No C 269/48 Official Journal of the European Communities 14. 10. 91 
Page 5 — point 2.9 
Delete the third and last sentence of 2.9 and replace with the following: 
'There could be a large increase in insurance premiums to meet the possible increase in claims. Although 
increases are acceptable in order to enhance protection for the victims of defective services, the proposal 
encourages price rises while failing to facilitate the processing of cases involving defective services.' 
Reasons 
The reference to the situation in the United States is inappropriate, since legal practice in that country is 
fundamentally different. 
Results of voting 
For: 44, against: 66, abstentions: 16. 
Opinion on the Second Amendment to the proposal for a Fifth Council Directive based on 
Article 54 of the EEC Treaty concerning the structure of public-limited companies and the 
powers and obligations of their organs 
(91/C 269/15) 
On 13 February 1991 the Council decided to consult the Economic and Social Committee, 
under Article 54 of the Treaty establishing the European Economic Community, on the 
abovementioned proposal. 
The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing 
the Committee's work on the subject, drew up its Opinion on 5 June 1991. (Rapporteur: 
Mr M.G. Bell.) 
At its 288th plenary session (meeting of 3 July 1991) the Economic and Social Committee 
adopted the following Opinion by a large majority vote in favour, 5 against with 
27 abstentions. 
1. Introduction 
This proposal is closely linked with another current 
proposal relating to the Second Directive, on which the 
Committee has also prepared an Opinion (*), and to the 
amended proposal for a Thirteenth Directive which is 
currently before the Council of Ministers, and on which 
the Committee has adopted an Opinion on 28 February 
1991 (2). 
2. General remarks 
2.1. The Committee agrees with the broad thrust of 
the Commission's intention to reduce existing barriers 
to takeovers in order to create a 'level playing field' 
for takeover activity across the Member States of the 
Community. 
(1) Opinion adopted on 3 July 1991. 
(2) OJ No C 102, 18. 4. 1991, p. 49. 2.2. However, takeovers do not themselves necess­
arily bring benefit to companies or shareholders if 
they take place without good cause. Unnecessary 
takeovers can damage long-term planning, and 
research and development, can have undesirable 
regional effects, can endanger jobs, and can cause 
financial instability. Extremes of takeover activity 
such as seen in the United States are not beneficial, 
and changes to the EC legal regime should not 
encourage such activity. 
2.3. The Committee is also concerned that a proper 
balance should exist as between the takeover regime 
of the Community and those of external countries. 
While external investment into the Community is to 
be encouraged, this should not be a one-sided affair. 
It should be possible for the Community to impede 
hostile takeovers emanating from countries that them­
selves erect significant barriers to foreign takeovers, 
14. 10. 91 Official Journal of the European Communities No C 269/49 
with the intention of encouraging the removal of 
those barriers. 
2.4. The effect of the Commission's new proposal 
for amendments to the Fifth Directive will be to 
strenghten the voting rights of shareholders. The Com­
mittee accepts this aim and welcomes it, provided that 
the shareholders can exercise their strengthened voting 
rights whenever and however they like or, should the 
need arise, waive their rights. The proposal is of general 
application, and will have effect in many circumstances 
other than during the progress of a takeover offer. 
Although such an offer represents a particularly 
important moment in the life of a company, it does 
nonetheless seem correct that the voting rights of share­
holders should be subject to as few restrictions as 
possible, other than any that they themselves desire. 
2.5. In view of the over-riding importance of a take­
over offer in the life of a company, and in the light of 
the prevalence of arrangements for proxy voting in 
certain Member States, the Committee feels that the 
Fifth Directive (or possibly the Thirteenth Directive) 
should include wording to place a positive requirement 
on a company to inform its shareholders of an offer, 
when they are known. The requirements of the Thir­
teenth Directive in this respect seem to fall short of 
ensuring that shareholders are necessarily to be infor­
med at their own addresses. Alternatively or addition­
ally, a requirement could be placed on depositary insti­
tutions and other proxies such as credit institutions to 
pass on information to the underlying shareholders 
(again, to the extent that they are known) about the 
existence or progress of a takeover offer, as is already 
the case in some Member States. 
2.6. In this connection, the Committee would like 
to point out to the Commission that Article 28 of 
the Fifth Directive is incomplete. This Article deals 
with public invitations to shareholders to give voting 
proxies. Inter alia, it limits the validity of such a 
proxy to one shareholders' meeting, requires that full 
information should be sent to each shareholder, and 
requires that a proxy vote be cast according to a 
shareholder's instructions. 
The Committee would like to see similar rules applied 
to all bodies with which shares are deposited, such 
as credit institutions. They should be prevented from 
exercising proxy rights unless they have received spec­
ific instructions from the shareholder. At present, in a 
number of EC States voting rights can be exercised 
without authorization being given; the shareholder is 
presumed to have conferred proxy rights should he fail 
to reply to a communication by an arbitrary date. The 
Committee deplores this practice since it can result in 
bodies which are merely depositaries being entrusted 
with considerable power over the management of a business without proper authorization from share­
holders. 
