Equal voting rights in France
One of the hot topics of proxy season 2015 is maintaining the “one-share, one-vote” system in some of France’s largest companies. Investors, and in some cases companies themselves, have been trying to repeal the implementation of the so-called Florange law, a legislation that automatically grants double voting rights from 2016 onwards to investors that have held shares in a listed French company for more than two years unless two-thirds of shareholders vote to overturn it. This legislation reverses the current situation where companies had to expressly choose to introduce double voting rights.
Supporters of this new legislation assert that granting extra voting power to those owning stocks for more than two years rewards long-term shareholders. The assumption is that an investor with a two-year horizon, as opposed to one who trades every few milliseconds, is going to evaluate companies differently. It is for this reason that this kind of stock is called “loyalty shares”. Robeco acknowledges that long-term shareholding should be encouraged. However it also believes that the strategy of granting double-voting rights to long-term investors is not adequate. We believe that a deviation from the “one-share, one-vote” system, such as the double voting rights under the Florange law, gives certain shareholders power that is disproportionate to their economic interests and brings unfavourable treatment to minority shareholders. The French market is characterised by concentrated ownership by the state and founding families in listed companies. A consequence of the Florange law will be strengthening the voting power of blockholders, leaving minority shareholders unable to influence the company through proxy voting.
For these reasons, Robeco joined the shareholder engagement campaign led by the Paris-based active investors fund PhiTrust. French companies listed on the CAC 40 index that had not yet adopted a double voting rights structure were engaged to advocate for opting out of the implementation of the Florange law provisions.
As part of the equal voting rights campaign, 13 companies in the CAC 40 index that did not have double voting rights before the Florange law was passed were engaged. As a result, 10 of these companies proposed resolutions for opting out of the law’s provisions. The campaign was relatively successful, as seven companies effectively repealed the implementation of double-voting rights, including the cosmetics giant L’Oreal, the property firm Unibail Rodamco, and the construction firm Vinci with over 99 per cent of approval. However, six companies did not gather enough shareholder support for the proposal on equal voting rights, among them being Véolia and the state-controlled company Renault.
It is likely that similar regulatory developments to those in France will take place in other European countries. The Florange law comes amid a wider European debate revolving around the Shareholder Rights Directive, which would potentially include provisions allowing member states to deviate from the one-share one-vote structure. Some EU countries are already pursuing their own legislation on loyalty shares. In June 2014 the Italian government adopted the so-called “Development Decree” which includes a provision allowing listed Italian companies to issue shares with multiple-voting rights granting two votes per share.