An Analysis of How Minority Shareholders Are Protected in the United Kingdom and Lessons for Developing Countries
Chapter One: Introduction
1.1 Background Information
In modern times, minority shareholders? protection from controlling oppressive majority shareholders is a prevalent phenomenon, especially in developed countries such as the UK. In copious jurisdictions, minority shareholders often are perceived as a superfluous burden by majority controlling shareholders and treated unfairly (Mantese and Williamson 2). Companies? collapse is usually a sign of poor governance and shows the havoc, which can be attributed to the majority controlling shareholders? concentration of power. However, in any company?s crisis, the minority shareholders are usually the leading losers. Notably, conferring to majority shareholders? viewpoints, minority shareholders always tend to surge transaction costs of a company by slowing crucial investments associated with decisions and placing on the management unreasonable demands (Mantese and Williamson 5). Nevertheless, minority shareholders? protection is still an imperative aspect of excellent corporate governance. The mechanical majority rule application without limitations as the fundamental aspect of the contemporary company has detrimental impacts on minority shareholders? interests. For instance, the majority rule is damaging minority shareholders because it decreases their general investments and has limited rights to sue the company (Bawah 156). Although the corporation is created generally to maximize shareholders? value, the board of directors instead of the shareholders became the power centres in concerted shareholding. Thus, with this form of power, the board obtains a leeway to utilize unethical conduct in violating shareholders? interests. Therefore, if these practices are not monitored closely or rectified, it could cause a company?s collapse.
Initially, in the UK, there lacked statutory provision aimed at protecting minority shareholders against discriminatory, oppressive, or prejudicial conduct by majority controlling shareholders. During this time, the only action, which could be taken by minority aggrieved shareholders, was to depend on the present but the limited remedy for dissolving a company on an equitable and just basis as outlined in the common law (Park 9). Nevertheless, things changed with the enactment of the 1948 English Companies Act section 210 (Mukwiri 217). For this reason, the Company Law Amendment Committee commonly referred to as the 1948 Cohen Committee, which was replaced by the Jenkins Committee in 1962, was formed to investigate and develop a recommendation for the improvement and reform of the nation?s Companies Act (Johnston 1001). In this respect, an analysis of how minority shareholders are protected in the United Kingdom and the lessons developing countries can learn is essential.