Corporate / M&A

Acting in Concert – ESMA strengthens shareholder activism

In November 2013 ESMA published a statement on shareholder cooperation and acting in concert under the Takeover Bids Directive, including a White List of activities under which shareholders shall not be deemed as concert parties.

Clarification of the concept of “acting in concert” at EU level

In 2012, the European Commission published a report on the Takeover Bids Directive 2004/25/EC and recommended the clarification of the concept of “acting in concert” at EU level. Such clarification should lessen uncertainty for international investors who wish to cooperate with each other on corporate governance issues, but who feel inhibited from doing so for fear that they might risk having to make a mandatory bid and may therefore avoid such cooperation, which in turn could undermine the potential for desirable long-term engaged share ownership under which shareholders effectively hold the board accountable for its actions. National competent authorities took an active part in preparing this report and agreed that the national takeover rules should not be applied in such a way as to inhibit such cooperation.

For these reasons, the European Securities and Market Authority (ESMA) published a statement in November 2013 identifying certain shareholder activities in relation to which shareholders can cooperate and exercise good corporate governance over the companies in which they have invested without that cooperation leading to a conclusion that the shareholders are acting in concert and thus being at risk of having to make a mandatory bid. These activities were presented in the form of a “White List”.

According to this list, the following activities will not in and of themselves lead to a conclusion that the shareholders are acting in concert:

  • Entering into discussions with each other about possible matters to be raised with the company’s board;
  • Making representations to the company’s board about company policies, practices, or particular actions that the company might consider taking;
  • Other than in relation to the appointment of board members, exercising shareholders’ statutory rights to (i) add items to the agenda of a general meeting, (ii) table draft resolutions for items included or to be included on the agenda of a general meeting, or (iii) call a general meeting other than the annual general meeting;
  • Other than in relation to a resolution for the appointment of board members, agreeing to vote the same way on a particular resolution put to a general meeting, in order, for example
    • to approve or reject (i) a proposal relating to directors’ remuneration, (ii) an acquisition or disposal of assets, (iii) a reduction of capital and/or share buy-back, (iv) a capital increase, (v) a dividend distribution, (vi) the appointment, removal or remuneration of auditors, (vii) the appointment of a special investigator, (viii) the company’s accounts, or (ix) the company’s policy in relation to the environment or any other matter relating to social responsibility or compliance with recognized standards or codes of conduct;
    • to reject a related party transaction;

Further, ESMA clearly identified that shareholders may wish to cooperate on the appointment of one or more members to the (supervisory) board of a company in which they have invested. However, entering into any agreement to exercise votes in the same way in order to support such appointment or tabling a resolution to remove board members or to appoint one or more additional board members was not set onto the White List.

Instead, ESMA recommends that national authorities shall consider on a case-by-case basis the following facts when evaluating cases of such cooperation: (i) the nature of the relationship between the shareholders and the proposed board member(s), (ii) the number of proposed board members being voted for pursuant to a shareholders’ voting agreement, (iii) whether the shareholders have cooperated in relation to the appointment of board members on more than one occasion, (iv) whether the shareholders are not simply voting together but are also jointly proposing a resolution for the appointment of certain board members, or (v) whether the appointment of the proposed board member(s) will lead to a shift in the balance of power on the board when considering cases of such cooperation in relation to board appointments.

The newly published White List helps lessen uncertainty with respect to acting-in-concert cases and strengthens shareholder activism. Unfortunately, agreements to exercise voting rights in the same way in order to support the appointment of one or more board members were not included on the White List. It remains to be seen whether further amendments to the White List will include such agreements.