Walter, ibid.

21 See Corinna, Arnold, “Voting Abroad: Practical Experiences”, in: Baums, and Wymeersch, (eds.)Google Scholar, supra n. 1, 391, for the results of the informal study undertaken by IRRC (Investor Responsibility Research Centre) of their clients' average voting in foreign companies. The study concerned proxy voting. The research in Europe, taken from the same source, shows that shareholders mostly vote only in those companies in their portfolio which are in their own countries. This is also confirmed in the Danish investigation of the pension sector, referred to below.

22 Cf. research done by IRRC among its members' foreign portfolio companies in the period 1994-1997, covering altogether 7,500 companies, cf. Corinna Arnold, ibid.

23 Cf. Roberta, Romano, “Less is More: Making Institutional Investor Activism a Valuable Mechanism of Corporate Governance”, 18 Yale Journal on Regulation (2001) 174–251Google Scholar; and Jonathan, Charkham, Keeping Good Company: A Study of Corporate Governance in Five Countries (OUP 1995) p. 213.Google Scholar

24 Cf. Davies, Paul L., “The United Kingdom”, in: Baums, and Wymeersch, (eds.)Google Scholar, supra n. 1, p. 338. According to Davie,s a survey from 1997 found that 87% of the public sector schemes had adopted voting policies. 48% of these had a policy to vote always, 24% decided on a case by case basis and voted only on contentious issues, and only 5% never voted.

25 In 1999, some of the larger institutional investors made their guidelines for good corporate governance.

26 Research by Kim, Jespersen, carried out for his thesis Pensionssektoren og aktivt ejerskab i Danmark, pp. 72 et seqGoogle Scholar. (The pensions sector and active ownership in Denmark) submitted to Aarhus School of Business, Denmark in autumn 2001 (not published).

27 Cf. Eilís, Ferran, company law and corporate finance (OUP 1999) p. 244.Google Scholar

28 Cf. Eilís Ferran, ibid.

29 This research, “Impact of Investor Meetings/presentations on Share Prices, Insider Trading and Securities Regulation” by Casper Rose of Copenhagen Business School, will be published in International Review of Law and Economics (2002) (forthcoming).

30 9763/01 EF 59 ECOFIN 161 CODEC 543.

31 Cf., Selective Disclosure and Insider Trading Exchange Act, Release No. 34-43154, 2000 WL 1201556 (August 15, 2000).

32 See Choi, Stephen J.; “Selective Disclosures in Public Capital Markets”, 35 U.C. Davies Law Review (2001) 533.Google Scholar

33 Monks, Robert A.G. and Neil, Minow, Corporate Governance, 2nd. ed. (Blackwell 2001) p. 145Google Scholar, where it is argued that active ownership is worthwhile today because of, among other things, the increased use of information technology, changes to the SEC Rules, and changes in the size and nature of shareholders. Reform of the proxy rules is especially important. For example, one of the reforms in 1992 made it easier for shareholders who do not wish to take over control of a company to communicate with each other. Previously there was a requirement that a shareholder who wished to communicate with more than 10 other shareholders should submit his comments on the company to the SEC before these could be sent to the other shareholders. This has been changed so there is now only a requirement that a copy of such a communication should be sent to the SEC for information purposes only, cf. Monks & Minow, ibid., pp.141 et seq. See also Michael Goldman and Filliben, Eileen M., “Corporate Governance. Current Trends and Likely Developments for the Twenty-First Century”, 25 Del. J. Corp. L. (2000) 683Google Scholar, who note that the activism is due to two main factors, namely the explosive growth in the amount of stockholdings by institutional investors and the fact that the Internet gives better access to company information.

34 In 1995, Steven Nesbitt made a study of 42 companies in which CalPERS (California Public Employees' Retirement System) had invested and exercised active ownership. The study concluded that active ownership had increased the value of the shares considerably. In fact, the companies had performed 23% above the Standard and Poors 500 index. A similar study of 34 companies made by Michael P. Smith in the period 1987-1993 showed that CalPERS's active ownership had increased the value of the shares by 19 million dollars while the costs of monitoring had been 3 million dollars. See also Monks & Minow, supra n. 33, p. 145; Michael, Smith, “Shareholder Activism by Institutional Investors: Evidence from CalPERS”, 51 Journal of Finance (1996) 227Google Scholar; Diane Del, Guercio and Jennifer, Hawkins, “The motivation and Impact of Pension Fund Activism”, 52 Journal of Financial Economics (1999) 293Google Scholar. Leading American researchers, such as Michael, Porter, “Capital Choices: Changing the Way America Invests in Industry”Google Scholar, Executive Summary, Council on Competitiveness (1997), have likewise pointed out that active ownership is worthwhile.

