Faculty of law blogs / UNIVERSITY OF OXFORD

Takeovers and Economic Nationalism: A Taxonomy that Protects against Abuse


Georgina Tsagas
Senior Lecturer in Private and Commercial Law at Brunel University Law School
Jeroen Veldman


Time to read

7 Minutes

The world of EU corporate governance is in turmoil. Not so long ago, the protection of a company by appealing to national legislators was considered anathema for businesses. Apprehensiveness towards Chinese investment in strategically important sectors, coupled with the fact that an open takeover regime is not reciprocally available in China, has bolstered the case for EU regulators and member states to increasingly scrutinize bids and draft legislation that can safely now be characterised as protectionist.

Germany became the first EU Member State to amend its rules on foreign corporate takeovers. Following, in mid July 2017, in the Netherlands, two-thirds of Dutch parliamentarians voted in favour of introducing legislation that would give protective measures to domestic companies. In January 2017, the Business, Energy and Industrial Strategy Select Committee in the UK followed through with an inquiry into the Government’s Industrial Strategy under the Government of Theresa May, considering whether foreign takeovers of UK companies should be prevented, and on what grounds. Finally, the EU summit in June 2017 saw calls being made by the French, Italian, German, Dutch, and EU lawmakers to adopt common measures to prevent unwanted takeovers, while the 28 EU leaders called on the Commission to further analyse foreign investments in sectors such as energy, banking and technology. What is one to make of this shift towards economic protectionism?

The free movement of capital constitutes one of the core elements of the functioning of the EU internal market [Hansen, 2010].[1] ‘Capital movement’, which includes any participation in a company, whether realised through ‘direct’ or ‘portfolio investment’[2] [Annex I Council Directive 88/361/EEC] is enshrined in Articles 63-66 of the Treaty on the Functioning of the EU. Article 63 specifically provides that: ‘[…] all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited’. Governments, in principle, only have a role to play in shaping the laws in a way that provides market actors with tools that will enable them to ward off unwanted bids on legitimate grounds. Hence, in the EU, until now, providing protection either through legislation or via locking up control of a company to the State as a shareholder, was considered an unacceptable form of protectionism. Such measures, if not related to an area which constitutes a recognised exception, would be considered contrary to the free movement of capital. More importantly caution need be exercised in relation to infringements of the freedom of establishment within the Community , as the Takeover Bids Directive is based on the chapter on freedom of establishment (Arts 49 and 50 TFEU-ex Arts. 43 and 44 EC Treaty). A company wishing to acquire control of a company in another Member State will essentially be exercising its fundamental right of establishment by means of a takeover, since acquiring control equates the conferral of rights of influence and decision-making in the company to the bidder.

A marked exception was a government’s identifying industries of public or strategic interest. Traditionally, governments wanting to protect key market players in their economy had made use of ‘golden shares’, allowing the government to either outvote the shareholders in a general meeting or to veto certain important company decision.[3]However, as the jurisprudence of the CJEU that followed made clear, the use of golden shares is prohibited under EU law. Subsequently, protectionist measures would often take the form of ‘last minute’ measures, such as finding a ‘White Knight’, ie, a company more preferable and less of a threat to the Member State’s national interests, for the company under siege [Enderwick, 2011: 331]. Notwithstanding the possibility to identify companies with a clear strategic interest for protectionist measures, under default conditions, public corporations, even if explicitly engaged with embedding a broader vision or purpose into their corporate governance structures, are not considered to be part of a particular category which enables governments to set in place protectionist measures.

In the recent AkzoNobel takeover case, however, the board played out its long-termist and stakeholder-oriented strategy as part of an ultimately successful campaign to engage a coalition of actors in the Netherlands, including the labour unions and the Dutch Ministry of Economic Affairs, with whom the board worked very closely together to thwart the bid. The public response provided to PPG’s bid makes reference to AkzoNobel’s  top 10 position in the Dow Jones Sustainability Index, to its ranking in recognized indices including Sustainalytics and Bloomberg ESG, and to investments in the ‘Human Cities initiative’. The response stated ‘significant risks and uncertainties for thousands of jobs worldwide’, ‘significant cultural differences between both companies’, a failure by PPG ‘to sufficiently address significant stakeholder concerns, uncertainties and risks’ and a lack of ‘meaningful commitments or solutions customary in major transactions’.

