Debate at the recent meeting of the European Corporate Governance Forum (ECGF) on the subject of related party transactions, ahead of the publication of a statement on the subject, underlined again the problems faced by European companies in effectively communicating with their shareholders on a key strategic issue.

On occasions where potential related party transactions rightly require the approval of shareholders, the ability of a company to obtain that approval is of course vital  for the transaction to go through. Such approval cannot be given if it is not possible to call a General Meeting in a sufficiently timely manner. Minutes from the ECGF  meeting on the 11th February last revealed concern about “the time it took in different
Member States to call upon extraordinary meetings”, whilst noting that “[a]nother member did not see the same concerns on this issue and explained the UK situation which did not urge such lengthy timeframes for calling upon meetings.”

The UK fought hard to retain for UK plc the ability to call an EGM at 14 days notice; related party transactions are a case in point. Companies who do not have the flexibility to call an EGM with the ease with which UK companies can do are potentially barred from conducting what might otherwise prove to be value-enhancing business simply because they can’t consult their shareholders adequately.

So, for the time being, record dates weeks ahead of a meeting, arcane registration processes and inefficient notification mechanisms up and down the chain of intermediaries ahead of shareholder meetings remain deemed more important to retain than establishing the flexibility for companies to consult shareholders on key strategic and commercial decisions. Yet again, we have cumbersome, inefficient mechanisms preventing shareholders from approving value-generating transactions.

Moreover, some proxy advisors make blanket “Against” recommendations on resolutions seeking permission to hold meetings at 14 days notice, as they now have to do annually (a necessary concession given in order to preserve the right to do it at all), without taking into account the possibility of company specific factors which might make a need fora shorter notice meeting not only necessary but vital for the successful conduct of crucial corporate business.

If, as was rightly pointed out at the ECGF meeting, “the aim [is] to try and make shareholders more engaged”, then let’s see the service providers of investors commit to that principle by working together to facilitate a more flexible approach to such engagement.

Last Updated: 17 March 2011