MINORITY SHAREHOLDER RIGHTS – NECESSITIES & LIMITATIONS

MINORITY SHAREHOLDER RIGHTS – THE NECESSITIES & THE LIMITATIONS

OM PRAKASH PANDEY

III LLB, ILS Law College

INTRODUCTION

In early 1990s, Indian economic policy made a radical shift by dismantling the entire edifice of micro management and controls. Industrial Licensing was abolished and foreign investment allowed in most sectors. Restrictions on large business houses were abolished and the MRTP Act radically changed. Restrictions on foreign trade were lowered to meet the new WTO norms. Simultaneously, the banking and capital markets were deregulated. The Indian firms were allowed to tap international capital markets and many listed themselves on the western stock exchanges. Foreign institutional investors were allowed to enter the Indian capital markets which substantially increased its size and depth. With the abolition of the restrictions on mergers and takeovers (including hostile takeovers) changed the entire landscape of Indian business. The Indian business conglomerates had so far been shaped by the industrial licensing policy and their success in lobbying for these licenses. Often the capacity in the same industry (eg. cement) was fragmented between numerous firms controlled by the same business house. Many units lacked global economies of scale as well as technology. The deregulation substantially increased the competitive pressures on Indian business, especially with the entry of multinational companies in areas earlier exclusively reserved for local firms and public sector. Access to bank credit and development finance became difficult and costlier. Credit rating became a pre condition. All this called for radical re structuring of the business portfolio in the Indian business houses. The first decade was spent in evaluating the business portfolios, selecting which to divest while improving the scale and competitive positions of others. Entry of multinational competitions now required Indian firms to have world class technology, product features and services along with global economies of scale. They were also required to erect strategic entry barriers and enhance their brands and distribution networks. This led to large scale mergers between groups companies (controlled by the same business house) to achieve scale and synergy. In addition there were acquisition from outside the group to enhance product scope, brands or geographical reach.

The financial sector reforms and the changing nature of banking and capital markets generated pressures that had a direct bearing on corporate governance and policies. Credit ratings and access to markets required more transparent disclosures and financial scale to tap the new segments opening up. The capital markets also generated pressures to reduce intra groups investment as financial analysts and FIIs disapproved of such cross investments and diversion of funds. This was accompanied an aggressive entry by foreign firms into the Indian market. The foreign firms, almost without exception ejected their joint venture partners to more closely integrate their Indian affiliates in their global operations. Those foreign firms entering India for the first time became aggressive buyers of local firms with entrenched positions, distribution networks and capacity to speed their entry into India. The sharp devaluation of the rupee also made Indian corporate assets relatively cheap. This changing competitive scenario required a strategic response from the Indian business houses. They needed to consolidate their control in light of new rules permitting hostile takeovers. Divestiture of weaker or poorly performing units was necessary to protect many firms from hostile takeovers. The advantage to foreign firms with integrated global operations needed to be neutralized and the most successful houses embarked on a strategy of takeover and expansion in other countries.

SHAREHOLDER DEMOCRACY

A much talked about regulatory dilemma is that of balancing the rights of minority shareholders against the principle of shareholder democracy. On closer examination, this regulatory dilemma is not as serious as it might appear at first sight. In many ways, the very term shareholder democracy represents a misguided analogy between political governance and corporate governance. Unlike political governance, corporate governance is primarily contractual in nature, and corporate governance is at bottom a matter of enforcing the spirit of this contractual relationship.

It is important to bear in mind that the relation between the company and its shareholders and the relation between the shareholders inter-se is primarily contractual in nature. The memorandum and articles of association of the company constitute the core of this contract and the corporate law provides the framework within which the contracts operate. The essence of this contractual relationship is that each shareholder is entitled to a share in the profits and assets of the company in proportion to his shareholding. Flowing from this is the fact that the Board and the management of the company have a fiduciary responsibility towards each and every shareholder and not just towards the majority or dominant shareholder.

Shareholder democracy is not the essence of the corporate form of business at all. Shares are first and foremost ownership rights - rights to profits and assets. In some cases (non voting shares for example) that is all there is to it. In other cases, shares also carry some secondary rights including the control rights - rights to appoint the Board and approve certain major decisions. The term shareholder democracy focuses on the secondary and less important part of shareholder rights. Corporate governance ought to be concerned more about ownership rights. If a shareholder’s ownership rights have been trampled upon, it is no answer to say that his control rights have been fully respected.

