Shareholder activist strategies

Strategies

What common strategies do activist shareholders use to pursue their objectives?

Depending on the type of activist, its goals and the company’s takeover defences, activists may use a number of different tactics to pursue their objectives, such as:

  • privately engaging through informal discussions or ‘dear board’ letters (the starting point of most activist campaigns and the preferred tool of most institutional investors);
  • publicly criticising a company’s strategy, governance or performance or calling for a sale, break-up, return of capital or bumpitrage;
  • short-selling stock and starting a public campaign to drive down stock prices;
  • stakebuilding to build up pressure on the boards and signal seriousness;
  • partnering with a hostile bidder;
  • participating in and voting at general meetings;
  • orchestrating a ‘vote no’ campaign;
  • making a shareholders’ proposal or requesting an extraordinary general meeting be convened; or
  • initiating litigation.

 

Processes and guidelines

What are the general processes and guidelines for shareholders’ proposals?

Items requested by shareholders that individually or collectively represent at least 3 per cent of a Dutch company’s capital must be included in the convening notice or announced by the company in the same manner if the company has received the substantiated request or a draft resolution no later than on the 60th day before the day of the general meeting. The company’s articles may provide for a lower minimum percentage (eg, 1 per cent, the former statutory threshold) or a shorter period.

The company may refuse to put an item on the agenda as a voting item (rather than a discussion item) if it concerns a matter that falls outside the power of the general meeting. Exceptionally, a company may refuse to put an item on the agenda if it contravenes the principles of reasonableness and fairness.

The Dutch Corporate Governance Code (DCGC) provides that a shareholder should only exercise its right to put items on the agenda after consultation with the (management) board. 

May shareholders nominate directors for election to the board and use the company’s proxy or shareholder circular infrastructure, at the company’s expense, to do so?

Some listed Dutch companies are subject to the large company regime, in which case the following applies by default. The members of the management board are appointed by the supervisory board (instead of the general meeting) and members of the supervisory board are appointed by the general meeting upon a nomination by the supervisory board. If the nomination is not overruled by the general meeting, the person is appointed; if the nomination is overruled, the supervisory board shall make a new nomination.

The articles of association of many listed Dutch companies that are not subject to the large company regime provide that the general meeting can only appoint directors upon a binding nomination by the (supervisory) board or that the (supervisory) board may elect to make a binding nomination. The binding nomination can typically be overruled either by absolute majority of the votes cast representing at least one-third of the issued share capital (maximum under the DCGC) or by two-thirds of the votes cast representing more than half of the issued share capital (statutory maximum).

If the appointment of a director is not subject to a binding nomination, a nomination can be made by shareholders in accordance with the procedure for submitting a shareholders’ proposal or convening a general meeting.

May shareholders call a special shareholders’ meeting? What are the requirements? May shareholders act by written consent in lieu of a meeting?

Shareholders representing individually or collectively at least 10 per cent of a Dutch company’s capital (or a lower percentage as prescribed in the company’s articles) may request the board(s) to convene a general meeting. The request must set out in detail the matters to be discussed. If the board(s) have not taken the steps necessary to hold a general meeting within eight weeks (or six weeks, if the company’s shares are not listed on a regulated market within the European Economic Area) of the request, the requesting shareholder may be authorised by the district court in preliminary relief proceedings to convene a general meeting provided that they have a reasonable interest in holding such meeting. As part of the reasonable interest test, the court will weigh the interests of the requesting shareholders against the interests of the company.

If shareholders seek to convene a general meeting that may result in a change in the company's strategy, the (management) board may invoke a response time under the DCGC by stipulating a reasonable period of up to 180 days to deliberate, consult stakeholders and explore alternatives (according to case law, this response time must be respected by shareholders absent an overriding interest).

While shareholders of a Dutch public company may pass resolutions outside a meeting if the company’s articles of association so allow, such written resolutions can only be passed by a unanimous vote of all shareholders with voting rights.

Litigation

What are the main types of litigation shareholders in your jurisdiction may initiate against corporations and directors? May shareholders bring derivative actions on behalf of the corporation or class actions on behalf of all shareholders? Are there methods of obtaining access to company information?

Shareholder litigation regarding listed Dutch companies mostly takes place in inquiry proceedings before the Enterprise Chamber. Inquiry proceedings allow shareholders (above a statutory share ownership threshold) of a Dutch company to request the Enterprise Chamber to appoint experts to conduct an investigation into the policy and affairs of the company and to impose certain measures of a definitive or preliminary nature. Depending on the capital structure of the company (ie, low nominal value of the shares), the threshold for an activist to have standing in inquiry proceedings can be very high. The Enterprise Chamber may order an inquiry if the applicant demonstrates that there are well-founded reasons to doubt the soundness and propriety of the company’s policy and affairs (eg, deadlock situations, unacceptable conflicts of interest, disturbed relationships and unjustified use of takeover defences). Based on the reported findings of the court-appointed investigators, the applicant may file a petition for a declaratory judgment that mismanagement occurred. At any point during the inquiry proceedings, the Enterprise Chamber may be requested to impose (far-reaching) interim measures by way of injunctive relief (eg, enjoining the execution of board resolutions, appointing one or more independent directors to the board, suspending voting rights of a shareholder or delaying a shareholder vote).

In addition to inquiry proceedings, shareholders can seek nullification of corporate resolutions (arguing for instance that the resolution is contrary to the principles of reasonableness and fairness to be observed) or bring wrongful act claims against a company or its directors (arguing that a particular conduct of the company or its directors constituted a tort against the claimant).

Derivative actions do not exist under Dutch law. The Dutch Civil Code does provide for a collective action, initiated by a foundation or association whose objective is to protect the rights of a group of persons having similar interests. Previously, such action could only result in a declaratory judgment; to obtain damages, individual claimants had to file follow-on suits based on the declaratory judgment to obtain damages or petition the Amsterdam Court of Appeal to declare a settlement binding upon all injured parties (with an individual opt-out choice). As of 2020, and provided that the action relates to events that occurred on or after 15 November 2016, the restrictions on seeking monetary damages on a collective basis have been removed. At the same time, additional requirements have been imposed on collective action organisations regarding their governance, funding and representation, and there must be a sufficiently strong connection between the collective claim and the jurisdiction of the Netherlands to be admitted. Under the new regime, the court judgment will be binding on all injured parties domiciled in the Netherlands who have not opted out and on all non-Dutch residents who have opted in. The action can also result in a court-approved settlement with binding effect on the aforementioned injured parties, except those who opt out of the settlement.

At general meetings of Dutch companies, boards are required to provide the shareholders with all the information requested by them, unless doing so would be contrary to an overriding interest of the company. Although the concept of discovery does not exist under Dutch law, a party with a legitimate interest may submit a motion to the court demanding the production of specified documents pertaining to a legal relationship to which the requesting party or its legal predecessor is a party.

Law stated date

Correct on

Give the date on which the information above is accurate.

25 March 2021.