The Shareholder Rights and Activism Review: Greece
Greek corporations, either listed or non-listed, have various types of shareholders, as is the case with corporations in other jurisdictions. There are shareholders holding small stakes, traditionally plagued with apathy vis-à-vis corporate affairs; these are usually passive, retail, investors who have put part of their savings in shares. There are, also, 'shareholders-owners' that are often the founders (or family members thereof) of the company and are usually actually involved with the management of the firm. From a time horizon perspective, Greek corporations may have long-term shareholders (usually domestic pension funds) and short-term shareholders (usually foreign private equity or index funds) who are just looking to make a quick buck by cashing out when the share price goes up. The interests of these various types of shareholders are divergent, particularly when the company is not performing well and the cash pool available for distributions is shrinking. Greek (case) law requires the management of the company to conflate all those varied interests to the extent possible. But in Greek practice the management is often advancing the interests of the majority shareholders, the 'shareholders-owners', that are linked to the founders or the founding family of the corporation; this holds true both for non-listed, as well as listed corporations (very few Greek listed corporations have dissipated ownership).
This tendency of the management of Greek corporations to advance the interests of the majority shareholders is in a way encouraged by the apathy of institutional investors, who often hold small percentages in the share capital. The typical Greek corporation (especially the non-listed one) is dominated by the close and personal relationship between the majority shareholders and the management that subsequently results in the business being run like a general partnership. The corporate governance and management of corporate affairs is not assigned to professional directors and managers but it is often exercised by the majority shareholders themselves or their relatives and their loyal employees. As a result, the management of the company does not often exercise good corporate governance; related party transactions are the norm across corporate Greece, and minority shareholders are often the victim of abusive share capital increases and 'tunnelling' tactics orchestrated by the majority and the management. As a result, a growing number of Greek corporations have recently witnessed a surge in pressure exercised by minority shareholder activists who are looking to do away with wasteful tactics employed by the management.
The recent surge in shareholder activism is, to some extent, spurred by recent legislative changes in the core law on corporations (Law 4548/2018), which, inter alia, transposed (and codified) into Greek law the Shareholder Rights Directive.2 These reforms have introduced simple and flexible rules that allow quick decision-making and business initiatives, emphasising transparency, flexibility and reduction of corporate red tape. The law awards a series of rights to minority shareholders depending on the amount of share capital that they hold.
Legal and regulatory framework
i Shareholder rights
Every shareholder in a Greek listed company has three default powers. These are the power to: (1) vote in shareholders' meetings; (2) sell shares and to receive dividends, if the corporation is marking a profit; and (3) challenge certain corporate resolutions in court. Apart from these default powers, Greek law introduces a number of 'activist rights' that are dependent on the shareholder holding a minimum percentage of the share capital; shareholders may typically exercise these rights either alone or collectively (thus adding up their percentages, so they reach the minimum percentage set by law).
Shareholders of 5 per cent
Shareholders holding at least 5 per cent of a company's share capital are entitled to apply for the convocation of an extraordinary shareholders' meeting. The board must set the date of the meeting within 45 days, and any protracted tactics of the board in relation to the convened meeting should be avoided. Minority shareholders in Greece make use of this right in order to bypass the board and raise current issues for discussion and resolution directly by the shareholders.
Following the convocation of a shareholders' meeting (either by the board or by shareholders), minority shareholders holding 5 per cent may request the board to add items to the meeting's agenda. This enables shareholders to, for example, nominate directors, seek the removal of incumbent directors and thus contest the choices of the almighty majority shareholder in a typical Greek corporation. The request must either be justified by the shareholders or accompanied by a draft resolution, so that the rest of the shareholders are facilitated in exercising their voting rights. Where the shareholder-added items are not properly posted prior to the meeting, the requesting shareholders are entitled to request the deferral of the meeting either in full or for certain issues; if a resolution is nonetheless entered into by the meeting, the requesting shareholders may seek the nullification thereof in court in the aftermath.
In particular, the request for the deferral of decision-making by the general assembly either on all or some of the issues on the agenda enables minority shareholders to make an informed decision and to avoid any surprises by the majority. The right is exercised at the meeting itself, and the chair of the board must defer the decision-making of the shareholders' meeting and designate the new date thereof.
Furthermore, minority shareholders holding 5 per cent are entitled to table draft resolutions to the board on issues included in the original or any revised agenda. This right enables the minority to present its views and arguments on specific issues, to enhance the transparency of the general meeting and to facilitate other shareholders in decision-making. The draft decisions should be made available to the shareholders at the latest six days before the date of the shareholders' meeting.
