European Corporate Law Study Group Germany

Stefan Grundmann/Florian Möslein

dicembre 2008

Luiss Guido Carli. La riproduzione è autorizzata con indicazione della fonte o come altrimenti specificato. Qualora sia richiesta un’autorizzazione preliminare per la riproduzione o l’impiego di informazioni testuali e multimediali, tale autorizzazione annulla e sostituisce quella generale di cui sopra, indicando esplicitamente ogni altra restrizione

Dipartimento di Scienze giuridiche

CERADI – Centro di ricerca per il diritto d’impresa

1. Listed corporations in the national system [a): to follow] b) How developed is the public securities market? What conditions have led to this situation? What is the economic importance of listed companies? Authors will convey data regarding the presence of listed companies in national systems compared with other companies (both publicly and privately held) and their impact on the economy (e.g. employment and production rates). In general, public securities markets are (still) less developed than in other countries.1 Instead, debt capital and more particularly bank loans have always been playing a key role in German corporate finance. This is due to various factors.2 A major reason is the predominance of small and medium-sized enterprises (SME) in Germany.3 These companies largely prefer bank-based means of finance, which used to be available at rather favourable terms of long duration. Additionally, debt financing used to enjoy an advantageous tax treatment.4 Moreover, SMEs were afraid of the additional burdens of the securities markets (publication requirements, financial supervision). Since the nineties, however, equity markets in Germany have developed significantly, with the effect of substantial changes to the ownership and control structures.5 The number of listed companies rose from 548 in 1990 to

1 For comparative surveys, see Van der Elst, The Equity Markets, Ownership Structures and

Control: Towards an International Harmonisation, FLI Working Paper 2000-4; Wymeersch, A Status Report on Corporate Governance in Some Continental European States, in: Hopt/Kanda/Wymeersch/Prigge (eds.), Comparative Corporate Governance – The State of the Art and Emerging Research (1998), p. 1049.

2 More extensively: Rudolf, ‘Entwicklungen im Kapitalmarkt in Deutschland’, in: Habersack/Mülbert/Schlitt (eds.), Unternehmensfinanzierung am Kapitalmarkt (2005), p. 1, para. 31-34.

3 For details see, for instance: Dufey/Hommel, ‘Financing the German Mittelstand’, in: WHU Koblenz – Otto Beisheim Graduate School of Management (ed.), Structure and Dynamics of the German Mittelstand (1990), p. 183; Harfhoff/Körting, Lending Relationships in Germany – Empirical Evidence from Survey Data, Journal of Banking and Finance 22 (1998), 1317; Lehmann/Neuberger, Do Lending Relationships Matter? Evidence from Bank Survey Data in Germany, University of Konstanz - Center of Finance and Econometrics Working Paper No. 00/04.

4 Neutrality of the tax system in this respect (and with respect to different legal forms of companies) has often been demanded, for instance: Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, Die Chancen nutzen – Reformen mutig voranbringen, Jahresgutachten (yearly report) 2005/06, p. 265 et seq.

5 More in detail below, sub 2.c.

1043 in 1999 (+90,3%). The market capitalisation of companies listed on the German stock exchange grew substantially during the same period (+304,7%), as did the size of listed companies (+112,6%). The number of public offerings increased substantially, so that equity financing on the stock market became a common way of raising capital. Overall, the ratio market capitalisation to GDP rose from 12% in 1975 to 50,6% in 1990. Nonetheless, German equity markets continue to be considerably less developed than their Anglo-American counterparts. In 1999, the number of stock companies (AG) barely exceeded 4000, as compared to more than 530000 limited companies (GmbH) and more than 90000 non-incorporated private companies (Personengesellschaften, i.e. OHG, KG and GmbH&Co KG).6 Since then, the number of stock companies may well have further increased, but in 2006, less than 800 of these companies were listed, as compared, for instance, to about 3000 in the UK.7 The same is true with respect to the ratio market capitalisation to GDP, which was at 43,7 % in 2005, as compared to 139,1% in the UK and 136,8% in the US – and still 61,6% in the entire Euro-Zone.8 It is more difficult to convey data on the impact of listed companies on the German economy. There are indications, however, that this impact is very significant: Of the 100 biggest enterprises in Germany (measured by their turnover), 75 were listed companies in 2004.9 In terms of turnover, the gap between stock companies and other types of companies is anyhow much narrower than with respect to their number.10 Moreover, among the enterprises with a high number of employees (>250), the percentage of incorporated companies (as opposed to partnerships and sole traders) is much higher than among the enterprises with few employees.11

6 Deutsches Aktieninstitut (ed.), DAI-Factbook 2006, p. 01-2. 7 Deutsches Aktieninstitut (ed.), DAI-Factbook 2006, p. 02-6; for the increase of stock

companies (AG) and partnerships limited by shares (KGaA) see ibid., p. 01-1-a. 8 Deutsches Aktieninstitut (ed.), DAI-Factbook 2006, p. 05-3. 9 Deutsches Aktieninstitut (ed.), DAI-Factbook 2006, p. 01.8. 10 For details, see official statistics of the Statistisches Bundesamt at

http://www.destatis.de/download/d/fist/fistdow04.xls. 11 With respect to companies with less than 10 employees, there have been nearly 2 mio.

sole traders, 0,32 mio. partnerships and 0,38 mio. incorporated companiesm, as opposed to 126 sole traders, 2466 partnerships and 5704 incorporated companies with respect to companies with more than 250 employees. see official statistics of the Statistisches Bundesamt at http://www.destatis.de/basis/d/insol/unternehmentab5.php.

c) How have listed companies developed in each national system since the origins? Which crises have prompted major legislative changes? Briefly outline the policy reasons behind the reforms in corporate and securities law in the last ten years (e.g. deregulation, privatisation etc.). In Germany, the modern public limited liability company has its origins only in the second half of the 19th century.12 1870 brought a free system of normative rules, very liberal (with the abolition of the licencing system with state concession). The boom and crises in the 70s and 80s of the 19th century brought massive fraud ... and the reform of 1884 which brought about much more mandatory regulation, namely with respect to the initial phase (formation and capital protection). The next push was brought about by the crisis of the late 1920s. While there was a massive development towards multiple voting and voting rights of management resulting in a strong split between majority in capital and influence via voting power, the reforms - in 1931 and 1937 - remained rather modest. The Plc. was not abolished (as planned in the first years of the Nazi regime), but access rendered much more difficult with a high minimum capital (500.000 RM); some try was made to contain the split between power and ownership; the main trend was, however, to strengthen the power of the board. Moreover, public limited company law found its way back into a separate code, the German Plc. Act (AktG) (it had been integrated into the new Commercial Code [HGB] in 1897). The next major step was taken with the large reform in 1965 which brought about a much larger spread of shares (also to labour), stronger control of management (information rules) and of depositary banks' voting by proxy, and as well a law of groups - in summary: much more shareholder democracy and minority protection. After all, however, capital markets remained weak - and capital market law outside the law on stock exchanges (mainly official listing)13 was developed only under the lead of the European Community. After 1965, for a long time, the main reforms occured outside the German Plc. Act (AktG), on accoutning law (in the Commercial Code), on co-determination (in the Mitbestimmungsgesetz of 1976), on structural changes (in the Umwandlungsgesetz of 1994), and in several laws on primary and secondary capital markets. It was only in 1990s, that a vague of amendments started and this with the explicit intention to modernise German Public Company Law - not so much because of scandals, but rather to face international competition: In fact, as in other big Member States, all major reforms of company law in the last decade have been justified by considerations of competition with other locations.14 The first major step, the 12 Comprehensive survey on the history of the (law on the) public limited liability

company: Bayer/Habersack (eds.), Die Geschichte des Aktienrechts, (2007). 13 Comprehensive survey on the history of the (law on the) public limited liability

company: Hopt/Rudolph/Baum (eds.), Börsenreform - eine ökonomische, rechtsvergleichende und rechtspolitische Untersuchung, (1997), mainly part 2, ch. 1.

14 For Germany: Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (KonTraG) of 6 March 1998, BGBl. I 1998, 786; Kapitalaufnahmeerleichterungsgesetz (KapAEG), Gesetz of 20 April 1998, BGBl. I 1998, 707; Gesetz zur Namensaktie und

KonTraG of 1998 (Fn. 3), increased shareholder participation, but was mainly aimed at intensifying control by the supervisory board (information, number of sessions etc.). The KonTraG was followed by a law on registered shares and voting rights, the NaStraG of 2001 (Fn. 3), which not only abolished impediments to the issue of registered stock, but took care of new eletronic devices which allowed (passive) participation in the general assembly. The Law on Transparency and disclosure of 200215 which further intensified cooperation within the two-tier board and introduced the principle of comply or explain for the German Corporate Governance Code was followed by two laws on a more efficient litigation with less potential for abuse (a type of class actions in questions of prospectus liability and other capital market matters; and restriction of the scope of application of the traditional nullity action, replaced by an action in re-evaluation in questions of compensation).16 The UMAG, however, is important well beyond that, namely with respect to the registration procedure of general meetings and the business judgment rule, which is now explicitely stated as a general principle applicable to directors’ duties and liabilities in § 93 AktG. d) To what extent is there a correlation between the prevailing type of business financing and the company model? Germany is still - and has been for very long times - among the industrialised countries of the Western world which have the lowest ratio in share capital ... and the highest in loan capital. This dominance of loan capital - i.e. of creditors - over share capital - i.e. of shareholders - has its parallels at least in three core characteristics of German law on public limited liability companies. aa) There is an extremely high anxiety and emphasis put on capital protection. Not only is the private limited company subject to a capital protection regime as well, but

zur Erleichterung der Stimmrechtsausübung (Namensaktiengesetz, NaStraG) of 18 Jan. 2001, BGBl. I 2001, 123; Claussen, 'Aktienrechtsreform 1997', Die Aktiengesellschaft (AG) 1996, 481; Hommelhoff/Mattheus, 'Corporate Governance nach dem KonTraG', Die Aktiengesellschaft (AG) 1998, 249; Zätzsch/Gröning, 'Neue Medien im deutschen Aktienrecht - zum RefE des NaStraG', Neue Zeitschrift für Gesellschaftrecht (NZG) 2000, 393; for England and France: Modern Company Law - For a Competitive Economy - The Strategic Framework - A Consultation Document from the Company Law Review Steering Group, (2/1999), passim; Guyon, 'Présentation générale de la société par action simplifiée', Rev. Soc. 1994, 207 (209).

15 Gesetz zur weiteren Reform des Aktien- und Bilanzrechts, zu Transparenz und Publizität (TransPuG) of 19 July 2002, BGBl. 2002 I, p. 2681.

16 Spruchverfahrensneuordnungsgesetz - SpruchG of 12 June 2003, BGBl. 2003 I, p. 838; Gesetz zur Einführung von Kapitalanleger-Musterverfahren (KapMuG) of 16 August 2005, BGBl. 2005 I, p. 2437; Gesetz zur Unternehmensintegrität und Modernisierung des Anfechtungsrechts (UMAG) of 22 Sept. 2005, BGBl. 2005 I, p. 2802.

the capital protection regime of the public limited company is of utmost importance: It was very influential when such a regime was adopted also on the European level (2nd Company Law Directive);17 nevertheless it went beyond the directive in many respects - the case law on the so-called hidden contribution in kind covers many transactions which European Law would not characterise as a circumvention of the capital rules under Art. 11 of the 2nd Directive;18 hidden distributions in kind and other forms of hidden dividends may be forbidden already by the principle of equal treatment under Art. 42 of the 2nd Directive, but are much more discussed in Germany than elsewhere;19 and the control of contributions in kind is particularly severe in Germany as well.20 Finally, own shares were only introduced in Germany after the 2nd Company Law Directive had regulated them (largely on the basis of French Law) (now §§ 71a et seqs. German Plc. Act [AktG]). A parallel phenomenon is, of course, visible in accounting law. Under traditional German accounting law, the so-called principle of 'prudence' is paramount,21 it says 17 Edwards, EC Company Law, (1999), p. 51 et seq.; Lutter, Europäisches Unternehmensrecht -

Grundlagen, Stand und Entwicklung nebst Texten und Materialien zur Rechtsangleichung, (4th ed. 1999), p. 48; rather stressing equal weight of the influences (also that of the UK): Schmitthoff, 'The Second EEC Directive on Company Law', (1978) 15 CMLR 43 (54).

18 Lead decisions in Germany BGHZ 110, 47 (IBH/Lemmerz) (also in case of capital increases); 118, 83 (93-104); 132, 133 (138-140); 135, 381; Zeitschrift für Wirtschaftsrecht (ZIP) 2002, 799; survey in Henze, 'Gesichtspunkte des Kapitalerhaltungsgebots und seiner Ergänzung im Kapitalgesellschaftsrecht in der Rechtsprechung des BGH', Neue Zeitschrift für Gesellschaftsrecht (NZG) 2003, 649. For comparative law surveys see: Einsele, 'Verdeckte Sacheinlage, Grundsatz der Kapital-aufbringung und Kapitalerhaltung', Neue Juristische Wochenschrift (NJW) 1996, 2681; Hansen, Die verdeckten Sacheinlagen in Frankreich, Belgien und Deutschland und ihre Be-handlung durch die zweite EU-Gesellschaftsrechtsrichtlinie, (1996); Gansen, Harmonisierung der Kapitalaufbringung im englischen und deutschen Kapitalgesellschaftsrecht - Vergleichende Studie zur Zweiten Gesellschaftsrechtlichen EG-Richtlinie, (1992), namely p. 172-180 (Great Britain); Tübke, Sachausschüttungen im deutschen, französischen und Schweizer Aktien- und Steuerrecht, (2002). The ECJ did not decide on the admissibility of such more stringent rules (but would probably admit them): see ECJ case C-83/91 Meilicke [1992] ECR I-4871; Advocate General Tesauro had pleaded that the motion was inadmissable, ibidem 4907 et seq.; see Grundmann/Moeslein, European Company Law, (2007), para. 376.

19 See on this Werlauff, EC Company Law - the Common Denominator for Business Undertakings in 12 States, (1993), p. 175-178; Mülbert, 'Kapitalschutz und Gesellschaft-szweck bei der Aktiengesellschaft', Festschrift for Lutter 2000, 535 (545-547); Schön, 'Deutsches Konzernprivileg und europäischer Kapitalschutz - ein Widerspruch?', Festschrift for Kropff 1997, 285 (291-293).

20 See on this §§ 34 et seqs. German Plc. Act (AktG), namely the requirement that a bank assumes responsibility for the fact that the contributions have been made (§ 37 para. 2 AktG) and that the court has a full right of control (§ 38 AktG, there is therefore double independent control). See standard commentaries on these rules.

21 Ballwieser, 'Grenzen des Vergleichs von Rechnungslegungssystemen - dargestellt anhand von HGB, US-GAAP und IAS', Festschrift for Kropff 1997, 371 (379-381); Hopt, 'Common Principles of Corporate Governance in Europe', in: Markesinis (ed.), The

that assets and claims rather have to be valuated at the lowest possible amount (the value existing in any case) and only when they have already been realised and are not only (highly) likely to materialise, whereas liabilities and risks have to be valuated at their full amount and already when they are likely to materialise.22 The idea is that the creditor can always count for sure with the status of assets - or even a potential surplus. Conversely, English Law of accounting obliges the companies to give the view which is closest possible to reality (the so-called 'true and fair view') because minimising risk in the accounts does not tell investors enough about the chances inherent in the company, they must get the material which allows them to compare chances of returns;23 for them, unlike creditors, the risk of insolvency is only one aspect and not even the most important one. It is well known that Art. 2 para. 3 of the 4th Directive addressed the question. According to this rule, the accounts have to give a 'true and fair view', i.e. not too 'prudent' a view.24 The English approach is typically justified by the fact that there the information interests of investors are paramount. In the Anglo-American world, however, most authors would hold nowadays that also creditor information interests are served best by accounts which give a true and fair view of the financial status of the company -25 the reason being that hidden reserves allow management to hide early signs of a crisis more easily by just liquidating reserves when business does not run properly any longer.

Clifford Chance Millenium Lectures - The Coming Together of the Common Law and the Civil Law, (2000), 105 (113 et seq.) = ZGR 2000, 779 (792 et seq.); Kübler, 'Institutioneller Gläubigerschutz oder Kapitalmarkttransparenz? - rechtsvergleichende Überlegungen zu den "stillen Reserven"', Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 159 (1995) 550 (552 et seq.).

22 See for details Grundmann/Moeslein (Fn. 2), para. 555 and 568 and literature named there.

23 Kloos, Die Transformation der 4. EG-Richtlinie (Bilanzrichtlinie) in den Mitgliedstaaten der Europäischen Gemeinschaft - eine Analyse der verbliebenen Rechnungslegungsunterschiede aufgrund von nationalen Wahlrechtsausnutzungen, (1993), p. 46 et seq.; Küting/Hayn, 'Wesentliche Unterschiede in der Rechnungslegung in Großbritannien und Deutschland', Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 1995, 111; Nieland/Scott, 'Rechnungsle-gung in Großbritannien', Internationales Steuerrecht (IStR) 1997, 348.

24 On the concept of true and fair view: Bird, 'What is "A True and Fair View"?', J.Bus.L. 1984, 480; Chastney, True and fair view - a study of the history meaning of true and fair and a consideration of the impact of the fourth directive: a report prepared for the Research Committee of the Institute of Chartered Accountants in England and Wales, (1975); Moxter, 'Zum Verhältnis von handelsrechtlichen Grundsätzen ordnungsgemäßer Bilanzierung und True-and-fair-view-Gebot bei Kapitalgesellschaften', Festschrift for Budde 1995, 419. The IFRS are primarily oriented to 'true and fair view': IFRS 1.13, 1.15 and Framework 46; see Achleitner/Behr, International Accounting Standards - ein Lehrbuch zur Internationalen Rechnungslegung, (3rd ed. 2003), p. 111.

25 Kloos (Fn. 7), p. 47; Kremin-Buch, Internationale Rechnungslegung - Jahresabschluss nach HGB, IAS und US-GAAP - Grundlagen, Vergleich, Fallbeispiele3, (3rd ed. 2001), p. 2 et seq.; explicitly in this sense also Framework IFRS 9 lit. d and 15.

The third phenomenon can be seen in the fact that, in a comparative perspective, shareholder influence is relatively weak in the German Plc. In part, this has still to do with capital, for instance when the law prescribes legal reserves first and thus limits the influence of the shareholders in the distribution of earnings via dividends (see § 150 German Plc. Act [AktG]). This is, however, a much broader phenomenon which is still largely owed to the reform of 1937 (after the economic crises and in the era of the 'Führerprinzip'). Some indications must suffice: The shareholders' meeting in Germany has less compentences in very important subject matters than it has in Great Britain, France and Italy and this rather prefers board's interests or the interests of a dominating shareholder in Germany (so-called 'Deutschland-AG'). Thus, for instance, interests of majority shareholders are advanced in tendency by the far reaching possibilities to plough back profits - already when dressing the accounts, and in this respect the competence of the shareholders' meeting is particularly week in Germany (no final say in these matters). The general assembly in Germany is as well totally excluded from current business (no right to give instructions at all), it has only indirect nomination power (via the suervisory board), and those measures which are considered to be of such an importance that they are treated like structural changes start only above a very high threshold.26 The other side of the medal is that the development of capital market law outside the law on stock exchanges (mainly official listing) was particularly slow and really developed only under the lead of the European Community. 2. Ownership structure With respect to the corporate ownership structure, Germany used to be regarded as a prime example of an insider system, as opposed to the outsider system economies like the United Kingdom and the United States.27 Ownership in companies is still largely concentrated in the hands of families and other companies, even though this picture changed rapidly over the last decade or so. This change in German companies’ ownership structure may have been caused by globalization and increased shareholdings of foreign institutional investors, but also by a number of domestic developments like amendments to the tax regime for cross-shareholdings.28

26 See on all this Grundmann/Moeslein (Fn. 2), para. 429-435, 466 (with further

references). The core decisions on the point named last are in Germany: BGHZ 83, 122 (Holzmüller); BGHZ 159, 30 (Gelatine).

27 See, for example, Franks/Mayer, ‘Ownership and Control’, in: Siebert (ed.), , Trends in Business Organization: Do Participation and Cooperation Increase Competitiveness? (1995), p. 171 (174-188); id., The Ownership and Control of German Corporations, Review of Financial Studies 14 (2001), 943.