35 Cf. for example Roberta Romano, supra n. 23, with additional references.

36 For example Eilís Ferran, supra n. 27, p. 247; Monks & Minow, supra n. 33.

37 According to the Financial Economists Roundtable, “Statement on Institutional Investors and Corporate Governance”, 15 Journal of Financial Services Research (1999) 77–79Google Scholar, “[t]he Roundtable encourages institutional owners to take a proactive role in corporate governance. Specifically, the institutions we are referring to include mutual funds, bank trust departments, defined contribution pension funds, and variable annuities. By taking a proactive role, the Financial Economists Roundtable means: 1) thoughtfully and responsibly voting their shares, 2) communicating with management, the press, and to the extent allowed by law, other shareholders, and 3) introducing proxy resolutions”.

38 Listed companies must disclose whether they comply with the Code of Best Practice provisions and, if they do not, give reasons for their non-compliance.

39 Cf., US Department of Labor, Interpretative Bulletin 94-2 (1994). These rules do not cover the public-sector pension funds. Nevertheless, it has been noted that a number of the larger public-sector pension funds have been very active, as in the case of CalPERS, cf. Stapledon, G.P., “Institutional Investors: What are their responsibilities as shareholders?”, in: The Political Economy of the Company (John, Parkinson, Andrew, Gamble and Gavin, Kelly [eds.]) (Hart 2000) 198Google Scholar. On American institutional ownership, see also Michael, Klausner and Jason, Elfenbein, “Shareholder Voting in the United States”, in: Baums, and Wymeersch, (eds.)Google Scholar, supra n. 1, 353.

40 Coffee, J.C., “Liquidity Versus Control – The Institutional Investor as Corporate Monitor”, 91 Columbia Law Review (1991) 1277, 1353CrossRefGoogle Scholar, likewise assumes that the duty of trust can involve a duty to vote. It is also noteworthy that a consensus seems to emerge that it is a part of the fiduciary obligation to consider the share vote on asset to be used to protect shareholders' interest.

41 Cf. Martinson, , “Beckett Retains Option of Law to Enforce Corporate Best Practice”, The Financial Times, 5 March 1998Google Scholar. See also Stapledon, supra n. 39, p. 209, with further references to the British debate. Cf., also, Ramsey, Stapledon and Fong, supra n. 11.

42 Ramsey, Stapledon and Fong, ibid., at p. 147.

41 Institutional Investment in the United Kingdom: A Review (The Myners Report) HM Treasury A commissioned report by Paul Myners (March 2001) p. 92:

44 Cf. Eilís Ferran, supra n. 27, p. 244; Coffee, supra n. 40, p. 1277.

45 Jayne Elizabeth, Zanglein, “From Wall Street Walk To Wall Street Talk: The Changing Face Of Corporate Governance”, 11 DePaul Business Law Review (1999) 43.Google Scholar

46 See also Burr, Rigde, “Financial Economist Roundtable statement on institutional investors and corporate covernance”, 6/1Financier (1999) pp. 5–7Google Scholar; and Eilís Ferran, supra n. 27, p. 243 et seq.