Minority shareholders holding 5 per cent may also request information on the amounts paid to each member of the board or the directors of the company, as well as any benefit given to these persons for any cause or contract of the company with them. This request for information is addressed to the company, and the board is responsible for providing it. This right as well as the provision of open voting at shareholders' meetings both enhance transparency and allow the shareholders to be informed regarding the view of the other shareholders and their possible motives regarding specific issues on the agenda of the shareholders' meeting.
In addition, minority shareholders are entitled to oppose the ex post approval by the shareholders' meeting of a related-party transaction; this is effectively a veto right.
A minority right of major importance is the 5-per-cent-shareholder's standing to commence special audit proceedings. This right, often referred to as the 'management control right', seeks to redress the power imbalance between majority and minority within the company that derives from the fact that decisions at the shareholders' meeting are taken by the majority shareholders. An audit is requested when there are suspicions regarding accounting irregularities, such as the registration of virtual expenses in the company's books, revenue shrinkage or the conclusion of a loan without a respective accounting statement. Besides accounting irregularities, the audit may be requested in the event of non-convention of a shareholders' meeting or the non-compliance over a deadline for the payment of contributions during a capital increase, or where salaries have been paid to persons who did not contribute with their services. The extraordinary audit is not only a preventive but also a restraining tool of control, transparency and information, thus improving corporate governance structures. Its value is of particular importance, when the company is trying to collect evidence in relation to wrongdoing or breach of duty by directors that may down the line result in liability proceedings against them.
Minority shareholders have the right to request the nullification of a shareholders' meeting resolution when the resolution has been entered into illegally or contrary to the provision of the company's articles of association. This right has proven in practice to be particularly potent in cases of abusive share capital increases, where the sole purpose of the majority is to dilute the minority even further; suing shareholders may claim that the resolution regarding the share capital increase has been entered into as a result of an abuse of rights by the majority and as such it is plagued with 'substantive illegality' and should be nullified.
The ultimate tool awarded to minority shareholders holding 5 per cent is the right to set in motion the mechanism that shall eventually result in liability proceedings against members of the board or executive officers, or both. Shareholders are entitled to request the board to proceed with filing a liability action against a director or officer when the company has suffered damage as a result of an act or omission of due to breach by the individual of his or her duties to the firm. Where the board dismisses the request or stays inert, then the shareholders are entitled to submit a court request for the appointment of a special representative who shall then file a liability lawsuit against the members of the board on behalf of the company.
Minority shareholders of 10 per cent
Minority shareholders holding at least 10 per cent of a company's share capital are further equipped with the right to apply to request the board to provide the shareholders' meeting (regular or extraordinary) with information on the course of corporate affairs and the assets of the company; the breadth of the requested information is based on the increased shareholder's interest in the development and the situation of the company.
In addition, minority shareholders may oppose the decision of the shareholders' meeting regarding the remuneration or benefits of the members of the Board and indicate the amount at which the remuneration should be set on the condition that they also indicate on what figures their suggestion is based (i.e., the type and size of the company, the exact position and engagement of each member).
Shareholders of 20 per cent
Shareholders holding at least 20 per cent of a company's share capital are further entitled to request the audit of the company when during its course of business and based on specific indications it becomes evident that the management of corporate affairs is not exercised as required under sound and prudent management. Indicative examples of behaviour that may trigger the right may be the agreement of a disproportionately large loan for risky investment, the provision of credit to unsecured customers, risky transactions or reckless and unnecessary expenses.
Each shareholder individually, irrespective of his or her holdings in the company's share capital, is entitled to submit an application to the company and request the board to provide the shareholders' meeting with specific information on the company's affairs, insofar as they are relevant to the items on the agenda. In addition, each shareholder may request to be provided with the company's share registry, in order to, inter alia, facilitate communication with other shareholders or to seek the coordination of their action (this right is subject though to the existence of a relevant provision in the Articles). Also, the articles of association of a company may provide that a specific shareholder or shareholders have the right to directly appoint members of the board of directors, but not more than two-fifths of the total number; direct appointment rights (enforced on the basis of the firm's Articles rather than on the basis of a shareholders' agreement) have proven instrumental in attracting foreign investment in Greece by institutional investors that want to directly engage with the management.
'Acting in concert'
The recent legislative overhaul of the core law on corporations has introduced the right of minority shareholders to establish a shareholders' association in order to exercise the minority rights on behalf of their member shareholders. The existence of the association is believed to facilitate the exercise of minority rights. Shareholders can exercise their activist rights in an organised manner without wasting time and resources; minority shareholders may act in a coordinated manner even if they do not individually hold the required percentages of the paid-up capital. In general, the aforementioned shareholders' association is an institutionalised vehicle of shareholder activism that shall hopefully resolve the collective action problem of shareholders.
ii Corporate governance
The Greek Law on Corporate Governance, which transposed part of the EU Shareholder Rights Directive II, introduced a deep reform in the corporate governance rules applicable to Greek listed companies and adopted provisions encouraging the long-term shareholder engagement of shareholders. The Law is part of the government's plan to attract investors and boost the Greek economy by adopting the most recent trends in best governance practices.
