Teaching companies how to kill negative votes coming through proxies such as ISS, Glass Lewis or BroadRidge…
A French Ordonnance is a bill which by-passes the debate at the Parliament voting only to empower the Government to change some articles of the Company law... generally they say because of technicality or urgency. Beware ! While it appears to be an economic non-sense in this period where a low cost of capital is more than ever needed to further reduce shareholders rights, our MoF Madame Lagarde and our Chancellor Madame La Garde des Sceaux do not seem to care…
This Transposition bill for the European Directive 2007/36/CE on shareholders rights of 2007, was already protested in July 2009 by some 15 representatives of shareholders (cf. list hereunder). While the aim of the Directive, was to put an end to conflicts of interests affecting the free vote of shareholders such as in France the blank vote left to the Chairman of the company and the non independent vote of Employee shareholders funds, this new Ordonnance intends to rein minority shareholders using a proxy for their vote, in priority foreign shareholders.
The new four points of the article L. 225-106 of the Code created by the Ordonnance are questionable if only because according to the new point 4, they will not apply to power of attorney received by the chairman of the company, a first general breach to the shareholders equity principle.
Besides : - article L. 225-106-1 imposes that the proxy informs the end shareholder of any risk of conflict of interests and receives reconfirmation of his mandate which otherwise will be void… But here the numerous conflicts of interests of the different French regimes of representation of employee shareholders are not questioned…On average 4% of the voting rights for major listed companies are voted by the Supevisory Boards of Employee funds where generally representative of the companies management participate to the vote. - article L. 225-106-2 imposes – a request that does not appears in the Directive – that the proxy or an any active proxy solicitor publishes a proxy voting policy and that be held responsible for its application . But here again when the chairman is to be the beneficiary of the proxy solicitation (99% of the business) no proxy voting policy discipline will be imposed and non conflict of interest ought to be disclosed… - article L. 225-106-3 finally creates a right for the end-shareholder’s company (!) to refer to its local Court of Commerce the question possible betrayal of the end-shareholder’s intent and the final vote ! We all know that a proxy voting policy cannot encompass the complexity of many AGM resolution such as the approval of a merger, of a related party transaction or even the election of a competent director : the end result of the French Ordonnance is therefore to protect French management by allowing them to cancel if need be vote instructions coming through proxies such as ISS, Glass-Lewis or BroadRidge on the simple basis of a discussion of the agency loyalty of the final vote in view of their necessarily inconclusive proxy voting policies.
In short a very nasty weapon to kill minority vote, a serious concern for shareholders democracy in Europe...