Corporate / M&A

Poland: Corporate Governance & Distrust – Can Minorities Effectively Control the Management?

The author presents legal possibilities enabling minority shareholders to challenge decisions of management boards in public companies.

In Polish corporate governance there is a clear separation between management and supervisory functions in a company. In addition to these two corporate bodies, there is a shareholders’ meeting, which takes the company’s key decisions. The decisions of the shareholders’ meeting are usually taken in accordance with the will of the majority shareholders. However, in some cases the principles of corporate governance may give also to the minority shareholders a possibility to discipline the management, and sometimes even the majority shareholders.

Control of the company’s activities by the minority shareholders

In practice, the most popular instrument to protect the interests of the company used by the minority shareholders is the request to adopt a resolution to examine specific issues by an auditor for special matters. This right allows controlling company’s financial situation as well as activities of the management board. It is mainly used by shareholders in public companies, where there is a strong group of minority shareholders, consisting of investment funds or private equity funds. The results of such review may pave the way for lawsuits by the minorities.

Resolution on the appointment of the auditor for special matters

Shareholders holding at least 5% of general voting rights have a legally guaranteed right that, at their request, a shareholders meeting may resolve to mandate an auditor to review, at the company’s expense, a specific issue related to the company’s incorporation or the conduct of its business.

Adoption of such resolution requires an absolute majority of votes cast in favour of the resolution. The chances of its adoption decrease when the management board of the company consists of the majority shareholders or is associated with them. If such balance of power exists and a request to appoint an auditor is submitted by the minorities, the main shareholders may try not to adopt the resolution or to choose a different auditor than indicated by the minorities at the shareholder’s meeting.

Appointment of auditor by the court

Should the majority shareholders manage to block the appointment of an auditor, the minority shareholders may reach for another instrument to enforce their will. They may submit a request to the registry court for the appointment of an auditor indicated by them. Registry courts tend to accept such request if there is no doubt about the qualifications of the auditor, its independence, or the fairness and objectiveness of its examination.

Election of the supervisory board member by way of voting in separate group

Minority shareholders holding at least 20% shares in share capital have the right to file a motion to elect the members of the supervisory board by way of voting in separate group. As a result of using such instrument, the minority shareholders gain the possibility to introduce to the supervisory board their representatives and therefore ensure themselves influence on supervisory activities in the company and a indirect impact on electing the management board members. This way of electing the supervisory board gives to minority shareholders an individual right of control, which is an exception from a general rule of collective control in the company.

Actio pro socio

Another measure to protect the company’s best interest, also available to the minority shareholders, is the so-called actio pro socio. This is an action for compensation brought by a shareholder on its own behalf but for the benefit of the company, if the company has not brought an action for compensation of damage caused by, for example, a management board member within a year from the date of disclosure of the act causing the damage.

Position of the minority shareholder in Polish corporate governance

The essence of capital companies is that the position of the shareholder (and thereby the scope and size of its rights towards a company) is primarily determined by the value of its capital commitment. This does not mean, however, that the minorities cannot have a real impact on the situation in public companies. The above measures to enforce rights to control the management board show that the rights and obligations of shareholders in public companies are governed in a way that allows minorities not only to really participate in the company but also protect them from the abuses of the management board and majority shareholders.

In some cases the principles of corporate governance may give the minority shareholders the possibility to discipline the management.