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Particular problems may
arise where companies are dominated by large shareholders. It is of course
possible for a company to be publicly listed, and yet owned more than 50% by
one individual (clearly in that case the directors are very much beholden to
that individual and can be replaced at their whim, so other shareholders
will effectively have little influence on what the company does and the way
it is run).
However, with many shareholders inactive,
and institutional shareholders often slow or reluctant to exercise their
rights, a shareholding as low as 30% can often maintain effective control.
This can often occur
when a long-established company is dominated by the family of the founder,
even though it may not be obvious. With several family members of different
names, supported by anonymous family trusts, and strong board
representation, it can be run as if it was a family business, rather than a
public company.
Other situations where
this applies, often in new businesses, is where the founder and other senior
executives have major shareholdings. The "insiders" may take a different
view of the financial priorities of the business (for example in dividend
policy) than that of ordinary shareholders.
A particular problem
that can arise is where undisclosed "concert parties" are present. Concert
parties are where groups of large shareholders act together for a common
purpose (for example in a takeover bid), and such concert parties should be
disclosed to the regulatory authorities. But enforcing such disclosure or
demonstrating that shareholders are acting together to prejudice other
minorities can be exceedingly difficult.
Dominant groups of
shareholders often have representation on the board, thus exercising even
more direct control of the company. Although directors should only act in
the interests of the company, interpretation and enforcement of that role is
not easy. They may well act more in the interests of ordinary shareholders
rather than those of company creditors or other classes of shareholders such
as preference holders.
UKSA would like to see
more regulation of these matters, and more rights for minority shareholders
in public companies. |