We find the use of such stakeholder rhetoric as the basis for an expansion of economic protectionism problematic. In principle, we recognise the need for the development of broader conceptions of corporate purpose and for providing legal instruments to protect that purpose against the vagaries of an open takeover market. Such means include clear provisions on purpose and mission and/or the inclusion of stakeholder interests in the articles of association; the choice for a specific corporate form like a non-profit corporation; B-corp certification; specific share class structures and board structures; the explicit choice for a specific investor base and investing in investor relation and strengthening investor firewalls [Levillain et al. 2018; Tsagas 2012; Veldman et al., 2016]. However, we find that in order to make an appeal to provide protection on the basis of a commitment to a broader purpose and/or stakeholder interests, it is incumbent upon a board to adopt and embed these means in a timely manner. The timely adoption of these means, as well as the acceptance of the potential financial and reputational costs for corporations and shareholders, is crucial. Only on such conditions will such corporations provide a clear signal that the board and the shareholders are serious about adopting and defending such values. It is no longer the case that one needs be weary of the use of the term ‘strategic’. At present what deserves closer attention than it has hitherto received is rather the arbitrary use of the term ‘sustainable’ as grounds for protection.

The AkzoNobel board had neglected to fully adopt a legal defence that would help in the protection of a specific purpose, strategic timeframe or stakeholder interest ahead of the bid, and had similarly neglected to internalize the potential reputational and financial effects of such choices. Hence, invoking long-termism, stakeholder interests, and employee interests, rang rather hollow, and particularly so when the board has relied on such an agenda as an instrumental last-minute attempt to thwart a hostile takeover bid together with the Ministry for Economic Affairs.

Analysis: A special Takeover Regime?

A combination of economic nationalism and the strategic use of stakeholder rhetoric is problematic, because it provides a setting in which the stakeholder rhetoric can be misused to apply takeover protections arbitrarily. This has the potential to disrupt the system of corporate governance in place; to impede the operation of takeover markets and capital markets; to create conditions for collusion among political and economic elites in national jurisdictions and to reflect badly on the use of stakeholder protections. The arbitrary use of such arguments and their contribution to the growth of economic nationalism leads us to propose another view on takeovers, based on a combination of mainstream and profit-with-purpose models of corporate governance. 

Using a mainstream approach, we argue that corporations cannot claim protection from an open takeover market without clear cause. There is only a small category of corporations that, due to strategic and systemic risks of their operations, constitute valid objects for a special takeover regime. In the interest of a transparent takeover market, it must be made explicit which corporations these are, and how this special takeover regime affects the status of these corporations in ordinary markets. The stated adherence to broader conceptions of corporate purpose should not in themselves present a legitimate cause for exceptions to an ordinary takeover regime.

Beyond a mainstream approach, we argue that additional safeguards against an open market for corporate control can be considered for a specific category of corporations in which the board and shareholders have afforded significant and sustained effort to clearly and consistently develop a purpose, mission, and stakeholder strategy; in which appropriate legal means have been used to embed these strategic choices in a timely fashion; and in which the financial and reputational costs involved in these choices and their embedding have been accepted and internalized by all parties involved in the corporate governance process. Only if this process has been completed well before a takeover bid occurs can a defensive strategy along the lines of calling on broader stakeholders, including governments, be considered. 

A combined approach establishes clear categories for a comprehensive takeover regime, in which corporations are differentiated according to their status as ordinary, systemic risk, or profit with purpose corporations. The development of this taxonomy provides a response to recent moves toward economic protectionism in the EU, furthers an agenda that respects fair competitive conditions between EU and foreign investors based on market rules, and provides incentives and means to corporations, boards and shareholders to think about the explicit legal embedding of their commitment to a broader purpose.

Georgina Tsagas is Assistant Professor in Corporate Law at the University of Bristol Law School.

Jeroen Veldman is Senior Research Fellow at Cass Business School, City University


[1] J. Hansen “Cross border Restructuring’ p. 176 in Company Law and Economic Protectionism Ed. U Bernitz and W. Ringe (Oxford, OUP, 2010)

[2] Annex I Council Directive 88/361/EEC

[3] W.G. Ringe “Company law and free movement of capital” (2010) Cambridge Law Journal 378, p. 384

[4] Veldman, J., Morrow, P. & Gregor, F. 2016 Corporate Governance for a Changing World: Final Report of a Global Roundtable Series, Frank Bold and Cass Business School, Brussels and London.

[5] Levillain, K., Parker, S., Ridley-Duff, R., Segrestin, B., Veldman, J. and Willmott, H. (2018) 'Protecting Long-Term Commitment: Legal and Organizational Means', in Driver, C. and Thompson, G. (eds.) Corporate Governance in Contention. Oxford: Oxford University Press, pp. 42-65.

[6] P. Enderwick ‘Understanding the Rise of Global Protectionism’ (2011) International Business Review 53(3) 325-336

[7] G, Tsagas “Reflecting on the Value of Socially Responsible Practices Post Takeover of Cadbury’s Plc by Kraft Foods Inc: Implications for the Revision of the EU Takeover Directive” European Company Law (2012) 9(2) 70-80


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