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Opinions

Minority Shareholder Rights

Date: 16 Sep 2015
Author: Alem, Mohamed
Changing the corporate cultures and the senseless, greedy, adulterous, irresponsible and threatening behavior of certain major shareholders of Lebanese companies is hard, but not impossible. We would have proposed across the board corporate-governance reforms but this would be a wishful and unrealistic approach. Instead, and to be practical, we suggest modernizing certain rules that would revive some minority protection principals that were undermined due to practical inefficiencies or that have failed to adapt to changes within the corporate world.   We will tackle different corporate aspects (I) from a legal point of view as well as from a (II) practical one in order to secure the rights of the minority shareholders and thus attract investors through improving the governance system within the company.   I. From a legal perspective   1. Pursuant to applicable laws and regulations, Board of directors (BoD) of Lebanese companies are required to periodically prepare reports covering certain matters relating to the financial situation of the company. However, in practice, BoD rarely prepares such reports and, if it does, they lack substance since they are very general in nature.Therefore, we suggest that BoD be required to prepare reports to be made available to the shareholders not only covering the company’s financial situation but also its business, affairs, future plans, strategy and projections. It is worth noting that such reports should, at all times, consider the confidential aspects of the company’s operations. The issuance of periodical reports will give the minority shareholders (who are rarely represented in the BoD) more visibility into the company and a benchmark to assess the BoD performance.   2. Article 158 of the Lebanese Code of Commerce tackles the issue of related party transactions and requires that such transactions be approved by the general assembly meeting of shareholders. The provisions of Article 158 have proved to be ineffective in practice since the abusive usage of related party transactions has not been contained. Currently,shareholders general assembly meetings grant,on an annual basis, a general and unrestricted authorization for this type of transactions without any disclosure requirements or consideration of their merits. In order to avoid the abuse of majority, and protect the rights of the minority, Article 158 must be amended so as to require that authorizations of related party transactions be subject to prior comprehensive and accurate disclosures and an assessment as to whether such transactions are in the best interest of the company and are made on arm’s length basis.   II. From a practical perspective   1. Typically, the articles of associations of Lebanese companies provide that convocation of shareholders’ meeting may be published in one or more local newspapers. As it may appear, such convocation mean is not effective as in most instances it fails to fulfil its intended objective in particular if the shareholder is not a resident of Lebanon. Therefore, and for practical purposes of notification, convocation via email should be considered as a valid form of notification and be required in each instance.   2. As per Lebanese laws, the participation of shareholders and directors in the respective shareholders and BoD company meetings require their presence in person or proxy. Currently, participations through telephone or video conference calls are not valid. However, and due to the uprising number of foreign shareholders or directors, attendance by telephone or video conference calls should be permitted, in order for such shareholders or director to be able to participate directly in the management life of the company and secure the rights from which they benefit.  

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