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Digital corporate governance in Slovakia

CSACH, K.: Digital corporate governance in Slovakia. Právny obzor, 105, 2022, special issue, pp. 3-13

Digital corporate governance in Slovakia. The paper focuses on the current trend of digitalisation of decision-making processes. Legal risks associated with the use of digital technologies in facilitating decision-making by corporate bodies and the means to mitigate such risks are brought into attention. The author supports the view that the current Slovak legislation is insufficient for full-fledged virtual shareholders’ meetings but is sufficient for the use of digital means as support or substitute for the decision-making of corporate board members. The general framework of the draft recodification of the Slovak Civil Code allowing associates (members of corporations including civil associations) to participate virtually in meetings of associates of all corporate legal forms is considered an up-to-date solution.

Key words: digitalisation, corporate governance, virtual shareholders’ meeting, corporate e-governance, electronic voting

Effective corporate governance requires flexible procedural rules governing the way corporate decisions are made. Slovak corporate law is rigid in terms of decision-making processes. The regulation dates back to pre-Internet times and rules are conceptually built on the physical presence of the persons involved in decision-making. However, this world is coming to an end and nowadays a large part of personal interaction takes place online. Digital technologies are increasingly used as means of searching for information, simplifying its processing, or otherwise supporting decision-making. So far, digital technologies have been replacing human decision-making processes only in exceptional cases. In this article, we will address the possibility of virtual meetings and digitalisation of the voting processes of corporate bodies (1), the digital exercise of other shareholder rights (2) and the use of digital technologies in decision-making by the executive and supervisory bodies (3). We will focus on the limits of the current laws and legal regulations, present possibilities of deploying digital technologies and on the proposal of a new legal regulation in the recodification of private law.
1. Online decision-making by corporate bodies
1.1. Digital technologies facilitating board members' decision-making and virtual board meetings
The technical course of negotiations and decision-making by the collective body of a commercial company is not regulated in detail in Slovak corporate law. The default rule requires personal participation in the meeting. The memorandum or articles of association may permit the members of the executive board or the supervisory board to vote in writing or by electronic means (Sect. 66 Subs. 8 of the Slovak Commercial Code). It is therefore assumed that the decision on the method of communication cannot be taken by the executive or supervisory body of the company itself within their Rules of Procedure but must be taken by the shareholders by amending the fundamental corporate documents. The law does not provide for any additional rules governing electronic communication by members of elected bodies. Deficiencies in data transmission or identification of persons are apparently not considered to be significant here and the obligation to ensure their proper functioning is left to the responsibility of the members of the bodies in question.
1.2. Digital technologies facilitating shareholders' decision-making and virtual shareholders' meetings
Shareholders of a corporations make their decisions mainly in the shareholders' meeting. The shareholders' meeting is the supreme body of the corporation and decides on the most important issues of the corporation. In addition, shareholders may, under certain conditions, take decisions outside the shareholders' meeting or agree, by virtue of a contract, to amend the articles of association of a private limited liability company. Partnerships do not have a shareholders' meeting, but major decisions are taken in the form of an amendment to the partnership agreement.
a) (Virtual) shareholders' meeting
The shareholders' meeting is the supreme body of corporations deciding on the most important issues of the existence and functioning of the corporation. The shareholders' meeting presupposes the simultaneous physical participation of the shareholders in the deliberations of the body at a given time and place.
The procedure of the shareholders' meeting itself is regulated quite strictly, based on the requirement of the shareholders' physical presence. The Commercial Code does not provide for either digital shareholders' meetings or the possibility to participate in a physical shareholders' meeting by means of remote communication. An exception is the regulation of public joint-stock corporations
(listed corporations)
with the possibility of shareholder participation by means of remote communication (Art. 190d of the Slovak Commercial Code). However, a strict mechanism for verifying the identity of the voting shareholder and the subsequent confirmation of the votes cast must be complied with. Interestingly, it is a practice in Slovakia that public joint-stock corporations do not make use of the possibility to hold virtual shareholders' meetings. According to the results of empirical research conducted by Sokol, based on data from publicly available articles of incorporation, it appears that the majority of public joint-stock corporations have explicitly excluded the possibility of holding shareholders' meetings electronically. On the contrary, the meeting and voting of the board of directors and the supervisory board using electronic means was almost regularly enshrined in these corporations.
Is it possible to amend these rules? There is a lively debate going on in Slovak legal scholarship on the extent to which the rules of corporate law are mandatory or nonmandatory and thus whether they can be amended by the articles of association or by-laws.
However, it is apparently presumed that rules on participation in the shareholders' meeting and the method of voting are mandatory. It is stated that the means of remote communication may provide for the participation of a shareholder in the shareholders' meeting without his personal presence only under the conditions laid down in the law.
Looking abroad, this is not the only possible conclusion.
We assume that the reason for the doctrinal strict approach is the regulation in Section 66 Subs. 8 Slovak Commercial Code allowing the modification of voting mechanisms for executive and supervisory boards but is silent regarding the voting procedures of the shareholders' meeting.
Even the current legal situation allows virtual shareholders' meetings. Slovak corporate law is specific in its intensive enforcement of
ex post
protection against resolutions of shareholders' meetings and in the strong judicial position that resolutions of shareholders' meetings can only be reviewed by a special judicial procedure initiated by a given plaintiff. Otherwise, the defects of the resolutions are in principle considered as healed.
Protection against resolutions of the shareholders' meeting requires, in principle, that the rights of the shareholder have been infringed by the resolution of the shareholders' meeting. A resolution of a shareholders' meeting of a company held virtually might possibly not be challenged at all, or the future case-law may lead to the conclusion that if a shareholder has had the opportunity to attend the shareholders' meeting physically and has also voluntarily accepted his virtual attendance, his rights were not infringed. Thus, the resolution of the virtual shareholders' meeting would remain effective despite the failure to comply with the legal procedure on physical attendance and even without the corporate charter providing for digital voting.
Recently, however, there have been some legislative shifts regarding the admissibility of virtual shareholders' meetings. Legislators around the globe adopted pandemic regulation allowing for virtual shareholders' meetings and distant voting.
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