Election of supervisory board members in a joint-stock company by group voting: Practical aspects
In an ideal world, members of corporate boards should be elected with respect for the interests of as many shareholders as possible, including minority shareholders. It is customary that when any shareholder or group of shareholders has a stake in the company sufficient to choose at least one member of the supervisory board, the majority shareholder should solicit from them a proposal to put forward at least one candidate to ensure adequate representation on the supervisory board. If this does not occur, the law allows shareholders to request that voting for the supervisory board be conducted in separate groups. This procedure is designed to protect the interests of minority shareholders.
Introductory remarks
Pursuant to Art. 385 §3 of Poland’s Commercial Companies Code, at the request of shareholders representing at least one-fifth of the share capital, election of the supervisory board should be carried out by the next general meeting through voting in separate groups, even if the articles of association provide for a different method of appointing the supervisory board. If such a request is made, shareholders representing at a general meeting the number of shares equal to the total number of shares represented at the meeting divided by the number of supervisory board members may form a separate group for the purpose of electing one board member. But those shareholders will not participate in selection of the remaining board members. If after conducting group voting not all seats on the body are filled, the remaining members of the supervisory board are elected in a vote by all shareholders who did not participate in the voting by separate groups.
Upon the election of at least one member of the supervisory board by group voting, the terms of office of all existing members of the supervisory board will expire prematurely, except for members appointed under separate law (this mainly applies to companies in which the State Treasury holds shares).
Importantly, at the time of group voting, each share held has only one vote, without privileges or restrictions.
Filing a request for election of the supervisory board by group voting: When and how?
A request for group voting for the supervisory board must be submitted to the company. Under the general rules on service of documents, a request will be deemed effectively delivered when served on any member of the management board or a commercial proxy. No special form is provided for a group voting request, but for evidentiary reasons the request should be submitted in written, documentary or electronic form.
Any shareholder or shareholders representing at least one-fifth of the share capital are entitled to submit a group voting request. At this stage, restrictions arising from their shares or their preference are irrelevant (only the number of shares held is taken into account for the purpose of calculating the minimum stake entitling the holders to demand group voting). This means that even holders of non-voting shares are counted for this purpose, as these shares also represent a certain stake in the share capital. According to the case law, if requests are submitted by several shareholders separately, and none of them meet the statutory one-fifth requirement alone but they meet it together, the management board should grant their requests jointly.
Upon receipt of a group voting request, in principle the management board should convene a general meeting for the purpose of group voting, but current law does not impose any specific deadline on the management body for considering the request and convening a general meeting. Thus a situation could arise where the management board decides not to convene an extraordinary general meeting for the purpose of conducting group voting, but instead decides to conduct the voting (in line with the wording of the code) at the next planned general meeting.
If the applicants want the request to be implemented quickly, they should submit it together with a request to convene an extraordinary general meeting, and include group voting for the supervisory board on the agenda. Otherwise, the majority shareholder and, under its influence, the management board, might deliberately avoid convening a meeting to prevent the entitled minority from introducing its candidate to the supervisory board.
A group voting request may be made either before or after announcement of convening the general meeting. However, if the request is made after announcement of convening the general meeting, the request should be made in due time (no later than 14 days before the scheduled date of the meeting in the case of a non-public companies, or 21 days in the case of public companies). If the request is submitted after this deadline, group voting cannot be considered until the next meeting, unless the entire share capital is represented at the meeting, which is rare, especially for public companies.
Group voting: Procedure
Once the group voting request is included in the agenda, the first step in conducting the group voting is to determine the number of supervisory board members to be elected. The situation is easiest if the number of supervisory board members is fixed rigidly in the articles of association. If not, it is disputed in the legal literature whether the general meeting must pass a resolution beforehand to determine the number of supervisory board members.
Given the protective nature of this regulation, some commentators argue that the last adopted resolution of the general meeting on the number of supervisory board members should control. Otherwise, if such a resolution could be adopted immediately prior to the group voting, using the ordinary voting procedure, the majority shareholder might be able to manipulate the thresholds necessary for the group to form.
If the articles of association specify only a permissible range for the number of supervisory board members, as a rule the general meeting can pass a resolution specifying the number of supervisory board members within the available limits. In this respect, there is no basis for overriding the provisions of the articles of association, under the general statutory ability to specify the number of supervisory board members in the articles of association.
For the purpose of group voting, the chair of the general meeting should order a recess in the proceedings for formation of groups. This recess is purely a point of order and does not require a vote. In each group proceeding to the election of a supervisory board member, a list of shareholders should be prepared and reported to the chair of the meeting so that the chair can ascertain the group’s ability to elect a supervisory board member. Within each group, a chair of the group should also be elected (this is especially recommended when the group consists of a large number of shareholders).
Once the groups are constituted, voting can proceed. A separate room should be provided for each group, while separate minutes of each group meeting should be prepared by the notary.
One group—one member?
Pursuant to Art. 385 §5 of the code, shareholders representing the number of shares equal to at least the total number of shares represented at the meeting, divided by the number of supervisory board members, may form a separate group for the purpose of electing one board member. But if the mathematical result would allow the group to elect more than one member of the supervisory board, there is nothing preventing formation of a group entitled to elect multiple members. (For example, if the supervisory board has 10 members, and the group holds 21% of the capital present at the general meeting, the group can elect two members of the supervisory board, as 10% is required to elect each member.)
Votes vested in a given shareholder may not be divided between multiple groups. Nor is it possible to “hold back” some votes from a pool of shares so that they can be voted in the subsequent round of general voting. However, it is permissible for groups to merge for the purpose of using the remaining portion of shares in the vote to elect another board member within the limits of group voting. (For example, if one group could elect 1.3 members of the supervisory board and another group could elect 1.8 members, once each group has elected one member, the two groups may merge and elect a third member.)
Additional privileges
When considering the feasibility of this procedure, it is worth mentioning that if the supervisory board was elected by group voting, each group has the right to delegate one of its elected supervisory board members to perform supervisory activities on an ongoing individual basis. The delegation should be made through a resolution by the shareholder group in question. The resolution must be adopted immediately after the group’s election of a supervisory board member, before moving on to subsequent items on the agenda, when the group has already dissolved.
The delegated supervisory board members have the right to participate in sessions of the management board, with an advisory vote. The management board must notify them in advance of each of its meetings, and of an order for voting in writing or by telecommunications. The delegated supervisory board members also have the right to undertake individually the supervisory activities specified in Art. 382 §4 of the code, such as:
- Examining the company’s documents
- Auditing the company’s assets
- Requesting that the management board, commercial proxies, employees or other persons regularly performing activities for the company on a regular basis (e.g. under a service contract) prepare or provide information, documents, reports or explanations regarding the company, in particular regarding the company’s operations or assets.
Monika Lutomirska, adwokat, Capital Markets & Financial Investments practice, Wardyński & Partners
Maciej Wierzchowiec, M&A and Corporate practice, Wardyński & Partners
