Justifications for Minority Co-Owned Groups and Their Corporate Law Implications

Corporate groups with listed subsidiaries are common around the world, despite the risks they pose to minority shareholders. Shaping a firm as a web of formally independent, minority-co-owned legal entities facilitates controllers’ diversion of corporate wealth (tunnelling) via intragroup transactions and other nontransactional techniques. This Article problematizes the conventional view of groups as tunnelling-facilitating infrastructures by arguing that organizing as a group with listed subsidiaries (a minority co-owned group) may create value for all shareholders. Organizing as a minority co-owned group may increase transparency, improve performance thanks to the possibility of using stock options for subsidiaries’ managers, allow for the circumvention of inefficient restrictions to dual-class shares, facilitate cross-border acquisitions, and be a second-best solution in the presence of path dependence issues preventing firms from moving from concentrated to dispersed ownership. If these are the economic rationales for having minority co-owned groups, how should the latter be regulated? In continental Europe special corporate law rules centred on a relaxation of directors’ fiduciary duties within minority co-owned groups, with a view to facilitating intragroup transactions, are increasingly popular among academics and policymakers. These rules, in turn, are bound to blur the separation between the minority co-owned listed entity as an independently managed firm and other members of the corporate group. However, because the rationales for minority co-owned groups presuppose the opposite, namely a clear and transparent separation between the minority co-owned listed entity and the group, our conclusion is that stringent self-dealing rules (or at least no less stringent rules than those established for conflicted transactions other than intragroup transactions) are required for minority co-owned groups to create value for all shareholders rather than merely facilitate tunnelling.