2.6.1. The Committee would also like to see a 
requirement that all employees should be informed in 
good time about the existence and course of a takeover 
offer. The Thirteenth Directive requires the communi­
cation of offer documents, etc. to workers' representa­
tives. The company management could be required to 
pass on at least minimum details to the employees 
themselves, too. 
2.7. The Commission's proposal does not include 
any changes to the transitional provisions of the Fifth 
Directive, included in Article 64. As drafted, these single 
out Article 2 (setting up of the company's organs) for 
a transitional period of four years, and perhaps by 
extension the period of four years would also apply to 
Articles 4 and 21b, which are concerned with voting 
procedures for appointing the members of the organs 
(and which are the subject of part of the current pro­
posal). 
2.8. The Committee would ask the Commission to 
consider whether four years is really necessary to adjust 
voting procedures in the many Community companies 
whose supervisory and administrative board arrange­
ments already conform quite closely in many respects 
to the models of the Fifth Directive, and whether the 
eighteen months allowed for other changes would not 
be a more appropriate period. 
2.9. As regards the changes proposed to Article 33, 
the Committee feels that a quite long transitional 
period will be desirable for some changes. The 
removal of some established shareholders' voting 
rights, however desirable, will be seen to cause a 
permanent diminution of value, and time must be 
allowed for adjustment to take place. In respect of 
the limitations on the issue of preference shares, the 
Committee is concerned about the impact on the 
financial structure of existing companies in those 
Member States that do not currently have such 
restrictions, and suggests that Member States should 
be allowed to set long transitional periods. 
2.10. The Committee notes that Article 63c of the 
Fifth Directive places a requirement on the Commission 
to report on the implementation of its proposals, and 
requests that the Committee should be included with 
the Community institutions to which the report is to 
be made. 
2.11. The Committee is aware that adoption of the 
Fifth Directive and the proposed amendments by the 
Council may be delayed, perhaps for a long period. 
No C 269/50 Official Journal of the European Communities 14. 10. 91 
The Committee regrets that in this way the Com­
mission's proposals to strengthen shareholders' rights 
in so far as they relate to takeover activity may be 
deferred because of the more contentious aspects of the 
Directive. The Committee therefore asks the Com­
mission to consider incorporating the relevant parts of 
the proposals into the Thirteenth Directive, or to pre­
sent them as a separate Regulation, which could come 
into force more quickly and surely than the Fifth Direc­
tive. 
3. Commentary on the Articles 
3.1. Article 4 
The new paragraph proposed by the Commission will 
ensure that the whole body of the general meeting is 
able to nominate at least 50 % of those members of the 
supervisory board that are within its power to appoint. 
The Committee agrees with this strenghtening of share­
holders' rights and welcomes the proposal. 
It will remain possible for the memorandum or articles 
of association to place limitations on the nomination 
of up to 50% of those members of the supervisory 
organ to be appointed by the general meeting. It is of 
course envisaged by the Fifth Directive that in certain 
circumstances up to 50 % of the members of the super­
visory organ would be appointed by the employees, and 
not by the general meeting. It would therefore appear 
to be possible that as few as 25 % of the members of 
the supervisory board could fall to be freely nominated 
by the general meeting. 
The Committee understands from the Commission that 
the wording of the Fifth Directive covering these points 
is under review. The Committee accepts the reasoning 
of the Commission as put forward in its explanatory 
notes, and trusts that is will be reflected in the final 
wording as it emerges from discussion. 
The Committee also accepts that the current proposal 
is not of itself calculated to affect the balance struck by 
the Fifth Directive between the interests of the general 
meeting and those of the employees. 
3.2. Article 21b 
Identical remarks apply to the new paragraph proposed 
for Article 21b, as for Article 4. 3.3. Article 33 
3.3.1. The Committee agrees with the Commission 
that the voting powers of shareholders should be in 
proportion to the size of their shareholdings, since this 
normally reflects the amount of their investment in the 
company. 
3.3.2. As noted under 2.9 above, the removal of 
existing restrictions on the voting rights of larger share­
holders may adversely affect the interests of other exist­
ing shareholders, and time must be allowed for adjust­
ment to take place. 
3.3.3. The proposal to limit the issue of voteless 
preference shares to 50% of the subscribed capital is 
generally acceptable. The Committee is not aware of 
any compelling intellectual argument for such a rule, 
or indeed against it; but it is true that a number of 
Member States set such a limit of 50 %, and it is perhaps 
easier to fall in line with this situation than to set a 
new and equally arbitrary limit at some other level. In 
view of the existing wide differences in practice among 
Member States, and the speed of change in capital 
markets, the Committee feels that the limit of 50% 
should be reviewed after say 5 years. 
