UKSA policy: Shareholder's Rights

Shareholder's Rights are embodied in a Company's Articles of Association and in English Law (mainly by the Companies Acts). However these laws did not appear to have anticipated the current situation where large companies can have hundreds of thousands of shareholders, many of whom are effectively disenfranchised by holding their shares in nominee accounts.

The main democratic forum is a general meeting of the company (Annual or Extraordinary), but again the law often does not reflect the realities of how these meetings currently operate. Indeed, company law is often not specific about how important matters should be dealt with, and leaves the Directors of a company wide discretion in many areas. The detail interpretation of many parts of Company Law relies on legal precedents set by previous cases, which may be few and ambiguous. Other aspects such as information disclosure are covered by the Listing Rules and other FSA regulations, but even here companies often seem to devise innovatory ways around them.

Another defect of company law is that enforcing one's rights can be very expensive and also impractical on other grounds. By the time you get a case to court, the issue may be a dead one, and the likely benefits outweigh the costs of bringing the case.

Some specific issues regarding shareholder's rights are covered in this note that appeared in our Newsletter in 2002.

Many other aspects of this topic are covered in other pages of the Policies section. For example, clearly shareholders as the owners of the business should have the right to determine director's remuneration, the selection of board members, when they are terminated and the severance terms, but that is not in practice the case. Improved consultation on such matters has been introduced in recent years, but there is still a long way to go to create a real shareholder democracy.

A good overview of the original objectives of UKSA, some of which have been subsequently implemented, is in this document. An exposition of the problems of the modern corporate environment, and a possible solution is here. A similar proposal was put forward in March 2009 in a Protection of Shareholders Bill by Bill Cash M.P. - see the UKSA press release for more information see here or see the draft bill.

Lastly the UKSA response to the European Commissions consultation on Shareholders Rights in 2005 is here and a further response on the same subject in 2007 is here. In addition see our response to the consultation on proposed changes to the Companies Act to implement the Shareholder Rights Directive in 2008.