47 A new survey by PriceWaterhouseCoopers shows that, while institutional investors in Great Britain hold more than 60% of the shares in most major companies, only 37% of those companies executives said that institutional investors exert any influence on strategy, 34% rated the influence as neutral, and more than 25% said that institutional investors had no influence at all. Cf., “Investor Relations Business”, New York (22 April 2002).Google Scholar

48 As a point of departure, it should be noted that it is only possible to measure active ownership in terms of the activity exercised at general meetings. Other types of active ownership are difficult to quantify and measure. If active ownership exercised through informal dialogue is taken into account, active ownership is probably much more prevalent than shown in different studies, see above. Confusing the figures even more is the fact that many institutional investors purposely try to avoid public confrontation or statements, as these often provokes media interest. There is a culture in the financial community of striving to avoid public confrontation with companies, not wanting to be perceived as having lost confidence in them or in their management. Cf., The Myners Report, supra n. 43. This was also stressed in my interviews with some Danish institutional investors. It should also be noted that public criticism can affect the stock price negatively. On the price effect of public intervention, see Eilís Ferran, supra n. 27, p. 271, and Helen, Short and Kevin, Keasey, “Institutional Shareholders and Corporate Governance in the United Kingdom”, in: Keasey, , Thompson, and Wright, (eds.)Google Scholar, supra n. 5, 18, p. 26.

49 Cf. Ramsey, Stapledon and Fong, supra n. 11, p. 123. However, Romano's research, discussed by the authors, shows that voting in favour of the proposals of the company's management rose by 9% after the introduction of secret balloting. Another reported American study showed the opposite result. On the issue of conflict of interest see Short and Keasey, supra n. 5, pp. 35 et seq., and John, Farrar, Corporate Governance in Australia and New Zealand (OUP 2001) pp. 323 et seq.Google Scholar

50 Cf. Klaus Gugler (ed.), supra n. 10, p. 55; Rutter, and Palmer, , “Investor Activism on the rise”, Global Investor (2000) issue 135, pp. 17–21.Google Scholar

51 On the free-rider problem see, for example, Short and Keasey, supra n. 48, pp. 31 et seq.

52 Parkinson, Gamble and Kelly (eds.), supra n. 39, pp. 19 et seq. G.P. Stapledon, supra n. 39, points out a number of further reasons which have been identified in economic theory.

53 For ownership structure see, for example, Franklin, Allen and Douglas, Gale, “Corporate Governance and Competition”, in: Xavier, Vives (ed.)Google Scholar, supra n. 18, p. 44; La, Porta, Lopez-de-Silanes, and Shleifer, , “Corporate Ownership Around the World”, Journal of Finance (1999) 471–517Google Scholar; Wymeersch, , “Aspects of Corporate Governance in Belgium”, in: Prentice, / Holland, (eds.), Contemporary Issues in Corporate Governance (Clarendon 1995) p. 9Google Scholar; Wymeersch, , “A status Report on Corporate Governance Rules and Practices in Some Continental European States”, in: Comparative Corporate Governance – the State of the Art and Emerging Research (Hopt, , Kanda, , Roe, , Wymeersch, and Prigge, [eds.]) (Clarendon 1998) pp. 1045–1199Google Scholar; Coffee, J.C., “The Rise of Dispersed Ownership: The Roles of Law and the State in the Separation of Ownership and Control”, 111 Yale Law Journal (2001) 1, 12–81CrossRefGoogle Scholar; and Mette, Neville, “Ejerstrukturer og corporate governance”, Nordisk Tidsskriftfor Selskabsret (2001:1) p. 77.Google Scholar

54 Cf. Xavier Vives, supra n. 18, p. 7.

55 Cf. Marco, Brecht and Colin, Mayer, “Corporate Control in Europe”, in: Horst, Siebert (ed.), The World's New Financial Landscape Challenges for Economic Policy (Springer 2001).Google Scholar

56 Finally, it is also possible that the importance of stakeholder theory in continental Europe also plays a role. Although management is supposed to pursue the shareholders' interest in profit maximation, the interests of other stakeholders is very important, too. In Germany – and Denmark – the system of co-determination formalises the balance of interests between the shareholders and the employees. This also seems to be changing with apparent increasing consensus that management performance should be measured on the basis of the created shareholder value.

57 Cf. Coffee, supra n. 53, p. 17. During periods of noticeable decline in listings, this is often due to mergers and acquisitions, cf. for Denmark Paul, Krüger Andersen, “Afnotering af børsnoterede selskaber”, Nordisk Tidsskrift for Selskabsret, (2000:3/4) pp. 314–330.Google Scholar

58 Cf. Brecht and Mayer, supra n. 55.

59 Current manager selection and performance measurement can mean that there is little incentive to adopt activist strategies that do not deliver the quick results demanded by a perceived focus on quarterly figures, cf., The Myners Report, supra n. 43.