3.3.4. Rapid development of capital market instru­
ments in recent years, which can be expected to acceler­
ate in the single European financial market, is leading 
to greater complexity in the capital structure of com­
panies. This may cause some difficulties of definition 
in the calculation of the value of a company's share 
issue. Techniques already exist in some Member States 
by which this calculation is based on market value 
rather than subscribed value, which may bear little 
relationship to the current worth of a company's shares. 
The Committee therefore suggests that the definition 
of 'value' should be left to the discretion of member 
countries. 
3.3.5. In complex capital markets it is increasingly 
possible for companies to weaken the classical distinc­
tion between shares and debt, and it is open to compani­
es to get around the proposed limit of 50 % on the issue 
of preference shares through the issue of equivalent 
types of loan instrument. The limit is intended to pro­
tect the interests of ordinary voting shareholders, and 
avoidance of the limit might damage those interests. In 
some circumstances, shareholders might prefer the issue 
of more preference shares to the creation of other types 
of debt, and the Committee therefore suggests that it 
should be open to the shareholders to waive the limit 
in respect of a proposed issue of preference shares, 
given a majority of say 75 % of voting shareholders in 
a general meeting. 
3.3.6. Whatever rules are established regarding the 
issue of preference shares, there are going to be existing 
share issues that break the rules and as noted above 
14. 10. 91 Official Journal of the European Communities No C 269/51 
in 2.9. Member countries need to be able to choose 
appropriate transitional periods during which existing, 
non-conforming share structures must come into line. 
During such transitional periods companies may need 
to raise more capital or to re-structure existing capital: 
any such new issues or re-structuring should comply 
with the eventual rules of Article 33, or at the minimum 
should increase compliance with Article 33 rather than 
reduce it. 
3.3.7. The final change to Article 33 concerns the 
enfranchising of preference shares after three years of, 
so-to-speak, non-performance. The Committee would 
prefer to see a distinction made between the treatment 
of such shares during a takeover offer, and at other 
times, and would suggest that in the event of an offer 
for the company that includes an offer for the preference 
shares, then they sould be enfranchised if the obligations 
in respect of preference shares have remained unfulfilled 
for a period of 12 months. 
If should be made clear, whatever the circumstances, 
that the obligations requiring to have been fulfilled are 
only those that arose to be fulfilled during the period 
of three years (or twelve months, as the case may be). 
Thus, a preference share issued with a 3-year coupon 
holiday would not have attached any obligation to the 
Done at Brussels, 3 July 1991. issuing company within the first three years, and should 
not fall foul of the enfranchising provision. The Com­
mittee is concerned that the wording proposed does not 
quite achieve this result unambiguously. 
3.4. Article 36 
The Committee has the same comments on the new 
paragraph as on the changes proposed to Articles 4 and 
21b. In addition, the Committee has some reservations 
about the impact of the change on the independence of 
members of the company's organs. It seems inappropri­
ate that a simple majority of shareholders can dismiss 
without having a good reason, particularly in the case 
of employee directors. The Committee suggests that the 
Commission should either incorporate safeguards in 
this Article to avoid arbitrary or unfair dismissal of 
members of the company's organs, or permit a dero­
gation from this new provision for those countries 
whose laws do not conform with it. The Committee 
also notes that the proposed change may not have the 
intended effect while proxy voting continues to be 
prevalent in some Member countries. It would seem 
particularly unreasonable for a board member to be 
dismissed (or indeed not dismissed) by a simple majority 
when many of the votes cast might have been voted 
differently by the underlying shareholders. 
The Chairman 
of the Economic and Social Committee 
Francois STAEDELIN 
No C 269/52 Official Journal of the European Communities 14. 10. 91 
APPENDIX 
to die Opinion of the Economic and Social Committee 
The following amendments, based on the Section Opinion and tabled in accordance with the Rules of 
Procedure, were rejected during the debate: 
Tabled by Mr Wagenmans: 
Page 4, point 2.11 
Delete. 
Reasons 
It is not right to lay down provisions for the position of shareholders only in relations to takeover activity. 
Voting 
For: 31, against: 62, abstentions: 13. 
Tabled by Mr Wagenmans: 
Page 5, point 3.1 
Delete second and third paragraphs. 
Reasons 
These paragraphs refer to information which is not available and hence not verifiable. 
Voting 
For: 31, against: 72, abstentions: 18. 
Tabled by Mr Petersen, Mr Meyer-Horn and Mr Pardon: 
Page 6, point 3.3.1 
Add the following after the first sentence: 
'However, it should be open to the general meeting acting by a qualified majority of say 70% of shareholders 
to impose for a maximum period of one year a limitation on the voting power of any one shareholder, which 
would apply to all shareholders of that class of shares.' 
Reason 
To ensure consistency between paragraphs 2.4 and 3.3 of the Opinion. 
Voting 
For: 49, against: 66, abstentions: 11.