28 See below, sub c.

a) Evolution of the ownership structure A recent study on the origins of this ownership structure shows that the patterns in Germany and the UK did not look so different at the beginning of the 20th century, when firms were growing rapidly and were raising large amounts of money externally to fund this growth.29 In Germany as well as in the UK, the money was raised as equity rather than in the form of debts from banks. As opposed to the UK, however, this money was invested internally or in partial acquistions, so that the concentration of ownership did not decrease. Instead, corporate pyramids and inter-corporate holdings were created.30 On the other hand, and especially from the 1930s onwards, the influence of banks increased substantially, not so much because of their own shareholdings, but because they were casting votes on behalf of other investors. Voting control therefore remained within the corporate and banking sector rather than being transferred to outside individual shareholders as in the UK and the US. „Insider-orientation“ of traditional Germany’s corporate ownership structure is to be understood accordingly, rather than in the sense of ownership by companies’ directors. The ownership structure in 1990 demonstrates the consequences of this development. A study comprising a sample of 171 quoted industrial and commercial companies31 shows that at that time, 85% of those companies had at least one shareholder with a stake of more than 25%, more than 57% had a majority shareholder and in over 22% of the companies, a single shareholding exceeded even 75%. With respect to these substantial shareholders, the same study revealed that non-financial companies and families played a significant role in corporate ownership holding more than 27% resp. more than 20% of the large stakes (in excess of 25%). The relative dominance of these two types of shareholders was even greater with respect to the majority shareholdings, mainly because banks’ and institutional investors’ holdings were comparatively modest. Institutional investors (including trusts and insurance companies) played only a significant role as minority shareholders, but still accounted for only 14,7% of the stakes in excess of 25%, whereas banks held even less than 6% of these stakes.

29 Franks/Mayer/Wagner, The Origins of the German Corporation – Finance, Ownership and

Control, ECGI Working Paper 110/2005. 30 Ibid., p. 17-27. 31 Franks/Mayer, Ownership and Control of German Corporations, The Review of

Financial Studies 14 (2001), 943, esp. 946-952.

Table 1: Proportion of companies with a single shareholding in excess of 25 %, 50 %, and 75 % for the sample of 171 large industrial companies in 1990

Proportion of companies with a share stake in excess of

25% 50% 75% A. Companies with a large stakeholder the largest stakeholder being...

85,4% 57,3% 22,2%

1. another German company 27,5 % 21,1 % 9,9 % 2. an insurance company 1,8 % 0,0 % 0,0 % 3. a trust/institutional investor 12,9 % 6,4 % 1,8 % 4. a family group 20,5 % 16,4 % 5,3 % 5. a foreign company* 9,9 % 8,8 % 5,3 % 6. a bank 5,8 % 0,0 % 0,0 % 7. the German State 1,2 % 1,2 % 0,0 % 8. other German authorities 3,5 % 2,9 % 0,0 % 9. unknown 2,3 % 0,6 % 0,0 % B. Companies without a large shareholding greater than 25, 50, or 75% respectively.

14,6 % 42,7 % 77,8 %

Total** 100,0 % 100,0 % 100,0 % The table reports the proportion of companies with a large shareholder. Companies are partitioned into those that have one shareholder owning at least 25 %, 50 %, and 75 % of the voting equity, respectively. The table partitions large shareholders into various categories including other German companies, insurance companies, trust and institutional investors, families, foreign companies, banks, German State and other German authorities. * Including foreign holding companies. ** Discrepancies in the total may be due to rounding errors. Source: Franks/Mayer, Ownership and Control of German Corporations, The Review of Financial Studies 14 (2001), 943, 947 (based on Hoppenstedt). b) Ownership vs. control structure However, statistics on the ownership patterns alone cannot sufficiently explain the control of German companies at the time. Instead, three major features have to be taken into account. One is banks’ control over proxy votes. One of the services that German banks offer to their clients is not only to give advice on corporate resolutions, but also to vote on behalf of their clients as shareholders in general meetings. According to the traditional legal regime, banks had to inform clients of their voting intentions and needed to obtain the permission to use shareholders’ proxies each year. Until recently, however, banks were allowed to vote on behalf on their clients irrespective of their own (even substantial) equity holding in the specific company. Moreover, management proxy voting was not

provided for as an alternative.32 As a consequence, several studies have shown that German banks held proxies in nearly all of the publicly traded companies that enabled them to cast proxy votes on average between 14% and 18% of companies’ voting equity.33 Besides, positions on supervisory boards and provision of loan finance additionaly strengthened the role of banks in German companies.34 A second important factor is the predominance of cross-shareholdings and pyramid structures. When taking into account the ownership structure of companies directly holding large stakes in other companies, ownership can be traced back through various layers. These layers have the effect of ultimately violation the one-share-one-vote principle and thus enable even minor shareholders to acquire control over the whole complex.35 Such ownership patterns have therefore accurately been described as „controlling minority structures“.36 Statistical evidence is more difficult to find (also because disclosure of shareholdings under 25% became only recently mandatory under German law), but studies have shown various examples of such controlling pyramids.37 They have also revealed that, for instance, banks accounted for

32 More extensively on the proxy voting regime at the time: Tillmann, Das Depotstimmrecht

der Banken (1985); for the regulatory discussion in the forefront of the enactment of the Aktiengesetz Busse, Depotstimmrecht der Banken (1962), Püttner, Das Depotstimmrecht der Banken (1963).

33 Nibler, Bank Control and Corporate Performance in Germany, PhD dissertation, Cambridge (1998). See also: Baums/Fraune, Institutionelle Anleger und Publikumsgesellschaft: Eine empirische Untersuchung, Die Aktiengesellschaft (AG) 1995, 97; Gottschalk, Der Stimmrechtseinfluss der Banken in den Aktionärsversammlungen der Großunternehmen, WSI-Mitteilungen 5 (1988), 294; Franks/Mayer, Ownership and Control of German Corporations, The Review of Financial Studies 14 (2001), 943, 953-955. Sceptical however: Edwards/Nibler, Corporate Governance in Germany: The Role of Banks and Ownership Concentration, Economic Policy 15 (2000), 237.

34 For the reasons of the „Macht der Banken“ (power of banks) in a comparative perspective see Grundmann/Möslein, Die Goldene Aktie und der Markt für Unternehmenskontrolle, Zeitschrift für vergleichende Rechtswissenschaften (ZvglRWiss) 102 (2003), 289 (334-341).

35 See, for instance: De Angelo/De Angelo, Managerial Ownership of Voting Rights – A Study of Public Corporations with Dual Class of Common Stock, Journal of Financial Economics 14 (1985), 33; Grossman/Hart, One Share-One Vote and the Market for Corporate Control, Journal of Financial Economics 20 (1988), 175, Harris/Raviv, Corporate Governance: Voting Rights and Majority Rules, Journal of Financial Economics 20 (1988), 203.

36 Bebchuk/Kraakman/Triantis, Stock Pyramids, Cross-Ownership and Dual-Class Equity: The Creation and Agency Costs of Separating Control from Cash Flow Rights, NBER Working Paper 6951 (1999).

37 Köke, New Evidence on Ownership Structures in Germany, ZEW Discussion Paper 99-60, 19-21 and 23 („relevant phenomenon“).

12% of ultimate shareholdings (as opposed to 5,8% in the first layer).38 The impact of cross-shareholdings is equally difficult to evidence, but it is underlined by prominent examples. Allianz AG, for instance, used to hold 23% of Dresdner Bank’s shares, while the later held a 10% stake in Allianz (which was, moreover, similarly connected with the Bayerische Hypotheken- und Wechselbank, but also with Munich Re).39 Finally, also patterns of changes in corporate control have to be taken into account. They are not only a consequence of ownership and (internal) control structures, but also have an impact on (minority) shareholders’ influence on companies: If shareholders can choose between the voting and the exit option, their influence is not restricted to the general meeting, but rather exercised on the market.40 In Germany, however, the market for corporate control was often considered to be largely inactive: Hostile takeovers were uncommon until recently, and the merger activity used to be lower than in the UK or the US.41 Yet there was a substantial level of turnover of share stakes, and even the frequency of control transfers was similar to other countries.42 However, these changes in ownership were mainly caused by negotiated block trades rather than by public acquisition (tender) offers.43 This pecularity may cause specific incentive effects on both shareholders and management, and it may also bear specific risks for minority shareholders.44 38 Franks/Mayer, Ownership and Control of German Corporations, The Review of

Financial Studies 14 (2001), 943 (948). 39 See Adams, Die Usurpation von Aktionärsbefugnissen mittels Ringverflechtung in der

Deutschland AG, Die Aktiengesellschaft (AG) 1994, 148; sceptical: Köke, New Evidence on Ownership Structures in Germany, ZEW Discussion Paper 99-60, 21-23 („minor phemomenon“).

40 Classical: Hirschman, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States (1970); similar: Lutter, Der Aktionär in der Marktwirtschaft (1973), p. 18-22.

41 Franks/Mayer, Bank control, takeovers and corporate governance in Germany, Journal of Banking and Finance 22 (1998), 1385; similar for Continental Europe: OECD, Shareholder value and the market in corporate control in OECD countries, Financial Market Trends 69 (1998), 15.

42 Franks/Mayer, Ownership and Control of German Corporations, The Review of Financial Studies 14 (2001), 943 (955). Hostile (minority) stakes, however, have been more common: Jenkinson/Ljungqvist, The Role of Hostile Stakes in German Corporate Governance, Working Paper (1999).

43 Köke, Control transfers in Germany: Their frequency, causes and consequences, Working Paper (2001); similar for whole Europe: Wymeersch, in: Hopt/Kanda/Roe/Wymeersch/Prigge (Hrsg.), Comparative Corporate Governance, 1045 (1153-1175).

44 More in detail: Barclay/Holderness, Negotiated Block Trades and Corporate Control, The Journal of Finance 46 (1991), 861; recently (for Sweden): Holmén/Nivorozhkin, Tender Offers versus Block Trades: Empirical Evidence, Working Paper (2006).

c) Recent changes to ownership and control patterns Since the nineties, however, equity markets in Germany have developed significantly (see above, sub 1.b), with the effect of substantial changes to the ownership and control structures.45 Likewise, share ownership has significantly changed over these years. A study of more than 500 German non-financial companies46 revealed that the percentage of listed companies with widely held share ownership (i.e. without share stake in excess of 25%) has rapidly increased during the nineties and amounted to 25,7% in 1999. On the other hand, the importance of all the other classes of shareholders significantly diminished. For instance, large stakes of banks diminished to 1,2%, and in no more than 23,4% of the companies, a non-financial company had a stake of more than 25%: Figure 1: Percentage of companies with share stakes in excess of 25% in 171 (1990- and 501 (1999) German industrial and commercial companies

0%

5%

10%

15%

20%

25%

30%

35%

40%

Indi

vidu

al/fa

mily

non-

finan

cial

com

pany

insu

ranc

e co

mpa

ny bank

gove

rnm

ent

fore

ign

Foun

datio

n

Oth

er

Wid

ely

held

1990

1999

Source: Van der Elst (n. 19), 30. 45 Van der Elst, The Equity Markets, Ownership Structures and Control: Towards an

International Harmonisation, FLI Working Paper 2000-4, 5-13, and already above sub 1.b).

46 Ibid., 22-29.

In particular, the presence of state-held corporations was substantially reduced. As in other OECD countries, the wave of privatisation peaked in the second part of the nineties. For instance, the proceeds from privatisation were as low as 325 million USD in 1990/91, but reached 14,3 billion USD in 1996/97.47 This peak may have been largely due to Deutsche Telekom’s initial public offering (seemingly overpriced),48 but is consistent with a more general trend, as the percentage of shares held by the public sector decreased from 10,9% in 1996 to 5,8% in 2002 (but has slightly risen since then).49 The percentage of large stakes of institutional investors has equally decreased. Yet this trend is misleading. Due to their diversification strategy, these investors generally hold less than 1-3% of the share capital of an individual company, and they tend to invest in non-listed companies (private equity).50 The considerable growth of institutional investors becomes apparent when looking at their portfolio, which has nearly increased tenfold between 1991 and 2006 in Germany. Since 1995, the key driver of the growth has been the huge increase of mutual funds, and with pension reform, a considerable growth in pension funds is also likely to occur.51 Hence, institutional investors play an increasingly important role in corporate Germany (like in other OECD countries).52

47 Schneider, Privatisation in OECD Countries: Theoretical Reasons and Results Obtained,

Working Paper (2003), esp. Table 1. 48 Reuschenbach, ‘Der Börsengang der Deutschen Telekom AG’, in: Volk (ed.), Going

Public (2000), p. 159-187. 49 Federation of European Securities Exchanges, Share Ownership in Europe, February

2007, p. 35. 50 See, for instance, Gerke/Bank/Steiger, ‘The Changing Role of Institutional Investors

– a German Perspective’, in: Hopt/Wymeersch (eds.), Capital Markets and Company Law (2003), 357.

51 Maurer, Institutional Investors in Germany – Insurance Companies and Investment Funds, CFS Working Papers No. 2003/14, esp. p. 35 et seq.

52 Extensively Bassen, Institutionelle Investoren und Corporate Governance (2002); in a comparative perspective: Nestor/Thompson, ‘Corporate Governance Patterns in OECD economies: Is Convergence under way?’, in: Nestor/Yasui (eds.), Corporate Governance in Asia: A Comparative Perspective (2000), 19.

Figure 2: Portfolio of members of the German Private Equity and Venture Capital Association (1991-2006)

- to follow - Source: BVK-Statistik – Das Jahr 2006 in Zahlen, p. 9. The reasons for this change are manifold. On a global scale, the growing integration of financial markets is a key factor of convergence between insider- and outsider systems.53 Legal and tax changes have boosted this trend in Germany. A change to the corporate tax regime in 2002 abolished the capital gains tax for share sales of companies and thus encouraged many companies to reduce their (cross-)shareholdings.54 This measure is regarded as a big step away from the tradtional „Deutschland AG“.55 Additionaly, the introduction of a „comply-and-explain“-rule made German corporate governance understandable, and was indeed designed to attract foreign investments.56 Additionally, the power of banks has been reduced by a substantial reform of the proxy voting system in 2001. Since then, banks with substantial personal shareholdings (5%) may no longer vote on behalf of their clients unless they get specific instructions. Furthermore, an alternative system of (management) proxy voting has been introduced.57 On the other hand, one of the most important consequences of this change is the emergence of a (real) market for corporate control in Germany. Since the

53 Nestor/Thompson, ‘Corporate Governance Patterns in OECD economies: Is

Convergence under way?’, in: Nestor/Yasui (eds.), Corporate Governance in Asia: A Comparative Perspective (2000), 19 (34 f.).

54 Funk, Unternehmensakquisitionen und -restrukturierungen nach dem Gesetz zur Fortentwicklung des Unternehmenssteuerrechts, Der Betriebs-Berater (BB) 2002, 1231.

55 For instance: Deutsche Bank Research, Abschied von der ‚Deutschland AG‘?, Nr. 218/2001.

56 Peltzer, Handlungsbedarf in Sachen Corporate Governance, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2002, 593 (593 et seq.); Ulmer, Der Deutsche Corporate Governance Kodex - ein neues Regulierungsinstrument für börsennotierte Aktiengesellschaften, Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 166 (2002), 150 (151).

57 Grundmann/Möslein, Die Goldene Aktie und der Markt für Unternehmenskontrolle, ZvglRWiss 102 (2003), 289 (335 et seq.).

first hostile takeover of Mannesmann AG by Vodafone in 2000, a significant segment of German companies are now subject to a growing pressures on capital markets. At the request of institutional investors, Deutsche Börse AG had to abandon its merger plan and to dismiss its chairman, DaimlerChrysler was urged by shareholders to sell the production line of the compact car „Smart“, and the largest mutual fund called for a substantial strategic change in the Siemens company.58 Today, the power of external market forces is strong enough to influence the management of many publicly owned companies.59 At the beginning of the new millenium, Germany is facing a new era in corporate governance.60 3. The general meeting of shareholders a) The allocation of powers between general meeting and board aa) Historical background: In the early stock companies, major shareholders used to have the power to manage the company’s affairs, at least de facto. The board of directors did not have much discretion to decide, but had to act upon the instructions of an administrative board consisting mainly of the major shareholders.61 Early codifications of company law like the 58 See Handelsblatt of 10.5.2005, p. 1 („Fonds siegen bei Deutscher Börse – Seifert und

Breuer müssen gehen“); of 26.1.2006, p. 18 („Daimler-Aktionär Kuweit plädiert für Smart-Verkauf“) and of 27.1.2006, p. 21 („Smart-Verkauf findet weiter Befürworter“) as well as Handelsblatt of 27./28./29.1.2006, p. 14 („DWS möchte Siemens zerschlagen“).

59 Baum, ‘Change of Governance in Historic Perspective: The German Experience’, in: Hopt/Wymeersch/Kanda/Baum (eds.), Corporate Governance in Context (2005), p. 3 (15-19); Grundmann, ‘The Market for Corporate Control: The Legal Framework, Alternatives, and Policy Considerations’, ibid., p. 421 (441-444); Mann, Corporate Governance Systeme (2003), p. 207-219; Hopt, Gemeinsame Grundsätze der Corporate Governance in Europa? - Überlegungen zum Einfluß der Wertpapiermärkte auf Unternehmen und ihre Regulierung und zum Zusammenwachsen von common law und civil law im Gesellschafts- und Kapitalmarktrecht, Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 2000, 779 (806) („kein Zurück mehr“); id., ‘Globalisierung der Corporate Governance’, in: Homann/Koslowski/Lütge (eds.), Wirtschaftsethik der Globalisierung (2005), p. 81 (90); more reserved (ten years ago, however): id., ‘Corporate Governance und deutsche Universalbanken’, in: Feddersen/Hommelhoff/Schneider (eds.), Corporate Governance (1996), p. 243 (261); Kaplan, ‘Corporate Governance und Unternehmenserfolg: Ein Vergleich zwischen Deutschland, Japan und den USA’, ibid., p. 301 (310 f.).

60 Hopt, ‘Die rechtlichen Rahmenbedingungen der Corporate Governance’, in: Hommelhoff/Hopt/v. Werder (eds.), Handbuch Corporate Governance, p. 29 (36) („veritable Zeitenwende“). On the influence of hedge funds: Engert, Hedgefonds als aktivistische Aktionäre, Zeitschrift für Wirtschaftsrecht (ZIP) 2006, 2105.

61 See, for instance, Hopt, ‘Ideelle und wirtschaftliche Grundlagen der Aktien-, Bank- und Börsenrechtsentwicklung im 19. Jahrhundert’, in: Coing/Wilhelm (eds.), Wissenschaft und Kodifikation (1980), p. 128 (137-146); id./Leyens, ‘Board Models in Europe – Recent Developments of Internal Board Structures in Germany, the United

Prussian Law on Stock Companies of 1843 left the allocation of powers to the articles of association. Similarily, the General Commercial Code from 1861 and the company law reform in 1870 didn’t change the situation, even though they first provided for a mandatory shareholders‘ meeting and a supervisory board.62 But the board of directors continued to be bound by the instructions of the other bodies, and the appointment and removal of directors continued to be left to the charter. A more important company law reform in 1884 then declared the shareholders‘ meeting – not the board of directors – explicitly to be the supreme decision-making body of the company („spezifisches Willensbildungsorgan“) and attributed a large number of powers to this body.63 In practice, however, the capital demand of industrialisation led to a multiplication of shareholders with increasingly less influence. Instead of entrepreneurial shareholders, passive investors became the rule.64 Half a century later, this change influenced the new Law on Stock Companies (enacted in 1937, but drafted already before the Third Reich). It firstly avowed the board of directors as management body of the company, and restricted the power of the shareholder meeting to decisions explicitly specified by law.65 bb) No interference of the general meeting with current business operations: This acceptance of the board of directors as an autnomous decision body has never been challenged again. Instead, this principle was confirmed in the Stock Exchange Law enacted in 1965 (still in force today), and is now laid down in its § 119.66 This provision contains an indicative catalogue of specific powers of the general meeting, and provides that this body may otherwise decide only in cases explicitly specified by law. According to para. 2, the general meeting may only decide on current business operations by request of the board of directors. Correspondingly, § 76 of the Law underlines the boards‘ sole responsibility for the management of the

Kingdom, France and Italy’, in: Gepken-Jager/van Solinge/Timmerman (eds.), VOC 1602-2002 (2005), p. 281 (esp. 283 et seq.).

62 More extensively on these two codifications: Hopt, ‘Zur Funktion des Aufsichtsrats im Verhältnis von Industrie und Bankensystem’ in: Horn/Kocka (eds.), Recht und Entwicklung der Großunternehmen (1979), p. 227 (231 et seq.).

63 Rechenberg, Die Hauptversammlung als oberstes Organ der Aktiengesellschaft (1986), esp. P. 154-166.

64 Hopt, ‘Ideelle und wirtschaftliche Grundlagen der Aktien-, Bank- und Börsenrechtsentwicklung im 19. Jahrhundert’, in: Coing/Wilhelm (eds.), Wissenschaft und Kodifikation (1980), p. 128 (137-146).

