The Regulation of Shareholder Voting in U.S. Public Companies:
A Desirable Concept for Switzerland?
February 10, 2009
doctoral candidate at the University of Zurich School of Law
and Visiting Researcher at Fordham Law School:
- Shareholder voting is predominantly still viewed as an important mechanism to discipline the management of a (public) company. The less effective a shareholder voting system in a given jurisdiction is, the higher are the agency costs that stem from the separation of ownership and control in public companies and that are ultimaltely borne by the shareholders. Hence, a jurisdiction should strive to design and uphold an effective shareholder voting system
- The US shareholder voting system (as substantially promulgated under the respective rules of the SEC) is regularly analyzed and evaluated in comparative corporate law studies. So far, however, no such study exists from a Swiss legal point of view. This is regrettable as the U.S. system has a long standing history (dating back to the 1930s) and thus a lot of experience when it comes to think about effective shareholder voting systems.
- A quick glance at the shareholder voting system in Switzerland reveals that the applicable provisions governing shareholder voting in public companies (which follow substantially the same rules as voting in closely-held companies) are flawed. One of the most important reasons for this finding can be attributed to the fact that Swiss law still rests on the notion that shareholders meet physically at a given place and time in order to debate the issues on the agenda, to subsequently form an opinion and to vote the shares accordingly. This idea of a "townhall-meeting" or a "Landsgemeinde" may still be a feasible one for closely-held companies, but it can obviously no longer stand when it comes to public companies where the bulk of shareholders chooses not to participate personally at the shareholders' meeting but to appoint a proxy instead. The result is that resolutions at the shareholders' meeting are mostly a foregone conclusion, the meeting itself is largely deprived of its original functions - besides the actual voting -, i.e. information of and communication among shareholders.
- The U.S. shareholder voting system offers an interesting example of how a shareholder voting system can be designed that no longer rests on the idea of the "town hall meeting" but instead acknowledges the great significance of proxy voting in practice. In particular, the right (and possibilities) of shareholders of a U.S. company to initiate a proxy contest merit a closer analysis.
- The presentation will briefly touch on each of the above issues and attempt to show where U.S. law can serve as an inspiration when it comes to establish a more effective shareholder voting system in Switzerland.
Karim Maizar graduated from the Law School of the University of Zurich in 2003. Prior to his admittance to the Zurich bar in 2006, he was a trainee at the law firm Baer & Karrer in Zurich, where he focused on corporate law, debt and equity capital market transactions and public and private M&A. In October 2006 Karim enrolled as a doctoral candidate at the University of Zurich; his thesis focuses on the shareholder decision-making process in (Swiss) public companies. As part of his research project he is currently working as visiting researcher at Fordham School of Law for which has was granted a scholarship from the Swiss National Science Foundation. Karim will re-join Baer & Karrer in September 2009 as an associate.
Karim has published several articles in the field of Swiss corporate and securities law and he co-authored a number of contributions in a leading commentary on Swiss corporate law (Basler Kommentar OR II, 3rd edition). He is also a co-founder and executive member of the editorial board of the "Schweizerische Zeitschrift für Gesellschafts- und Kapitalmarktrecht sowie Umstrukturierungen (GesKR)", a Swiss law journal focusing on Swiss corporate and capital market law (www.geskr.ch).