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The Board of Directors: Composition, Structure, Duties and Powers…
The Board of Directors:
Composition, Structure, Duties and Powers
Board rules and principal/agent problems between majority and minority shareholders
Allocation of functions to the board
has the potential to protect minority shareholders against majority shareholders, but It does not guarantee that the
board will protect the minority from either the majority’s or management’s self-interested decisions.
Appointment and removal rights
ensure the participation of the minorities in the meeting, so that they can influence the decisions in their favor or at least be informed of them
Legal Liability
the majority express their influence via decisions of the board or of the shareholders’ meeting. The main problem in fashioning such duties is to determine the standard(s) by which the conduct of the controllers is to be judged
Current trends
The rise of shareholder value
Withdrawal and gradual disintegration of the private sector
Assignment of control rights to shareholders as strategy
Resurgence of shareholders' interests in companies, thanks to a greater impact of capital markets in the financial model
Shareholder value and the management/shareholders as a class agency problem
The first agency problem (managers and shareholders) has been the traditional
focus of company law
The rise and fall of company/employee agency issues
First wave of reform of the rules of the European Council in the post-war period
Extension of employee representation rights
Mainly in Germany in the 70s, it was also applied in Australia, Denmark, Luxembourg, the Netherlands, Norway and Sweden.
Shareholder value and majority/minority shareholder relationships
large blocks would take steps to enhance the levels of protection for minority
Directive 89/592
‘Draghi’ reforms in Italy
Board rules and controller/stakeholder agency problems
Appointment and removal rights
Postpone access by creditors to control
the company is a policy adopted to motivate entrepreneurs and / or to protect the interests of interested parties other than creditors
Setting incentives
management achieves a high degree of independence from both shareholders and employees, but is subject to some low-powered incentives to promote the interests of both these groups in order to retain their confidence.
Liability rules
protecting the interests of the interested parties is to relax the legal obligations of the directors and promote the interests of the shareholders as a class
Core Company Law and Principal/Agent Problems
principal/agent problems
between majority shareholders and minority shareholders
between the controllers of the
company and non-shareholder stakeholders
between management and the shareholders as a class
Board rules and the principal/agent relationship between managers and the shareholders as
a class
Appointment and removal of board members
The division of functions between shareholders and the board
When in large companies centralised management is a sine qua non for effective conduct of the company’s business, this first class of principal/agent problem cannot be so easily
eliminated
Decisions which are as close to
investment decisions as they are to management decisions
Decisions on matters where the directors are conflicted
Changes to the company’s constitution
Setting the incentives of members of the board
Legal liability
the reforms proposed by the Company Law Review in the UK, it is made clear that the company’s interests
are the interests of the shareholders as a class