65 In detail: Assmann, in: Großkommentar Aktiengesetz, Einl. (introduction), para. 164-169.

66 See, for instance: Hüffer, Aktiengesetz, (7th ed. 2006), § 119 AktG, para. 1; Zöllner, in: Kölner Kommentar zum Aktiengesetz, § 119, para. 1; Mülbert, in: Großkommentar Aktiengesetz, § 119, para. 4.

company.67 This implies, firstly, that the board is not bound to follow any instructions by single shareholders or even the general meeting (and, in principle, not even by the supervisory board).68 It secondly implies that the charter must not declare any decisions subject to the agreement of the general meeting (even though the wording of § 119 seems to leave some leeway for such charter provisions). But then, in favour of the supervisory board such agreement clauses are possible and since 2003 even compulsory.69 Finally, the ad-hoc devolution of decisions to the general meeting is equally restricted under German law, even though not in principle. According to § 119 para. 2, directors may leave specific decisions to the general meeting, but they may not generally abscond from their responsibility to conduct the company’s business. If the general meeting decides on specific questions, the board is bound to respect this decision and will not be held liable for potential damages.70 cc) Appointment and dismissal of board members: In most jurisdictions, the ultimate power of the general meeting consists in its influence on the appointment and dismissal of directors. 71 Under German law, however, this power is severely restricted. According to § 84 para. 1 German Plc. Act (AktG), the board is exclusively and compulsorily appointed by the supervisory board. At most, shareholders may be admitted to propose candidates for the board, but such proposals are not binding.72 The supervisory board takes its decision with simple majority.73 By electing the supervisory boards‘ members, the general meeting has, of course, an indirect influence on the composition of the management board, but under the co-determination laws, up to half of the 67 In detail: Möslein, Grenzen unternehmerischer Leitungsmacht im marktoffenen Verband -

Aktien- und Übernahmerecht, Rechtsvergleich und europäischer Rahmen (2007), p. 21-23. 68 Möslein, Grenzen unternehmerischer Leitungsmacht im marktoffenen Verband - Aktien- und

Übernahmerecht, Rechtsvergleich und europäischer Rahmen (2007), p. 27-29 (in a comparative perspective).

69 See § 111 para 4 German Plc. Act (AktG) and Lange, Zustimmungsvorbehaltspflicht und Kataloghaftung des Aufsichtsrats nach neuem Recht, Deutsches Steuerrecht (DStR) 2003, 376; Götz, Rechte und Pflichten des Aufsichtsrats nach dem Transparenz- und Publizitätsgesetz, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2002, 599.

70 Möslein, Grenzen unternehmerischer Leitungsmacht im marktoffenen Verband - Aktien- und Übernahmerecht, Rechtsvergleich und europäischer Rahmen (2007), p. 37-40.

71 In a comparative perspective on the following: Möslein, Grenzen unternehmerischer Leitungsmacht im marktoffenen Verband - Aktien- und Übernahmerecht, Rechtsvergleich und europäischer Rahmen (2007), p. 59-62.

72 On this practice, see: Meier/Pech, Bestellung und Anstellung von Vorstandsmitgliedern in Aktiengesellschaften und Geschäftsführern in einer GmbH, Deutsches Steuerrecht (DStR) 1995, 1195; Scheffler, Zum Rollenverständnis der Aufsichtsräte, Der Betrieb (DB) 2000, 433 (esp. 434 et seq.).

73 Mertens, in: Kölner Kommentar zum Aktiengesetz, § 84, para. 9; Spindler, in: Münchener Kommentar Aktiengesetz, § 84, para. 11 et seq.; Hüffer, Aktiengesetz, (7th ed. 2006), § 84 AktG, para. 9.

supervisory board’s members are appointed by the employees (subject to certain conditions).74 On the other hand, the shareholders‘ influence on the dismissal of board members is restricted. Again, the supervisory board is competent for dismissals which, moreover, require a just cause according to § 84 para. 3 German Plc. Act (AktG).75 If the general meeting declares to have lost its confidence in a director, this declaration is neither binding nor does it even per se constitute a good reason for a dismissal.76 Finally, the term of office of the board of directors is possibly longer than in most other jurisdictions.77 This further contributes to an exceptional independence of the board under German law. On the other hand, the general meeting’s influence is probably more restricted than in other countries. dd) Specific decision rights: In a comparative perspective, the general meeting is usually declared competent on three major issues.78 Firstly, it often has to decide on questions concerning the accountability of the board. Under German law, this power is perhaps more restricted than in other jurisdictions, even though the appointment of auditors is imperatively attributed to the general meeting (§ 119 para. 1 No. 4 German Plc. Act [AktG]).79 On the other hand, it is the supervisory board that has to propose at least one suitable candidate (§ 124 para. 3 and 4 German Plc. Act [AktG]).80 Furthermore, auditors can only by dismissed by the courts.81 The general

74 More in detail, for instance: Hueck/Windbichler, Gesellschaftsrecht (20th ed. 2003), § 24,

para. 9-20; Hirte, Kapitalgesellschaftsrecht (4th ed. 2005), para. 3.159-3.167; Raiser/Veil, Recht der Kapitalgesellschaften (4th ed. 2006), § 15, para. 40-44; see also: Paefgen, Struktur und Aufsichtsratsverfassung der mitbestimmten AG (1982), p. 135-385.

75 Janzen, Vorzeitige Beendigung von Vorstandsamt und –vertrag, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2003, 468 (469); Grumann/Gillmann, Abberufung und Kündigung von Vorstandsmitgliedern einer Aktiengesellschaft, Der Betrieb (DB) 2003, 770 (770); Mertens, in: Kölner Kommentar zum Aktiengesetz, § 84, para. 93 and 96-101; Hüffer, Aktiengesetz, (7th ed. 2006), § 84 AktG, para. 25.

76 BGHZ 13, 188 (esp. 193); see also Oberlandesgericht Stuttgart, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2002, 971; Landgericht Darmstadt, Die Aktiengesellschaft (AG) 1987, 318.

77 § 84 Abs. 1 S. 1 AktG. 78 In a comparative perspective: Möslein, Grenzen unternehmerischer Leitungsmacht im

marktoffenen Verband - Aktien- und Übernahmerecht, Rechtsvergleich und europäischer Rahmen (2007), p. 90-114.

79 See also § 318 para. 1 HGB. 80 Yet such proposal is not binding: Theisen, Vergabe und Konkretisierung des WP-

Prüfungsauftrags durch den Aufsichtsrat, Der Betrieb (DB) 1999, 341, 343; Hüffer, Aktiengesetz, (7th ed. 2006), § 119 AktG, para. 5. On the other hand, shareholders have also a right to propose candidates, see § 127 AktG.

81 § 318 paras. 1 and 5 AktG. This should increase the auditors‘ independence, see Legislative Material to the BiRiLiG, p. 104.

meeting may well be competent for discharging the board of directors, but this resolution does not exempt the board from liability (§ 120 para. 2 German Plc. Act [AktG]).82 Moreover, the supervisory board, not the general meeting, is competent for the formal adoption of the annual accounts, at least in principle.83 The supervisory board is also partially competent for the allotment of profits, as the differentiated regime of § 58 German Plc. Act (AktG) restricts the respective power of the general meeting (roughly speaking to half of the profits).84 A second category of issues for which the general meeting uses to be competent in a comparative perspective are conflict-of-interest transactions. According to § 112 of the German Aktiengesetz, however, self-dealing transactions require approval of the supervisory board (or at least of one of its committees). A resolution of the general meeting is neither required nor sufficient.85 This rule is mandatory, so that the general meeting cannot even be made competent by the charter. In specific cases of self-dealing (like company loans, see § 89 para. 1 German Plc. Act [AktG]), stricter requirements apply, but the power to approve rests with the supervisory board.86 According to §§ 84 to 87 German Plc. Act (AktG), the same is true with respect to employment contracts of board members, including their emoluments. Reform proposals to provide for (supplementary) resolutions of the general meeting have recently been dismissed.87 Similar rules apply for other conflict-of-interest transactions. For instance, it is again (exclusively) the supervisory board that is competent for exempting the directors from the non-competition clause in § 88 German

82 In detail: Mülbert, in: Großkommentar Aktiengesetz, § 120, para. 31-43; Kubis, in:

Münchener Kommentar Aktiengesetz, § 120, para. 28-32. 83 See, however, §§ 172 para. 1 and 173 para. 1 AktG; thereon: Brönner, in:

Großkommentar Aktiengesetz, § 173, para. 8 et seq.; Kropff, in: Münchener Kommentar Aktiengesetz, § 173, para. 6 et seq.

84 In detail on this regime (and exceptions): Hüffer, Aktiengesetz, (7th ed. 2006), § 58 AktG, para. 8-13 and 22-25; Lutter, in: Kölner Kommentar zum Aktiengesetz, § 58, para. 25-37 and 61-78; Henze, in: Großkommentar Aktiengesetz, § 58, para. 23-45 and 74-84.

85 Mertens, in: Kölner Kommentar zum Aktiengesetz, § 112, para. 4; Semler, in: Münchener Kommentar Aktiengesetz, § 112, para. 3; Hüffer, Aktiengesetz, (7th ed. 2006), § 112 AktG, para. 1.

86 See Thoma, Eigengeschäfte des Vorstands mit der Aktiengesellschaft – Eine vergleichende Untersuchung zum englischen, US-amerikanischen und deutschen Recht (2003), p. 183 et seq.; Peltzer, ‘Probleme bei der Kreditgewährung der Kapitalgesellschaft an ihre Leitungspersonen’, Festschrift for Rowedder (1994), p. 325, 331-342 (with respect to the GmbH).

87 For the recent discussion, see: Martens, Die Vorstandsvergütung auf dem Prüfstand, Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 169 (2005), 124 (149); Baums, Vorschlag eines Gesetzes zur Verbesserung der Transparenz von Vorstandsvergütungen, Zeitschrift für Wirtschaftsrecht (ZIP) 2004, 1877 (1879); Kramarsch, Organvergütung, Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 169 (2005), 112 (118).

Plc. Act (AktG).88 The same probably applies for corporate opportunities, even though this is not entirely clear under German law.89 Whether the articles may provide for a decision right of the general meeting is controversial for both situations, but rejected by the majority view.90 Thus, the general meeting has little to say with respect to conflict-of-interest transactions. The final (third) category of issues to be decided by shareholders concerns extraordinary business decisions. The criteria distinguishing such extraordinary decisions from current business operations differ in various jurisdictions. In principle, provisions may possibly distinguish according to the size, type or importance of the relevant measures.91 In comparison with other jurisdictions, the approach of the German Aktiengesetz is quite formal: $ The law requires shareholder resolutions only for the strictly limited number of well-defined measures that are specifically enumerated in § 119 para. 1 German Plc. Act (AktG) and a few other provisions.92 For instance, changes to the articles require a resolution of the shareholders meeting, as well as variations in share capital or structural changes (mergers, divisions and similar measures). In spite of this formal approach of the law, it has always been controversial whether further decisions may require shareholder approval, i.e. decisions not specified by law, but having similar intrusive effects on the position of shareholders. Regardless of their wording, many authors and the courts favoured such broad interpretation of the legal provisions. For instance, in the Holzmüller decision of 1982, the Federal Court of Justice (BGH) decided that fundamental decisions, even though formally within the competence of the board, may require a resolution of the general meeting.93 According to the court, this rule should 88 In detail, Fleischer, Wettbewerbs- und Betätigungsverbote für Vorstandsmitglieder im

Aktienrecht, Die Aktiengesellschaft (AG) 2005, 336, esp. 345. 89 Weisser, Corporate Opportunities (1991), p. 212-215; Fleischer, Gelöste und ungelöste

Probleme der gesellschaftsrechtlichen Geschäftschancenlehre, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2003, 985, esp. 990; Kübler, Erwerbschancen und Organpflichten zur Entwicklung der Lehre von den „corporate opportunities“, Festschrift for Werner (1984), p. 437, esp. 440.

90 See Mertens, in: Kölner Kommentar zum Aktiengesetz, § 88, para. 6; contra: Armbrüster, Wettbewerbsverbote im Kapitalgesellschaftsrecht, Zeitschrift für Wirtschaftsrecht (ZIP) 1997, 1269, esp. 1270.

91 In detail: Möslein, Grenzen unternehmerischer Leitungsmacht im marktoffenen Verband - Aktien- und Übernahmerecht, Rechtsvergleich und europäischer Rahmen (2007), p. 108-116.

92 For statements of these provisions, see: Mülbert, in: Großkommentar Aktiengesetz, § 119, para. 14 et seq.; Kubis, in: Münchener Kommentar Aktiengesetz, § 119, para. 13 et seq.

93 BGHZ 83, 122, 131. The literature is abundant, see only: Ebenroth, Konzernbildungs- und Konzernleitungskontrolle (1987); Götz, Die Sicherung der Rechte der Aktionäre der Konzernobergesellschaft bei Konzernbildung und Konzernleitung, Die Aktiengesellschaft (AG) 1984, 85 (89-94); Heinsius, Organzuständigkeit bei Bildung, Erweiterung und Umorganisation des Konzerns, Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 1984, 383 (389-404); Lutter, Organzuständigkeiten im Konzern, Festschrift for Stimpel (1985), 825; Martens, Die Entscheidungsautonomie des Vorstands und die „Basisdemokratie“ in der Aktiengesellschaft, Zeitschrift für das gesamte

apply for decisions interfering so intensively with members‘ rights and their financial interests embodied in their shareholdings that directors cannot reasonably assume that these decisions may be responsibly taken without participation of the general meeting. As a consequence, the spin-off of an undertaking constituting the most valuable part of the company required a shareholder resolution. Holzmüller did not specify any other measures to which the same rule would apply. In case of doubt, lawyers therefore tended to recommend a shareholder resolution in many instances, just to avoid liability. Only recently, the Federal Court of Justice made clear in the Gelantine judgment that only very far-reaching and important business decisions required a shareholder approval.94 Nonetheless, specific decisions may require such approval regardless of their financial or capital impact. According to Macrotron, for instance, the delisting of a company requires a resolution of the shareholder meeting.95 This was justified with the effects on the transferability of shares, and finally on the property rights of shareholders. Overall, legal basis and limits of the case law continue to be controversial.96 Bearing in mind the legislators‘ formal approach to the attribution of decision powers, the cases are perhaps best understood if interpreted as an abuse of managerial power (acting for improper purposes). The requirement of an shareholder approval would then stem from the directors‘ duties, not from an original power of the general meeting.97

Handels- und Wirtschaftsrecht (ZHR) 147 (1983), 377; Rehbinder, Zum konzernrechtlichen Schutz der Aktionäre einer Obergesellschaft, Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 1983, 92 (99-103); Westermann, Organzuständigkeit bei Bildung, Erweiterung und Umorganisation des Konzerns, Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 1984, 352 (359-377).

94 BGHZ 159, 30 and BGH, Zeitschrift für Wirtschaftsrecht (ZIP) 2004, 1001 (no shareholder approval required, if less than 75-80% of the company’s assets concerned).

95 BGHZ 153, 47; accordingly OLG Stuttgart, Zeitschrift für Wirtschaftsrecht (ZIP) 2003, 1981; LG Duisburg, Zeitschrift für Wirtschaftsrecht (ZIP) 2004, 76.

96 For instance: Goette, Organisation und Zuständigkeit im Konzern, Die Aktiengesellschaft (AG) 2006, 522; Bungert, Festschreibung der ungeschriebenen „Holzmüller“-Hauptversammlungszuständigkeiten bei der Aktiengesellschaft, Betriebs-Berater (BB) 2004, 1345; Götze, „Gelatine“ statt „Holzmüller“ – Zur Reichweite ungeschriebener Mitwirkungsbefugnisse der Hauptversammlung, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2004, 585; Fleischer, Ungeschriebene Zuständigkeiten im Aktienrecht: Von „Holzmüller“ zu „Gelatine“, Neue Juristische Wochenschrift (NJW) 2004, 2335; Habersack, Mitwirkungsrechte der Aktionäre nach Macrotron und Gelatine, Die Aktiengesellschaft (AG) 2005, 137; K. Schmidt, Macrotron oder: weitere Ausdifferenzierung des Aktionärsschutzes durch den BGH, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2003, 601.

97 In detail: Möslein, Grenzen unternehmerischer Leitungsmacht im marktoffenen Verband - Aktien- und Übernahmerecht, Rechtsvergleich und europäischer Rahmen (2007), p. 116-125 and 176-178.

b) Operation of the general meeting aa) Attendance: In companies with bearer shares, attendance fluctuates between 31% and 74%, in companies with registered shares, it usually is slightly higher (39% to 79%).98 In recent years, attendance in general meetings of German companies has constantly decreased. This trend is due to an increase of foreign shareholders (including foreign investment funds), but also to the „rational apathy“ of small investors in general. Hence, the trend may be regarded as a sign of the higher free float of German companies.99 Another reason might be the reform of proxy voting, having the effect that authorizations of depositary banks have become less common. bb) Proxy voting: Shareholders do not have to vote in person, but may authorize others. Comparatively few restrictions apply, and now the NaStrAG has accepted board members as proxies as well (§ 134 para. 3 (3) German Plc. Act [AktG]; however, probably not the PLC itself).100 Proxy has to be given in writing (the company statutes can deviate, § 134 para. 3 (2) German Plc. Act [AktG]), may be given without time limits, but may not be irrevocable.101 The NaStrAG also abolished the time limit for proxies given to banks (see § 135 para 2 (2) German Plc. Act [AktG]).102 This is ambivalent: banks are subject to 98 Seibert, Die Stimmrechtsausübung in deutschen Aktiengesellschaften – ein Bericht an

den Deutschen Bundestag, Die Aktiengesellschaft (AG) 2004, 529. 99 Marsch-Barner, in: id./Schäfer (eds.), Handbuch börsennotierte Aktiengesellschaften (2005), §

31, para. 8. 100 See, for instance, Bachmann, Verwaltungsvollmacht und Aktionärsdemokratie -

selbstregulative Kräfte für die Hauptversammlung, Die Aktiengesellschaft (AG) 2001, 635; Hanloser, Proxy-Voting, Remote-Voting und Online-HV - § 134 III 3 AktG nach dem NaStraG, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2001, 355; Seibert, Ak-tienrechtsnovelle NaStraG tritt in Kraft - Übersicht über das Gesetz und Auszüge aus dem Bericht des Rechtsausschusses, Zeitschrift für Wirtschaftsrecht (ZIP) 2001, 53 (55 et seq.); see also Noack, Die organisierte Stimmrechtsvertretung auf Hauptversammlungen - insbesondere durch die Gesellschaft, Festschrift for Lutter (2000), p. 1463 (1474-1480); comparative law investigations into (organised) proxies: Baums, Shareholder Representation and Proxy Voting in the European Union: A Comparative Study, in: Hopt/Kanda/Roe/Wymeersch/Prigge (eds.), Comparative Corporate Governance (1998), 545; Becker, Die institutionelle Stimmrechtsvertretung der Aktionäre in Europa (2001); Behnke, Die Stimmrechtsvertretung in Deutschland, Frankreich und England, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2000, 665; Hohn Abad, Stimmrechtsvertretung; also Hoffmann, Systeme der Stimmrechtsvertretung in der Publikumsgesellschaft - eine vergleichende Betrachtung insbesondere der Haftung des Stimmrechtsver-treters im deutschen und US-amerikanischen Recht (1999).

101 Hüffer, Aktiengesetz, (7th ed. 2006), § 134 AktG, para. 21; Reichert/Harbarth, Stimm-rechtsvollmacht, Legitimationszession und Stimmrechtsausschlußvertrag in der AG, Die Aktiengesellschaft (AG) 2001, 447.

102 See Seibert, Aktienrechtsnovelle NaStraG tritt in Kraft - Übersicht über das Gesetz und Auszüge aus dem Bericht des Rechtsausschusses, Zeitschrift für Wirtschaftsrecht (ZIP) 2001, 53 (54, 56); Weber, Der Eintritt des Aktienrechts in das Zeitalter der

conflicts of interests (albeit often not more than management), but the presence of shareholdings in the meeting is increased.103 Today, there is another restriction on the proxy given to a bank: the bank may not use it if the bank itself holds (and votes) 5 % of the company's capital (§ 135 para. 1 (3) German Plc. Act [AktG], except for those proxies containing explicit instructions). Moreover, under specific information rules it is made clear how the bank will vote and that the client can deviate for each item individually (§§ 128 para. 2, 3, 135 para. 5 German Plc. Act [AktG]). In any case, the bank must take the client's interest as a guideline and try to avoid conflicts of intere-sts as far as possible.104 Voting in absentia is not permitted. cc) Convening of shareholders: German law prescribes one ordinary meeting a year, which has to take place as soon as possible after the supervisory board’s examination of the annual accounts, but in any event during the first eight months of the fiscal year.105 The board is competent to convene.106 The supervisory board may also convene a general meeting if the welfare of the company so require.107 Exceptionally, shareholders are entitled to convene general meetings, but a threshold of 5 % of the subscribed capital is generally required. The articles may, however, modify this threshold.108 Extraordinary shareholders' meetings are prescribed under German law in the case of serious losses and when the welfare of the company so requires.109 The

elektronischen Medien - Das NaStraG in seiner verabschiedeten Fassung, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2001, 337 (343).

103 On this advantage (and on the problem of concentrating power in banks and conflicts of interests): Baums, in: Baums/Wymeersch (eds.), Shareholder Voting, 109 (127); and more extensively Hohn Abad, Stimmrechtsvertretung (1999), p. 13-17; Behnke, Die Stimmrechtsvertretung in Deutschland, Frankreich und England, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2000, 665 (667). On existing conflicts of interest see also brief explanations in: Grundmann/Möslein, European Company Law (2007), para. 504 et seq.

