Every EU member state could be forced to introduce measures to reward long-term shareholders, even as concern rises that such measures undermine corporate governance.
Two amendments to the EU’s Shareholder Rights Directive, currently working its way through the European Parliament, would impel the bloc’s 28 states to reward long-term shareholders with either additional voting rights, enhanced dividends or tax incentives.
One of the aims of the directive is to improve corporate governance and ensure a “correct and sustainable” executive remuneration policy.
Yet the push comes as evidence from France, where double voting rights for long-term investors are long established, shows entrenched investors using such powers in order to disenfranchise minority shareholders and undermine corporate governance.
Proxinvest, a Paris-based proxy voting agency, said 32 board resolutions that would have been rejected by investors at annual general meetings last year on the basis of “one share, one vote” were carried because of double-voting rights. Many of the resolutions involved issues of remuneration, such as granting free shares to executives or protecting severance payments, or dilutive capital increases.
This practice was labelled “cheating” by Pierre-Henri Leroy, chairman of Proxinvest, who described double voting rights as “a gimmick ensuring the main shareholder a disproportionate weight allowing him to control a company and to pass resolutions that would otherwise have been rejected”.
The findings come as a swath of large investors have rallied in opposition to France’s new Florange law, which automatically extends double-voting rights to long-term investors at all listed French companies unless they vote to opt out of the provision.
However, two resolutions proposed by members of the European Parliament’s economic and monetary affairs committee, Sergio Gaetano Cofferati, an Italian centre-left MEP who is rapporteur for the Shareholder Rights Directive, and Pascal Durand, a French Green MEP, would compel all European countries to introduce similar measures.
Peter Montagnon, associate director at the Institute of Business Ethics, criticised the resolutions, saying “extra voting rights for a core of long-term shareholders tend to entrench management and make them less open to challenge. Compelling listed companies to introduce voting distortions neither they nor their shareholders want is an assault on contractual freedom.”
Mr Cofferati’s amendment would impose a minimum two-year qualifying period for investors to be considered long term, while Mr Durand’s has a five-year minimum.
The proposals are due to be voted on March 24.
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