Listed companies are required to adopt a policy that sets the eligibility criteria for the appointment of the board's members such as experience, integrity and reputation. Also, stricter independence criteria have been set for the composition of the board, thus the number of the independent non-executive members has been increased and should be at least one-third of the total number of the member of the board. There are newly introduced provisions for the minimum obligations and responsibilities of the executive and non-executive members. Apart from the existing audit committee, companies are now obliged to establish a remuneration and a nomination committee.
The new Law provides the requirements for the exercise of shareholders' voting rights in listed companies and encourages the long-term shareholders' participation. The establishment of the 'shareholder service unit' is intended to provide equal and immediate information to shareholders and to facilitate them for the exercise of their rights, as well as to inform them about other issues provided by law, such as the distribution of dividends, the provision of information on shareholders' meetings and the resolutions entered into by them.
iii Disclosure requirements
As in any other Member State of the EU, shareholders of listed companies who are crossing the threshold that awards them standing to exercise 'activist rights' have to make themselves known to the firm. In compliance with transparency requirements (arising from the Transparency Directive) where a shareholder acquires or disposes of the shares of an issuer whose shares are admitted to trading on a regulated market and to which voting rights are attached, he or she must notify the issuer and the Hellenic Capital Market Commission of the proportion of voting rights held as a result of the acquisition or disposal where that proportion reaches, exceeds or falls below the thresholds of 5, 10, 15, 20, 25, 33.3, 50 or 66.6 per cent. The management of Greek companies already feels the pressure, when the news comes in that a major institutional investor is building a minority stake in the share capital. It has been noticed that management of Greek firms may on its own volition make progress on the corporate governance front merely as a response to the news that a shareholder is building an equity position that allows the potential exercise of 'activist rights'.
Key trends in shareholder activism
Recent corporate scandals, such as the one related to the Folli Follie Group, have led to a rising concern about the standards of corporate governance in Greek companies. Shareholders-owners that are quite often the founders of the company or family members thereof continue to dominate the management of the vast majority of listed Greek non-bank corporations. This naturally opens up possibilities of abuse and corporate waste; non-Greek minority shareholders have now started to be put on alert. During the long Greek debt/economic crisis, Greece's creditors, mainly the EFSF and the IMF, imposed a series of corporate governance reforms in the four systemic Greek banks where non-executive directors had been elected. It seems that reforms have been incorporated more efficiently in the financial industry during the past decade under the direct influence of Greece's creditors, whereas non-bank corporates seem to still be lagging behind in this respect.3
The need to encourage minority shareholders to exercise their rights is a constant challenge in Greek corporate governance. The typical minority shareholder of a Greek company is plagued with 'rational apathy'.
In particular, it is noted that shareholders tend to be primarily interested in the return on their investment either in the short or long term and less for the company itself. This may be caused by many factors, such as the lack of necessary know-how and resources that would help them participate actively and exercise their rights. Shareholder advisory services are not commonly used in Greece, and retail investors in particular are not aware of them at all. Thus, shareholders lack the necessary information to be able to evaluate complex strategic issues and options, complex transactions of the company or other matters which are submitted for approval by the shareholders' meeting. On the other hand, the benefit that shareholders with a low percentage of rights may have from their involvement in these issues may be very small in relation to the time and effort they have to invest in order to actively participate, thus this is a disincentive for their engagement. Therefore, the cost, time and the benefit that the minority shareholders may acquire is insignificant.
The new Greek core law on corporations, which transposed, inter alia, the EU Shareholder Rights Directive, provides concrete measures that enhance the engagement of shareholders in corporate governance as well as the transparency of their participation. Various provisions therein regulate the extent and quality of the active participation of institutional investors and asset managers in the companies in which they invest, ensuring the reliability and quality of advice provided by proxies and the facilitation of the transmission of cross-border information through the verification of shareholders' details.
Despite the structural weaknesses, Greece has recently become an attractive investment destination not only for foreign state-owned enterprises but also for institutional and activist investors. Activist investor funds, private equity firms, global asset management firms and proxy advisers have already pursued and keep pursuing their campaigns by targeting Greek companies with questionable standards of corporate governance and weak shareholder engagement. The aforementioned activists often develop a position consisting of shares in well-known and market-leading companies in different industries, such as mobile and broadband network operators, construction groups and healthcare companies.