104 § 128 para. 2 (2) AktG; for the duty in the event of unavoidable conflicts nevertheless to act in the sole interest of the client, see Grundmann/Möslein, European Company Law (2007), para. 426.

105 § 175 para. 1 AktG; thereon, for instance, Marsch-Barner, in: id./Schäfer (eds.), Handbuch börsennotierte Aktiengesellschaften (2005), § 32, para. 9.

106 § 121 para. 2 (1) German Plc. Act (AktG) (board resolution requiring simple majority). For details see, for instance, Obermüller/Werner/Winden, Die Hauptversammlung der Aktiengesellschaft (4th ed. 2001), p. 21 et seq.

107 § 111 para. 3 (1) German Plc. Act (AktG) (resolution requiring simple majority). 108 See § 122 para. 1 German Plc. Act (AktG) and standard commentaries. The Proposal

for a (Cross-Border) Voting of Shares Directive prescribes (for companies traded on regulated markets) that Member States may no longer fix the minimum threshold at more than 5 % or 10 million euro and adds a duty to circulate such an amended agenda (Art. 6).

109 §§ 92 para. 1, 121 para. 1 German Plc. Act (AktG) and standard commentaries. The duty rests equally on the supervisory and the management boards.

convening formalities differ according to whether registered or bearer shares are issued: When only registered shares are issued convening by letter generally suffices110 and is also necessary. In the case of bearer shares, which probably still are the predominant form in Germany111 however, a public announcement is needed,112 traditionally in the legal gazette of the company, but now also in electronic form.113 The minimum notice period is 30 days.114

110 § 121 para. 4 German Plc. Act (AktG) and Hüffer, Aktiengesetz, (7th ed. 2006), § 121

AktG, para. 11a-11h. 111 Winter, in: Hopt/Wymeersch (ed.), Capital Markets and Company Law (2003), 387 (395

et seq.); Noack, Die organisierte Stimmrechtsvertretung auf Hauptversammlungen - insbesondere durch die Gesellschaft, Festschrift for Lutter (2000), p. 1463 (1466) (but trend potentially reversed with the NaStraG); DSW-Europastudie, p. 47; Weber, Der Eintritt des Aktienrechts in das Zeitalter der elektronischen Medien - das NaStraG in seiner verabschiedeten Fassung, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2001, 337 (337). Registered shares have been strengthened in Germany with the Gesetz zur Namensaktie und zur Erleichterung der Stimmrechtsausübung (Namensaktiengesetz, NaStraG) of 18 Jan. 2001, BGBl. I 2001, 123, see now §§ 10, 24, 67 et seq. AktG; and (also on the law before this change), for instance, Huep, Die Renaissance der Namensaktie - Möglichkeiten und Probleme im geänderten aktienrechtlichen Umfeld, Wertpapier-Mitteilungen (WM) 2000, 1623 (1623).

112 For Germany: § 121 para. 3 German Plc. Act (AktG) and standard commentaries. In the United Kingdom public notice is typically given in these cases, but this exceptional case is not provided for in the law: Davies, Gower's Company Law, 359. For France: Art. D 124, 130; Baums, in: Hopt/Kanda/Roe/Wymeersch/Prigge (eds.), Comparative Corporate Governance, 545 (553); Cozian/Viandier/Deboissy, Sociétés, para. 836; Guyon, Sociétés, para. 292; Jura Europae, 30.10 no. 104. For Belgium, Italy and the Netherlands see references in preceding N. (for a duty - in all these countries - to publish [also naming the instruments of publication]).

113 See § 121 para. 3 German Plc. Act (AktG) and now § 25 German Plc. Act (AktG) (publication in the „Elektronischer Bundesanzeiger“). In more detail: Groß, Hauptversammlungen 2003: Bekanntmachung der Einberufung nur im elektronischen Bundesanzeiger?, Der Betrieb (DB) 2003, 867; Noack, Der elektronische Bundesanzeiger im Aktienrecht – Ein Überblick, Der Betriebs-Berater (BB) 2002, 2025; Oppermann, Veröffentlichung der Hauptversammlungseinladung im elektronischen Bundesanzeiger ausreichend?, Zeitschrift für Wirtschaftsrecht (ZIP) 2003, 793. For comparative surveys see Baums, General Meetings in Listed Companies – New Challenges and Opportunities, Working Paper Nr. 103 (=lecture at the OECD Conference, ‘Company Law Reform in OECD Countries: A Comparative Outlook on Current Trends’, Stockholm, 7 December 2000), 6 et seq., available at www.jura.uni-frankfurt.de/baums; Noack/Beurskens, ‘Internet Influence on Corporate Governance – Progress or Standstill?’, (2002) 3 EBOR 129 (137-155).

114 See § 123 para. 1 AktG; on the recent reform of this provision: Butzke, Record Date und Einberufungsfrist, Wertpapier-Mitteilungen (WM) 2005, 1981; Mimberg, Die Frist zur Einberufung der Hauptversammlung nach dem UMAG, Die Aktiengesellschaft (AG) 2005, 716. The Proposal for a (Cross-Border) Voting of Shares Directive would equally prescribe (for companies traded on regulated markets) a minimum notice period of 30 days (Art. 5).

dd) Agenda: The agenda has to be published together with the convocation (§ 124 para. 1 (1) German Plc. Act [AktG]). Issues to be negotiated or resolved during the meeting have to be identified in the same order as scheduled, and they have to be described in a way that enables shareholders or their proxies to understand their relevance. If changes to the articles are envisaged, the wording of these changes has to be made public. Shareholders may add items to the agenda, but a threshold of 5 % of the subscribed capital or 500:000 euro is required.115 In this case, the company carries the additional costs.116 4. Shareholders’ rights a) How does the nature of the shareholder affect the operation of the company? aa) The ownership structure and the representation on the board are quite particular in Germany. With respect ownership structure, there is considerable difference between the (big) Member States. The most visible divide is between the United Kingdom and the continent. Whereas there (and in the US) the most important shareholder only rarely holds more than 10 % of the capital or even more in listed companies, blocks of 40 % and more are current on the continent.117 Concentration is particularly high also in listed companies in Germany, Belgium and Italy,118 whereas in France while 115 § 122 para. 2 German Plc. Act (AktG) and Halberkamp/Gierke, Das Recht der

Aktionäre auf Einberufung einer Hauptversammlung, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2004, 494; Mertens, Das Minderheitenrecht nach § 122 Abs. 2 AktG und seine Grenzen, Die Aktiengesellschaft (AG) 1997, 481. The Proposal for a (Cross-Border) Voting of Shares Directive prescribes (for companies traded on regulated markets) that Member States may no longer fix the minimum threshold at more than 5 % or 10 million euro and adds a duty to circulate such an amended agenda (Art. 6).

116 § 122 para. 1 and 4 AktG; see also Hüffer, Aktiengesetz, (7th ed. 2006), § 122 AktG para. 13.

117 See the studies of the 'European Corporate Governance Institute' (in particular Becht), see http://www.ecgi.org; Becht/Röell, 'Blockholdings in Europe - an International Comparison', (1999) 43 European Economic Review 1049 (1052 et seq.); Teichmann, 'Corporate Governance in Europa', Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 2001, 645 (646); in extenso and very systematically drafted: Wymeersch, 'A Status Report on Corporate Governance Rules and Practices in Some Continental European States', in: Hopt/Kanda/Roe/Wymeersch/Prigge (eds.), Com-parative Corporate Governance - the State of the Art and Emerging Research, (1998), p. 1045 (for the United Kingdom: 1170-1173, in 81 % of the cases the biggest shareholders holds less than 25 % of the stock). Similar to the United Kingdom are only the Netherlands where, however, defensive measures are stronger, see Wymeersch, ibidem 1175.

118 With a majority shareholder even in about 65 % of the listed companies: Wymeersch (Fn. 1), 1045 (1168 et seq. [Germany], 1154-1157 [Belgium] and 1164-1166 [Italy]); see

some minority shareholders often hold a majority if acting in conjunction, majority shareholders are already rare.119 There are differences also with respect to control shareholders: on the continent, families and other business enterprises, in the Angloamerican world (apart from dispersed ownership) mainly institutional investors.120 These, however, typically do not invest for entrepreneurial purposes. If, as in Germany, the general meeting influences supervision and composition of the board only via another organ, the supervisory board, composition of the latter becomes very important too for the operation of the company and for the functioning of shareholder voting rights in particular. The supervisory board is characteristic - among the big Member States - only for Germany (and then the Netherlands). In Germany the data for two core players who normally are discussed are worth mentionning: Out of 1.561 seats on the supervisory boards of the 100 biggest companies 99 were occupied by representatives of private banks (another 55 of other credit institutions), 760 by labour representatives, 427 by representatives from other business undertakings.121 The prominent influence of banks therefore does not primarily stem from presence on the supervisory board but from other factors and their cumulation. The blocks of stockholding as well, however, reach only an average of about 10 % over the years even in Germany where the power of banks is thought to be biggest (same percentage as insurance undertakings which, however, rather act like institutional investors).122 Among the other factors of influence that of proxy given to banks ('depository voting', § 135 German Plc. Act

also Becht/Boehmer, Transparency and Control in Germany, (1999): 85 % of all listed companies have one shareholder holding more than 25 % of the stock.

119 Still in 55 % of the listed companies, three minority shareholders together hold the majority, one single shareholder, however, only in 1/3 of the cases (similar in Schweden): Wymeersch (Fn. 1), 1045 (1157-1163 and 1174 et seq. respectively). France 'half way', also with respect to the free float: see Wymeersch, ibidem, 1173 and Grundmann/Moeslein, European Company Law, (2007), § 19 Fn. 24.

120 In the United Kingdom approx. 60 % institutional investers, in Sweden still 45 %, in Germany and France 20 % (without banks), elsewhere still less: Wymeersch (Fn. 1), 1045 1045 (1175-1181); short survey, for instance, in: Teichmann, Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 2001, 645 (654).

121 In this sense a study of the (German) Confederation of private banks (Bundesverband deutscher Banken): Hopt, ''Common Principles of Corporate Governance in Europe', in: Markesinis (ed.), The Clifford Chance Millenium Lectures - The Coming Together of the Common Law and the Civil Law, (2000), 105 (122) = ZGR 2000, 779 (804).

122 Wymeersch (Fn. 1), 1045 (1176 et seq.) (similar only Italy [with respect to the banks], with respect to insurances and institutional investors, United Kingdom much stronger); extensively on economic power of the banks (also data) Edwards/Fisher, Banks, Finance and Investment in Germany, (1994); Mülbert, 'Empfehlen sich gesetzliche Regelungen zur Einschränkung des Einflusses der Kreditinstitute auf Aktienge-sellschaften?', 61. Deutscher Juristen-Tag 1996, Gutachten E; Prigge, 'A Survey on German Corporate Governance', in: Hopt/Kanda/Roe/Wymeersch/Prigge (eds.), Comparative Corporate Governance - the State of the Art and Emerging Research, (1998), 943 (esp. 1015-1025).

[AktG]) has changed considerably scince, whenever the bank holds more than 5 % of the stock and wants to vote it, the vote by proxy can be exercised only when specific instructions are given to the bank. Of some importance with respect to shareholder rights is as well the degree of market capitalisation. Among the companies, those in Italy and Germany do not even raise half the share on European capital markets (18,95 %) of what would be the equivalent of their share in the production of EU gross income (40 %); the French companies as well fall into the lower third while British companies which are resonsible of 11,2 % of the EU gross income raise 35,49 % of the stock capital raised on EU capital markets.123 bb) The core lesson which these figures tell is that (i) minority shareholder protection is much more important in Germany than in many other countries and that (ii) the largest shareholders often have entrepreneurial and long-term interests and are not institutional investors (which moreover are often rather banks and in-surances than funds). This is reflected in core legal institutions. Minority shareholder protection (i) is mainly three-fold: In the case of groups of companies, there is a very developed law on groups in §§ 291-328 German Plc. Act (AktG).124 The core instrument - besides control - is the agreement giving the right to give direct instructions to the management of the subsidary and to receive the earnings of the subsidiary - which, however cor-responds with a duty of the parent company to come up for losses (§ 302 German Plc. Act [AktG]) and to compensate minority shareholders adequately or to buy them out (§§ 304 et seq. German Plc. Act [AktG]). One important part of the law on groups is as well a squeeze-out procedure which is independent from a take-over situation (§§ 327a et seqs. German Plc. Act [AktG]). 123 Wymeersch (Fn. 1), 1045 (1155-1157). Another question is stock exchange activities in the

four big Member States. As in principle the capital market law of the place of the transaction or admission applies, the share of the stock exchanges of the different Member States are of considerable importance as well: Here, the United Kingdom, France and Germany sum up to more than 65 % and - with Italy and the Netherlands as the two countries following - to more than 75 %: Wymeersch (Fn. 1), 1045 (1154 et seq.) (not considering Switzerland, London Stock Exchange alone amounting almost to 40 %).

124 On the law on groups Immenga, International Encyclopedia of Comparative Law: vol. XIII, chap. 17: Company Systems and Affiliation, (1985); Emmerich/Habersack, Aktien- und GmbH-Konzernrecht - Kommentar, (4th ed. 2005); Emmerich/Habersack, Konzernrecht, (8th ed. 2005); Kuhlmann/Ahnisx, Konzern- und Umwandlungsrecht, (2nd ed. 2007). For the discussion of a European Law on groups of companies see Forum Europaeum Konzernrecht, 'Corporate Group Law for Europe', EBOR 1 (2000) 165 = 'Konzernrecht für Europa', Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 1998, 672; and Grundmann/Moeslein, European Company Law, (2007), § 31; Windbichler, '"Corporate Group Law for Europe" - Comments on the Forum Europaeum's Principles and Proposals for a European Corporate Group Law', (2000) 1 EBOR 265.

There is a strong fiduciary duty of any shareholder, be it a majority shareholder, a strong block holder or a small minority shareholder. The discussion starts from the distinction between such rights which the shareholder holds in his own interest and such rights which he has to use for the common benefit. The latter are the realm of ficudiary duties. The fiduciary duty is owed both to the company and to other shareholders - the Supreme Court no longer accepts the argument that the company as a legal entity is necessarily linked with a concept in which only the company can be beneficiary of such a duty (the duty pierces the 'veil' of the legal entity).125 Thus, the majority shareholder can owe a fiduciary duty (directily) to the minority shareholder,126 but as well the minority shareholder to the majority shareholder.127 Thus, for instance, the minority shareholder may not obstruct restructuring procedures. This is rather the prohibition of an abuse of rights than a strong fiduciary duty. Such a strong fiduciary duty is owed by the majority shareholder. This is mainly reflected in a duty not to make hidden gains to the detriment of minority shareholders - which nowadays is concretised in many respects, i.e. for particularly problematic situations such as strong pre-emption rights, (a sharing of the) control premium, control and partly prohibition of self-dealing etc. The third instrument is a relatively strong protection of the right to dividends (in principle at least 1/2 of the earnings according to § 58 para. 1 German Plc. Act [AktG]). Various mechanisms can, however, be used to reduce or are capable of reducing the reach of this right (restrictve calculation of the earnings, legal reserves under § 150 German Plc. Act [AktG], losses made in past years). On the other hand, the importance of blocks of shares and majority shareholders has influenced also their rights. Thus, for instance, it would seem excluded that German law questions their dominant position in the supervisory board - for instance via a requirement that the majority of this board has to consist 125 Leading case BGHZ 129, 136 (Girmes); Dreher, 'Treuepflichten zwischen Aktionären

und Verhaltenspflichten bei der Ausübung von Aktionärsstimmrechten durch Bevollmächtigte', Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 157 (1993), 150; Marsch-Barner, 'Treuepflichten zwischen Aktionären und Verhaltenspflichten bei der Stimmrechtsbündelung', Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 157 (1993), 172. On fiduciary duties in the Plc. see, for instance, Hennrichs, 'Treupflichten im Aktienrecht', Archiv für civilistische Praxis (AcP) 195 (1995), 221; Henze, 'Treupflichten der Gesellschafter im Kapitalgesellschaftsrecht', Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 162 (1998), 186; Lutter, 'Die Treupflicht des Aktionärs', Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 153 (1989) 446.

126 BGHZ 65, 15, 18 et seq.; BGHZ 103, 184, 194 et seq.; BGHZ 142, 167, 169; Zöllner, Die Schranken mitgliedschaftlicher Stimmrechtsmacht, (1963), p. 339 et seqs.; Hüffer, 'Zur gesellschaftsrechtlichen Treupflicht als richterrechtlicher Generalklausel', Festschrift for Steindorff 1990, 59, 73 et seq.

127 Leading case BGHZ 129, 136 (Girmes); Hüffer, Aktiengesetz, (7th ed. 2006), § 53a para. 20a, 20b; Werner, 'Zur Treupflicht des Kleinaktionärs', Festschrift for Semler 1993, 419.

of independent directors, if directors nominated by (large) block holders are not considered to be independent or via the introduction of a pro rata instead of a majority voting system (see § 101 German Plc. Act [AktG]). b) To what extent is the one share - one vote principle operational? aa) It has been a project of the European Union for quite some time to introduce a 'one share one vote' principle -128 even after the proposal of a 5th Directive which is obsolete since the early 2000s and which contained the one share one vote principle in its (proposed) Art. 33.129 In the recent proposal for cross-border voting, the problem has not been aproached though. On the other hand, there is a transparency rule at least in the Take-over Directive for practices contrary to the one share - one vote principle. Indeed, the transparency rule contained in Art. 10 para. 1 also comprises the so-called indirect restrictions of access to shares, namely those which impinge upon the principle of 'one share one vote' and thus reduce the attraction of the share (lit. d, f und h).130 Unlike the High Level Group, the EC Commission did

128 Communication of the Commission to the Council and the European Parliament,

Modernisation of Company Law and Enhancement of Corporate Governance in the European Union - Action Plan of 21 May 2003, COM(2003) 284 final, 16 et seq. In favour of harmonisation: Deutsche Schutzvereinigung für Wertpapierbesitz e.V., DSW-Europastudie - 15 europäische Länder im Vergleich, eine rechtsvergleichende Studie über Minderheitenrechte der Aktionäre sowie Stimmrechtsausübung und -vertretung in Europa, (1999), p. 96; Strenger, 'Corporate Governance Entwicklung in Deutschland und internation-ale Konvergenz', Deutsches Steuerrecht (DStR) 2001, 2225 (2228).

129 In this proposal, multiple votes and voting caps were declared illicite (Explanation of the EC Commission to Art. 31 [COM(72) 887 final]; Pannier, Harmonisierung der Ak-tionärsrechte, (2003), p. 134; comparative law in Grundmann/Moeslein, European Company Law, [2007], para. 452), and preferential stock may amount only to 50 % of the capital. Moreover the voting rights have to revive when the preferential rights do not come to bear (Art. 33 para. 2). On preferential stock in the Proposal see explanation of the EC Commission to Art. 31 (COM[72] 887 final); Schwarz, Europäis-ches Gesellschaftsrecht - ein Handbuch für Wissenschaft und Praxis, (2000), para. 763.

130 The first item refers to multiple voting rights of other persons, typically shareholders (including veto rights), the third item as well, but now with respect to particular issue, i.e. the nomination of the members of the board. Examples are multiple voting rights, golden shares, the power to designate (some) member(s) of the board directly (as in § 101 para. 2 German Plc. Act [AktG]); see Grundmann/Möslein, 'Die goldene Aktie und der Markt für Unternehmenskontrolle im Rechtsvergleich', Zeitschrift für vergleichende Rechtswissenschaft (ZvglRW) 102 (2003) 289 (295-323). The second item refers to the restriction of one's own voting rights, mainly voting caps. Detailled description of the whole list in: High Level Group, Report of the High Level Group in the field of Company Law on Takeover Bids of 10 Jan. 2002, available at www.europa.eu.in-t/comm/internal_market/de/company, 25 et seq.; Seibt/Heiser, 'Der neue Vorschlag einer EU-Übernahmerichtlinie und das deutsche Übernahmerecht - Analyse und Umsetzungserfordernisse für den deutschen Gesetzgeber', Zeitschrift für Wirtschaftsrecht (ZIP) 2002, 2193 (2196-2199).

not abolish at least multiple voting rights into the regime.131 Finally, it was included in the so-called break-through rule contained in Art. 11 which would have allowed the bidder, if he acquired the qualified majority of voting stock, to eliminate multiple voting rights from the charter in the first general assembly following the successful bid;132 this rule, however, is optional for the Member States and Germany did not introcude it (for other reasons than the 'one share - one vote' principle). bb) In Germany, the 'one share one vote' principle had gained momentum over the last decade anyhow. The right to vote exists as of payment of the contributions. Multiple votes (increased voting power) have been done away with in the KonTraG 1997 (§ 12 para. 2),133 voting caps (no voting power above a certain threshold) in listed companies.134 The principle of 'one share one vote' is thus largely respected, with the exception of preferential stock and own shares (the latter being the rule imposed by the 2nd Directive). So far, these techniques were considered to serve as important defensive measures against takeovers.135 131 The reason given was that allegedly the relevance for takeovers was not proved and

that there were constitutional las problems: Explanation by the EC Commission of Art. 11 (see Proposal for a Directive of the European Parliament and of the Council on takeover bids of 2 Oct. 2002, EC OJ 2003 C 45 E/1 = COM[2002] 534 final); harsh criticism mainly in Germany: Arnold, 'Entschädigung von Mehrstimmrechten bei Übernahmen - Überlegungen zur geplanten Übernahmerichtlinie', Der Betriebs-Berater (BB) 2003, 267; Krause, 'Der Kommissionsvorschlag für die Revitalisierung der EU-Übernahmerichtlinie', Der Betriebs-Berater (BB) 2002, 2341 (2342 et seq., 2346); Neye, 'Der Vorschlag 2002 einer Takeover-Richtlinie', Neue Zeitschrift für Gesellschaftsrecht (NZG) 2002, 1144 (1145); Wiesner, 'Binnenmarkt und Wettbewerb bleiben auf der Strecke - zum Kommissionsvorschlag für eine neue Übernahmericht-linie', Zeitschrift für Wirtschaftsrecht (ZIP) 2002, 1967, Börsen-Zeitung 4 Oct. 2002, p. 1 ('zweierlei Maß'). It seemd possible to many that this move was perhaps also motivated by the hope to get countries with multiple voting rights 'on board'. See De Beaufort, Les OPA en Europe, (2001); p. 171 (Denmark), 239 (Finland) and 591 (Swe-den) (voting power multiplied by ten, in Finland twenty). Also Golden Shares arrangements remained untouched: Seibt/Heiser, Zeitschrift für Wirtschaftsrecht (ZIP) 2002, 2193 (2199 et seq.).