60 Cf. Japp W. Winter, supra n. 17.

61 Cf. Japp W. Winter, ibid.

62 CalPERS (see n. 34 supra) is at the forefront of this development. This started in 1984, when Texaco's management avoided losing their posts by the use of greenmail. With greenmail the company's management offers to buy back shares acquired by a raider at a considerable premium in order to fend off a take-over, which will often have, as a consequence, the loss by the management of their jobs. CalPERS did not have the same opportunity to sell its shares at a premium. As a result of this case they founded CII (the Council of Institutional Investors) to fight for equal treatment of all shareholders, for the reform of the law accordingly, and for promoting the requirement for shareholder agreement for a number of decisions under company law. CalPERS' investment policy is long-term, and it has often kept its shares for up to 10 years, the reason being that it wants to be in the position to affect the development of the company through its influence on the management. Thus, CalPERS is distinct from many other institutional investors who base their investments on short-term evaluations of companies: cf., among others, Michael Porter, supra n. 34. The question of the extent to which institutional investors make primarily short-term judgements has been the subject of a number of studies, though without a unanimous answer being reached, cf, for example, Stapledon, , Controlling the Controllers of Public Companies: A Study of the Role of Shareholders in Corporate Governance in the United Kingdom and Australia (1994) (Ph.D. thesis, University of Oxford)Google Scholar; Miles, D., “Testing for Short-Termism in the UK: Reply to Damant and Satchell”, 105 The Economic Journal (1995) 1224.CrossRefGoogle Scholar

63 Baums, T., “Germany”, in: Baums, and Wymeersch, (eds.)Google Scholar, supra n. 1, 109, 111.

64 Cf. For example ICGN Global Share Voting Principles, adopted on 10 July 1998.

65 Another advantages is the ability of active ownership to give the companies a methodical means of testing owner confidence in management and board strategies, cf. Davis, Stephen M., “Bridging the Accountability Gap: An Agenda for Global Voting Reform”, in: Baums, and Wymeersch, (eds.)Google Scholar, supra n. 1, p. 385.

66 Cf. Stephen M. Davis, ibid. See also the Director of the Danish Copenhagen Stock Exchange, Hans-Ole, Jochumsen and Peter, Belling, “Corporate Governance og informationsteknologien”, in Nordisk Tidsskrift for Selskabsret (2002:1) 101–106.Google Scholar

67 Cf., for example, T. Baums, supra n. 63; Hans-Ole Jochumsen and Peter Belling, ibid.

68 See the references in other notes in this Chapter.

69 Gesetz zur Namensaktie und zur Erleichterung der Stimmrechtsausübung (Law on registered shares and facilitating the exercise of voting rights).

70 Cf. Omar, P., “Company Law in France: Recent Reforms events” (part II) International Company and Commercial Law Review (2000) 346, 374.Google Scholar

71 Cf. SOU 2001:1, p. 54. The fact that stock-exchange listed companies may only require a simple majority, while non-listed companies require unanimity of those present, is due to the fact that there are major differences in the topics which are discussed at the general meetings of listed and non-listed companies respectively.

72 See Ot.prp. (Odelstingsproposisjoner) no. 108 (2000-2001).

73 Krüger Andersen, supra n. 57; id., Aktie- og anpartsselskabsret, 6th ed. (Djøf 2000) p. 354Google Scholar; Søren Friis, Hansen, “Selskabsretslige aspekter af elektronisk kommunikation”, Nordisk Tidsskrift for Selskabsret (2001) 58Google Scholar; Neville, , “Aktivt ejerskab, internetudfordringen og dansk selskabslovgivning”, Nordisk Tidsskrift for Selskabsret (2002 No. 1 and 2)Google Scholar, all of whom argue that the use of IT requires a reform of the law, while Jesper Lau, Hansen, “It og selskabsretten” Ugeskrift for retsvcesen (2000B) 143Google Scholar, argues that the problem can be solved through a dynamic interpretation of the existing law.

74 Cf. also Krüger Andersen, Aktie- og anpartsselskabsret, supra n. 73, p. 331.

75 See, among others, Ramsey, Stapledon and Fong, supra n. 11, p. 122.

76 In Germany blank proxies gathered by management has been considered as contradicting § 136 of the Aktiengesetz, which provides that the obligation of a shareholder to vote according to a direction of management is void, cf. T. Baums, supra n. 63.

