Keep (or not) quiet, little one

When the grown-ups talk, the little ones must be silent. This was a familiar scene at many family tables for a long time. In the business world, this is still the case. When the majority shareholders make a decision, the minority shareholders often have to swallow and accept it. However, those small shareholders can point out critical pain points in the organization. It is time that they were heard more clearly.

It is logical that the voice of large shareholders carries more weight in a company than that of small co-owners. Their interests and risks are greater. But it does not mean that minority shareholders should be silenced.

He who pays the piper calls the tune. This basic principle has also worked well for decades in our corporate law. Certainly when companies were formed around people and families who knew each other well because they often came from the same village or region. And if there was any discord between the shareholders, there was always the Catholic Church to put them on the right track and ensure that everyone's opinion was taken into account and that everyone got their fair share. However, the world has changed dramatically. Today, the composition of the shareholding in many companies has become much more international. It is no longer even limited to European and American investors. We are dealing with an influx of (co-)owners from the Middle East, Asia and Russia, as well as traders who are difficult to categorize by nationality. The composition of the share ownership also changes much more quickly. The (co-)owners therefore no longer have time to get to know each other, which causes alienation. The paternalism that used to ensure that smaller shareholders were not cheated has therefore faded and is often absent.

When the doctor looks at the value of the organs

Major shareholders now drive more on their own behalf. I witnessed a flagrant example from the front row. The international commodities trader Trafigura acquired a majority stake in the listed zinc smelter Nyrstar. It was also a supplier, customer and financier. In 2019, it took over all the company's operational activities for a song. Supposedly to save Nyrstar because the company's figures were in the red. As the majority shareholder, he approved the sale to himself. But it actually amounted to strangling and draining the company in order to be able to take it over very cheaply, to the detriment of the small shareholders. I sometimes use a medical metaphor of a patient who is going to die without medical assistance, but who can survive with the necessary medical support. He places his trust in a doctor who inserts a drip – not to save the patient, but to buy time and see which organs he can resell when the patient dies. And if there is any protest, the doctor claims that it was a patient who was already dying.

Large shareholders exploit small shareholders

As minority shareholders, we were not taken seriously in the Nyrstar takeover process, even when we came across numerous flagrant violations of company law. We were forced to take the case to court. There we had to conclude that the majority shareholder could afford to be defended in every possible area by the largest and most expensive law firms. This creates a climate – whether intended or not – in which it cannot be ruled out that judges are extra afraid of making an 'unfavorable' decision for the reference shareholder because they are up against the greatest legal specialists and they opt for a 'safe way out'.

Small shareholders cannot compete with that. Large shareholders with deep pockets can financially exhaust their fellow shareholders in court. It has long since ceased to be a level playing field. A new form of class justice if you will – actively supported by a select group of top lawyers from our own country who happily pass by the cash register at the expense (and even in certain cases at the cost) of the less wealthy minority shareholders.

Majority shareholders also tend to protect themselves with thick reports from consultancy firms (consultants, financial and legal experts). They may not participate in setting up questionable constructions, but in their disclaimers they state that their conclusions are based on information from management and that they therefore reject any further responsibility. By using such disclaimers as a blindfold, they greatly undermine the fundamental reason why they are called upon, namely to provide truly independent advice to enable third parties to ascertain that the reference shareholder(s) and the management appointed by them have fulfilled their duties correctly.

Finally, to the extent that the contested constructions were devised and set up legally by the same lawyers (and law firms) who later took on the defense of the reference shareholder and the management – and thus also of the constructions devised by them – while loudly invoking their client's right to defense, a towering conflict of interest arises on the part of these advisors, which may urgently require more attention. Yet something now seems to be stirring in the Nyrstar case. After years of ignoring the complaints of the minority shareholders and after an earlier dismissal, the Antwerp public prosecutor recently launched a new investigation into possible market manipulation in the acquisition of Nyrstar's activities by Trafigura, and this after the FSMA referred an investigation into possible embezzlement to its Sanctions Committee and to the public prosecutor's office due to serious indications of market deception and manipulation.

Extend FSMA mandate

That is why I argue that small shareholders – and that does not necessarily mean shareholders with limited financial means, large investors can also hold a limited position in a company – should be able to go somewhere to challenge decisions of majority shareholders if they are not in the general interest of the company. In addition, that body should be able to gain access to company documents more quickly and should be able to appoint a special commissioner more quickly.

All of this could be achieved, for example, by extending the mandate of a supervisory body such as the FSMA so that it can act more quickly, effectively and efficiently.

In fact, the investigation at Nystar could have taken place two years ago, or even before the forced reorganization, if there had been an appropriate framework for the complaints of minority shareholders. Then the company might still be a Belgian multinational. Now the decision-making center for an industrial activity has disappeared from our country, which means a general impoverishment of the economic fabric. At a time when access to raw materials is seen as one of the critical components of business management, and knowing that zinc metal, of which Nyrstar is the second largest producer in the world, plays an essential role in the imminent energy transition, this is not a footnote that can be carelessly overlooked.

Appoint a representative for small shareholders

But companies can also do something themselves if they are convinced that good governance means that the interests of all shareholders must be treated equally. For example, they can appoint someone on behalf of the minority shareholders who has access to the company documentation. Or that they are present at board meetings or in committees. Or that they can sound the alarm if they feel that interests are being flagrantly harmed.

It is time that these small shareholders were also listened to. At the dinner table, the truth often comes from the mouths of children, even if the older generation does not always like to hear it. The same goes for shareholders. Here too, minority shareholders often put their finger on the wound. They sometimes look more to the general interest of the company than the reference shareholders.

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