Majority of The Minority Approval of Related Party Transactions: The Analysis of Institutional Shareholder Voting
(2021) 18(5) European Company and Financial Law Review pp. 820-862
37 Pages Posted: 8 Jul 2021 Last revised: 29 Dec 2021
Date Written: June 30, 2021
Majority of the minority (MOM) approval of related party transactions (RPTs) has become a popular mechanism to be used in the oversight of RPTs among academics, stakeholders and regulators. Using this mechanism means that for companies, entering into RPTs are subject to the approval of a certain majority of the disinterested shareholders. This article examines the effectiveness of MOM approval as a mechanism to oversee RPTs, i.e. whether it would prevent value-decreasing RPTs while allowing value-increasing ones, by analysing institutional shareholder voting in this context within the US and European legal framework. Specifically, it examines whether institutional shareholders who dominate the shareholding across the world have sufficient incentives to cast informed votes in MOM votes on RPTs and the role of proxy advisors in this regard. Taking account of the relevant theoretical claims and empirical evidence, it provides further policy recommendations to improve the efficacy of MOM approval.
Keywords: MOM approval, institutional investors, related party transactions, shareholder voting, proxy advisors
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