Golden Shares - State Control in Privatised Companies: Comparative Law, European Law and Policy Aspects

Abstract

Golden Shares are a much debated issue since the European Court of Justice delivered three relevant judgments on June 4, 2002. The debate concerns rights that the State continues to hold after privatising formerly state owned enterprises, even if its shareholding is reduced to a minimum or no longer exists. State owned enterprises and their different possible forms are the starting point, but only of minor interest for our discussion. Instead, we focus on special rights arising during this process, as well as comparable instruments of general company law. And indeed the issue is rather one of company law: By far the majority of special rights depend on the ownership of one (Golden) share, and accordingly raise the question of equal rights conferred by shares ("one share, one vote"). In any event, special rights alter decision powers in a company as well as the development of its ownership structure.

In order to structure the material we distinguish, on the one hand, different types of rights conferred on the state body (as well as possible counterclaims and rights of review granted to investors). This is not a purely technical question: Whether the issue falls under company and capital market law, or substantially under public law, is dependent upon this point. The second distinction is that of the instrument in which these rights are embedded. In essence, two different types of rights are granted. On the one hand, there are special rights which relate to the decision process of one body of the company, principally the general meeting. Corporate Governance is changed. Subject matters might concern fundamental decisions but also management decisions of strategic importance. A right to appoint board members can produce similar results. On the other hand, there is a second type of rights which can be granted: rights to influence the shareholder structure of the company which is not part of the company's business as such. In these cases, veto rights are given in the event that the shareholding of one person exceeds certain thresholds. Both types of rights may take various forms that are functionally comparable. As a consequence of the ECJ judgements, it will be important whether the exercise of the right conferred can be challenged on the grounds that the risk for the company or the general public against which the right should give protection did not exist in this particular case. Of equal importance is the procedural arrangement.

Immediately after publication of the ECJ judgements, interested parties quickly discounted any relevance for the "Volkswagen" legislation, the most important German privatisation law. We argue that the decisions might even have much broader effects on general company law. The ECJ focused on whether access to any capital investment is legally or factually prevented or merely made less attractive. Therefore, any arrangement that reduces decision making power of shareholders might be relevant. One has to see how the land lies by taking into account comparable phenomena with respect to the typical features of the Golden Share, and by asking whether the criteria applied by the ECJ are of any relevance as to these phenomena. From a systematic European law perspective as well as a matter of value judgement, it is of utmost importance that these considerations apply equally to constructions granting additional rights to private law subjects, for they too impinge upon other shareholders' rights with regard to their voting power or their freedom of decision-making. The standard of review applied by the Court of Justice has been particularly strict where veto rights had been granted with respect to transactions influencing the shareholder structure. The most important example are rules that in fact prevent take-overs: voting caps or multiple voting rights, but also the arsenal of defensive measures that some legislators grant to the management.

Keywords: Golden shares; state owned enterprises; corporate governance; European Company Law; free movement of capital; takeovers; market for corporate control