The rights of shareholders – basic principle of corporate governance by means of case-specific jurisprudence

Respecting shareholders’ rights represents one of the fundamental principles of corporate governance, underpinning the establishment of economic entities, as a form of association of individuals and / or legal entities in order to carry out profit-oriented activities. However, there are situations in which the management, the other shareholders, or even the authorities, do not respect certain shareholders’ rights, leading to a number of negative effects, such as the closing of companies. Based on these considerations, in this paper, we set as research objective to analyze the circumstances, which may affect shareholders’ rights. To meet the research objectives, we analyzed the case-specific jurisprudence published by the courts of law till 31st of December 2015. The results of the study show that the shareholders’ rights, which are not respected, include: the property right, the right to receive dividends, the right to participate and vote in the general assemblies of shareholders, the right to be elected in the governing bodies, and not the least, the most important one in accounting terms, the right to be informed.


Introduction
Corporate governance represents a set of responsibilities and practices exercised by the Board of Directors and the executive management, in order to achieve strategic objectives, ensure risk management and the examination of the responsible use of resources' (IFAC, 2009).The theories regarding corporate governance are linked to financial instruments' issuers, wanting to maximize the results of their companies, while the emergence of the concept is due to the fact that the private sector has always played a very important role in the life of a country, contributing towards ensuring the socio-economic balance.
Globally, the international organizations have played a key role in the development of the concept.Thus, the Organisation for Economic Co-operation and Development (OECD) has drafted certain guidelines containing a set of recommended principles to be applied by companies.The first set of principles was developed in 1999 and, in 2004, an improved version of these was published.Their analysis reveals that, among the shareholders' rights to be respected by both the governing bodies and by other shareholders, there are included: the right to be informed, the property right, the right to receive dividends, the right to participate and vote in the general assemblies of shareholders and the right to be elected in the governing bodies.Consequently, we shall proceed at these rights' further assessment.
In this context, property is a core element in defining the concept of corporate governance.It lies at the foundation of the establishment of companies, the associates pooling certain goods, on which they have a property right, in order to pursue economic activities aimed at gaining economic benefits.
"The property right is that subjective right, which gives expression of the appropriation of a good, right which allows the owner to possess, use and dispose of the good, in its own power and self-interest, and in compliance with the existing legislation" (Bîrsan, 2001).The Universal Declaration of Human Rights adopted and proclaimed on 10 September 1948 by the General Assembly of the United Nations stipulates in Article 17 that "Anyone has the right to own property, alone as well as in association with others [ ... ] no one can be deprived arbitrarily of his/her property" (UN, 1948).With reference to guaranteeing shareholders' property right, the national regulations stipulate that the right of property of the nominative shares issued in material form is transmitted by means of the statement made in the shareholders' register and by a note made on the title.If nominative shares, the ownership is transferred through an entry in shareholders' register.The property right over quoted shares, traded on a stock exchange, is transferred in accordance with the requirements of the capital market law.In the case of bearer shares, the property right is transferred with the simple possession of the physical stock certificate (Law no.31/1990).
As for respecting shareholders' rights in issues related to the general assemblies of shareholders (GASs), we note that GASs can discuss, approve or modify the annual financial statements.Associates or shareholders make decisions based on the reports prepared by the Board of Directors, management, supervisory board and financial auditor.Also, the ordinary general assembly of shareholders decides, when appropriate, the allocation of profits to dividends, appoints and dismisses the financial auditor, and sets the duration of the financial audit contract.
After analyzing the report of the Board of Directors, the annual financial statements and financial auditor's report, the general assembly of shareholders decides on the discharge from duty of Board members.
Regarding the recommendations on voting rights, national regulations state that shareholders exercise their right to vote at the general assembly in proportion to the number of shares they own.On convoking the general assembly of shareholders, national rules stress that the general meeting is convened by the Board of Directors or management.If the entity's shares are nominative, the convocation can only be done by registered letter.The convening notice must include a series of elements such as: location, time and agenda.
Companies must comply with international recommendations regarding information disclosure, so that all persons involved in the mechanism of corporate governance to have access to the information necessary in the decision making process.The annual financial statements, along with the annual report of the Board of Directors and the proposal regarding the distribution of dividends, may be studied by shareholders at the headquarters of the entity.At shareholders' request, copies of these documents may be issued under certain conditions concerning the minimal costs.
Entities with a website must disclose online the information included in the convening notice as well as its annual financial statements, the annual report of the Board of Directors, the Management Report and the financial auditor's report.The economic entities whose financial statements are audited must compulsory publish the financial auditor's report.If some shareholders need additional information, they may address written questions to the Board, which is expected to address them in the general assembly.
In order to ensure business continuity, a solution is needed so that the decisions of the general assembly take effect.In this respect, national regulations stipulate that the decisions are mandatory even for shareholders who did not attend the meeting or voted against.They can still ask in court the annulment of a decision, which was taken in violation of the legal requirements.

