US non-profit organisation the Conference Board has issued guidance to corporate directors on how to prevent shareholders accumulating undisclosed stakes in companies using cash-settled derivatives.
The Board’s report cites anecdotal evidence – including cases involving Continental, Fiat, and Volkswagen-Porsche – that cash-settled derivatives are increasingly being used by investors and strategic bidders to discreetly expand ownership positions in European listed firms.
When used for this purpose, cash-settled derivatives can disrupt a company’s internal governance and voting process and the efficient operations of markets, argued the report’s co-author, Eugenio De Nardis, a corporate lawyer at Cleary Gottlieb.
“Directors of European corporations should be aware of the risks and possible distortions caused by the undisclosed use of cash-settled derivatives,” added Matteo Tonello, director of corporate governance research at the Board and the other author of the study.
“The danger is in having investors’ public filings that only tell half the story...