Magister iuris, Analyst of the Legal Department, Supreme Court
Legal Regulation of the Board Structure of Public Limited Companies in the light of Regulatory Communication between the European Union and Member States
Communication denotes a link, connection, movement, announcement and also at the same time interaction, as well as the sending and receipt of information1. It has been noted in literature that communication as a term is so frequently used that it has become ambiguous and carries too many different meanings for people. The most general is considered to be the definition of communication as a certain dissemination of experiences, and one of the possible definitions of communication could be the process of creation of meaning between two or more subjects, one of the important features of which is that the delivery of a message by the sender changes, to a certain degree, not only the addressee of the message but also its sender2.
The law also plays a big factor in the role of creating meanings and delivering a message in society, since one of the possible approaches towards the law is to regard it as a system of regulations; as an intermediary of behavioural models3. On the one hand, according to the general model of communication, the state may serve as the sender of the message in the law, while the persons whose behaviour is regulated serve as the addressees. However, in the contemporary world, communication exceeds the boundaries of communication between the creator of the regulation and its addressees - messages are exchanged between the regulatory systems of different countries and even different legal systems. Due to Estonia's position as a European Union member state, that part of regulatory communication which is manifested in the interaction between a member state and supra member state regulations, carries significant weight. In this way, both the Community and its members signal each other as to which mechanisms of legal regulation are mutually desirable and efficient, in order to ensure the compliance of the content of law with its objective. The same mechanisms also apply in company law - on the one hand, the European Union provides guidelines for member states, aimed at guaranteeing freedom of establishment and the organised architecture of the common economic environment; on the other hand, there is also interaction between the legal environments of different member states. It has even been noted in legal literature, recently, that the competition between legal environments need not be a negative phenomenon, since it compels national legal systems to adjust themselves to the demands of investors and thus contributes to their development4. Harmonisation has been less painful and faster in several areas of law than in the issues concerning the structure of the boards of large public limited companies5. The objective of this article is to analyse the differences found in the legal regulations of the board structure of the public limited company in European Union member states, what kind of interactions operate between the law and implementation practices of different states, what relevant development trends can be identified in the European Union, and what message such trends could deliver to Estonian statutory company law. The article also discusses what the message is that the board structure rules, contained in Estonian law, carry for the other member states. Because of the manner of setting the theme above, the possible development of Estonian company law in legal regulation of the board structure of the public limited company has also been discussed.
It is well known in comparative company law that some countries have maintained the one-tier board structure in the public limited company, while other countries have just as consistently legalised the two-tier structure. The United States of America and the United Kingdom, above all, have been referred to in literature as the representatives of the monistic model, whereas Germany is designated as being the representative of the dualist model6. The border separating the area of application of one-tier and two-tier governance models cannot be drawn in the same place as the boundary between the Anglo-American and continental European legal systems. In addition to England and Ireland, according to the classification developed by Klaus Hopt at the end of the 1990s 7 , the representatives of the monistic model also include Southern European countries such as Spain, Italy, Portugal and Greece; whereas the representatives of the two-tier model comprise, in addition to Germany, Switzerland, Austria, the Netherlands and the Scandinavian countries. France and Belgium, in turn, represent a model in which it is possible to choose between a one and two-tier structure8. Since German company law has also served as an example for the development of national legal systems in several Eastern European countries, the representatives of the two-tier model also include countries like Poland, the Czech Republic, Slovakia, Bulgaria and Latvia9.
It is a characteristic of the one-tier model that the board structure of the company, as a rule, comprises one body that is entrusted with the task of both organising the everyday economic activities, strategic management and supervision in a wider sense. Within one body, competence may be divided between different persons; however, this does not mean that the board structure has two tiers. Further to that, the board structure comprising several directing bodies need not represent purely two-tier management. Udo Brändle and Jürgen Noll have pinpointed as the main distinguishing criterion, the fact that the management and monitoring functions are separated on the level of the organisation and individual10. A similar principle has also been used for distinguishing between one and two-tier management in the comparative study of the company governance codes of the member states, prepared by the Commission of the European Communities in 200211. It must be considered determinative to what extent the principle of separation of powers within the company has been developed, while above all it must be assessed to what degree the management of everyday economic activities has been separated from the monitoring exercised over that and how the formation of bodies has been regulated from the aspect of independence of supervision. Proceeding from this criterion of assessment, the board structure of British listed companies may sooner be considered to be a two-tier one, while the management of Swedish public limited companies is carried out on one tier. The contrasting of the one-tier board structure of the public limited company with the two-tier one became topical in law, above all, within the framework of the European Union because articles 44 of the consolidated version of the Treaty establishing the European Community 12 inter alia sets the goal to ensure freedom of establishment in the Community by harmonising the company law of the member states to the greatest extent possible13. At the time it was found that, ideally, the creditors of the companies of all member states should be legally in the same position so that economic, not legal, environments could compete among themselves14. Since the board structure of public limited companies differs both in the European Union and on the world scale, it has been important for scientists and practitioners planning harmonisation to identify the reasons behind such differences.
The main reason for the different development of board structures of public companies in different states has been, as mentioned in literature, the capital market differences between the states. For example, in Germany, a considerably higher number of companies are under the influence of majority shareholders as compared to those in the United Kingdom.
Thus, in 1996, 85.4% of the biggest listed public companies in Germany had one majority shareholder who held over 25% of the shares, and 57.3% had a shareholder holding the absolute majority (i.e. a shareholder holding over 50% of the votes)15. A similar situation also prevailed in France and Belgium, according to literature.
The concentration of participation is somewhat smaller in the remainder of continental Europe; however, it is still significantly higher than in the United Kingdom, where the interest in public companies is extremely fragmented16. The structure of the shareholders in Anglo-American and continental European public limited companies also differs - it is much more common to invest via institutional investors 17 in the United Kingdom, where the latter control over 50% of the large companies 18 and the proportion of non-professionals among investors is consequently much lower (only about 20-30%). Companies which are not professional investors also hold 20-30% of the shares of comparable companies in Germany, France and Italy, whereas institutional investors only hold 10-30%, and private persons 15-35% of the shares. The third difference is that the public limited companies of the countries that represent the Anglo-American model are, as a rule, larger companies than their counterparts in continental Europe; a significantly higher number of them have been listed, and consequently their shares are more liquid19. The establishment of different board structures has also been attributed to the different political as well as socioeconomic trends of the countries20.
It has been noted in legal literature that the establishment of different goals for...