Responsibilities and Duties of Board Memebers in Listed Companies in the Light of Shareholders' Individual Rights in Acquisitions

Abstract

This thesis addresses the shareholders’ individual rights when a Danish listed company receives an offer on the company’s assets and at the same time a public takeover bid. The thesis is inspired by the asset sale in the listed company, Topsil Semiconductor Materials A/S to Taiwan GlobalWafers Co. Ltd. back in 2016. Topsil’s board of directors chose to sell the main activity/assets in Topsil at a time where a public offer for the purchase of the shares was pending. The shareholders’ where not giving the opportunity to reject or accept the public takeover bid as the board of directors assessed that the asset deal was the most favorable bid. Under current legislation, the board of directors has the authority to frustrate a public takeover bid in favor of an asset deal, unless the General assembly has adopted the board neutrality rule found in Section 339 of the Danish Company Act. The board neutrality rule provides that during the bid period, the board must obtain the authorisation of the General assembly before taking any action that may result in the frustration of the public takeover bid. This rule is an attempt to prevent self-serving conduct where the board may maximize its own utility and avoid being affected by external market mechanisms such as a Market for Corporate Control. Even though the board is obligated to protect the shareholders' individual rights and ensure maximization of shareholder value, the board is not always able to consider each individual shareholder valuation of the company, as in the case of Topsil. This is due to each shareholder’s individual preferences and their expected rate of return. Based on above, it is concluded that the board should not be able to take any action that may result in frustration of the public takeover bid without obtaining the authorisation of the General assembly. This will ensure an efficient capital market where the shareholder's individual rights represent a fundamental right. As the rule is rarely used by listed Danish companies, the current implementation of Section 339, the Board Neutrality Rule, does not create the intended protection of shareholder rights. Through an interdisciplinary corporate law, game theory and governance analysis it is found, that an amendment of Section 339 of the Danish Company Act could result in a Kaldor-Hicks improvement and increase utility for the shareholders, which may also be applicable to the Topsil case. An amendment of Section 339 of the Danish Company Act will lead to a paradigm shift from a stakeholder value view into a more shareholder value-based approach. It would also lead to a greater legal certainty for all shareholders and hence, a more efficient capital market.