Einde inhoudsopgave
The Decoupling of Voting and Economic Ownership (IVOR nr. 88) 2012/1.4.0
1.4.0 Introduction
mr. M.C. Schouten, datum 01-06-2012
- Datum
01-06-2012
- Auteur
mr. M.C. Schouten
- JCDI
JCDI:ADS594761:1
- Vakgebied(en)
Ondernemingsrecht / Rechtspersonenrecht
Voetnoten
Voetnoten
Hu & Black, supra note 2, at 825.
Perry also deferred disclosure of its stake in Mylan pursuant to Rule 13d-3 of the Exchange Act, 17 C.F.R. § 240.13d-3. However, in 2009, the SEC found that Perry was not entitled to defer filing pursuant to this rule because its acquisition of Mylan securities was not 'in the ordinary course' of its business, and Perry agreed to pay a penalty of $150,000. SEC, Administrative Proceeding File No. 3-13561, In the matter of Perry Corp.
European Commission, supra note 194, at 3, 14 (showing that there is general support among respondents for measures enhancing transparency of stock lending and that a majority of respondents believe that the issue needs to be addressed at EU level); CESR, supra note 194, at 2 (respondents advocate application of the notifications regime to stock lending and derivatives); European Corporate Governance Forum, supra note 104, at 2 (suggesting that shareholders holding in excess of a certain percentage of outstanding share capital, e.g. 1% or 3%, should be required to disclose to what extent and by what means they have reduced their economic risk resulting from such shareholding); the responses to both consultations and the letter by Europeanlssuers (Dec. 12, 2008) (advocating complete transparency of stock lending towards all concerned parties, including the issuer), available at http://www.europeanissuers.eu.
See, e.g., John White, SEC staff, Keynote Address at ABA Section of Business Law Fall Meeting: Don 't Throw Out Baby With Bathwater (Nov. 21, 2008). In Delaware, where many U.S. Fortune 500 companies are incorporated, Section 213 of the Delaware General Corporation Law has recently been amended to partially respond to empty voting, by allowing corporations to set a voting record date separate from (i.e., later than) the record date for notice of the shareholder meeting, which can be set as much as 60 days prior to the meeting date. European rules already provide that the record date shall not lie more than 30 days before the date of the general meeting. Shareholders' Rights Directive, supra note 108, art. 8(3).
See, eg., Hu & Black, supra note 2; Jonathan Cohen, Negative Voting: Why It Destroys Shareholder Value and a Proposal to Prevent It, 45 Harv. J. on Legis. 237 (2008); Shaun Martin & Frank Partnoy, Encumbered Shares, 2005 U. Ill. L. Rev. 775 (2005); Robert B. Thompson & Paul H. Edelman, Corporate Voting, 62 Vand. L. Rev. 129 (2009).
Although the Commission raised the issue in a consultation in early 2007, apparently no further action has been taken since the publication in the summer of 2007 of a synthesis of the responses, supra note 194.
Susan E. K. Christoffersen et al., Vote Trading and Information Aggregation, 62 J. Fin. 2897, 2927 (2007).
Abn Brav & Richmond D. Mathews, Empty Voting and the Efficiency of Corporate Governance (March 2009). AFA 2009 San Francisco Meetings Paper, available at http://ssm.com/abstract=1108632. For a broader discussion of the potential for empty voting to produce inefficient outcomes, see Hu & Black, supra note 82, at 668-79.
Hu and Black have characterized as "empty voters" persons whose voting rights substantially exceed their net economic ownership.1They describe how equity derivatives enable shareholders to hedge their economic interest and even create negative net economic ownership. Providing an example that by now is well known, they describe how a hedge fund, Perry Corp., held a large stake in a pharmaceutical company, King, that was the subject of a takeover bid. The fund stood to profit from a takeover premium, except that it was uncertain whether the deal would gain approval by the shareholders of the bidder, Mylan Labatories. To secure its profits, Perry took matters in its own hands and acquired a substantial stake in Mylan. This would enable it to vote for approval of the deal. Perry, however, hedged its stake in Mylan, leaving it with no economic exposure but full voting rights.2Thus, it could be expected that in exercising its voting rights, Perry would be guided by its interests in the target rather than its interests as a shareholder in Mylan, potentially to the detriment of Mylan and its (other) shareholders.
Hu and Black further describe cases of "record date capture," instances where parties borrow shares prior to the voting record date in order to vote the shares and return them afterwards. More generally, they describe cases, in the U.S. as well as in Europe, in which shareholders have been able to exercise voting rights without a corresponding economic interest, apparently manipulating the outcome of votes in order to realize personal gains. Thus, empty voting potentially poses a serious threat to the quality of the decisionmaking process in shareholder meetings of listed companies, which explains why the issue has drawn attention from market participants,3 regulators (including the SEC)4 and academics.5 In spite of this, the issue has, again, only received marginal attention at the European level.6
To be sure, just as it can be legitimately questioned whether mandating one share-one vote would be socially beneficial, it can be questioned whether an absolute ban on empty voting would be socially beneficial. A study by Christoffersen et al., for example, suggests that vote trading may serve the socially beneficial role of incorporating more information in corporate votes.7 Similarly, a recent theoretical study by Brav and Mathews takes into account the possibility that the vote buyer and vote seller may not have coinciding interests. Their model suggests that strategie traders adjusting their economic ownership can improve overall efficiency, despite the fact that they will sometimes sell short after the record date and then vote to decrease firm value.8 Equally Crue, though, is that the question of whether there should be transparency merits separate consideration. Before answering this question, let us consider briefly the extent to which the potential of empty voting becomes transparent under existing disclosure requirements.