07 May Shareholders’ right to add to agenda is limited
Can you, a shareholder of a private limited or a public limited company, simply add any items to the agenda that you want to be put to the vote or are you bound by certain rules? The Supreme Court of the Netherlands shed clearer light on this issue in its ruling dated 20 April 2018 in a dispute between Boskalis and Fugro.
The law affords shareholders and depositary receipt holders a legal right to add to the agenda. They can, therefore, have an item included on the agenda of the general meeting. These agenda items generally involve matters on which the shareholders want to vote. Examples are a dividend distribution or granting approval for certain board resolutions. The aforementioned ruling, however, revolved around the question whether individual shareholders can compel an (informal) vote at a general meeting on a matter that falls under the authority of the Board.
Boskalis holds an approximately 28% interest in Fugro. Fugro has three protective mechanisms against hostile takeovers, which Boskalis considered to be a disproportionate accumulation of protective mechanisms. Boskalis objected to one protective mechanism and wanted to add an item requiring a vote on the agenda of the general meeting to cancel this mechanism.
The parties were agreed that the resolution to cancel the protective mechanism falls under the authority of the Board rather than the general meeting. They were also agreed that the proposal could be discussed at the general meeting. However, they remained divided over the question whether Boskalis could require a vote on the matter at the general meeting, even if the vote is not binding. The parties could not reach a solution. Fugro refused to put the item on the agenda, and Boskalis went to court.
Opinion of judicial institutions
In all instances, the court was of the opinion that (the Board of) Fugro could not be compelled to include a vote on the protective mechanism in the agenda. The Board answers for its policies to the general meeting, but is not obliged to consult in advance with the general meeting or to involve it in the Board’s decision-making. This is different only if the articles of association or the law include any provisions that deviate from this principal rule.
This ruling has set a clear rule: Shareholders and depositary receipt holders cannot compel the Board of a company to add any item requiring a vote on the agenda unless the matter falls under the authority of the general meeting. This is because defining the policies and strategy of a company and its related business enterprise are reserved to the Board.
The rule arising from this ruling is relevant to the day-to-day practice of both (listed) public limited companies and private limited companies. Where shareholders want to exert influence on the policies and strategy of the business, they will be unable to do so by simply putting the matter to the vote at the general meeting. Shareholders would therefore be wise to protect their position well in the company’s articles of association. Alternatively, they may formalise their influence on the Board in a shareholders’ agreement.
The latter possibility and the relevance of an adequate shareholders’ agreement were addressed in a contribution by Henk Brat and Paul Hendriks in the previous newsletter.