THE RISE OF THE MINORITY

The past few years have witnessed a silent revolution in Indian corporate governance where managements have woken up to the power of minority shareholders who vote with their wallets. In response to this power, the more progressive companies are voluntarily accepting tougher accounting standards and more stringent disclosure norms than are mandated by law. They are also adopting more healthy governance practices. It is evident that these tendencies would be strengthened by a variety of forces that are acting today and would become stronger in years to come. The reasons due to which corporate governance has seen improvements are as follows

1.      Deregulation: Economic reforms have not only increased growth prospects, but they have also made markets more competitive. This means that in order to survive companies will need to invest continuously on a large scale.

2.      Disintermediation: Meanwhile, financial sector reforms have made it imperative for firms to rely on capital markets to a greater degree for their needs of additional capital.

3.      Institutionalization: Simultaneously, the increasing institutionalization of the capital markets has tremendously enhanced the disciplining power of the market.

4.      Globalization: Globalization of our financial markets has exposed issuers, investors and intermediaries to the higher standards of disclosure and corporate governance that prevail in more developed capital markets.

5.      Tax reforms: Tax reforms coupled with deregulation and competition have tilted the balance away from black money transactions. This makes the worst forms of misgovernance less attractive than in the past.

MINORITY RIGHTS

The corporate governance framework should ensure the equitable treatment of all shareholders, including minority shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.

The main challenges in ensuring equitable treatment of minority shareholders include:

1.      Ensuring that the Board adopts a shareholders’ perspective when making decisions and ensuring minority shareholders’ interests are protected;

2.      Improvements to the corporate governance;

3.      Concerns of stakeholders at large vs shareholders of the Company;

4.      Improving communications and interactions between minority shareholders, Board members and management;

All these concerns of minority shareholders will be met substantially if a corporate house is able to ensure that the basic rights of the  minority are met. These basic rights with their constituents are mentioned below:

       I.            Equitable Treatment.

1.      Same voting rights for shareholders within each class.

2.      Ability to obtain information about voting rights attached to all classes before share acquisition.

3.      Changes in voting rights subject to shareholder vote. 

4.      Vote by custodians or nominees in agreement with beneficial owner.   

5.      AGM processes and procedures to allow for equitable treatment.

6.       Avoidance of undue difficulties and expenses in relation to voting.

    II.            The right to seek information

1.      Right to know about the price sensitive information of the company,

2.      Fairness to all shareholders irrespective of each individual’s shareholdings.

3.      Right to inspect the Register of Members, Directors, Charges, Debenture Holders, etc and get copy thereof.

4.      Right to receive Notice of General Meetings (the AGM or the EGM).

5.      Rights to receive annual report and audited accounts.

6.      Right to receive quarterly and annual accounts.

7.      Right to inspect the Minutes of General Meetings.

8.      Right to be kept fully informed of what is happening in the company.

 III.            The right to voice opinion

1.      Right to attend general meetings.

2.      Right to requisition for a general meeting.

3.      Right to get the court to direct the company to call a general meeting.

4.      Right to appoint proxies to attend and vote at a general meeting.

5.      Right to be heard and make proposals at shareholders’ meeting.

6.      Right to vote and elect directors and fix their remuneration.

7.      Right to nominate director.

8.      Right to appoint auditors and fix their remuneration.

9.      Right to receive dividends, if declared.

  IV.            Disclosure and Transparency

1.      Disclosure of material information

2.      Financial and operating results 

3.      Company objectives  

4.      Major share ownership and voting rights 

5.      Board members, key executives and their remuneration 

6.      Material foreseeable risk factors  

7.      Material issues regarding employees and other stakeholders  

8.       Governance structures and policies   

     V.            The right to seek redress

1.      Common law derivative action

2.      Redress mechanism under the Companies Act

3.      Redress mechanism under the Securities Laws

LEGISLATIVE MEASURES

Company Law

The primary protection to minority shareholders is laid down in the companies law. Some of these provisions are the regulatory equivalent of an atom bomb - they are drastic remedies suitable only for the gravest cases of misgovernance.

