Shareholders' Duties to the Company and Fellow Shareholders

Abstract

It is a principle of company law worldwide that shareholders may use their rights in their own interests. Their position differs from directors, who shall be guided by their fiduciary duties to the company.

This paper does not deal with the investors’ duties to their beneficiaries. Instead, it explores if, and to what extent, shareholders owe duties to other parties, like the company or their fellow shareholders. It examines if there are exceptions to the so called autonomy principle which allows shareholders to act in their own interest. Although the paper focuses on Dutch law, the arguments put forward can be relevant in other jurisdictions as well.

It is a principle of Dutch company law that all corporate constituencies shall act in accordance with the principles of reasonableness and fairness. This fairness principle may require shareholders to keep an eye on the interests of the company and of other corporate constituencies like minority shareholders. This paper juxtaposes the autonomy principle and the fairness principle and explores how they relate. Although the two normally go hand in hand, they may also clash at times. In order to solve a conflict between these two, Dutch law has not developed hard and fast (substantive) rules. It rather preferred a formal solution, a framework which is offered by the proportionality principle: shareholders may act in their own interest, provided, however, that they do not disproportionally harm the interests of the company and of other constituencies. On the basis of Dutch case law, this paper then develops three subrules of the proportionality principle that are helpful in resolving a conflict between the autonomy and fairness principle.

This paper is a revision of a lecture, given at the conference on responsible shareholdership, organized by the Center for European Company Law at Leiden University on September 16, 2011.

Keywords: fiduciary duties, shareholder fiduciary duties, proportionality, activism, shareholder activism, Dutch law, Netherlands, stewardship, responsible shareholdership

JEL Classification: B00, K22, K00, K10, L20, L21, L32, M14, N83, N43