Recent shareholder activism campaigns
i OTE – Amber Capital (2019)
Amber Capital, a British activist investment fund and a minority shareholder holding 2 per cent in the share capital of Greek listed company OTE, pushed for board change in 2019. In particular, the fund formally requested the election of Mr Alberto Horcajo on 23 May 2019 as an independent non-executive deputy chair and board member. According to the Financial Times, Mr Horcajo's candidacy was also backed by Institutional Shareholder Services, a leading proxy adviser.4 Giuseppe di Mino, Amber Capital's managing director, praised OTE's Athens-based management team for their handling of 'very difficult market conditions' during the country's eight-year recession but said that corporate governance at the group was inadequate and in need of a reform.
In a letter to Deutsche Telekom, the majority shareholder of OTE, Amber Capital's managing director urged Deutsche Telekom to back Amber Capital's candidate for deputy chair arguing that minority shareholders would be better represented by a deputy chair that has not been sponsored by the controlling shareholder. However, in the extraordinary annual meeting of the company, on 12 June 2019, Mr Horcajo failed to obtain the necessary votes for his election, and instead, Mr Eelco Blok, whose candidacy was supported by Deutsche Telekom, was elected.
ii Ellaktor – Reggeborgh (2021)
The Dutch investment company, Reggeborgh Invest BV, which owned 14.2 per cent of the Greek listed constructing company Ellaktor SA and controlled as much as 26.7 per cent via a call option, sought a management change, accusing the management of losing projects and the firm of being highly leveraged and short of liquidity.5 Reggeborgh also pledged to fill funding gaps, while a new board would be tasked with developing a strategy plan. The Dutch company stated that it will do 'whatever it takes' in order to take control of Ellaktor and convene an extraordinary general meeting regarding the change of board of directors and a management audit for the last two financial years. It had already invested significant funds in Ellaktor and believed that the change of management was necessary in order to signal the restart of the company needed to inspire confidence in the market.
In fact, Reggeborgh won the proxy fight as the extraordinary general meeting of shareholders voted in favour of its proposal to change the board of directors. Specifically, in the crucial vote, 61.14 per cent of the shareholders who participated in the general meeting voted in favour of Reggeborgh' s proposal against 38.77 per cent who voted against it. The Dutch company started by removing the chief executive officer and other board members of Greece's Ellaktor while planning to increase the share capital.
Shareholders are limited in their ability to hold directors accountable and improve board quality. In some listed companies in Greece, no matter how dissatisfied shareholders are, they have to wait up to several years to hold board members accountable. However, the Greek Company Law on Sociétés Anonymes as well as the Law on Corporate Governance, both of which transposed the EU Shareholder Rights Directive, are intended to improve shareholder participation in listed companies and may have an impact on campaigns of activist shareholders. The Law on Corporate Governance has been recently enacted in Greece, and companies still have not properly implemented the provisions thereof in their corporate governance practice.
Therefore, currently it seems that there is no discussion for further regulatory development in Greece, although there are currently voices claiming that the Greek corporate scene would benefit from a specialist court for corporate law matters as is the case in other jurisdictions (e.g., the Netherlands).
The Law on Société Anonymes and the new Law on Corporate Governance provide an array of rights under which shareholder activism in Greece may play a greater role in the future. The existence and the possibility of exercising the rights of the minority is beneficial for the company and leads to the achievement of corporate goals as well as the attraction of investment funds.
Campaigns of shareholder activists are expected to increase. The growing importance of online services and social media will continue to facilitate shareholder activists' campaigns. Shareholder activism in Greece may have a positive impact leading to more transparency and efficiency of Greek companies.
1 Pavlos Masouros is a partner and Antonis Nikolaidis is an associate at Masouros & Partners Attorneys at Law.
2 EU Shareholder Rights Directive, Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement (Text with EEA relevance).
3 See online article, Institutional and Activist Investors, OTE and Corporate Governance, available at: https://hocg.eu/news-updates/institutional-and-activist-investors-ote-and-corporate-governance/.
4 Financial Times (2019), Greece's OTE faces activist push for board change, Retrieved from: https://www.ft.com/content/e3315642-892e-11e9-97ea-05ac2431f453.
5 Bloomberg (2021), Reggeborgh Prevails in Proxy Battle Over Greece's Ellaktor, Retrieved from: https://news.bloomberglaw.com/esg/reggeborgh-prevails-in-proxy-battle-over-greeces-ellaktor-1?utm_source=rss&utm_medium=CTNW&utm_campaign=00000177-460e-dd8f-adff-de5fcb4d0003.