After making proposals to Akzo Nobel, PPG Industries demanded negotiations from the board of Akzo Nobel. Although formally PPG had requested a special shareholders’ meeting and Akzo’s president to be dismissed, the main contention was whether Akzo’s board was obliged to commence negotiations with PPG. In Court it was stressed that it is the board’s imperative to determine an appropriate reaction to PPG’s proposals after careful review. The actual assessment of the Enterprise Court centred on sustainability issues. The Court considered it relevant that the proposals of PPG did not contain many, if any, commitments with regard to research and development, employment, pensions and sustainability issues. The Court omitted however to specify what substantive criteria can be used to assess the legality of Akzo’s actions or the content of PPG’s proposals (OK 29 May 2017, ECLI:NL:GHAMS:2017:1965).
Akzo Nobel is not an isolated case. Listed companies are under permanent threat. The potential distortion of corporate strategy and the consequences for corporate sustainability is not incidental, but structural: listed companies face perpetual threats from the market of corporate control. The market disciplines before it attacks. The external effects can be enormous. Listed companies have a large impact on both their stakeholders and wider society; potentially compromising social, humanitarian and ecological values. In addition, there are conflicting views concerning the mandate of the function of company boards, whether this should be shareholder-oriented or company-oriented, or in other words: whether firms should maximize shareholder value or should protect firm-specific investments and the long-term value of the company as a whole. Notwithstanding the fact that some company law regimes, such as those in the Netherlands, may prescribe the company’s interest and the sustained success of its enterprise as the legal foundation for board actions in takeover attempts, it is not necessarily straightforward that directors adhere to this legal norm. On the contrary, the growing importance of the international capital markets seems to have disciplinary effects: boards have a greater interest in increasing share price (FCLT Global 2016, Graham 1995). The best exemplary manifestation of short termism can be observed in corporate strategies predominantly designed around extensive mergers and acquisitions. It is highly undesirable, however, that trading in businesses supersedes the promotion of the success of the company over the long-term, as a matter of law and public interest.
That listed corporations are increasingly forced to focus on the short term is identified by many public (OECD, European Union, Financial Stability Board, G30) and private (Aspen Institute, FCLT, JP Morgan) institutions. All recognize that these capital market trends could be detrimental to sustainable companies and could undermine the performance of economies in the long run. However the proposed countermeasures – supporting long-term value creation – are unclear; share prices on the contrary are a fact of life. To create a more balanced view it is necessary to delve deeper into the concept of long-term value creation.
We call for a future scenario study on Long-Term Value Creation and Takeovers. Delphi conferences will be organized where representatives from regulators, the judiciary, businesses and academia identify threats and opportunities to M&A practice, forecast future scenarios and develop instruments and policies to anticipate future developments in M&A. It is time to move beyond the long-term/short-term dichotomy.
This research is conducted within Business & Liability Research Network (BLRN), Coherent Private Law research programme of Leiden University.
Authors: Thy Pham, Jelle Nijland, Tim Verdoes, Maaike Lycklama a Nijeholt.