On July 17, 2009 the Parliament of the Republic of Lithuania enacted a law amending the Law on Companies (further referred to as 's the Law), which, besides other changes, includes quite a few amendments regarding the rights of shareholders of companies listed on the Vilnius Stock Exchange or any other official stock exchange situated or operating in one of the EU Member States. The amendment of the Law transposes Directive 2007/36/EС of the European Parliament and of the Council of July 11, 2007 on the exercise of certain rights of shareholders in listed companies (further referred to as 's the Directive), which had to be transposed in all of the Member States by Aug. 3, 2009, at the latest.
The Law introduces new, or amends existing, non-property rights of shareholders. Namely: 1) the right to ask questions related to items on the agenda of the general meeting, 2) the right to appoint any other natural or legal person as a proxy holder to attend and vote at a general meeting in his name (including the right to appoint a proxy holder by electronic means), 3) the right of shareholder or shareholders, who hold a minimum 5 percent stake of the share capital of the company (before the amendment, the minimum stake was 10 percent), to put items on the agenda of the general meeting of the company and to table draft resolutions (including the right to afore-mentioned actions by electronic means).
All the rights of shareholders introduced by the Law enhance and improve corporate governance. Especially the innovative use of electronic means, which not only enables shareholders from different Member States to cast informed votes at, or in advance of, the general meeting, but also enables the effective and smooth use of proxy voting.
However, one non-property right of shareholders has been left out by both the Directive and the Law. The so called "say on pay" right, which allows shareholders of the company to vote each year in the general meeting on the compensation packages of the company executives and any golden parachutes (the compensation paid for leaving the company). According to the Law, shareholders have the right to vote only on the bonuses paid from the profit of the company (in Lithuanian 's Tantjemos), however this issue will not be discussed in this article.
Theoretically speaking, shareholders, as the owners of the company, should be able to control executives and set their remuneration packages; however, current practice in Lithuania proves otherwise. Board members of some of the companies listed on the Vilnius Stock Exchange are recklessly setting remuneration for themselves without the approval of the general meeting of shareholders. Such actions are clearly creating a conflict of interest between shareholders and board members of the company and should be controlled by introducing necessary changes into the Law.
An exemplary regulation can be found in the United Kingdom, where "say on pay" was made a legal requirement in 2002. Shareholders have the right to decide on the remuneration package of the board, which allows them to have more control over the board members. The drawback of the British legislation is that the shareholder vote in the general meeting is advisory and can be ignored by the board. This happened in May, 2009, when 59 percent of voting shareholders of Royal Dutch Shell, the large oil company, disapproved of the remuneration package of the executive directors, but the company decided to pay it anyway with the uncertain promise to consult with shareholders more closely.
Recently, the U.S. has also passed a similar piece of legislation, called The Corporate and Financial Institution Compensation Fairness Bill, which also gives the right for shareholders to recommend remuneration for the executives. On the continent, the European Union is somehow passive about this question. The High Level Group of Company Law Experts in their final report in 2002 stated that each Member State should decide on its own whether it wants to introduce a mandatory, or advisory, "say on pay" right or not.
The problem with the mentioned advisory view on the "say on pay" is that shareholders are regarded as a herd of sheep, who should be seen but not heard. This clearly goes against the public interest as shareholders of listed companies are eliminated from the most efficient way to control misbehaving board members. However, if a legislator is silent on the issue, shareholders, in accordance with Article 16 of the Law, may introduce the "say on pay" right in a company's Articles of Association. Although this is quite difficult, as it requires qualified majority voting during the general meeting (especially for companies with small and widely spread shareholders), this is currently the only way for transparent and effective control of the corporate "fat cats."
Paulius Miliauskas is a lawyer at Jurevicius, Bartkus & Partners, a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms including Glikman & Partnerid in Estonia and
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