132 See Grundmann/Moeslein (Fn. 2), para. 1048; Mülbert, 'Make it or Break It - the Break-Through Rule as a Break-Through for the European Takeover Directive?', in: Ferrarini/Hopt/Winter/Wymeersch (eds.), Reforming Company and Takeover Law in Europe (2004), p. 711.

133 Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (KonTraG) of 6 March 1998, BGBl. 1998 I, 786; on this law Bundestags-Drucksache, 1397/12, p. 12 (refering to an equivalent rule in the Proposal for a 5th Directive).

134 § 134 para. 1 (2) German Plc. Act (AktG). However, there is a duty to compensate, see on all this Hüffer, Aktiengesetz, (7th ed. 2006), § 12 AktG para. 11-14 and § 134 AktG para. 3.

135 See in particular: High Level Group I (Fn. 3), p. 21-36 and government explanation to the German KonTraG, Bundestags-Drucksache 13/9712, p. 20; Kalss, Das Höchst-stimmrecht als Instrument zur Wahrung des Aktionärseinflusses, (1992); path breaking Grossmann/Hart, 'One Share-One Vote and the Market for Corporate Control', 20 Journal of Financial Economics 175 (1988).

The core exception is preferential stock which in Germany may amount to up to 50 % of the stock (§ 139 para. 2 German Plc. Act [AktG]). Own shares may not be voted (§ 71b German Plc. Act [AktG]) and may not amount to more than 10 % of the stock (§ 71 para. 2 (1) German Plc. Act [AktG]). Deviations from the principles named are possible only with a special law, because public limited company law is mandatory (§ 23 para. 5 German Plc. Act [AktG]). There is only one such particular law allowing deviations for Volkswagen AG. It is currently under review by the ECJ under the Golden Shares line of cases.136 The deviations consist in a voting cap (20 %) and in the right of the Land Niedersachsen and of Federal Republic of Germany to nominate two board members. The voting cap has a large impact, because the Land Niedersachsen owns (almost) 20 % as well and thus any larger shareholder is exposed to a patt situation, depending on how other shareholders react. There is now, however, also one case where, under general public limited company law (see § 101 para. 2 German Plc. Act [AktG]), Thyssen-Krupp has created a family foundation which has the right to nominate up to three (supervisory) board members.137 c) What are the shareholders'/investors' rights? Can any of these rights be exercised individually? The starting point under German Law is the traditional distinction between administration rights and pecuniary rights. The former are more important in theory, but typically as well in practice. Most administration rights are individual rights, some are minority rights. aa) The most important three individual administration rights are the right to vote, to get informations, the right to participate, and to challenge decisions. EC harmonisation is imminent for the former two - certain aspects -,138 but not yet existing. 136 Opinion Advocate General Dámaso Ruiz-Jarabo Colomer, case C-112/05

Commission/Germany of 13 February 2007, available for download at http://curia.europa.eu; see also: Voigt, 'Rechtfertigen strukturpolitische Ziele das VW-Gesetz?', Europäisches Wirtschafts- und Steuerrecht (EWS) 2006, 343; Sander, 'Volkswagen vor dem EuGH', Europäische Zeitschrift für Wirtschaftsrecht (EuZW) 2005, 106; and the monograph Kleinschmit, Deutsches Volkswagengesetz und europäische Kapitalverkehrsfreiheit (2004).

137 See on this 'Gericht blockt Entsenderecht bei Thyssen-Krupp', Handelsblatt of 12 June 2007, p. 14.

138 Baums, 'European Company Law Beyond the 2003 Action Plan', EBOR 8 (2007), 143 (146 and 158); Grundmann/Winkler, 'Das Aktionärsstimmrecht in Europa und der Kommis-sionsvorschlag zur Stimmrechtsausübung in börsennotierten Gesellschaften', Zeitschrift für Wirtschaftsrecht (ZIP) 2006, 1421-1428; sceptical: Siems, 'The Case Against Harmonisation of Shareholder Rights', EBOR 6 (2005), p. 539; for the rules contained in the old proposal for a 5th Diretive see Grundmann/Moeslein, European Company Law, (2007), para. 439-443.

The right to vote139 is by far the most complex one, as this refers also to questions of agreements on the use of voting power and questions of proxy. For Voting by the shareholder himself (including limits and binding agree-ments on how he should vote), the principle of 'one share one vote' is the starting point in all countries and its implementation has been described seperately. In Germany, the right to vote exists as of payment of the contributions. Limits for the right to vote play a prominent role - the rigid ones (outright prohibitions) in different cases of self-dealing and where a person would act as a judge in his own affairs (§ 136 para. 1 AktG),140 otherwise the so-called flexible limits, which really are fiduciary duties or rather good faith standards.141 Binding agreements on how a shareholder should vote are allowed, but not as against the management or for compensation (§§ 136 para. 2, 405 para. 3 no 6 AktG).142 Proxy (in general and organised proxy) and voting in absence is regulated quite differently in different states.143 In Germany, proxy was always regulated in quite a liberal way, and now the NaStrAG has admitted board members as proxies as well (§ 134 para. 3 (3) AktG; however probably not the Plc. itself).144 The proxy has to be 139 Comparative law surveys in Baums/Wymeersch (eds.), Shareholder Voting Rights and Practices in

Europe and the United States, (1999); Deutsche Schutzvereinigung für Wertpapierbesitz e.V., DSW-Europastudie - 15 europäische Länder im Vergleich, eine rechtsvergleichende Studie über Minderheiten-rechte der Aktionäre sowie Stimmrechtsausübung und -vertretung in Europa, (1999); Grundmann/Moeslein, European Compan Law, (2007), para. 452-455; Hohn Abad, Das Institut der Stimmrechtsvertretung im Aktienrecht - ein europäischer Vergleich, (1995); Rodemann, Stimmbin-dungsvereinbarungen in den Aktien- und GmbH-Rechten Deutschlands, Englands, Frankreichs und Belgiens - eine rechtsvergleichende Untersuchung, (1998).

140 On this limits (and on the disputed question whether they apply also to self-dealing not named): Grunewald, Gesellschaftsrecht (4th ed. 2000) 2 C para. 111 et seq.; pro Schmidt, Gesellschaftsrecht (4th ed. 2002), p. 610 et seq.; contra, as most authors, Hüffer, Aktiengesetz, (7th ed. 2006), § 136 AktG para. 18.

141 Path breaking on these limits and the discinction: Zöllner, Die Schranken mitgliedschaftlicher Stimmrechtsmacht bei den privatrechtlichen Personenverbänden, (1963), 97-100, 101 et seqs., 287 et seqs.; today Grundmann, Der Treuhandvertrag - insbesondere die werbende Treuhand, (1997), 237-265; Hüffer (Fn. 3), § 136 AktG para. 1 (no exclusion of voting rights, only control); see more in detail below section 4 e).

142 Comparative law studies on (almost) all jurisdictions included here: Rodemann, Stimmbindungsvereinbarungen; also Büssemaker, Stimmbindungsverträge. For France, England and Italy (mainly) see also the short survey in Grundmann/Moeslein (Fn. 2), para. 452.

143 Comparative law survey on France, England and Italy (mainly) see also the short survey in Grundmann/Moeslein (Fn. 2), para. 453.

144 See, for instance Bachmann, 'Verwaltungsvollmacht und Aktionärsdemokratie - selbstregulative Kräfte für die Hauptversammlung', Aktiengesellschaft (AG) 2001, 635; Hanloser, 'Proxy-Voting, Remote-Voting und Online-HV - § 134 III 3 AktG nach dem NaStraG', Neue Zeitschrift für Gesellschaftsrecht (NZG) 2001, 355; Seibert, 'Aktienrechtsnovelle NaStraG tritt in Kraft - Übersicht über das Gesetz und Auszüge aus dem Bericht des Rechtsausschusses', Zeitschrift für Wirtschaftsrecht (ZIP) 2001, 53 (55 et seq.); see also Noack, 'Die organisierte Stimmrechts-

given in writing (the charter can deviate, § 134 para. 3 (2) AktG), can be given without time limits, but may not be unrevocable.145 The NaStrAG did also away with the time limit for proxies given to banks (see § 135 para 2 (2) AktG).146 This is ambivalent: Banks are subject to conflicts of interests (however, often not more than management), but the presence of shareholdings in the meeting is increased.147 Today, there is another limit to the proxy given to a bank: The bank may not use it if itself holds (and votes) 5 % of the company's capital (§ 135 para. 1 (3) AktG, except for those proxies containing explicit instructions). Moreover, specific information rules shall make transparent how the bank will vote and that the client can deviate for each item individually (§§ 128 para. 2, 3, 135 para. 5 AktG). In any case, the bank must take the client's interest as a guiding line and try to avoid conflicts of interests as far as possible.148 Voting in absence is not permitted. In a comparative summary (Fn. 2), it is fair to say: All countries start from the principle of 'one share one vote', in some, however, multiple voting rights and voting caps remain possible, more extensively in France and especially in Great Britain where freedom to design the charter is broad. Conflicts of interests are regulated in a similar way in Germany and in France, in Great Britain there is only the general scrutiny on the basis of fiduciary duties. Also with respect to binding

vertretung auf Hauptversammlungen - insbesondere durch die Gesellschaft', Festschrift for Lut-ter 2000, 1463 (1474-1480); comparative law inquiries on (organised) proxies: Baums, 'Share-holder Representation and Proxy Voting in the European Union: A Comparative Study', in: Hopt/Kanda/Roe/Wymeersch/Prigge (eds.), (eds.), Comparative Corporate Governance - the State of the Art and Emerging Research, (1998), p. 545; Becker, Die institutionelle Stimmrechtsvertretung der Aktionäre in Europa - Vorschläge für europäische Mindeststandards auf der Grundlage einer rechtsvergl-eichenden Analyse der Stimmrechtsvertretungssysteme in Deutschland, England, Spanien, Frankreich und Italien, (2001); Behnke, 'Die Stimmrechtsvertretung in Deutschland, Frankreich und England', Neue Zeitschrift für Gesellschaftsrecht (NZG) 2000, 665; Hohn Abad (Fn. 2); also Hoffmann, Systeme der Stimmrechtsvertretung in der Publikumsgesellschaft - eine vergleichende Betrachtung insbesondere der Haftung des Stimmrechtsvertreters im deutschen und US-amerikanischen Recht, (1999).

145 Hüffer (Fn. 3), § 134 AktG para. 21; Reichert/Harbarth, 'Stimmrechtsvollmacht, Legitimationszession und Stimmrechtsausschlußvertrag in der AG', Aktiengesellschaft (AG) 2001, 447.

146 See Seibert, 'Aktienrechtsnovelle NaStraG tritt in Kraft - Übersicht über das Gesetz und Auszüge aus dem Bericht des Rechtsausschusses', Zeitschrift für Wirtschaftsrecht (ZIP) 2001, 53 (54, 56); Weber, 'Der Eintritt des Aktienrechts in das Zeitalter der elektronischen Medien - das NaStraG in seiner verabschiedeten Fassung', Neue Zeitschrift für Gesellschaftsrecht (NZG) 2001, 337 (343); not very common in other countries, see references in Grundmann/Moeslein (Fn. 2), § 14 Fn. 66.

147 On this interest (and on the problem of pooling power in banks and conflicts of interests): Baums, in: Baums/Wymeersch (Fn. 2), p. 109 (127); and more extensively Hohn Abad (Fn. 2), p. 13-17; Behnke, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2000, 665 (667). On existing conflicts of interests see also short explanations in Grundmann/Moeslein (Fn. 2), para. 504 et seq.

148 § 128 para. 2 (2) AktG. In addition, there is the duty to act, if conflicts can not be avoided, nevertheless in the sole interest of the client.

agreements on how a shareholder may vote, Germany is strictest, Great Britain most liberal. Proxies are possible in all countries. In Germany and in Great Britain, the proxy can be chosen freely, in France only among other shareholders and spouses, in Italy only for small fractions. A proxy without time limits is possible in Germany, in Great Britain if the charter provides for it, voting by letter only in France, whereas Germany and Great Britain only have the possibility to give proxy via elektronic means. Italy is quite modern in these respects. Organised proxies follow different traditions - in Germany typically proxies given to banks, in France and Great Britain to management, in Italy least. Proxies given to depositary banks is, however, more important for bearer shares149 and registered stock which dominates in France and in Great Britain may well be more important in Germany as well. Germany has a particularly extensive rule on information rights, it gives the shareholder the right to ask questions in the meeting (§ 131 AktG).150 This right is all inclucive as long as questions refer to items in the agenda151 or another shareholder has already got the information (para 4 (1)). There are exceptions only in case there is the risk that disclosure is detrimental to the company or there is abuse of rights.152 All this diverges quite considerable from other Member States.153 A right to participate nowadays exists in all countries, also in France, where formerly, for the ordinary meeting, the holding of at least ten shares could be required by the charter.154 This right mostly does not depend on a right to vote, but 149 Hüther, 'Namensaktien, Internet und die Zukunft der Stimmrechtsvertretung',

Aktiengesellschaft (AG) 2001, 68 (69 et seq.); Noack, Festschrift for Lutter 2000, 1463 (1466). 150 (§ 13 Fn. 44). On this right recently: Joussen, 'Das Auskunftsrecht des Aktionärs - Versuch

einer Neuorientierung', Aktiengesellschaft (AG) 2000, 241. The majority thinks that questions online are allowed: Claussen, 'Hauptversammlung und Internet', Die Aktiengesellschaft (AG) 2001, 161 (170); Riegger, 'Hauptversammlung und Internet', Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 165 (2001), 204 (212); Spindler, 'Internet und Corporate Governance - ein virtueller (T)Raum', Zeitschrift für Gesellschaftsrecht (ZGR) 2000, 420 (437); opposite Hasselbach/Schumacher, 'Hauptversammlung im Internet', Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 2000, 258 (272).

151 § 131 para 1 (1) AktG and standard commentaries on this provision. 152 § 131 para 3 no 1 and 5 AktG and standard commentaries, moreover (on abuse of rights):

BayOBLGZ 1999, 193 (198); Geißler, 'Der aktienrechtliche Auskunftsanspruch im Grenzbereich des Missbrauchs', Neue Zeitschrift für Gesellschaftsrecht (NZG) 2000, 539 (541-545). Moreover, questions about accounts are illicite if they are aimed at items which do not have to be disclosed or if the own ignorance in accounting questions is to be cured.

153 See Grundmann/Moeslein (Fn. 2), para. 450; more extensive comparative law inquiry in: Witt, 'Das Informationsrecht des Aktionärs und seine Durchsetzung in den USA, Großbri-tannien und Frankreich - funktionale Gesamtbetrachtung im Vergleich zu Deutschland', Aktiengesellschaft (AG) 2000, 257.

154 (§ 13 Fn. 39) Art. 1844 C.C. (the exception in Art. L 225-112 para. 1 has been given up on 15.5.2001): Cozian/Viandier/Deboissy, Droit des Sociétés, (14th ed. 2001) para. 828. In Great Britain, right to participate can be restricted in the charter: Farrar/Hannigan, Farrar's Company Law, (4th ed. 1998),

exclusion from the right to vote in one particular case and preferential stock is treated differently in some countries. In Germany, there is a right to participate in any case, even if there is no right to vote, also for preferential stock (§ 140 para. 1 AktG).155 Typically the right to participate may be made dependent only on formal requirements: In the case of registered shares, title is proved anyway, in the case of bearer shares, typically deposition is asked for. This is also the case in Germany (§ 123 para. 2-4 AktG).156 Problems are created by the fact that under angloamerican law a certain record date decides the question once and for all.157 This now has been adopted in Germany as well.158 While for the company itself, nullity and reasons and procedures for avoidance have been harmonised in the 1st EC Company Directive, the same is not true for resolutions taken by the general assembly. In Germany, this is an individual right. Only few gross violations and violations of norms protecting third parties lead to nullity,159 actions for avoidance are much more important. If procedural rules are violated, it must at least be possible that this has been causal for the resolution been taken,160 but if rules on information or participation have been violated this has p. 317; Deutsche Schutzvereinigung für Wertpapierbesitz e.V., DSW-Europastudie - 15 europä-

ische Länder im Vergleich, eine rechtsvergleichende Studie über Minderheitenrechte der Aktionäre sowie Stimmrechtsausübung und -vertretung in Europa, (1999), p. 41.

155 See standard commentaries and Grunewald (Fn. 3), 2 C para. 106; Schmidt (Fn. 3), p. 847. For France (apparently not in cases where right to vote is excluded, but for preferential stock): Guyon, Droit des affaires, tome 1: Droit commercial général et Sociétés, (11th ed. 2001), para. 307. In Italy the question is disputed because the right to participate is not excluded explicitly but detrimental influences are feared: see Campobasso, Diritto commerciale 2: Diritto delle società, (5th ed. 2002), p. 336 et seq. For Great Britain (right to participate even right to vote is excluded, but not for preferential stock which does not count for the quorum either, sec. 40 Table A): Farrar/Hannigan (Fn. 17), 317 N. 11; Deutsche Schutzvereinigung (Fn. 17), p. 41.

156 See standard commentaries on this rule. For France (authorisation by the depositary bank) and Italy: Deutsche Schutzvereinigung (Fn. 17), p. 83 (32, 48) and contributions to Baums/Wymeersch (Fn. 2), p. 90, 160 et seq. (Guyon, Marchetti/Carcano/Ghezzi). In Great Britain where the registered share is much more usual anyway, this is left to the charter again.

157 Merkt, US-amerikanisches Gesellschaftsrecht, (1991), p. 331; Teichmann, 'Corporate Governance in Europa', Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 2001, 645 (671 et seq.).

158 See Heidinger/Blath, 'Die Legitimation zur Teilnahme an der Hauptverhandlung nach Inkrafttreten des UMAG', Der Betrieb (DB) 2006, 2275; Kiefner/Zetzsche, 'Die Aktionärslegitimation durch Record Date Nachweis und die Übergangsvorschrift des § 16 EGAktG', Zeitschrift für Wirtschaftsrecht (ZIP) 2006, 551.

159 Grunewald (Fn. 3), 2 C para. 124-126; Schmidt (Fn. 3), p. 865-868; comparative law inquiry by Lutter, Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 1998, 191; and also Kreß, Gerichtliche Beschlußkontrolle im Kapitalgesellschaftsrecht, (1996), 7 (treating mainly actions for avoidance).

160 BGH ZIP 2002, 172 (174); Grunewald (Fn. 3), 2 C para. 130; Hüffer (Fn. 3), § 243 AktG para. 13; Raiser, Recht der Kapitalgesellschaften - ein Handbuch für Praxis und Wissenschaft (3rd ed. 2001), p. 277-279 (also on newer theories asking how relevant the violation was).

always been taken for granted.161 Among the substantive rules, those contained in §§ 251, 254, 243 para. 2 AktG, equal treatment and fiduciary duties are the most impor-tant.162 In certain cases, not only arbitrary measures are avoided (esp. in the case of capital measures).163 Outside cases of abuse of rights and where special adavantages have been granted to some, the right of action is given only to shareholders whose right to participüate has been violated or who have opposed (§ 245 no 1, 2 AktG).164 The problems deriving from the fact that action halted registration (and thereby often the whole transaction) are now taken care of by § 16 para. 3 UmwG.165 Other limits to the right of action have been taken whereever basically compensation of the value of the share is at stake.166 bb) There are additional - partly ancillary - administration rights which require a certain minority (percentage of the stock) and thus do not constitute indivudal rights. A first ancillary right which is not an individual right is the right to call a meeting or to add to the agenda. The starting point is the same as in other countries. The board is always competent to call (for Germany see § 121 para. 2 (1) AktG).167 The question is only who else is competent: What differs primarily are rules on two issues. The one is the threshold above which shareholders may call a meeting. In Germany, this is 5 % of the subscribed capital, a provision in the charter may fixing a lower threshold (§ 122 para. 1 German Plc. Act [AktG]).168 The other question is 161 BGH NJW 2001, 1277 (1279); Hüffer (Fn. 3), § 243 AktG para. 14-19; Raiser (Fn. 23), p.