I.            Protection of minority shareholders

Company law provides that a company can be wound up if the Court is of the opinion that it is just and equitable to do so. This is, of course, the ultimate resort for a shareholder to enforce his ownership rights. Rather than let the value of his shareholding be frittered away by the enrichment of the dominant shareholder, he approaches the court to wind up the company and give him his share of the assets of the company. In most realistic situations, this is hardly a  meaningful remedy as the break-up value of a company when it is wound up is far less than its value as a “going concern”. It is well known that winding up and other bankruptcy procedures usually lead only to the enrichment of the lawyers and other intermediaries involved.

Company law also provides for another remedy if the minority shareholders can show that the company’s affairs are being conducted in a manner prejudicial to the interests of the company or its shareholders to such an extent as to make it just and equitable to wind it up. Instead of approaching the Court, they can approach the Company Law Tribunal). The Company Law Tribunal which is a quasi-judicial body can make suitable orders if it is satisfied that it is just and equitable to wind up the company on these grounds, but that such winding up would unfairly prejudice the members. In particular, the Tribunal may regulate the conduct of the company’s affairs in future, order the buyout of the minority shareholders by the other shareholders or by the company itself, set aside or modify certain contracts entered into by the company, or appoint a receiver. The Tribunal could also provide for some directors of the company to be appointed by the Central Government, or by proportional representation. The Tribunal normally entertains such complaints only from a group of shareholders who are at least one hundred in number or constitute 10% of the shareholders by number or by value.

II.            Special majority

Another safeguard in the company law is the requirement that certain major decisions have to be approved by a special majority of 75% or 90% of the shareholders by value. This may not be an effective safeguard where the dominant shareholders hold a large majority of the shares so that they need to get the approval of only a small chunk of minority shareholders to reach the 75% level. Even otherwise, it may not be a sufficient safeguard if the process of conducting shareholder meetings is not conducive to broader participation by a large section of the shareholding public. The Indian system does not allow for postal ballots. Effective participation by small shareholders is possible only if there is a cost effective way of waging a proxy campaign. This would enable dissenting shareholders to collect proxies from others and prevent measures which are prejudicial to the minority shareholders.

III.            Information disclosure and audit

Company law provides for regular accounting information to be supplied to the shareholders along with a report by the auditors. It also requires that when shareholder approval is sought for various decisions, the company must provide all material facts relating to these resolutions including the interest of directors and their relatives in the matter. Disclosure does not by itself provide the means to block the dominant shareholders, but it is a prerequisite for the minority shareholders to be able to exercise any of the other means available to them. Disclosure is also a vital element in the ability of the capital market to exercise its discipline on the issuers of capital.

IV.            Voting Rights

(i) Ten percent: The approval of at least 10% of the shareholders is required for the requisition of an extraordinary general meeting for an application to the Company Law Board (CLT) for relief, if there is oppression or mismanagement (as defined in the Companies Act, 1956 by the majority shareholders.

(ii) Fifty-one percent: The approval of a minimum of 50% of the shareholders is required for an ordinary resolution, including for alteration of the share capital; declaration of dividend; election, removal, and remuneration of directors; approval of annual accounts; appointment of external auditors; appointment of other officers; and other routine matters relating to the conduct of a company.

(iii) Seventy-five percent: At least 75% of the shareholders must approve a matter before it is passed as a special resolution, including for capital increases, alteration in the memorandum and articles of the company, changing the registered office address of the company from one state to another, change in the name of the company, buy-back of shares, proposed mergers or liquidation. Therefore, a minority shareholder with more than 25% voting rights would have the ability to block special resolutions.

V.            Qualified Minority

Minority shareholders with qualified minority may initiate action against decisions of the majority in a court of law. According to section 399 of the act, a qualified minority consists of at least one hundred shareholders or one tenth of the total number of shareholders, whichever is less, or any shareholder(s) holding one-tenth of the issued share capital of the company fully paid-up. Moreover, minority shareholders who hold more than 25% of the shares will have the ability to obstruct special resolutions, seek intervention of the CLT and, therefore, impede the functioning of the company at some level.

VI.            Company Law Tribunal (CLT)

The Indian company law shields minorities’ interest by providing an adequate platform at CLT to raise grievances in case of oppression or mismanagement by the majority shareholders of a company. In circumstances when the minority is forced to exit the company by way of offering a nominal value for the shares held by them, the minority shareholders can approach the CLT to seek appropriate relief. The latter, if satisfied, has the power to intervene in the decisions of the majority shareholders. The CLT can order the majority shareholders to purchase the shares of the minority shareholders at a fair price. Further, if the minority shareholders wish to continue to be stakeholders in the company and do not want to sell their shares, they can obtain an injunction from CLT prohibiting the majority shareholders or acquirer from taking any action that may be averse to their interest.

