Standards

The end of "one share, one vote"?

There is no evidence that multiple voting rights and other imbalances between ownership and control damage either the economic performance or governance of listed companies, according to a report prepared for the European Commission.

This comes as something of a blow to campaigners arguing that control of a firm should be proportionate to investment - the “one share, one vote” principle. However, the study also noted that a majority of institutional investors see all control enhancing mechanisms (CEMs) that do not follow the proportionality principle as negative. In particular, priority shares, golden shares, multiple voting rights shares and voting right ceilings were perceived most negatively.

Furthermore, 80% of the 445 institutional investors covered by the survey would expect a discount on the share price of companies with CEMs.

The study found that none of the 19 jurisdictions it covered opted for an entirely “one share, one vote” system or a system that effectively leaves companies to organise themselves as they see fit. Most jurisdictions hold a middle ground: all have between five and 11 CEMs available.

Of the 464 European companies covered, 44% have one or more CEM. France has the highest proportion of companies with at least one CME, followed by Sweden, Spain, Hungary and Belgium.

The most common CEMs found at large companies were pyramid structures, which make up 27% of CEM occurrences in the sample; this was followed by multiple voting rights shares (21% of occurrences) and shareholder agreements (14%).

Charlie McCreevy, internal market commissioner, commented: “The study provides a useful factual background to the issue of proportionality between capital and control – known as the “one share, one vote” issue. Previously we didn’t have a clear picture of how this issue affects European listed companies and whether it has an impact on their economic performance. Now that these facts are on the table we will examine, with an open mind, the question of whether or not there is a need for Commission action in this field”.

Paul Betts in the Financial Times (6 June) questioned whether the introduction of a “one share, one vote” rule would really improve the current European system unless corporate Europe also adopted a unified process of voting for shareholder meetings. As in politics, he said, some countries make use of proportional voting while others have a majority voting system. Under the majority system, 50% plus one vote is all that is needed to gain control: “So much for ‘one share, one vote’”, commented Betts.

Betts added that cultural and political differences are also likely to frustrate the adoption of any common voting system, and argued that if the “embarrassing saga” of the European takeover directive is anything to judge by, the Commission would be well advised to cool its enthusiasm for regulating control in corporate Europe.

July 2007