Proposed German legislation that would redefine normal shareholder activities so that they are captured in the rules relating to shareholders acting in concert would chill dialogue between shareholders and companies and be inimical to sound corporate governance. In a letter to the German Finance Minister, the Int’l Corporate Governance Network expressed concern that the proposed law makes no distinction between shareholders discussing normal corporate governance issues in advance of voting at a company general meeting and shareholders working together with the intention to change control of a company.
According to the ICGN, constructive dialogue between shareholders and companies and intelligent voting by shareholders are the key ingredients for a purposeful general meeting of shareholders. And, continued the network, those discussions are best conducted in private prior to the general meeting. Governance issues are often complex and sometimes quite sensitive, the group reasoned, and it is not helpful if those concerns are aired in the public domain, especially if the exact nature of the concern is not yet clear.
The ICGN is concerned that the proposed law will introduce uncertainty as to whether shareholders discussing corporate governance matters might be captured within the concert party rules. That uncertainty is likely to lead to shareholders taking a cautious approach and either not engaging with one another or only discussing governance concerns that have been aired in the press. Neither of these approaches is conducive to a system of good governance, said the ICGN.
Shareholders voting without thought, or not voting at all, would be a retrograde step, lamented the ICGN, especially given the improved shareholder participation in general meetings that has been achieved by German companies in recent years. Moreover, it is doubtful that company directors will want to learn through the newspaper that one or more of their shareholders are concerned about a governance issue.