77 In the German Corporate Governance Code from 26 February 2002 it is recommended that the management board shall arrange for the appointment of a representative to exercise shareholders' voting rights in accordance with shareholders' instructions. This representation should be available during the General Meeting, cf. the German Corporate Governance Code article 2.3.3. The code can be downloaded in English from www.Corporate-governance-code.de.

78 For example, the appointment of the chief executive officer by the board of directors, cf. § 51, the allocation of profits, where the board of directors shall propose or shall approve a decision, cf. § 112 and §111. This is also the case when there is a reduction of capital and where the amount of the reduction is not used to cover for any losses, cf. § 44a.2.

79 Obviously this presupposes that the general meeting is conducted in English or that an interpreter is used.

80 Cf. also Ulrich, Noack, “Die internetgestützte Hauptversammlung”, in: Noack, and Spindler, (eds.), Unternehmensrecht und Internet – Neue Medien im Aktien-, Börsen-, Steuer-, and Arbeitsrecht (Beck 2001) 19.Google Scholar

81 Cf. Stephen H Dover, co -CEO of Bradesco Templeton Asset Management Ltd. (BTAM), “Voting Rights and the Right to Vote”, paper presented during the Second Meeting of the Latin American Corporate Governance Roundtable “Shareholder Rights and Equitable Treatment”, 28-30 March 2001, see www.oecd.org/pdf/M00008000/1400008367.pdf

82 Cf., e.g., Ulrich Noack, supra n. 80; Søren Friis Hansen, supra n. 73, pp. 70 et seq.

83 Stephen J. Dover also raises these issues in relation to emerging markets in his paper cited supra n. 81. According to John Wilcox, Chairman of Georgeson & Co, 75% of the votes cast in 1999 were given in absentia on the basis of written proxies, about 8% were given by telephone, and only 1 -2% via the Internet. He therefore suggested that there should be increased marketing to promote the possibility of voting via the Internet, cf. Investor Relations Business, 1 March 1999, Staff Reports, Securities Data Publishing.

84 Cf. Hans-Ole, Jochumsen and Peter, Belling, “Corporate Governance og Informationsteknologien“, Nordisk Tidsskrift for Selskabsret (2002:1) 104.Google Scholar

85 Cf. for example Carsten, Heise, “Stimmrecht und Hauptversammlung im Internetzeitalter aus Sicht der Anlegervereinigung”Google Scholar, in: Noack and Spindler, supra n. 80, 55; Reinhard, Marsch-Barner, “Zivilrechtliche probleme des Wertpapiergeschäfts im Internet”Google Scholar, in: Noack and Spindler, supra n. 80, 66.

86 Cf. Bobo, Riegger, “Hauptversammlung und Internet”, ZHR (2001) 204, at pp. 212 et seq.Google Scholar

87 This is suggested by Japp W. Winter, supra n. 17.

88 Cf. Krüger, Andersen and Nis Jul, Clausen, Børsretten (2000) 222.Google Scholar

89 Cf. SOU (2001:1) pp. 231 et seq.

90 Cf. SOU (2001:1).

91 See Karsten Engsig, Sørensen and Nis Jul, Clausen, “Ekspertundersøgelse vedrørende åbenhed om aktiebesiddelser”Google Scholar, report commissioned by the Economics Ministry in December 2000, and same authors, “Disclosure of Major Shareholdings: A Comparative Analysis of Regulation in Europe”, 4 International and Comparative Corporate Law Journal (2002) 201, at p. 210.Google Scholar

92 See Krüge, Andersen and Nis Jul, Clausen, Børsretten, 2nd ed. (Jurist- og Økonomforbundets Forlag 2000) p. 222 et seqGoogle Scholar. For a comparison with the position in other countries, see Karsten Engsig Sørensen and Nis Jul Clausen, supra n. 91, pp. 54 et seq.

93 See, for example, the Discussion Paper on active ownership, 1999, pp. 13 and 25, and Karsten Engsig Sørensen and Nis Jul Clausen, supra n. 91. In addition, in 2001 the topic was twice the focus of seminars held at The Aarhus School of Business and The University of South Denmark (Odense).