279; Schmidt (Fn. 3), p. 868. 162 Grunewald (Fn. 3), 2 C para. 131-133; Hüffer (Fn. 3), § 243 AktG para. 20-29; Kreß (N. 89),

11-17; Raiser (Fn. 23), p. 280; Schmidt (Fn. 3), p. 868. 163 Path breaking for the exclusion of preemtion rights: BGHZ 71, 40 (43-50) ("Kali & Salz");

see, however, today BGHZ 136, 133 (138-141); for other kiinds of measures BGHZ 120, 141 (145 et seq.) (authorized capital); BGHZ 108, 183 (190) (capital desreases); survey on the reach case law and litearture, for instance, in: Hüffer (Fn. 3), § 243 AktG para. 24-28.

164 BGHZ 107, 296 (311) ('Kochs-Adler'); Hüffer (Fn. 3), § 245 AktG para. 22-27; Zöllner, 'Zur Problematik der aktienrechtlichen Anfechtungsklage', Die Aktiengesellschaft (AG) 2000, 145.

165 For instance Hirte, Kapitalgesellschaftsrecht3, (2001), para. 451, 458, 934-940. 166 See more in detail: xxxx. 167 This is an interntaional standard. For Great Britain sec. 37 Table A (unless the charter

provides for a different solution). For France (if there is a supervisory board if the charter does not choose a different solution both organs separately): Art. L 125-103 para. 1 and 3; Cozian/Viandier/Deboissy (Fn. 17), para. 835; Guyon (Fn. 18), para. 291. For Italy: Art. 2366 para. 1 C.C.; Campobasso (Fn. 18), p. 320; Galgano, Nuovo diritto societario, p. xx; Deut-sche Schutzvereinigung (Fn. 17), p. 47.

168 See standard commentaries on this norm. The standard would seem low in international comparison: In great Britain 10 %, in France 5 % (formerly 10 %) of the subscribed capital are needed: sec. 370 para. 1 and 3 C.A.; Davies, Gower's and Davies' Priniciples of Modern Company Law (7th ed. 2003), p. 347 et seq.; Farrar/Hannigan (Fn. 17), p. 311; and in France Art. L 225-103 para. 2 no 2, 225-120; Cozian/Viandier/Deboissy, (Fn. 17), para. 835; Guyon (Fn.

who may add to te agenda. In Germany this is again 5 % of the subscribed capital or 500.000 Euro (§ 122 para. 2 AktG).169 With respect to the calling for a meeting, there is also a rule in the European Company Statute. It is not very demanding. There is only the rule that there has to be a meeting once a year and there are rules about the competence to call for a meeting and to add to the agenda: these rights have to be given to shareholders at least if they hold 10 % of the capital subscribed (Art. 54-56 European Company Statute; no rules about disclosure, agenda, time limits etc.). The second important administration right which can not be exercised individually is the right to ask for a special audit, namely in group relationships.170 cc) Shareholders have three pecuniary rights: (1) their share in (distributed) profits; (2) the profits derived from the sale of their share(s); and (3) shareholders have their share in the proceeds from liquidation if the company is wound up and dissolved. Only the first one operates within the organisation of the company and witing current business operation. Therefore, in the following solely the share in (dis-tributed) profits is discussed. This right depends on two steps: determination of profits and distribution of profits. The profits are calculated in all countries as a product flowing from the annual accounts,171 more precisely: the surplus of the actives over the passives. As there are always margins of appreciation in questions of evaluation and, in addition, because of existing options it is of high importance who determines the annual accounts. Here the decisions are taken which then are reflected in the amount of profits which can be distributed.172 Boards (and also dominating shareholders) have the tendency to plough back profits, i.e. keep them in the enterprise. The interests of creditors

18), para. 448. In Italy 10 % (formerly 20 % in non-listed companies): Art. 2367 para. 1 C.C.; Galgano (Fn. 30), p. 204 et seq.

169 See again standard commentaries on this rule. In great Britain and in France 5 % of the subscribed capital: sec. 376 C.A. (or 100 shareholdes with shares of at least 100 L pounds); Davies (Fn. 31), p. 351; and for France Art. L 225-105; Cozian/Viandier/Deboissy (Fn. 17), para. 835; Guyon (Fn. 18), para. 448. In Italy (no right to extend the agenda): Art. 2366 C.C:; Picardi, in: Campobasso (ed.), Testo Unico della Finanza - Commentario, (2002), Art. 127 para. 10; Deutsche Schutzvereinigung (Fn. 17), p. 47.

170 Comparative law in: Forum Europaeum, Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 1998, 672 (715-717); Hopt, 'Shareholder rights and remedies: A view from Germany and the Continent', (1997/98) 2 Company Financial and Insolvency Law Review 261 (280 et seq.) (for similar rules in Great Britain, France [see N. 74], Belgium and the Netherlands); Wy-meersch, 'Bericht "Sonderprüfung"', in: Symposiom ein Konzernrecht für Europa, 73. Considering a regulation on EC level: Communication of the Commission to the Council and the European Parliament, Modernatisation of Company Law and Verbesserung der Corporate Governance in the European Union - Action Plan of 21 May 2003, COM(2003) 284 final, p. 17.

171 For Germany: § 174 para. 1 AktG and standard commentaries. 172 Abeltshauser, Strukturalternativen, 216 et seq.; Grunewald (Fn. 3), 2 C para. 146.

thus potentially supported are, in this respect, at least not legally protected interests. In Germany literature, often full distribution is advocated, because this leaves the decision about the re-investment of the profits to the investors; the enterprise (board and dominating shareholders) must thus compete again for these funds, i.e. convince investors that the re-investment plans are more convincing than competing plans coming from outside.173 In this respect the German general assembly is particularly weak: While mostly the shareholders' meeting determines the annual accounts (thus in France and Italy, and in Great Britain at least accoring to the standard charter), only in Germany the board decides (§§ 172 et seq. AktG). The decision on the distribution of profits, theoretically, can again be left to any organ. However, even in Germany, the shareholders' meeting is competent (§ 174 AktG). This is indeed the common position also in the other countries.174 The substantive rules about distribution are important in this respect as well. At least the starting point is uniform, that is the principle of equal treatment (Art. 42 of the 2nd Directive, para. 360). What is different, however, are the possibilities to plough back profits once determined. Minority shareholders, and especially those who do not have entrepreneurial intentions, typically prefer as complete a distribution as possible. In Germany, at least a minimum of 4 % of the capital already paid in must be distributed (above this, listing and charter provisions are important), but this is true only if enough profits have been made and the creation of additional reserves can no longer be justified from a commercial perspective.175 e) Do the majority shareholders owe any duty to minority shareholders / individual investors (e.g. fiduciary or good faith duties)? In what ways are the interests of majority shareholders, minority shareholders and individual shareholders opposing? While the duty to treat shareholders equally has been explicitly transposed in § 53a German Plc. Act (AktG) - see above d) - there is no explicit recognition of a 173 Wagner, 'Allokative und distributive Wirkungen der Ausschüttungskompetenzen von

Hauptversammlung und Verwaltung einer Aktiengesellschaft - eine ökonomische Analyse des Art. 50 des Entwurfs einer 5. EG-Richtlinie, Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 1988, 210 (212-217); Lutter, in: KölnKomm, § 58 para. 5; in economic theory, however, today it is seen to be irrelevant whether profits are distributed or not, path breaking: Miller/Modigliani, 'Dividend Policy, Growth and Valuation of Shares', 34 Journal of Business 411 (1961); today Brealey/Myers, Principles of Corporate Finance6, (2000), 447-465 ("MM's proof is genereally accepted ...").

174 For the United Kingdom (all questions subject to charter provisions: otherwise decision by the shareholders' meeting, but not more than the board proposes): sec. 102-108 Table A (default rules); Davies (Fn. 31), 288 et seq. For France Art. 225-100 para. 3; Tillmanns, in: Hohloch, para. 243-246; Cozian/Viandier/Deboissy (Fn. 17), para. 414; Guyon (Fn. 18), para. 416 et seq. For Italy: Art. 2433 C.C.; Galgano (Fn. 30), p. 335-343.

175 See §§ 58, 175, 254 AktG; Grunewald (Fn. 3), 2 C para. 146; Raiser (Fn. 23), p. 225. Broad comparative law survey on profits and dividends in: Leinekugel, Die Sachdividende im deutschen und europäischen Aktienrecht, (2001).

fiduciary duty or a good faith duty. The development of these duties can best be understood on the background of the most important conflicts of interest which occur in the German corporate scene. aa) From what has been said about ownership structure and nomination of members to the supervisory board (see above section a), it is evident that in Germany, there is a particularly strong conflict of interests between large block holders or majority shareholders on the one hand and minority shareholders on the other. In a market where large block-holdings are current or even a control or majority shareholder, management can be changed also without changing ownership structure. Thus the main conflict of interests is not so much between dispersed ownership and management - as in the Berle/Means type of company which suffers from shareholder apathy. The main conflict of interests is between large shareholders and minority shareholders. The latter depend on the former not only with respect to 'voice', i.e. voting in the shareholder meeting and nomination of the managers, but as well with respect to acceptance of hostile take-over bids, i.e. part of their 'exit' option. They are free (only) with respect to sale, and this option is also protected in the case law on (prerequisites of) delisting.176 If the main conflict is not between management and shareholders it is not astonishing that takeovers play a much less important role in Germany with its multitude of control shareholders than, for instance, in the British market with its multitude of companies with dispersed ownership. There is less of a problem of split of ownership and control if there are control shareholders.177 On the other hand, in this case, shareholders' interests diverge more heavily - the interests of the control shareholder on the one hand and the other shareholders with no entrepreneurial investment aims on the other (among them the typical institutional investors).178 This shows that there is considerable divergence in interests even within the camp of block holders: Investors which invest with the aim of influencing the operation of the business and institutional investors - though often owning a similar block of stock - often act differently - the former as entrepreneurs, with a long term perspective, the latter rather as observers which in part may well exercise control power also within the company, but often may only

176 BGH Neue Juristische Wochenschrift (NJW) 2003, 1032 (Marcotron); K. Schmidt,

Morcotron oder: Weitere Ausdifferenzierung des Aktionärsschutzes durch den BGH, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2003, 601; Schwark/Geiser, Delisting, Zeit-schrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 161 (1997), 739.

177 Davies, ‘Board Structure in the UK and Germany: Convergence or Continuing. Divergence?’, (2001) 2 ICCLJ 435 (esp. 453) = Zeitschrift für Gesellschafts- und Unterneh-mensrecht (ZGR) 2001, 268 (esp. 290 et seq.); Teichmann, 'Corporate Governance in Europa', Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 2001, 645 (646).

178 Teichmann, Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 2001, 645 (654).

or primarily react via the markets (sale and purchase of stock).179 The one engage in business decisions, the other comment on them and influence them via investment and stock price reactions. As there is so much entrepreneurial investment in Germany, this split of interests is quite pronounced as well. Typically small investors' interests are closer to those of institutional investors - given their overall orientation to short term return - and for this reason, proposals made by the latter have a particularly high chance of being accepted.180 It is, of course, important as well how supervisory powers are exercised in fact, and very much so also whether credit institutions (can) influence the life of companies in a considerable way. This group of shareholders has very particular interests, derving from their role as providers of loan capital, but as well as general advisors.181 bb) With respect to fiduciary duties and duties of good faith in public listed companies, the discussion starts from the distinction between such rights which the shareholder holds in his own interest and such rights which he has to use for the common benefit. The latter are the realm of ficudiary duties. A duty of good faith could be conceived in both areas, although it finds its main practical application in the latter as well. Formally, any shareholder is subject to a fiduciary duty ('Treupflicht'), be it a majority shareholder, a strong block holder or a small minority shareholder. The fiduciary duty is owed both to the company and to other shareholders - the Supreme Court no longer accepts the argument that the company as a legal entity is necessarily linked with a concept in which only the company can be beneficiary of such a duty

179 The contributions by Buxbaum and Romano, in: Baums/Buxbaum/Hopt (eds.),

Institutional Investors and Corporate Governance, (1994), p. 3 (esp. 10-12) and (105) ('Fund Activism', on different grades of activism); Teichmann, Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 2001, 645 (652, 655). Broader studies on the role of institutional investors and corporate governance in: Stapledon, Institutional Shareholders and Corporate Governance, (1996); Bassen, Institutionelle Investoren und Corporate Governance - Analyse der Einflussnahme unter besonderer Berücksichtigung börsennotierter Wachs-tumsunternehmen, (2002); and (with country reports on the important Member States and the US): Baums/Buxbaum/Hopt, ibidem, comparative law Buxbaum, ibidem.

180 Teichmann, Zeitschrift für Gesellschafts- und Unternehmensrecht (ZGR) 2001, 645 (652).

181 See, more in detail, Grundmann/Moeslein, European Company Law, (2007), para. 504 et seq.; extensively on economic power of the banks (also data) Edwards/Fisher, Banks, Finance and Investment in Germany, (1994); Mülbert, 'Empfehlen sich gesetzliche Rege-lungen zur Einschränkung des Einflusses der Kreditinstitute auf Aktienge-sellschaften?', 61. Deutscher Juristen-Tag 1996, Gutachten E; Prigge, 'A Survey on German Corporate Governance', in: Hopt/Kanda/Roe/Wymeersch/Prigge (eds.), Comparative Corporate Governance - the State of the Art and Emerging Research, (1998), 943 (esp. 1015-1025).

(the duty pierces the 'veil' of the legal entity).182 In Germany, the main area of application has been judicial control of resolutions taken by the general assembly. The intensive control can be understood mainly as an endevour to protect the ratio between the different shareholders. This is a duty which prevents majority or control shareholders from re-adjusting the ratio of the investment between shareholders.183 Therefore pre-emption rights have been paramount, and German courts control any exclusion of such rights not only if the capital increase is made for cash, but as well when it is made for kind; moreover the control is not just one of disclosing the reasons, but there is intensive judicial control in substance (going beyond the EC Law standard):184 The exclusion has to be in the interest of the company and it has to be proportionate, given the interests of the shareholders foreclosed. There has been less case law on matters such as the taking of values from the company (via self-dealing or corporate opportunities), although these cases would clearly fall under the fiduciary duty as well.185 The prohibition to make hidden gains to the detriment of minority shareholders is increasingly concretised for particularly problematic situations such as sharing of the control premium. Even the intensive control of contributions in kind (see above section 1 d) can be named in this context. The fiduciary duty, in Germany, is seen as an additional limit where no absolute ban of a particular tranaction or kind of voting applies.186 It is seen as a 'flexible' limit - applicable only after a weighing of all interests involved.187 182 Leading case BGHZ 129, 136 (Girmes); Dreher, 'Treuepflichten zwischen Aktionären

und Verhaltenspflichten bei der Ausübung von Aktionärsstimmrechten durch Bevollmächtigte', Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 157 (1993), 150; Marsch-Barner, 'Treuepflichten zwischen Aktionären und Verhaltenspflichten bei der Stimmrechtsbündelung', Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 157 (1993), 172. On fiduciary duties in the Plc. see, for instance, Hennrichs, 'Treupflichten im Aktienrecht', Archiv für civilistische Praxis (AcP) 195 (1995), 221; Henze, 'Treupflichten der Gesellschafter im Kapitalgesellschaftsrecht', Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 162 (1998), 186; Lutter, 'Die Treupflicht des Aktionärs', Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 153 (1989) 446.

183 BGHZ 65, 15, 18 et seq.; BGHZ 103, 184, 194 et seq.; BGHZ 142, 167, 169; Zöllner, Die Schranken mitgliedschaftlicher Stimmrechtsmacht, (1963), p. 339 et seqs.; Hüffer, 'Zur gesellschaftsrechtlichen Treupflicht als richterrechtlicher Generalklausel', Festschrift for Steindorff 1990, 59, 73 et seq.

184 See ECJ case C-42/95 Siemens/Nold [1996] ECR I-6017 (6035 et seq.); Grundmann/Möslein (Fn. 6) para. 393-395.

185 For corporate opportunities and self-dealing see literature cited in n. 86 and 88 et seq. 186 Such a strict ban can be found for instance, for the case that the shareholder would

act as his own judge, for instance in § 136 para. 1 German Plc. Act (AktG); Hüffer, Aktiengesetz, (7th ed. 2006), § 136 para. 19 et seq.

187 Path breaking Zöllner, Die Schranken mitgliedschaftlicher Stimmrechtsmacht, (1963), p. 339 et seqs.; description in Grundmann, 'The Evolution of Trust and Treuhand in the 20th Century', in: Helmholz/Zimmermann (eds.), Itinera fiduciae - Trust and Treuhand in Historical Perspective, (1998), 469 (xx-xx).

Different grades of intensity of control can, howewver, easily be distinguished. There are cases were the interests of the company (or the other shareholders) are paramount. There are others were only an abuse of one's own rights is forbidden. The burden of proof - the arguments which have to be made - are quite different from one scenario to the other. Increasingly the distinction is made between these cases also in the use of terms.188 In this case, the mere ban to abuse of rights is called duty of good faith. We would interpret the case law on 'fiduciary duties' owed by minority shareholders as falling into this category. Thus, for instance, the minority shareholder may not obstruct restructuring procedures, if these constititute the only chance of survival.189 This is rather the prohibition of an abuse of rights than a strong fiduciary duty. h) Can the transferability of shares be limited? aa) There is a strong tendency to regulate transferability and its limits in the European Union only since the discussion of the Takeover Directive - and this implies: only for listed companies. The Takeover Directive introduces at least a transparency rule for practices which limit transferability. Indeed, the transparency rule contained in Art. 10 para. 1 also comprises the so-called direct restrictions of access to shares, namely the most important arrangements which render already the acquisition of shares (in part) impossible (lit. b and g).190 Moreover, the Takeover Directive contains a break-through rule in its Art. 11 which, however, is optional for the Member States (see Art. 12). Most Member States opted against an introduction (for Germany see below bb), Art. 12, however, would allow any company to opt in again. On the recommendation of the High Level Group, Art. 11 suspends during the validity period of the bid all restrictions on transfer, i.e. mainly restrictions on

188 Grundmann (Fn. 187), xx-xx; Henssler, ' Die Haftung des Stimmrechtsvertreters',

Deutsche Zeitschrift für Wirtschaftsrecht (DZWiR) 1995, 430, 434 et seq.; Hüffer (Fn. 11), § 53a para. 20b.

189 Leading case BGHZ 129, 136 (Girmes); Hüffer (Fn. 11), § 53a para. 20a, 20b; Werner, 'Zur Treupflicht des Kleinaktionärs', Festschrift for Semler 1993, 419.

190 This refers to restrictions on transferability and rigid limits to acquisition (acquisition only of specified percentages etc.). In this, lit. b applies to restrictions favouring the company itself, lit. g to those favouring a shareholder which have to be disclosed only if he (possibly in collaboration with others) owns a majority of the voting stock. If the restriction is in favour of third parties it is apparently not subject to any duty to disclose. Detailled description of the whole list in: High Level Group, Report of the High Level Group in the field of Company Law on Takeover Bids of 10 Jan. 2002, available at www.europa.eu.int/comm/internal_market/de/company, 25 et seq.; Seibt/Heiser, 'Der neue Vorschlag einer EU-Übernahmerichtlinie und das deutsche Übernah-merecht - Analyse und Umsetzungserfordernisse für den deutschen Gesetzgeber', Zeitschrift für Wirtschaftsrecht (ZIP) 2002, 2193 (2196-2199).

transferability, preemption rights and penalties191 as far as they are based on arrange-ment by the parties (para. 2), charter or contract (except for contracts with third parties). For companies officialy listed on stock exchanges, free trading must be secured (Art. 46).192 This implies that transferability may not be restricted - unless, as the directive states, the restriction does not disturb stock exchange trading. bb) In Germany, this split can be found as well. In the case of registered shares which, however, still are in the minority in Germany, § 68 para. 2 German Plc. Act (AktG) allows for limits to the transferability of shares: Transfers can be made depend on consent by the board or - if the charter prescribes this - of the supervisory board or the general assembly. The charter may as well delimit and describe the grounds on which denial of consent may (solely) be based - thus restricting the discretion of the body competent. The limit only hits the transfer itself, not the purchase. Lack of consent makes the consent void and does so definitively once the body competent has decided. For bearer shares - not falling under § 68 para. 2 German Plc. Act (AktG) - and for shares (also registered shares) listed on official stock exchanges, such limits to the transfer of shares are not allowed or only to a limited extent. The core rule is to be found in § 5 of the Börsenzulassungs-Verordnung (BörsZulV)193, based on §§ 32, 37 para. 2 and 40 para. 2 of the German Stock Exchange Code (Börsengesetz). This regulation, in its sec. 1-12, contains the general listing requirements, among them free tradability. Again, limits for the transferability of shares are prohibited - unless the restriction does not disturb stock exchange trading.194 191 Explanation by the EC Commission of Art. 11 (see Proposal for a Directive of the

European Parliament and of the Council on takeover bids of 2 Oct. 2002, EC OJ 2003 C 45 E/1 = COM[2002] 534 final); Neye, 'Der Vorschlag 2002 einer Takeover-Richtlinie', Neue Zeitschrift für Gesellschaftsrecht (NZG) 2002, 1144 (1145); Seibt/Heiser, Zeitschrift für Wirtschaftsrecht (ZIP) 2002, 2193 (2200). For the recommendation of the High Level Group see High Level Group I (Fn. 1), p. 29-39; worth reading Mülbert, Mülbert, 'Make it or Break It - the Break-Through Rule as a Break-Through for the European Takeover Directive?', in: Ferrarini/Hopt/Winter/Wymeersch (eds.), Reforming Company and Takeover Law in Europe (2004), p. 711.