VII.            Minority Representation

It is important for Corporations to ensure that board membership reflects the interest of minority shareholders. In this regard, the Independent Directors (IDs) have an important role to play in ensuring minority shareholders’ interests are protected. The IDs also need to be easily accessible for minority shareholders to convey or raise their concerns. Minority shareholders can also nominate candidates for the ID position.

Securities Law

Historically, most matters relating to the rights of shareholders were governed by the company law. Over the last few decades, in many countries, the responsibility for protection of investors has shifted to the securities law and the securities regulators at least in case of large listed companies. In India, the Securities and Exchange Board of India (SEBI) was set up as a statutory authority in 1992, and has taken a number of initiatives in the area of investor protection.

I.            Information disclosure

As discussed above, the company law itself mandates certain standards of information disclosure both in prospectuses and in annual accounts. SEBI has added substantially to these requirements in an attempt to make these documents more meaningful. Some of these disclosures are important in the context of dealing with the dominant shareholder. One of the most valuable is the information on the performance of other companies in the same group, particularly those companies which have accessed the capital markets in the recent past. This information enables investors to make a judgement about the past conduct of the dominant shareholder and factor that into any future dealings with him.

II.            Insider trading

Securities regulators around the world have framed various regulations to deal with the problem of insider trading. Most instances of insider trading have nothing to do with the dominant shareholder. Many of them involve small trades by junior employees who come to know of price sensitive information. In a few instances, insider trading may be indulged in by directors and other senior employees.

III.            Take-overs

The take-over regulations in India require that a slice of the cake be shared with other shareholders. The acquirer of a controlling block of shares must make an open offer to the public for at least 20% of the issued share capital of the target company at a price not below what he paid of the controlling block. Of course, if more than 20% of the shareholders want to sell at that price, the acquirer is bound to accept only 20% on a pro-rata basis. This impact is further strengthened when the minority shareholders are large institutions (both domestic and foreign) who, in a sense, act as the gatekeepers to the capital market. When they  vote with their wallets and their pens, they have an even more profound effect on the ability of the companies to tap the capital markets.

JURISPRUDENTIAL VIEW

Indian jurisprudence has taken a balanced view by ensuring that the minority interest is protected while maintaining the privileges that the majority enjoy.

In Reckitt Benckiser (India) Ltd,[1] the primary objection of the respondent was that the proposed reduction of capital was discriminatory and mala fide and an attempt to throw out the public shareholders so that the entire control of the company rests with the promoter by acquiring 100% equity. The Delhi High Court observed that “no doubt the effect of reduction of capital is to extinguish the public shareholding but if the objectors do not want to part with their equities, the company shall not insist upon the same. If some of the minority members have no objection to part with their shares at the offered rates, the share capital held by them is reduced. The objectors cannot have any grievance as far as others are concerned as their rights are protected.”

 In another case, Sandvik Asia Ltd. case,[2] the counsel for minority shareholders argued that the majority has the right to reduce the capital; however, it should be fair and equitable. In the instant case, minority shareholders were not given any option under the proposal. They were given a cut-off date and told to accept the offer or leave the company after being paid the offered amount. This, according to the court, was highly inequitable and unfair as minority shareholders had no choice but to leave the company and the majority shareholders cannot bulldoze the minority in this manner.

Defining the rights and their execution as available to the minority shareholders the Supreme Court in the case of Sri Ramdas Motor Transport Ltd. and Ors. Vs.  Tadi Adhinarayana Reddy and Ors held that under Section 397 of the Companies Act any member of a company who complains that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members may apply to the Company Law Board for an order under that section. The Company Law Board has wide powers to make such orders as it may think fit to bring an end to the matters complained of. A shareholder has very effective remedies under the Companies Act for prevention of oppression and mismanagement. When such remedies are available, the High Court should not readily entertain a petition under Article 226.[3]

However the Apex court has also seen to it that the majority shareholders are not deprived of their democratic rights due to minority activism. This was ensured in the case of Shanti Prasad Jain Vs. Kalinga Tubes Ltd.[4] Where in a case of a fight between two groups of business magnates for control of a certain company the appellant chairman of company alleged that affairs of company were conducted in manner oppressive to him and his group of members. The appellant contended that allotment of new shares to outsiders was for defeating rights of existing shareholders and amounting to oppression. Apex Court held, High Court right in holding that no case for action under Section 397 as mere fact of allotment does not constitute oppression. The court clarified that potent facts should be there to justify mismanagement or oppression.

