Professor Ingo Saenger

The best interests of the corporation, procedural questions of enforcing individual and corporate rights and legal actions against board members

Issues in the areas of corporate law or corporate governance that will probably be affected most fundamentally by the globalisation and internationalisation of corporate law and corporate governance are:

1.              the best interests of the corporation,

2.              procedural questions, and

3.              legal actions against board members.

One of the most important topics of corporate law worldwide is the determination of the interests of the corporation and the interdependency of the interests of the enterprise with those of the shareholders, the stakeholders, the employees, etc. That affects the operating system of checks and balances as well as the theory of principal and agent. Different approaches not only depend on the legislative parameters but on a diverse and at the same time diversifying understanding of corporate governance. The interests of the corporation are essential for the performance of the management as well as the voting behaviour of the shareholders in any situation. It is also of importance in the context of enforcement of shareholders’ rights.

This is directly connected with two other and mainly procedural issues. In this context one has to distinguish between individual and collective perspectives: The first is whether and to what extent a single shareholder is able to enforce his individual rights judicially. This again will be limited by the best interests of the corporation on the one hand and be dependent on the function of the general meeting as a representative organ.

Secondly, especially in cases of mismanagement, self-dealing or fraud, which are being ignored by officers and the board, there is a demand for law enforcement. The question is, whether legal systems provide means to enable a single shareholder or at least a group of shareholders to bring a lawsuit on behalf of the corporation. Such a derivative action can be justified only because of the failure of the management to exercise their powers for the benefit of the company and its shareholders. Also procedure and requirements vary internationally and is subject to the “investment culture” in particular jurisdiction. This depends on the availability of strong public enforcement agencies that supplement private enforcement of the duty of loyalty. It may be decisive whether institutional investors are involved in corporate governance and, in particular taking a lead in instituting actions on behalf of the company as they can form voting coalitions or ownership in publicly held companies. Thus teaming-up with others to concentrate their powers and have a real impact on fundamental corporate governance issues.