192 Directive 2001/34/EC of the European Parliament and of the Council of 28 May 2001 on the Admision of Securities to Official Stock Exchange Listing and on Information to be Published on those Securities, EC OJ 2001 L 184/1. See descrip-tion in Grundmann/Moeslein, European Company Law, (2007) § 21.

193 Verordnung über die Zulassung von Wertpapieren zum amtlichen Markt an einer Wertpapierbörse (Börsenzulassungs-Verordnung - BörsZulV), BGBl. 1998 I, p. 2832; 2002 I, p. 2010.

194 For more details see, for instance, the commentary on these rules by Heidelbach in: Schwark (ed.), Kapitalmarktrechtskommentar, (3rd ed. 2004) p. 581 et seqs. (and as well on § 16 BörsG para. 14-33 and on § 30 BörsG para. 20-32).

6. Securities markets a) What market authorities exist? What are their powers and how are they distributed/coordinated? What is the key interest protected by market regulators and regulations? The supervisory regime of securities markets operates at three levels.195 The national and supreme authority to supervise stock markets and over the counter trade with securities is the „Bundesanstalt für Finanzdienstleistungsaufsicht“ (BaFin).196 At the level of federal states, special supervisory authorities are in charge of monitoring compliance with securities laws and of of supervising the proper execution and clearing of stock exchange trading. At the third level, market supervision is operated by the exchanges' own trading surveillance units. The securities market supervision as operated by the BaFin aims at ensuring the transparency and integrity of the financial market and the protection of investors.197 The legal basis for this type of supervision is mainly to be found in the Securities Trading Act (Wertpapierhandelsgesetz - WpHG), but also in the Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz - WpÜG), the Securities Prospectus Act (Wertpapierprospektgesetz - WpPG) and the Prospectus Act (Wertpapier-Verkaufsprospektgesetz - VerkProspG). These laws attribute a wide range of key functions to the BaFin, for instance combating insider dealing according to § 14 WpHG, tracking down market manipulations according to § 20a WpHG, verifying prompt and full ad hoc-disclosure according to § 15 WpHG as well as proper disclosure of major holdings of voting rights according to §§ 21 and 25 WpHG, supervising directors‘ dealings according to § 15a WpHG, checking the completeness and internal consistency (not the accuracy) of prospectuses, according to § 3 WpPG.198 On the other hand, supervision of individual stock exchanges is the responsibility of the stock exchange supervision authorities of the federal states

195 For recent monographs on this supervisory regime, see: Möller, Kapitalmarktaufsicht -

Wandel und Neubestimmung der nationalen und europäischen Kapitalmarktaufsicht anhand des Beispiels der Aufsicht über die Börsen und den Börsenhandel, Berlin 2006; Ehlen, Zentralisierungsmöglichkeiten der deutschen Börsenaufsicht, Frankfurt 2003.

196 As an integrated authority, the BaFin evolved in 2002 from three predecessor authorities with more limited competences: Hagemeister, Die neue Bundesanstalt für Finanzdienstleistungsaufsicht, Wertpapier-Mitteilungen (WM) 2002, 1773.

197 For more details see, for instance: Buck-Heeb, Kapitalmarktrecht (2006), p. 225-233, Kümpel, Bank- und Kapitalmarktrecht (3rd ed. 2004), p. 2468-2478.

198 For more comprehensive lists see: Beck in: Schwark (ed.), Kapitalmarktrechtskommentar, (3rd ed. 2004) § 4 WpHG, para. 2; Buck-Heeb, Kapitalmarktrecht (2006), p. 226 et seq.

(Länder).199 They supervise the orderly conduct of trading on the individual exchanges in accordance with the provisions of the Stock Exchanges Act (Börsengesetz - BörsG). In particular, these authorities monitor the pricing process in collaboration with the exchanges' own trading surveillance units.200 They are also responsible for the registration of electronic trading systems and the supervision of exchange-like trading systems.201 BaFin co-operates with the stock exchange supervisory authorities at many instances (see §§ 5 to 7 WpHG).202 For example, it fulfills the functions of stock exchange regulator at the international level, but the stock exchange supervisory authorities participate at all important issues via a „Securities Council“ (Wertpapierrat).203 This body advises the BaFin on issues related to securities supervision and is authorised to put forward its own proposals aimed at enhancing BaFin's regulatory processes. Conversely, the BaFin is required to inform the Securities Council at least on a yearly basis about its supervisory activities, any developments within the field of supervision, and international cooperation. The law on integrated financial supervision of 2002 explicitely states that BaFin fulfils its duties and responsibilities only in the public interest (§ 4 para. 4 Gesetz über die integrierte Finanzaufsicht – FinDAG).204 Its primary objective is to guarantee the proper functioning, stability and integrity of the German financial system. Investors ought to be able to trust the financial system, but their individual interests are not specifically protected by the BaFin.205 Individual claims for damages against the supervisory authorities will therefore 199 For more details see, for instance: Buck-Heeb, Kapitalmarktrecht (2006), p. 234-236,

Kümpel, Bank- und Kapitalmarktrecht (3rd ed. 2004), p. 2479-2482. 200 More extensively on this so-called „Börsenselbstverwaltung“: Brockhausen,

Kapitalmarktaufsicht durch Selbstverwaltung, Wertpapier-Mitteilungen (WM) 1997, 1924; Buck-Heeb, Kapitalmarktrecht (2006), p. 236-238, Kümpel, Bank- und Kapitalmarktrecht (3rd ed. 2004), p. 2483-2486.

201 On specific regulatory problems of such systems: Krause, Alternative Wertpapierhandelssysteme unter besonderer Berücksichtigung von Regulierungs- und Aufsichtsproblemen im Internet (2005).

202 See Buck-Heeb, Kapitalmarktrecht (2006), p. 232 et seq. 203 On its composition and functions, more extensively: Beck in: Schwark (ed.),

Kapitalmarktrechtskommentar, (3rd ed. 2004) § 5 WpHG, para. 2-4; Kümpel, Bank- und Kapitalmarktrecht (3rd ed. 2004), p. 2478.

204 Path breaking on the protective goals of capital market law (investor protection vs. market protection) in general: Hopt, Der Kapitalanlegerschutz im Recht der Banken (1975); Schwark, Anlegerschutz durch Wirtschaftsrecht (1979). See also: Buck-Heeb, Kapitalmarktrecht (2006), p. 3-6 and the contributions in Grundmann/Schwintowski/Singer (eds.), Anleger- und Funktionsschutz durch Kapitalmarktrecht (2006).

205 Buck-Heeb, Kapitalmarktrecht (2006), p. 233; partly contested where additional responsibilites have been introduced since 2002: Holzborn/Israel, Das Anlegerschutzverbesserungsgesetz, Wertpapier-Mitteilungen (WM) 2004, 1948.

regularly fail.206 Similarly, third parties are neither in a position to constrain the BaFin to start any regulatory action nor may they even claim participation in BaFin’s proceedings.207 b) What disclosure and trading obligations (price determination, monitoring of intermediaries‘ behaviour etc.) exist? What is the source of disclosure obligations? Most of the disclosure and trading obligations are prescribed at European rather than national level. For instance, key disclosure obligations are provided for in the General Prospectus Directive (primary market disclosure when securities are admitted to regulated markets, Art. 3 et seqs. GPD), the Transparency Directive (periodic disclosure of financial reports, Art. 4-8 TD, and disclosure of changes in major holdings, Art. 9-16 TD) and the Market Abuse Directive (ad-hoc-disclosure, Art. 6 MAD). Additionally, a specific (more limited) duty to disclose enganging intermediaries is contained in the Markets in Financial Instruments Directive (duty to disclose material information to the client, Art. 19 MiFID).208 As to the trading obligations, it is the MiFID that now prescribes best practice rules for intermediaries (duty of loyalty and to avoid conflicts of interest in particular, Art. 19 MiFID) and the MAD that prescribes the ban on insider dealing and on market manipulation (Art. 1 (1) and (2) MAD).209 German (transposition) laws provide for several qualifications to these rules, however, but also state a few additonal trading rules that are not prescribed at European level. For example, in addition to the disclosure thresholds listed in the TD, the German legislator recently introduced a new 3%-threshold, thereby imposing more stringent disclosure requirements for holders of voting rights in issuers whose home Member State is Germany. It should be noted, however, that in contrast to the other thresholds, this 3%-threshold does not apply to holders of financial instruments to which acquisition rights are 206 In conformity with constitutional and European law according to BGHZ 162, 49 =

Neue Juristische Wochenschrift (NJW) 2005, 742; ECJ case C-222/02 Paul et al. [2004] ECR I-9425; see also von Danwitz, Keine Amtshaftung der Finanzdienstleistungsaufsicht, Juristenzeitung (JZ) 2005, 729.

207 With respect to the WpÜG, for instance: Oberlandesgericht Frankfurt/Main, Der Betrieb (DB) 2003, 1371, 1372 („Pro Sieben“); Oberlandesgericht Frankfurt/Main, Der Betrieb (DB) 2003, 1374 („Wella I“); Oberlandesgericht Frankfurt/Main, Zeitschrift für Wirtschaftsrecht (ZIP) 2003, 1392, 1393 („Wella II“).

208 See, in much more detail: Grundmann/Moeslein, European Company Law, (2007), para. 694-709 (prospectus), 736-744 (periodic disclosure), 745-753 (disclosure of changes in major holdings), 792-798 (ad-hoc disclosure) and 764-769 (duty to disclose material information).

209 For more details: Grundmann/Moeslein, European Company Law, (2007), para. 759 (best practice rules), 778-788 (insider dealing) and 789-799 (market manipulation).

attached.210 Similarly, the insider dealing prohibition has been extended to all capital markets by the German legislator.211 An example for trading rules not immediately driven by European directives is the regime on price fixing and price determination at stock exchanges in § 24 et seqs. BörsG, which determines quality standards supervised by the competent authority. It requires that prices are duly settled and correspond to the actual market situation.212 Of course, these rules do not impose specific trading obligations on issuers or market participants, but rather fix the general framework for trading securities on German stock exchanges. c) How are the disclosure obligations enforced? Is judicial enforcement frequent? How do time, procedures and techniques favor (or hinder) litigation? Enforcement mechanisms of disclosure obligations are manifold and subject to intensive reform discussion.213 Apart from supervisory enforcement, the discussion mainly focusses on civil law remedies for false information. With respect to primary market disclosure, § 44 BörsG contains a special liability provisions for false information in the prospectus.214 Wrong information may entitle for restitution in kind, but only if that information has been material for the evalution of the securities and if the issuer acted grossly negligent. On the other hand, the burden of proof with respect to causation is shifted in favour of investors, which favours litigation substantially. With respect to secondary market disclosure and ad-hoc disclosure in particular, a special liability provision has recently been introduced in §§ 37b

210 For full accounts of the TD transposition in Germany, see: Bosse, Wesentliche

Neuregelungen ab 2007 aufgrund des Transparenzrichtlinie-Umsetzungsgesetzes börsennotierter Unternehmen, Der Betrieb (DB) 2007, 39; Pirner/Lebherz, Wie nach dem Transparenzrichtlinie-Umsetzungsgesetz publiziert werden muss, Die Aktiengesellschaft (AG) 2007, 19; Rodewald/Unger, Zusätzliche Transparenz für die europäischen Kapitalmärkte - die Umsetzung der EU-Transparenzrichtlinie in Deutschland, Betriebs-Berater (BB) 2006, 1917.

211 Grundmann/Moeslein, European Company Law, (2007), para. 800. 212 In detail: Buck-Heeb, Kapitalmarktrecht (2006), p. 169 et seq., Kümpel, Bank- und

Kapitalmarktrecht (3rd ed. 2004), p. 2365-2369. 213 For key reform proposals see: Fleischer, Empfiehlt es sich, im Interesse des Anlegerschutzes

und zur Förderung des Finanzplatzes Deutschland das Börsen- und Kapitalmarktrecht neu zu regeln?, Report F for the German Jurists’ Forum 2002 (Gutachten F zum 64. Deutschen Juristentag 2002); also at the European level: Hopt/Voigt (eds.), Prospekt- und Kapitalmarktinformationshaftung (2004).

214 For details: Groß, Die börsengesetzliche Prospekthaftung, Die Aktiengesellschaft (AG) 1999, 199; Sittmann, Die Prospekthaftung nach dem Dritten Finanzmarktförderungsgesetz, Neue Zeitschrift für Gesellschaftsrecht (NZG) 1998, 490; Buck-Heeb, Kapitalmarktrecht (2006), p. 169 et seq.

and 37c WpHG. It provides for civil liability of the issuer, i.e. the company, not its directors, and requires, again, gross negligence.215 Prior to the introduction of this rule (maybe even additionally), the courts examine liability under general tort law (§§ 823 para. 2 and 826 Bürgerliches Gesetzbuch – BGB).216 However, damages are only awarded if directors acted either in violation of penal laws or immoraly. Additionally, causation is difficult to prove. In case of a successful action, however, compensation is generally calculated in more favourable terms than under the special regime.217 More generally, personal liability of the management in case of wrong or misleading disclosure is the most controversial issue with respect to enforcement. It is not provided for by special provisions of the current law, but the legislature came up with a corresponding proposal in 2004. The draft Kapitalmarktinformationshaftungsgesetz (KapInHaG) provided for personal liability where directors acted grossly negligent.218 Hence, the law would have facilitated actions against directors in cases of insolvency of the company. Even though the proposal has since been withdrawn, personal liability for wrong disclosure continues to be subject of intensive academic discussion in Germany.219

215 For details: Groß, Haftung für fehlerhafte oder fehlende Regel- oder ad-hoc-

Publizität, Wertpapier-Mitteilungen (WM) 2002, 477; Möllers/Leisch, Schaden und Kausalität im Rahmen der neu geschaffenen §§ 37b und 37c WpHG, Zeitschrift für Bank- und Kapitalmarktrecht (BKR) 2002, 1071; Veil, Die Ad-hoc-Publizitätshaftung im System kapitalmarktrechtlicher Informationshaftung, Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 167 (2003), 365.

216 See, in particular, the three leading cases of the German Federal Court: BGH, Neue Juristische Wochenschrift (NJW) 2004, 2664 = BGHZ 160, 134; BGH, Neue Juristische Wochenschrift (NJW) 2004, 2971 = BGHZ 160, 149; BGH, Wertpapier-Mitteilungen (WM) 2004, 1726.

217 More extensively: Engelhardt, Vertragsabschlussschaden oder Differenzschaden bei der Haftung des Emittenten für fehlerhafte Kapitalmarktinformationen, Zeitschrift für Bank- und Kapitalmarktrecht (BKR) 2006, 443; see also Gerber, Die Haftung für unrichtige Kapitalmarktinformationen, Deutsches Steuerrecht (DStR) 2004, 1793; Kort, Die Haftung von Vorstandsmitgliedern für falsche Ad-hoc-Mitteilungen, Die Aktiengesellschaft (AG) 2005, 21; Möllers, Der Weg zu einer Haftung für Kapitalmarktinformationen, Juristen-Zeitung (JZ) 2005, 75

218 Semler/Gittermann, Persönliche Haftung der Organmitglieder für Fehlinformationen des Kapitalmarktes - Zeigt das KapInHaG den richtigen Weg?, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2004, 1081; Veil, Die Haftung des Emittenten für fehlerhafte Information des Kapitalmarkts nach dem geplanten KapInHaG, Zeitschrift für Bank- und Kapitalmarktrecht (BKR) 2005, 91-98.

219 For recent summaries of the discussion, see Casper, Haftung für fehlerhafte Informationen des Kapitalmarktes, Der Konzern 2006, 32; Teichmann, Haftung für fehlerhafte Informationen am Kapitalmarkt, Juristische Schulung (JuS) 2006, 955.

d) What role does Internet have? The communication requirements of corporate disclosure changed fundamentally in 2007. The law regarding the Electronic Commercial and Company Registrar (Gesetz über elektronische Handelsregister und Genossenschaftsregister sowie das Unternehmensregister - EHUG) and the Law implementing the Transparency Directive (Transparenzrichtlinie-Umsetzungsgesetz – TUG) amended the existing capital market law in order to allow, but also to prescribe, new methods and channels of disclosure.220 These new communication requirements refer to inside information, disclosure of directors’ dealings, of changes in major holdings and of financial reports. Certain security and issuer-related information (according to § 30e WpHG) and information on the choice of the home country is also covered.221 A subordinated regulation (Wertpapierhandelsanzeige- und Insiderverzeichnisverordnung – WpAIV) generally provides for three different layers of disclosure: The information has to be forwarded to the media for European-wide distribution, it has then to be communicated to the company register where it will be stored, and finally it has to be notified to the BaFin. Whereas the law only requires an appropriate „package“ of different types, the legislative materials enumerate electronic information dissemination systems (internet), news provider, print medium, news agency and financial websites. According to regulatory guidance, all five media types have to be adressed, and at least one of them must enable Europe-wide dissemination.222 This controversial and strict interpretion obliges issuers to transfer the relevant information to „traditional“ print mediums as well: According to BaFin’s interpretation of the law, disclosure via the Internet is required, but not sufficient.223 220 See, for instance Noack, Neue Publizitätspflichten und Publizitätsmedien für

Unternehmen - eine Bestandsaufnahme nach EHUG und TUG, Wertpapier-Mitteilungen (WM) 2007, 377.

221 See §§ 2b, 15 para. 1, 15a para. 4, 26a, 29 a para. 2, 30e, 30f para. 2, 37v para. 1 until 37x para. 1, 37y, 37z para. 4, 41 para. 4a WpHG.

222 Höhlein, Transparency Directive Implementation Act, BaFin Quarterly 1/2007, 16 (18). 223 Critical Noack, Wertpapier-Mitteilungen (WM) 2007, 377 (380); at least a trend away from

paper-based disclosure: Hutter/Kaulamo, Transparenzrichtlinie-Umsetzungsgesetz: Änderungen der Regelpublizität und das neue Veröffentlichungsregime für Kapitalmarktinformationen, Neue Juristische Wochenschrift (NJW) 2007, 550 (555); Piener/Lebherz, Wie nach dem Transparenzrichtlinie-Umsetzungsgesetz publiziert werden muss, Die Aktiengesellschaft (AG) 2007, 19 (22 et seq.); sceptical: Dauner-Lieb, Siegeszug der Technokraten?, Deutsches Steuerrecht (DStR) 2007, 361.

7. The market for corporate control: takeovers a) Which principles govern the takeover process? Shortly after the first succesful hostile bid of a large public company (Mannesmann/Vodafone) and in the run-up to the European Takeover Directive (still pending at the time), Germany introduced its first ever takeover code on January 1, 2002, setting ground rules for companies and investors alike.224 This so-called „Wertpapiererwerbs- und Übernahmegesetz“ (WpÜG) has recently been modified by the „Übernahmerichtlinie-Umsetzungsgesetz“, in order to implement the European Directive in German law.225 Given that most provisions of the code had already been drafted according to the draft directive and due to the Directive’s various options, the reform left the substance of the German Takeover Code largely unchanged. The Takeover Code regulates all public offers to acquire certain market-traded equity securities of German domestic companies (whether for stock, cash or a combination thereof with additional provisions to apply where the acquisition or holdings exceed a defined threshold). To sum up its most important contents, the code sets the reporting requirements, the criteria for the consideration to be offered, the duration of the offer period, and the conditions under which the target may employ defence tactics against a hostile takeover. The Takeover Law applies to all public offers where the target is a German-based stock corporation (Aktiengesellschaft) or partnership limited by shares (Kommanditgesellschaft auf Aktien), whose stock is publicly traded on an “organised market” in Germany or anywhere within the European Economic Area (EEA).226 The Takover Law contemplates three sorts of public offers to acquire securities, and it is structured accordingly. The sections of the first main part (§§ 10 to 28 WpÜG) concern securities‘ acquisitions and apply to all public offers that are made to stockholders in order to directly acquire their shares, without regard to the number of shares or the ultimate purpose of the 224 For the history of origins see, for instance: Ekkenga/Schulz, in:

Ehricke/Ekkenga/Oechsler, Wertpapiererwerbs- und Übernahmegesetz (2003), Einf., para. 15-19.