The Bombay High Court has also tried to strike a fine balance between the majority and minority rights. In Re: Mather and Platt Fire Systems Limited, A Company incorporated under the Companies' Act, 1956 Vs. Respondent[5] the court has implemented the equality principle and at the same time ensured that individual rights do not infringe genuine majority rights. The court in this case held that “where the same terms of compromise are offered to a class of members or creditors, no separate meeting of a sub class among them is required. The true test is that a class consists of persons whose rights are similar in terms of the compromise”

Deciding on the scope of Company Court to sanction scheme of amalgamation under sections 391, 392, 393, 394A, 433 and 643 of Companies Act, 1956.  The apex court held that such power is limited. It said that the Court can intervene in a matter only when it is not just and fair or prejudicial to interest of share holders. Court cannot intervene if the scheme is sanctioned by majority of shareholders and is lawful. Court can only go through scheme and examine whether it has complied requirements under Section 391 (2) and was passed by requisite majority or not. Where the scheme passed by company with majority is just and fair and no minority interest is affected then individual personal interest of minority share holders is of no concern unless it is affecting class interest of such equity shareholders.[6]

The high court of Delhi has also toed the fine line in the field of minority rights protection. In Re: Siel Ltd. Vs. Respondent[7] the court enunciated the principles reduction of share capital which can be summarized as under:

(i) The question of reduction of share capital is treated as a matter of domestic concern, i.e., it is the decision of the majority which prevails.

(ii) If majority by special resolution decides to reduce share capital of the company, it has also right to decide as to how this reduction should be carried into effect.

(iii) While reducing the share capital company can decide to extinguish some of its shares without dealing in the same manner as with all other shares of the same class. Consequently, it is purely a domestic matter and is to be decided as to whether each member shall have his share proportionately reduced, or whether some members shall retain their shares unreduced, the shares of others being extinguished totally, receiving a just equivalent.

REVAMPING THE CORPORATE GOVERNANCE CODE

The corporate governance code in India needs a revamp and the CII has suggested that some changes should be made in the code.[8] These changes are derived from recommendations given by the ADB. In specific, the ADB recommendations  encompassed the following:

1.      Appointment of independent directors and external audit subâ€�committees and mandating their functions and responsibilities to public investors;

2.      Introducing mandatory provisions to allow cumulative voting of directors;

3.      Ensuring that the company laws provide shareholders the right to raise derivative or class action suits against management;

4.      Introducing measures to prevent, detect and penalize insider dealings involving controlling shareholders;

5.      Introducing innovative voting rules that grant minority shareholders with the swing votes or that reward them for voting/participating in corporate decisions;

6.      Requiring minimum majority percentages that exceed the percentage of votes controlled by controlling shareholders;

7.      Mandating the minimum representation of minority shareholders on boards; and

8.      Granting veto powers in favour of minority shareholders over corporate decisions that are potentially detrimental to their welfare (e.g., clear cases of self dealing)

MINORITY PROTECTION – FURTHER STEPS

1.      Disclosure Of Holding Of Majority Shareholders

The beneficiary ownership structure of an enterprise is of great importance in an investment decision, especially with regard to the equitable treatment of shareholders. In order to make an informed decision about the company, investors need access to information regarding its ownership structure. It is recommended that this disclosure includes the concentration of shareholdings, for example the holdings of the top twenty largest shareholders. This information is of particular interest to minority shareholders. In some countries (e.g. Germany) disclosure is required when certain thresholds of ownership are passed.

2.      Disclosure Of The Control Structure

Disclosure should be made of the control structure and of how shareholders or other members of the organization can exercise their control rights through voting or other means. Any arrangement under which some shareholders may have a degree of control disproportionate to their equity ownership, whether through differential voting rights, appointment of directors or other mechanisms, should be disclosed. Any specific structures or procedures which are in place to protect the interests of  minority shareholders should be disclosed.

