January 13, 2009
More on Minority Shareholder Voice
Posted by Benjamin Means

I very much appreciate the careful critical responses to my forthcoming article from Stephen Bainbridge, Kate Litvak, Larry Ribstein, and others. It has been interesting to see that their objections focus primarily on the fundamental question –- whether there should be any special protection for minority shareholders –- and assume that the baseline position is that minority shareholders are entitled to nothing beyond what they have bargained for. From that perspective, the question is not whether minority shareholder voice might have value, or how voice relates to exit, but why we would ever want courts to apply elevated scrutiny.

The question I aim to address is different, because I begin with the existing patchwork of shareholder oppression doctrines and ask whether they can be made to work better. The alternative I envision is the continuation of those substantive doctrines, fiduciary and statutory, many of which offer minority shareholders substantial protection from oppression by controlling shareholders. With existing doctrine as the starting point, it should be clear that my proposal would not necessarily enhance the minority’s ability to sustain a claim of shareholder oppression. Indeed, my proposal would weaken the protection of minority shareholders in jurisdictions like Massachusetts that place the burden of justification on controlling shareholders in all cases.   

Instead of applying a one-size-fits-all standard of review for claims of minority shareholder oppression, my view is that courts should place the burden on the party best able to meet it.  If the minority lacks voice, the majority has better if not sole access to information relevant to the dispute.  Conversely, minority shareholders with voice – who have participated in the meetings and reviewed the relevant information – should be able to offer the court evidence that the majority’s conduct lacks a legitimate business purpose.  (Controlling shareholders might invite minority participation in order to benefit from more relaxed review in the event of litigation, but they would remain free to run the corporation however they think best).

My position does rest on the premise that minority shareholders are entitled to some degree of protection from oppression. I do not articulate an extended defense of that premise in my forthcoming article, and perhaps doing so is a proper task for my future work.  The case for minority shareholder oppression doctrine has been made repeatedly in existing scholarship, but there is undoubtedly more work to be done.

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