225 Gesetz zur Umsetzung der RiL 2004/25/EG des Europ. Parlaments und des Rates v. 21.4.2004 betreffend Übernahmeangebote (Übernahmerichtlinie-Umsetzungsgesetz), BGBl. 2006 I S. 1426 ff. The amendments to the WpÜG came into force in January 2007.

226 The scope of application is defined in § 1 WpÜG; on conflict-of-law rules: von Hein, Grundfragen des europäischen Übernahmekollisionsrechts, Die Aktiengesellschaft (AG) 2001, 313; id., Zur Kodifikation des europäischen Übernahmekollisionsrechts, Zeitschrift für Gesellschaftsrecht (ZGR) 2005, 528; Steinmeyer, Der übernahmerechtliche Sitzbegriff, Festschrift for Immenga (2004), 743.

acquisition. The term „public offer“ is defined in § 2 para. 1 as publicly announced offer to acquire a target company´s stock through purchase or exchange from individual shareholders.227 The second part (§§ 29 to 34 WpÜG) then concerns a narrower sub-group of public offers, i.e. „takeover offers”. These rules apply if the public offer is submitted with the intent to gain a controlling interest in the target company (defined as 30 per cent of the voting shares).228 These provisions require the offeror to make a non-discriminatory offer for all the outstanding shares at an „adequate“ price.229 The third part concerns „mandatory offers” (§§ 35 – 39). These provisions apply when a party in fact attains a controlling interest in a company (i.e. 30 per cent or more of all voting shares).230 The party then has to make a fair and non-discriminatory offer to the outstanding shareholders subject to essentially the same criteria as in case of voluntary takeover offers. b) Which limitations are there to acquisitions? Which rules apply? In contrast to earlier drafts of the Takeover Law that still had opted for management passivity (with narrow exceptions), § 33 of the Takeover Law grants the target company´s management board considerable power to oppose hostile takeover bids – even thought it formally maintains the general principle. But the exceptions to the passivity rule are far reaching. Two situations exist in which the management board can get authorisation to defend against takeovers: prior to the announcement of any takeover offer and after an actual offer has already been announced. Prior to the announcement of a takeover offer, the takeover law does, in principle, not apply and the management has the power to take any business decision (subject to its fiduciary duties), even if it has the effect of deterring potential

227 In more detail: Fleischer, Zum Begriff des öffentlichen Angebots im

Wertpapiererwerbs- und Übernahmegesetz, Zeitschrift für Wirtschaftsrecht (ZIP) 2001, 1653.

228 The term is defined in § 29 para. 1 WpÜG. On details: Santelmann, Notwendige Mindesterwerbsschwellen bei Übernahmeangeboten, Die Aktiengesellschaft (AG) 2002, 497; Harbarth, Kontrollerlangung und Pflichtangebot, Zeitschrift für Wirtschaftsrecht (ZIP) 2002, 321.

229 § 31 para. 1 (1) WpüG; details are regulated by a subordinated regulation (Verordnung über den Inhalt der Angebotsunterlage, die Gegenleistung bei Übernahmeangeboten und Pflichtangeboten und die Befreiung von der Verpflichtung zur Veröffentlichung und zur Abgabe eines Angebots [WpÜG-Angebotsverordnung], BGBl. 2001 I p. 4263, as recently amended, BGBl. 2002 I, 1495). See also n. 209.

230 On the term „control“ as defined in § 29 para. 2 WpÜG (and similar concepts in German law): Habersack, Reformbedarf im Übernahmerecht, Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 166 (2002), 619 (623); Mülbert, Übernahmerecht zwischen Kapitalmarktrecht und Aktien(konzern)recht – die konzeptionelle Schwachtstelle des RegE WpÜG, Zeitschrift für Wirtschaftsrecht (ZIP) 2001, 1221 (1227).

bidders.231 Moreover, the shareholders of a potential target company may resolve to grant the management board advance authorisation to undertake certain measures in case an offer is made (each of which must be specified in the shareholder´s resolution). Such an authorisation is valid for up to 18 months (and so, in practice, must be renewed annually). The resolution empowering requires a 75 per cent majority of the share capital present and voting. In addition, the company´s supervisory board must approve the implementation of any such measures before they are actually undertaken.232 If the bidder has already made a takeover offer, the target company´s management board must, in principle, not take any defence measures to prevent the takeover being successful (§ 33 para. 1 (1) WpÜG). Such measures are, however, permitted if ordinary and prudent managers of a company not affected by a takeover offer would have decided likewise (§ 33 para. 1 (2) WpÜG). This first exception to the passivity rule is, however, extremely difficult to proof – and the burden of proof is with the management board.233 More important are therefore two further exceptions: Defensive measures may be approved by a shareholders meeting during the offer period.234 Above all, the express approval from the supervisory board is sufficient for such measures (§ 33 para. 2 (1) WpÜG). It is mainly this exception that turns the principle, the passivity rule, upside down – and has therefore been pointedly identified as the „German sin“.235 Companies may, however, opt into the stricter regime of a passivity rule as provided for in the European Takeover

231 Hopt, Präventivmaßnamen zur Abwehr von Übernahme- und Beteiligungsversuchen,

WM-Festgabe for Theodor Heinsius (1991), p. 22; for company law limits: Möslein, Grenzen unternehmerischer Leitungsmacht im marktoffenen Verband - Aktien- und Übernahmerecht, Rechtsvergleich und europäischer Rahmen (2007), p. 557-606.

232 In detail on such „reserve authorisations“ (Vorratsbeschlüsse) as regulated in § 33 para. 2 WpÜG: Grunewald, Zum Ermächtigungsbeschluss nach § 33 Abs 2 WpÜG, Entscheidungen zum Wirtschaftsrecht (EWiR) 2005, 139; Krause, Prophylaxe gegen feindliche Übernahmeangebote, Die Aktiengesellschaft (AG) 2002, 133.

233 Schlitt, in: Münchener Kommentar zum Aktiengesetz, § 33 WpÜG, para. 128; Grunewald, in: Baums/Thoma (eds.), Wertpapiererwerbs- und Übernahmegesetz (looseleaf, 2004), § 33, para. 57.

234 Not expressly mentioned in the law, but nonetheless sufficient: Krause, Das neue Übernahmerecht, Neue Juristische Wochenschrift (NJW) 2002, 705 (713); Thaeter, Zur Abwehr feindlicher Übernahmeversuche im RegE eines Gesetzes zur Regelung von öffentlichen Angeboten zum Erwerb von Wertpapieren und von Unternehmensübernahmen (WÜG-RegE), Neue Zeitschrift für Gesellschaftsrecht (NZG) 2001, 789 (789); Winter/Harbarth, Verhaltenspflichten von Vorstand und Aufsichtsrat der Zielgesellschaft bei feindlichen Übernahmen nach dem WpÜG, Zeitschrift für Wirtschaftsrecht (ZIP) 2002, 1 (13).

235 Hopt, Grundsatz- und Praxisprobleme nach dem Wertpapiererwerbs- und Übernahmegesetz, Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 166 (2002) 383 (472) („Sündenfall“).

Directive (§ 33a WpÜG).236 The sort of defensive measures the takeover law contemplates237 include the issue of shares (especially to a “friendly” third party, the preemption right of the present shareholders being excluded); share buy-backs; the sale of certain profitable parts of the target company´s business that are most interesting for the bidder („crown-jewels“); the launch of a counter-offer for the shares of the bidder company and soliciting alternative offers of friendlier bidders (permissible without the approval of the supervisory board once an actual offer is announced, § 33 para. 1 (2) alt. 2 WpÜG). Although German takeover law seems to give the board of target companies considerable power to take defensive measures against potential bidders, this power is indeed significantly limited. Some exceptions are difficult to prove, others will be understood as negative signals by capital market participants.238 Moreover, authorisations for defence measures rendered either before or after the announcement of an offer do not disengage the management board from its duties, in particular its duty of care and its duty of good faith.239 The responsibility to act in the best interest of the company and for proper purposes constitutes indeed a strict limit to defensive measures: Selling off a core business for example might prevent a takeover, but it is not in the best interest of the company if it significantly affects the remaining businesses or the company´s profitability. c) Which rules apply to takeover bids? The decision to submit a public offer triggers the obligation to notify the relevant exchange authorities and the Federal Supervisory Office for Securities Trading (Bundesaufsichtsamt für Finanzdienstleistungen, BaFin). The potential bidder is then obliged to publish his intention without undue delay.240 The

236 Knott, Freiheit, die ich meine - Abwehr von Übernahmeangeboten nach Umsetzung

der EU-Richtlinie, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2006, 849. 237 For more examples, see Ekkenga, in: Ehricke/Ekkenga/Oechsler (eds.),

Wertpapiererwerbs- und Übernahmegesetz (2003), § 33 WpÜG, para. 91-119; Steinmeyer, in: Steinmeyer/Häger (eds.), Wertpapiererwerbs- und Übernahmegesetz – Kommentar (2nd ed. 2007), § 33 WpÜG, para. 66-98.

238 Grundmann, Ausbau des Informationsmodells im Europäischen Gesellschaftsrecht, Deutsches Steuerrecht (DStR) 2004, 232 (236).

239 Extensively and from a comparative perspective: Möslein, Grenzen unternehmerischer Leitungsmacht im marktoffenen Verband - Aktien- und Übernahmerecht, Rechtsvergleich und europäischer Rahmen (2007), p. 557-606.

240 § 10 para. 1 WpÜG (details of publication specified in para. 3). If validly submitting the offer requires authorisation by corporate resolution, the offeror may announce the offer as subject to shareholder approval, see: Santelmann/Steinhardt, in:

offer may be made dependent on a minimum of acceptances, but the offeror may not reserve an unconditional right to rescind the offer (§ 18 para. 2 WpÜG). Neither may he require conditions if their fulfilment is within his own control or within the control of those acting in concert (§ 18 para. 1 WpÜG).241 Within four weeks after the public announcement of his intention to make an offer, the offeror has to submit a detailed “offer document” (Angebotsunterlage) to the BaFin. According to § 11 WpÜG, this offer document must contain various details, especially sufficient information on the offeror, on the consideration being offered, on the effective dates of the offer period, on any conditions for acceptance, on the purpose of the acquisition, on means of financing and the post-acquisition plans for the target.242 Where consideration is (also) in cash, the law requires a certified statement from an independent financial institution (Wertpapierdienstleistungs-unternehmen), i.e. an investment bank. The purpose of this statement is to confirm that the offeror can assure adequate means of financing to fulfil his obligations of the bid.243 The supervisory authority shall issue its decision on the offer document within ten working days of submission. It is only after this approval that the offer document may be publicly distributed (§ 14 para. 2).244 Without delay, the document needs to be posted via Internet and must either be broadly distributed in print (free of charge) or published in the official financial gazettes (§ 14 para. 3). A copy must also be delivered to the target company´s management board (§ 14 para. 4) which, in response to the public offer, must publish a report containing its own assessment of the offer´s probability of success, potential effects on company affairs and a recommendation to the shareholders („Stellungnahme“, § 27 para. 2 WpÜG).245

Steinmeyer/Häger (eds.), Wertpapiererwerbs- und Übernahmegesetz – Kommentar (2nd ed. 2007), § 10 WpÜG, para. 16-18.

241 Busch, Bedingungen in Übernahmeangeboten, Die Aktiengesellschaft (AG) 2002, 145. For permissible conditions, see also: Hopt, Grundsatz- und Praxisprobleme nach dem Wertpapiererwerbs- und Übernahmegesetz, Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 166 (2002), 383 (405).

242 Details are again regulated by a subordinated regulation (WpÜG-Angebotsverordnung [n. 198]). See furthermore: Hamann, Die Angebotsunterlage nach dem WpÜG - ein praxisorientierter Überblick, Zeitschrift für Wirtschaftsrecht (ZIP) 2001, 2249; Liebscher, Das Übernahmeverfahren nach dem neuen Übernahmegesetz, Zeitschrift für Wirtschaftsrecht (ZIP) 2001, 853.

243 § 13 para. 1 (2) WpÜG; see: Berrar, Die Finanzierungsbestätigung nach § 13 WpÜG, Zeitschrift für Bankrecht und Bankwirtschaft (ZBB) 2002, 174; Singhof/Weber, Bestätigung der Finanzierungsmaßnahmen und Barabfindungsgewährleistung nach dem WpÜG, Wertpapier-Mitteilungen (WM) 2002, 1158.

244 For details: Möllers, Verfahren, Pflichten und Haftung, insbesondere der Banken, bei Übernahmeangeboten, Zeitschrift für Gesellschaftsrecht (ZGR) 2002, 564.

245 Extensively Kubalek, Die Stellungnahme der Zielgesellschaft zu öffentlichen Angeboten nach dem WpÜG (2006).

The acceptance period must be set within at least four weeks and at most ten weeks (§ 16 para. 1 in conjunction with § 14 para. 3 (1) WpÜG). In case of competing offers or changes to the original offer it is provided for automatic extensions: The issue of a competing offer automatically extents the acceptance period in accordance with the competing offer (§ 21 para. 2 WpÜG).246 Amendments to the offer may be made until one day prior to its expiration, but only if they are favourable for the target shareholders, for example increases in consideration, reductions of the minimum acceptance threshold, or waiver of other conditions. In any event, the offer period will last two (more) weeks after such changes have been implemented (§ 21 para. 5 WpÜG).247 During the offer period, the number of acceptances has to be reported weekly, and during the final week even daily (via Internet, § 23 para. 1 WpüG). This will keep shareholders informed of other shareholders‘ decisions and thus helps to reduce the prisoner’s dilemma.248 After the original closing date (as well as upon expiration of any extension period), the results must be published immediately (§ 23 para. 1 WpÜG). In case of a limited offer, the subscriptions by shareholders will be satisfied on a strict pro rata basis (§ 19 WpÜG).249 Takeover bids, i.e. bids launched with the intention to acquire control of 30 % or more of the voting shares, are subject to the additional requirements in §§ 30 to 40 WpÜG. These provisions require, inter alia, that any offer must be extended to all shareholders in a non-discriminatory manner, and that the consideration offered for the shares be “reasonable” (§ 31 WpÜG). When examining whether the consideration is reasonable, the supervisory authority will take into accont the weighted average market price over the three-months-period immediately preceding the offer announcement, and the price paid by the offeror, or those deemed acting in concert, for any shares acquired over the preceding three months, including non-market block purchases (§ 31 para. 1

246 On competing offers see: Fleischer, Konkurrenzangebote und Due Diligence, Zeitschrift

für Wirtschaftsrecht (ZIP) 2002, 651; Lipuscek, Konkurrierende Angebote nach dem WpÜG (2003); Rothenfußer/Friese-Dormann/Rieger, Rechtsprobleme konkurrierender Übernahmeangebote nach dem WpÜG, Die Aktiengesellschaft (AG) 2007, 137.

247 On amendments and material-adverse-change-clauses: Berger/Filgut, Material-Adverse-Change-Klauseln in Wertpapiererwerbs- und Übernahmeangeboten, Wertpapier-Mitteilungen (WM) 2005, 253.

248 In detail: Witt, Regelmäßige „Wasserstandsmeldungen“ – unverzichtbarer Bestandteil eines künftigen Übernahmegesetzes, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2000, 809.

249 Specific problems arise in case of share buy-backs: Paefgen, Die Gleichbehandlung beim Aktienrückerwerb im Schnittfeld von Gesellschafts- und Übernahmerecht, Zeitschrift für Wirtschaftsrecht (ZIP) 2002, 1509.

WpÜG).250 Cash payments must be in Euro; if stock is offered in exchange for the target´s shares, it must be “liquid”, i.e. readily convertible to cash, and vested with voting rights (§ 31 para. 2 WpüG). If the offeror has acquired substantial blocks of the target´s shares (i.e. 5 per cent or more) through cash purchase in the three months preceding the announcement of the offer, or if he has paid cash for any shares subsequent to the announcement to make an offer, he will be obliged to offer cash contribution for all remaining shares subject to the offer (§ 31 para. 3).251 The takeover law expressly prohibits offers that seek to acquire control, but are limited to less than 100 % of the outstanding shares („limited offers for control“, see § 32 and § 19 WpÜG). However, offers to acquire less than a controlling stake are permitted, provided that they do not ultimately result in control of 30 % of the target company´s voting shares. To that end, shares of market participants acting in concert will be added together.252 If a voluntary takeover offer succeeds in gaining (more than) 30% of the voting shares, the acceptance period will be extended another two weeks to allow the remaining shareholders to take advantage of the offer (§ 16 para. 2 WpÜG). Shareholders who accept the offer will be entitled to a supplemental matching payment if the offeror subsequently pays higher consideration for similar shares in a non-market transaction within one year following the effective date of the original offer (§ 31 para. 5). Even shareholders without any intention to acquire control may end up with holding 30 % of the voting stock, because shareholdings of subsidiaries or persons acting in concern are added. Except if control has been acquired by way of a voluntary bid, such shareholder has to make an offer to all remaining shareholders (mandatory bid, § 35 WpÜG).253 This goes along with additional publication requirements (§ 35 para. 1). Like voluntary offers, the offer must be reasonable and non-discriminatory, treating all remaining shareholders on equal terms. 250 Habersack, Auf der Suche nach dem gerechten Preis – Überlegungen zu § 31 WpÜG,

Zeitschrift für Wirtschaftsrecht (ZIP) 2003, 1123; Rodewald/Siems, Der Preis ist heiß – Zur Angemessenheit der Gegenleistung bei Übernahmeangeboten, Zeitschrift für Wirtschaftsrecht (ZIP) 2002, 9262.

251 See, for example, Traugott/Schäfer, Zulässigkeit von Paketzuschlägen – Rechtsvergleichende Untersuchung und praktische Konsequenzen für die Auslegung des deutschen WpÜG, Neue Zeitschrift für Gesellschaftsrecht (NZG) 2004, 158.

252 See Borges, Acting in Concert - Vom Schreckgespenst zur praxistauglichen Zurechnungsnorm, Zeitschrift für Wirtschaftsrecht (ZIP) 2007, 357-365; Schneider, Acting in Concert - ein kapitalmarktrechtlicher Zurechnungstatbestand, Wertpapier-Mitteilungen (WM) 2006, 1321; Schockenhoff/Schumann, Acting in Concert -geklärte und ungeklärte Rechtsfragen, Zeitschrift für Gesellschaftsrecht (ZGR) 2005, 568.

253 Monographs by Heinbach, Kontrollerlangung und Pflichtangebot nach dem Wertpapiererwerbs- und Übernahmegesetz (2005); Simon, Rechtsschutz im Hinblick auf ein Pflichtangebot nach § 35 WpÜG (2005). Particular problems arise if control is acquired by way of structural changes, see Besau, Das Pflichtangebot nach §§ 35 ff. WpÜG als Rechtsfolge von Verschmelzungen und Spaltungen (2006); Thies, Pflichtangebot nach Umwandlungen (2006).

Finally, the takeover law introduced new provisions to the German plc. Act (Aktiengesetz), which allow majority holders to acquire minority shareholders´ stock via a mandatory cash buyout (“squeeze out”, § 327 German Plc. Act (AktG)).254 The reason for the incorporation of the „squeeze out“ rules in company rather than takeover law is that it neither is limited to listed stock corporations, nor does it require a preceding takeover offer.255 After acquisition of more than 95 % of the voting rights of a company, any shareholder is entitled to acquire the remaining shares by compelling the minority holders to sell their shares. The consideration has to be fair price and in cash only.256 Such squeeze-out requires approval by a shareholder resolution at the general shareholders´ meeting.257 The price for the shares is to be determined by the majority shareholder, who needs to take into account all relevant circumstances (§ 327b para. 1 German Plc. Act (AktG)).258

254 Monographs by Quandt, Squeeze-out in Deutschland (2004); Rößler, Squeeze out (2007);

Rühland, Der Ausschluß von Minderheitsaktionären aus der Aktiengesellschaft (Squeeze-out) (2004). For recent amendments in particular: Paefgen, Zum Zwangsausschluss im neuen Übernahmerecht, Wertpapier-Mitteilungen (WM) 2007, 765.

255 For a comparative perspective see Grundmann/Moeslein, European Company Law, (2007), para. 1052.

256 For recent case law on valuation: Luttermann, Zur Unternehmensbewertung beim Squeeze out, Entscheidungen zum Wirtschaftsrecht (EWiR) 2007, 33; Winter, Zur Squeeze-Out-Barabfindung , Entscheidungen zum Wirtschaftsrecht (EWiR) 2006, 737-738.

257 The majority shareholding may, however, raise doubt on the validity of such resolutions: Kort, Squeeze-out-Beschlüsse - Kein Erfordernis sachlicher Rechtfertigung und bloß eingeschränkte Rechtsmissbrauchkontrolle, Zeitschrift für Wirtschaftsrecht (ZIP) 2006, 1519; in general: Vetter, Squeeze-out nur durch Hauptversammlungsbeschluss?, Der Betrieb (DB) 2001, 743.

258 For details, see Rühland, Die Abfindung von aus der Aktiengesellschaft ausgeschlossenen Minderheitsaktionären, Wertpapier-Mitteilungen (WM) 2000, 1884.