CO-PROTECTION OF MINORITY SHAREHOLDERS: CHALLENGES OF NATIONAL REGULATION AND PRACTICE
CO-PROTECTION OF MINORITY SHAREHOLDERS: CHALLENGES OF NATIONAL REGULATION AND PRACTICE

Summary/Abstract: The goal of this paper is to point out the legal and economic importance of the protection of small shareholders. That protection is one of the basic pillars of good corporate governance. Without effective protection of those whose votes cannot significantly influence decision-making in a joint-stock company, because it is governed by the majority technique, there is no basic prerequisite for the dispersion of share ownership, the development of corporate culture, shareholding and the capital market. The paper includes the definition of minority shareholders, the categorization of their rights and basic protection measures that represent good practice contained in both the national and European (EU) legal framework, as well as in the “soft law” principles of reference international entities (IOSCO, ESMA, G20, OECD). Although our legislation with its solutions follows the regulatory trend of the most developed market economies, practice shows that the system does not work well, neither internally (within the company), nor externally (in proceedings before administrative and judicial bodies). Protection is weak and the capital market is narrow and shallow. This discrepancy between regulation and practice is the result of numerous factors. The basic one is that the existing regulations are advanced, as a result of the process of harmonizing our legal system with EU law, and the presence of entities on the capital market is the result of the administrative process of privatization, not market trends. In addition, the market environment is characterized by the absence of corporate culture and awareness of the importance of protecting minority shareholders for public joint-stock companies and the entire financial market. Such a situation gives rise to the need to review the existing legal and institutional solutions, as well as to review the capacity of state institutions and market entities (including those with public law powers such as auditors) to ensure respect for the principle of equality of shareholders, ensure the information of small shareholders and protect their economic, governance, control and other rights and provide effective administrative and judicial protection. The protection of minority shareholders is analyzed in the paper on several levels. It was observed in the light of the legal rules concerning the shareholders’ assembly (convening, agenda, decision-making, protection from shareholders with significant and controlling participation, etc.). The other side of the coin - the potential for abuse of shareholder rights by the minority - has not been left out either. The focus is further based on the characteristics of the mechanism for selecting members of the management and protection against conflicts of interest and abuses by persons who manage and represent the company. Also, the specificity of protection in complex takeover procedures of joint-stock companies, status changes, situations regarding related parties and group companies was considered. The role of the Securities Commission, in terms of competence and capacity to provide adequate protection, was also critically viewed. The role of judicial authorities was also analyzed, as were the legal means available to dissenting shareholders (individual and derivative actions, etc.). There is also a review of the importance of independence and professionalism of the media in reporting to the public and building responsibility and corporate culture.

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