94 See Reinhard Marsch-Barner, supra n. 85; and Gerald, Spindler, “Internet und Corporate Governance – ein virtueller (T)Raum?”, ZGR (3/2000) 420, at pp. 440 et seq.Google Scholar

95 See Monks & Minow, supra n. 33, p. 144.

96 In 1997 two thirds of the listed companies had dual class voting rights, cf. Rolf Skog, supra n. 12, p. 304.

97 The debate on dual class voting rights has also reached the political agenda in connection with the Report of the High Level Group of Company Law Experts on Issues Related to Takeover Bids (2002). In the report, the High Level Group emphasizes the need for a level playing field for takeover bids. In order to create a level playing field, the group recommends different breakthrough rules. The effect of the break-through rules should be to redress the deviations in the articles of association and other constitutional documents from the principles of shareholder decision-making and proportionality between risk-bearing capital and control. This implies two types of rules. One type of break-through rule concerns different provisions, such as dual class voting rights and voting caps. If the bidder acquires 75% or more of the risk-bearing capital, the High Level Group believes that he should be able to exercise a proportional percentage of the total votes that can be cast in a general meeting of shareholders. Therefore provisions such as dual class voting rights will have to be overridden. On October 2, the European Commission released their new proposal for a 13th Directive on Takeovers. The new proposal follows many of the recommendations set out by the High Level Group, but not all of them. The new proposal contains a modified break-through rule. It proposes in article 11 that any restrictions on voting rights which prevent holders of the offeree company's securities from exercising their rights when the general meeting decides on defensive measures after a bid has been announced, such as limits on voting rights, deadlines for exercising voting rights or agreement between holder of securities should be rendered ineffective. The provision does not concern securities carrying double or multiple voting rights. The reason for this is that it can be argued that securities with multiple voting rights form a part of a system for financing companies and that there is no proof that their existence renders takeoverbids impossible.

98 Martin, Hellwig, “On the Economics and Politics of Corporate Finance and Corporate Control”, in: Xavier, Vives (ed.)Google Scholar, supra n. 18, p. 102.

99 Cf. Henrik, Lando, “Argumenter for og imod B-aktier”, 129 Nationaløkonomisk Tidsskrift (1991) 3Google Scholar; id., “The Dual Class Share System and the Allocation of Control over Time”, Discussion Paper 93-01, Institute of Economics (University of Copenhagen 1993).Google Scholar

100 Cf. Henrik Lando, ibid., p. 13.

101 Cf. Henrik Lando, ibid., p. 5.

102 Cf. Martin Hellwig, supra n. 98, p. 103.

103 This is also the recommendation in the OECD Principles on Corporate Governance, where is says: “The optimal capital structure of the firm is best decided by the management and the board, subject to the approval of the shareholders … All of these structures may be effective in distributing risk and reward in ways that are thought to be in the best interest of the company and to cost-efficient financing. The principles do not take a position on the concept of ‘one share one vote’. However, many institutional investors and shareholder associations support this concept.” See <http://www.oecd.org/pdf/M00008000/M00008299.pdf> p. 15.

104 Cf. Henrik Lando, supra n. 99, p. 13. However, a new Danish research from 2000 shows that there is often no price difference between share classes, cf. Bechmann, K.L. and Raaballe, J., “A Regulation of Bids for Dual Class Shares. Implications: Two Shares – One Price”, Center for Analytical Finance, University of Aarhus, Working Paper Series No. 62, May 2000 <http://www.cls.dk/caf/wp/wp-62.pdf>>Google Scholar

105 Scott, J., Capitalist Property and Financial Power: A Comparative Study of Britian, the United States and Japan (Wheatsheaf 1986) 95.Google Scholar

106 Cf. research done by Kim Jespersen, supra n. 26.

107 The market for corporate control makes it possible for outside investors to gain control of a corporation. This will happen if the company's value is below its potential value. In that situation the investors who take over the company can capture the excess value. See Scott, Mitnick, “Cross-Border Mergers and Acquisitions in Europe: Reforming Barriers to Takeovers”, Colum. Bus. L. Rev. (2001) 683Google Scholar, on the increasing frequency and ferocity of takeover battles in European market.

