A Dutch Perspective on the Takeover Bid Directive in the Context of Corporate Social Responsibility

Abstract

Even though the Treaty on EU sets high standards for sustainable development, the EU Takeover Directive as it stands today lacks any reference to this topic. The practical implications of this shortcoming can be seen, for example, in offer documentation. In 2012, KPN, the Dutch telecommunications provider, was fighting a bid by América Móvil, the Latin American mobile group. We note that the offer memorandum did not contain any information on corporate social responsibility (CSR), certainly not with respect to KPN's worldwide operations nor concerning América Móvil's operations. CSR could be regarded as the corporate 'translation' of sustainable development.

According to the Directive, an offer memorandum must include information which is necessary to enable the shareholders of the target company to reach a 'properly informed decision' on the bid. The offeror must thus inform the shareholders how it estimates the target company's value, risks and prospects for the future.

For boards of listed companies, CSR has become a strategic subject which directly relates to a company's value, risks and prospects for the future. Hence, for shareholders it is also important to be informed about the company's CSR profile as a good profile implies that a company's board can effectively control a company's impact on the environment and on people, and has assessed how the company can best meet its future needs. The CSR profile provides important information for an offeror in order to be able to appreciate both the short-term and the long-term risk profile of a company. Short-term because causing environmental pollution or dealing inadequately with stakeholders constitutes the risk of legal claims against the company and/or the withdrawal of licenses. Long-term, because CSR also requires that a company assesses and reveals to what extent it depends on the availability of environmental services such as water and on the appreciation of stakeholders (the 'social license to operate'). An ineffective CSR strategy may threaten the reputation of the company, and hence the short-term and long-term prospects of that company. Consequently, for shareholders in a takeover situation, it is very relevant to be informed about the CSR strategy and the implementation of that strategy by the target company.

In this article the authors examine to what extent the EU Takeover Directive's requirements pertaining to the offer memorandum's content suffice in divulging all relevant information, including information relating to CSR - sustainable development. Based on theoretical arguments, the authors argue that it is important for a shareholder or an employee, who has to decide whether he supports a takeover bid, to learn about CSR issues in order to be able to make up his mind on the basis of a full picture of the risks and opportunities of a business enterprise. The empirical study conducted by the authors, consisting of evaluating ten recent sets of offer documentation, has revealed that an offer memorandum typically only contains information which is explicitly required by the law. The drafters often follow a 'compliance approach', as if the Directive provides a checklist rather than requiring a full picture to be provided. Based on their research, the authors suggest that a change in the text of the Directive is necessary: a clear requirement to provide information about CSR should be part of the Directive’s articles.