More power for the shareholders? This is how you achieve that!

Most important powers of the General Meeting of Shareholders

The shareholder has limited powers within a company. The General Meeting of Shareholders (AGM), principally, only has the power that is not assigned to the board or others.

The most important powers of the AGM are:

• dissolution and conversion of the company;
• increase and decrease of capital;
• adoption of the annual accounts;
• amendment to the articles of incorporation;
• appointment, suspension, and dismissal of directors and supervisory directors;
• merger and division decisions.

Based on two legal cases about the (inability of the) power of the shareholders, I have two tips to give the AGM more power in the company.

Case 1: No consent AGM for the sale of business unit by the board

The sale of a business unit is an important decision that falls under the power of the board. A widely published legal battle between the board and the AGM of ABN AMRO took place about this in 2007. The British bank Barclays wanted to incorporate ABN AMRO, but without the business unit LaSalle. The ABN AMRO board wanted to merge with Barclays, and sold off LaSalle to Bank of America (in part to please Barclays). However, there were a few other interested parties that wanted to buy ABN AMRO, including LaSalle. Those other parties dropped out because of the sale of LaSalle. So there was no bidding war between the different interested parties and the shareholders did not like that. They went to court and argued that the consent of the shareholders was needed for the sale of LaSalle. The judge found against the shareholders: there is no right of approval of the AGM or obligation to consult the board based on the law. And such a right of approval is also not included in the articles of incorporation of ABN AMRO.
Tip 1 for more power AGM: consent requirement

The articles of incorporation of the company can stipulate that the board needs the consent of the AGM for important decisions. This way, the board cannot decide independently and the final power rests with the shareholders.

Case 2: Not all matters of the company can be decided in the AGM

The judge slammed the door in the face of shareholder Boskalis in a recent case where Boskalis wanted to put the strategy of the company up to a vote at the AGM of Fugro. This concerned a protective construction used by the company. Boskalis wanted to dismantle that construction and put that up to a vote in the AGM. However, it is undisputed that the strategy of the company belongs to the domain of the board. The judge therefore found that Fugro rightfully refused to put the protective construction up to a vote.
Tip 2 for more power AGM: ask for a poll instead of a vote

The judge found that Fugro did not have to cooperate with the request of Boskalis to put it on the agenda as a motion (a request to the chairman to poll the opinions of the present shareholders). There are legal scholars who indicate (rightfully according to me) that the judge issued an incorrect decision here because a chairman of the AGM has to allow a request for a motion, in principle.

Importance of poll for shareholders

The importance of a poll is the following. That poll should make clear to the board how the shareholders view the strategy the board has implemented. This would allow for the board to amend its strategy. And if the board would not amend its strategy at all, the shareholders could put the dismissal of the board (which does fall under its powers) on the agenda of the AGM.
Please contact us if you have questions, or for more tips, and explanation of the powers of an AGM compared to the board of a company.