Literature review
Corporate governance principles were at the basis of studies elaborated by various authors in scientific papers.Thus, some authors have addressed the issue of a conceptual framework alternative to the existing one.To support their arguments, they used agency theory (Ciancanelli and Reyes Gonzales, 2000, pp.[4][5]. With regard to the national implementation of the OECD principles on corporate governance, a series of studies was developed on the degree of implementation of these principles in the Romanian banking sector (Bîgioi, 2012).In connection with the enforcement of OECD principles on corporate governance, there were developed several studies on their implementation in emerging economies (Feleag et al., 2012).
The results of some studies show that poor corporate governance affects the whole economy, with negative consequences on economic development (Levine, 2003).
In other studies, there is analyzed the effect of corporate governance at company level on the cost of capital and how it is influenced this effect by the legal protection of investors (Chen, Chen and Wei, 2009).Other authors have explained the role that corporate governance plays in the performance of commercial banks (Macey and O'Hara, 2003).
Governance has been studied from a perspective different from the existing one, with more emphasis on control and management roles (Kim, Burns and Prescott, 2009).Also, some papers addressed ethical issues in business and described the relationship between ethics theory and law (Crane, 2007).The analysis of how concentration of ownership affects the independence of the Board and audit committee, has indicated the negative impact of ownership concentration on board independence, but no impact on audit committee independence.The results suggest that the Board independence increases firm value (Setia-Atmaja, 2009).
Other authors have addressed: the long-term evolution of investors' protection in UK companies (Franks, Mayer and Rossi, 2009), the shareholders' right to vote in companies in the United States and Europe (Ferrarini and Chiodini, 2010), issues related to the control of a company by majority shareholders, at the expense of minority shareholders, in developing countries (Gilson, 2007).
By reviewing the literature mentioned above, we note that a great body of literature shows that the implementation of corporate governance principles by companies is beneficial for shareholders, leading to the maximization of their profits.

Data and research methodology
When preparing the study, we used data extracted from case-specific jurisprudence, as published by national courts of law.Thus, in the first stage, we extracted a sample of 120 sentences.They were issued by Bucharest Courthouse, till 31.12.2015(http://portal.just.ro/3/Lists/Jurisprudenta).In the second stage, based on qualitative analysis, the sentences were grouped according to object of their actions and, out of these, we extracted 20 decisions related to shareholder rights.These correspond to a sample of 17% of all sentences.We consider that the sample is representtative.In the third stage, we selected the regulations invoked by the parties in the process.These were grouped by types of articles, and, based on quantitative methods, we determined which were the articles of law more frequently invoked by the complainants in their actions.In the last stage, based on qualitative analysis, we determined which of those articles relate to a noncompliance of shareholders' rights.

Defining the mathematical model on which the study was conducted
In order to determine which of the shareholders' rights were most commonly cited in court sentences, we have determined their weight in total, using the following empirical model: , where: Dc d i [0; 100] and d i represents the number of times law articles concerning shareholders' rights were invoked in Court's sentences; and Dc = [g(d 1 ) + g(d 2 ) + g(d 3 ) + g(d 4 ) + ... + g(d i )] and Dc -represents the total number of times law articles concerning shareholders' rights were invoked in Court's decisions.

Results
From our study, we obtained the results summarized in Table 1: Graphically, the obtained results are as follows:

Conclusions
After analyzing the results, we observe that, among the shareholders' rights not respected by governing bodies and other shareholders, there are included: -Property right, which accounts for 43%; -The right to vote in the general assemblies of shareholders, which accounts for 26%; -The right to participate in the general assemblies of shareholders, which accounts for 26%; -The right to be informed, which accounts for 3%; -The right to be elected in the governing bodies, which accounts for 3%.
Among the causes of non-compliance with shareholders' rights, we note: a.In the case of property right, the sentences targeted two main situations.The first concerns invoking the nullity of documents regarding the transfer of shares or a capital increase.Thus, minority shareholders have felt aggrieved in their rights, as it represents a contravention of the preemptive right.The second case concerns the property right in regard to the tangible assets owned by companies, minority shareholders requesting the annulment of the respective sale-purchase agreements.Among the reasons put forward by the complainants, we mention: sale of land and buildings at undervalued prices and in non-compliance with the competences of the governing bodies, as these were not authorized by the general assembly of shareholders to approve the transactions in question 1 .
b.In the case of the right to participate in the general assembly of shareholders and to vote, the Court sentences addressed more circumstances.Thus, in most cases, the complainants invoked the limitation of this right by various means 2 .For example, certain shareholders have not allowed a shareholder to participate in the the general assembly and vote by proxy, citing the fact that in the Articles of Association is not stipulated such a right.We believe that this represents a violation of shareholders' rights, corporate governance principles recommending the participation and voting in the general assembly of shareholders, including by proxy or by correspondence.
c. Regarding the right to be informed, the sentences reveal that most situations refer to abuses of governing bodies in relation to: the refusal to convene the general assembly of shareholders, at the request of minority shareholders; the publication on short notice of the convening note of the general assembly of shareholders, so that shareholders do not have access to information regarding the date and place of the meeting.Furthermore, another situation relates to the refusal of the governing bodies to communicate shareholders the annual financial reports, directors' report, financial auditor's report and the proposal for profit distribution 3 .
d. regarding the right to be elected, among the causes of non-compliance, we notice invoking the nullity of shareholders general assembly's decision, in which the General Manager is elected directly by it; or the delegation of certain powers to the General Manager is limited by shareholders general assembly, in order to impose the election of another person in that function 4 .
The results of our study show which are the main shareholders' rights not respected by companies' governing bodies and other shareholders, as revealed by the judicial practice.Given the results, we propose as further research direction, to determine the impact of the non-compliance of these rights on companies' financial results.12.2008.Thus, the complainant invoked the fact that de decision regarding the election of the General Manager of the company and the delegation ot the managing attributes of the administrative board to the General Manager, according to art.143 in the Law of the private companies is null as the delegation has to be express and the delegation act has to have a written form.It is the attribute of the administrative board to decide the delegation and the person or persons who benefit from the delegation.This act has to be acknowledged by a decision of the council, taken according to the law.
Property theory is referred to in Article 65 of the Law no.31/1990 regarding the commercial companies, thus -"[...] the goods representing a contribution to the company become its property [...]" as well as in article 66: "[...] the creditors of the associate may exercise their rights only on the part of the shareholder benefits due after the balance sheet [...]."

Figure 1 .
Figure 1.The weight of non-compliance with shareholders' rights based on Court sentences

Table 1 ,
we get the following weights of shareholders' rights (