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.