108 See for the different studies Franklin, Allen and Douglas, Gale, “Corporate Governance and Competition”, in: Xavier, Vives (ed.)Google Scholar, supra n. 18, p. 43.

109 Eilís Ferran, supra n. 27.

110 See Stein, J.C., “Takeover Threats and Managerial Myopia”, 96 J. of Political Economy (1988) 61–80CrossRefGoogle Scholar; Pauline, O'Sullivan, “Governance by Exit: An Analysis of the Market for Corporate Control”, in: Keasey, , Thompson, and Wright, (eds.)Google Scholar, supra n. 5, p. 124.

111 Cf. Tim, Jenkinson and Colin, Mayer, Hostile takeovers (McGraw Hill 1994)Google Scholar; Scott Mitnick, supra n. 107.

112 Casper, Rose, “Corporate Financial Performance and the Use of Takeover Defences”, 13 European Journal of Law and Economics (2002) 91.Google Scholar

113 In order to qualify as a protected company in the Danish study, companies had to have in addition to having dual class voting rights some other provision which restricted the transfer of A-shares, for example that under the company's articles of association the board's approval is required for a transfer or that the other A-shareholders have a pre-emptive right to buy the A-shares., cf. Casper Rose, ibid. The research used four common corporate finance performance measures; Tobin's Q, share return, return on assets and return on equity. To deal with the problem of causation between dependent and independent estimations, the article uses simultaneous equation estimation as proposed by James, Heckmann, “Dummy Endogenous Variable in a Simultaneous Equation system”, 46 Econometrica (1978) 6.Google Scholar

114 See, for Germany, Olaf, Ehrhardt and Eric, Nowak, “Corporate Governance Changes, Dual – Class Share Structures, and Long-run Stock Performance of IPOs of German Family-Owned Firms”Google Scholar

115 See Casper Rose, supra n. 112.

116 See Casper Rose, supra n. 112

117 Under the Danish rules the highest price principle applies. Consequently, the minority also receives a share of the premium. The purchaser must offer to buy all shares on identical terms. According to the regulations this is “the highest price which the offerer has paid for shares in the company within the six preceding months”. This means that, in some cases, the minority will receive a higher price than that paid to the majority for its shares. Where, prior to the 6 months period but within 2 years before the making of the offer, an even higher price has been paid, the Danish Securities Council can, in special cases, decide to use that price as the base price, cf. § 5.2. This provision may be invoked, for example, where an attempt has been made to avoid the company law principle of equal treatment of shareholders. A division between A-shares and B-shares can help to reduce the costs of takeovers. As long as a company has more than one class of shares, for example, with different voting values, there will be different prices for the shares of the different classes. This possibility is emphasised by Henrik, Lando, “The Dual Class Share System and the Market for Corporate Control”, Discussion Paper 94-08, Institute of Economics, University of Copenhagen, p. 17Google Scholar, as a factor which can make it easier to carry through takeovers. As mentioned above, a Danish research from 2000 shows that often there is no price difference between share classes, cf. Bechmann and Raaballe, supra n. 105. If the A-shares with strong voting powers are traded at a higher price than the B-shares with weaker voting rights, there should be an offer price for each class of shares. The highest price principle will apply to the share classes in which the offeror has acquired shares, cf. regulation § 5.2. If all share classes are listed on a stock exchange or are traded in an authorised market, an offer price for the classes of shares in which the offeror has not bought shares shall be based on the stock-exchange prices or the prices on the authorised markets, at a rate corresponding to the highest price in the class or classes of shares in which the offeror has acquired shares. If one or more classes of shares are listed on a stock exchange or traded in an authorised market, the price which is set for non-listed shares combined with the transfer of a majority in the company may hot be more than 50% higher than the price offered to the minority shareholders.

118 Cf., Neville, in: Annual Report of the Danish Securities Council 2000. The problem also applies to companies with one class of shares where the same price is paid for minority shares as for controlling shares.

119 See on structural and technical barriers to takeovers in Europe Scott Mitnick, supra n. 107.

120 Baums and Wymeersch (eds.), supra n. 1, p. 380.

121 Monks & Minow, supra n. 33, p. 152.