The Political Economy of the Related Party Transactions Regulation in the Shareholders’ Rights Directive II

Abstract

This study tracks the legislative process of the Shareholders’ Rights Directive II as regards the regulation of related party transactions (RPT) and identifies important factors that have led to the current regime of RPT regulation in the EU. While the European Commission’s Proposal subjected material RPTs to approval by the majority of (minority) shareholders (MOM approval) and a number of other requirements, the requirements have been greatly watered down in the legislative process. The analysis suggests that the ambition of the European policy makers to strengthen European capital markets and attract/facilitate more foreign/cross-border investment led the European Commission to propose MOM approval for RPTs based on the feedback/demand from the institutional investors. This proposal, however, faced a backlash from the business community and some Member States. Relatedly, as a result of the pressure of the interest groups that represent the European companies and some reluctant Member States, during the legislative process, numerous compromises have been made, giving wide discretion to Member States in devising a regime of RPT regulation and effectively spelling the death of the European Commission’s ambitions. The study then concludes by connecting this process to accounts of how corporate law develops in the literature.