3.      Good Practices For Compliance

Where there is a local code on corporate governance, enterprises should follow a “comply or explain” rule whereby they disclose the extent to which they followed the local code’s recommendations and explain any deviations. Where there is no local code on corporate governance, companies should follow recognized international good practices. The use of “comply or explain” mechanisms in many countries allows investors and other stakeholders greater access to information about the corporation and is to be encouraged. In relation to this “comply or explain” rule, some countries now require companies with foreign listings to disclose the extent to which the local governance practices differ from the foreign listing standards.

4.      Financial Institutions As Gate Keepers

It is unfortunate that the domestic financial institutions have played too passive a role so far and have so far failed to exercise their true powers both as large minority shareholders and as potential gatekeepers. The experience of the last few years suggests that a more pro-active role is possible only when these institutions are fully privatized and are driven by their bottom lines rather than by their political bosses. “The apparent failure of government controlled FIs [financial institutions] to monitor companies in their dual capacity as major creditors and major shareholders has much to do with a pervasive anti-incentive structure. ... The long term solution requires questioning the very basis of majority government ownership of the FIs. The other possibility is that the government persuades these institutions to divest their shareholdings in corporate India to more transparent private sector institutions.

5.      Debt Holder Vigilance

Another aspect of the capital markets is the powerful disciplining power of debt. Unlike the shareholder who is a residual claimant, the debt holder has contractual rights to receive his interest and principal; he has both the incentive and the ability to monitor the actions of the company. Many serious instances of corporate misgovernance reduce the future earnings stream of the company or the value of its assets. They thereby reduce the ability of the company to service its debt in accordance with contractual obligations. Most debt contracts therefore involve covenants that make it less easy for the dominant shareholder to indulge in gross abuses. The ability of debt holders to monitor the company is quite high because typically they are large institutions with a strong gate  keeping role. In India, the ability of debt holders to  enforce their rights against recalcitrant debtors has been hampered by an inefficient legal system. It is difficult for creditors to foreclose mortgages, seize collateral or obtain decrees. Moreover, the corporate bankruptcy laws work against the creditors by allowing the debtor to remain in possession of the assets for a long period while compromises or other arrangements are worked out.

6.      Well Functioning Capital Market

In a well functioning capital market, there is a strong incentive for corporate managements themselves to voluntarily adopt transparent processes and subject themselves to external monitoring to reassure potential investors. What makes capital market discipline so much more attractive than regulatory intervention is that unlike the regulator, the market is very good at micro level judgements and decisions. In fact the market is taking micro decisions all the time. It is its success in doing so that makes it such an efficient allocator of capital. Unlike the regulator, the market is not bound by broad rules and can exercise business judgement. It therefore makes sense for the regulator to pass on as much of the burden of ensuring corporate governance to the markets as possible. The regulator can then concentrate on making the markets more efficient at performing this function.

7.      International Accounting Standards

In the last few years, we have seen Indian companies voluntarily accepting international accounting standards though they are not legally binding. They have voluntarily gone for greater disclosures and more transparent governance practices than are mandated by law. They have sought to cultivate an image of being honest with their investors and of being concerned about shareholder value maximization.

CONCLUSION

The problem in the Indian corporate sector (be it the public sector, the multinationals or the Indian private sector) is that of disciplining the dominant shareholder and protecting the minority shareholders. A board which is accountable to the owners would only be one which is accountable to the dominant shareholder; it would not make the governance problem any easier to solve. Clearly, the problem of corporate governance abuses by the dominant shareholder can be solved only by forces outside the company itself. This paper has discussed the role of two such forces – the regulator (the company law administration as well as the securities regulator) and the capital market.

Corporate governance abuses perpetrated by a dominant shareholder pose a difficult regulatory dilemma in that regulatory intervention would often imply a micro-management of routine business decisions. The regulator is forced to confine himself to broad proscriptions which leave little room for discretionary action. Many corporate governance problems are ill suited to this style of regulation.

The capital market on the other hand lacks the coercive power of the regulator. What it has however is the ability to make business judgements and to distinguish between what is in the best interests of the company as a whole as against what is merely in the best interests of the dominant shareholders. The only effective sanction that the market can impose against an offender is to restrict his ability to raise money from the market once again. Denial of market access is a very powerful sanction except where the company is cash rich and has little future needs for funds.