Strong Shareholders, Weak Outside Investors

38 Pages Posted: 27 Dec 2017

See all articles by María Gutiérrez Urtiaga

María Gutiérrez Urtiaga

Universidad Carlos III de Madrid-Departamento de Economía de la Empresa; European Corporate Governance Institute (ECGI)

Maria Isabel Sáez Lacave

Universidad autonoma de Madrid, Faculty of Law

Date Written: December 21, 2017


In this paper, we consider the corporate governance challenge of protecting outside investors in listed, controlled firms. European jurisdictions are supposed to be more veteran and skilled in dealing with these firms in comparison to the U.S. But we argue that outside investors in European listed firms with controlling shareholders are poorly protected compared to U.S. investors because the distinct European approach to the protection of investors, based on empowering active shareholders rather than shielding passive investors, is not well suited for controlled, listed firms. This approach translates into a lack of definition and development of specific fiduciary duties of the controlling shareholders towards market investors. Moreover, European jurisdictions have developed strong voice rights for active shareholders, which tend to play in favour of the controlling shareholders and organized minorities but are not effective for the protection of passive outside investors and limit their exit options. This explains why shareholder protection in European jurisdictions can be considered high, while outside investors’ protection can be considered low at the same time, i.e., it represents a “strong shareholders, weak outside investors” problem that increases the cost of financing for listed European firms and reduces their growth opportunities and value.

Keywords: Corporate Governance, Ownership Structure, Ownership Concentration, Corporation Law, Controlled Companies, Controlling Shareholders, Outside Investor Protection, Minority Expropriation

JEL Classification: G32, G34, G35, K22

Suggested Citation

Gutiérrez Urtiaga, María and Sáez Lacave, Maria Isabel, Strong Shareholders, Weak Outside Investors (December 21, 2017). Available at SSRN: or

María Gutiérrez Urtiaga (Contact Author)

Universidad Carlos III de Madrid-Departamento de Economía de la Empresa ( email )

Calle Madrid 126
Getafe, 28903
+34-91 624 58 40 (Phone)
+34-91 624 96 07 (Fax)

European Corporate Governance Institute (ECGI)

B-1050 Brussels


Maria Isabel Sáez Lacave

Universidad autonoma de Madrid, Faculty of Law ( email )

C/ Kelsen 1
Madrid, 28049

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