A group of large investors has written to France’s biggest companies asking them to opt out of a controversial new “protectionist” law.
Under the Florange law, passed in April, investors that have held stock in a listed French company for at least two years will automatically be granted double voting rights unless the company alters its articles of association to opt out of this provision.
The legislation reverses the current position whereby companies had to expressly choose to introduce double voting rights.
Some investors fear it will strengthen the hand of the French state, which has large holdings in many French companies, as well as trade unions, which typically control the voting rights of employee share schemes, at the expense of minority shareholders.
“The government is effectively changing the law to create an enhanced share class to protect France so it can influence the way France is governed,” said Neil Dwane, chief investment officer for European equities at Allianz Global Investors. It is among 19 investors with combined assets of €2.3tn that have written to the chief executives of France’s 40 largest companies arguing in favour of “one share, one vote”.
Angeli Benham, corporate governance manager at Legal & General Investment Management, which has written its own letter to almost 100 French companies, said: “It is a form of protectionism. In France there are a lot of government or family-owned companies and they are not really interested in what minority shareholders have to say.”
Ms Benham said LGIM had so far received just two responses, including one from a CAC 40 company with a large government stake that said it had no plans to opt out.
The campaign comes just weeks after a successful investor rebellion in Italy against a new law that would have made it easier for companies to create “loyalty shares” offering double voting rights to long-term investors.
Prime Minister Matteo Renzi agreed to scrap a law allowing loyalty shares to be created if approved by a simple 50 per cent majority of shareholders, rather than the previous two-thirds majority, amid claims from investors, academics and board members that the watering down would benefit entrenched family shareholders.
Mr Dwane said French companies that moved away from one share, one vote risked driving away foreign investment, raising their cost of capital.
“This kind of behaviour will detract from the willingness to invest in France. French companies will trade at a discount because people feel there is a higher burden of care required because of the interference from the French government. I think it is important that all shareholders are treated equally,” he said.
Ms Benham said LGIM, which holds just under 1 per cent of the French market through its index funds, was unable to register for double voting rights because the stock is held in nominee accounts.
Karina Litvack, a non-executive director at Eni, the energy company, and former head of governance and sustainable investments at F&C Asset Management, who was influential in forcing the policy U-turn in Italy, said “the administrative hoops required to qualify for loyalty shares are so unwieldy that, in effect, their only beneficiaries are controlling shareholders”.
The Florange law also scraps the principle of board neutrality during offer periods, giving boards discretion to take frustrating measures without prior shareholder approval. It was introduced after ArcelorMittal, the Luxembourg-based steelmaker, defied the French government by closing two furnaces in the north-eastern French town of Florange.
Other signatories to the French letter include Aberdeen, Robeco, PGGM and TIAA-CREF.
The French economy ministry said the measure was designed to promote long-term investment, reduce stock turnover and “allow companies to be managed in a long-term perspective”, and that it was not protectionist because all long-term shareholders, regardless of their nationality, qualified for double voting rights.
It estimated that 22 constituents of the Cac 40 already have double voting-right mechanisms in place, while similar systems existed in several other European countries.
“The double voting rights mechanism is not mandatory. The shareholders who oppose it are free to vote against it,” the ministry added.
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