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The Role of Representatives of Minority Shareholders in the System of Corporate Governance

In the Context of Corporate Governance in the US, EU and China


Wenjia Yan

Due to the global influence of the shareholder-centered model of the US, both China and the EU have taken more measures to protect minority shareholders. In this respect, the representation of minority shareholders on the board, in particular the system of cumulative voting which was originally designed by the US to protect minority shareholders, has become a frequently-discussed issue in China and the EU. This study of comparative law is based upon the comparison of the attitudes among the US, China and the EU towards cumulative voting. By analyzing some empirical investigations and massive literatures of American academics as the theoretical foundation, it tries to demonstrate whether the convergence of corporate governance towards the shareholder-centered model is inevitable.

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Fourth Chapter: Alternatives to Cumulative Voting – Controlling Related Party Transactions by Independent Directors


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Fourth Chapter:  Alternatives to Cumulative Voting – Controlling Related Party Transactions by Independent Directors

From the analysis of the last two chapters, we can observe that cumulative voting has been replaced by independent directors in the US, the EU introduced independent directors rather than cumulative voting and China emphasizes more on the role of cumulative voting in electing independent directors. This chapter focuses on the primary reason for the declining of cumulative voting – the role of independent directors and shareholders’ meeting in controlling RPTs. The reason for discussing the control of related-party transactions is that there is a clear concern that such transactions can be abused by insiders such as executives and controlling shareholders. Hence, the control of related-party transactions is an important matter in the respect of minority shareholders’ protection. But this task is performed by independent directors and shareholders’ meeting rather than representatives on the board elected through cumulative voting, whose role is protecting minority shareholders.

A.    Definition of Related Party Transactions

Regarding the definition of RPTs, Article 8.60 of the MBCA provides that (1) “conflicting interest” with respect to a corporation means: the interest a director of the corporation has respecting a transaction effected or proposed to be effected by the corporation (or by a subsidiary of the corporation or any other entity in which the corporation has a controlling interest) if (i) whether or not the transaction is brought before the board of directors of the corporation...

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