European overview
Italy and France has recently changed their legal framework to introduce or to automatically offer double voting rights to shareholders. In France, the 3rd paragraph of the article 225-123 of the French Commercial Code automatically offers double voting rights from 2016 onwards to shareholders of listed companies who hold shares in registered form for at least two years, unless a company opts-out and modifies its articles of association stipulating otherwise.
The France has become a European champion of non-compliance with the equal treatment of investments in shares and voting rights.
France has become a champion of shareholder unequal treatment
Source: Expert Corporate Governance Service (ECGS), Stoxx®Europe 600 Universe
In Italy, a law approved in August 2014 allows listed companies to assign an additional voting right to shareholders who are registered in a “loyalty register” for at least 24 months. It is the same procedure as in France, but in Italy the possibility to introduce the double voting rights must be approved by the general meeting with a supermajority vote of at least two-thirds (or the higher percentage provided by the Bylaws).
In CAC 40 index, only eight French based companies kept “one share – one vote” approach. In Italy, only 16 companies approved the double voting rights: one is a large-cap (Campari) and six are mid-caps (Amplifon, Astaldi, Dea Capital, Hera, Maire Tecnimont and Zignago Vetro). However, several large companies are evaluating the possibility to introduce double voting rights in the next future.
The double or multiple voting rights are often presented as a form of recompense for long-term shareholders. ECGS has contested this type of unequal treatment of shareholders and especially its hypocritical presentation. The use of multiple voting rights or shares without voting rights introduces distortions which allow maintaining a control without holding the corresponding economic interests and, as the result, economic risk. Furthermore, the introduction of double voting rights, commonly based on holdings of share in registered form, likely disadvantages many international and institutional investors as most of the French and non-French investors cannot register their shares due to excessive administrative or financial burdens.
Double voting right does not help to stabilize the capital neither. Indeed, high frequency traders or speculative investors do not care about voting. Only responsible investors voting their shares and not holding their shares under the registration form (“actions au nominatif”) will be (negatively) impacted by double voting rights as they will be diluted in % of voting rights.
It is surely not in the interest of an investor to accept to be diluted in terms of voting rights, even more when this investor has a fiduciary duty.
The « one share – one vote » principle has been supported by investors and theirs associations for a long time, for example by Proxinvest, ECGS, the French Asset management association or by ICGN (International Corporate Governance Network). ICGN also reminded that the registration of shares (“enregistrement au nominatif”) is not compatible with the management of financial assets for institutional investors, especially for non-resident investors.
« One share = One vote » is a longstanding principle of equal treatment of shareholders. It is absolutely necessary to ensure that minority shareholders can protect their interest and participate responsibly to the corporate control mechanisms. “One share – One vote” is a fundamental cornerstone of shareholders trust and good market valuation.
ECGS has realised a short overview and present here its results. Sure enough, ECGS found out that the multiple voting rights are more often used to reinforce the voting power of dominant shareholders. This tool allows keeping control of the company while reducing the rights of the minority shareholders.
All 16 Italian issuers approved double voting rights have a controlling shareholder with more than 50% of shares. In France, we saw that the French state did not hesitate to raise its stake in car maker Renault in order to ensure the adoption of double voting rights, so did the strongest minority shareholder in Vivendi, French tycoon Vincent Bolloré.
Multiple voting rights used to reinforced voting power of dominant shareholders
Source: Expert Corporate Governance Service, Stoxx®Europe 600 Universe
