The French Financial Markets Authority (AMF) recently published the report of its working group set up to propose recommendations for improving dialogue at the general meeting.
As an investor, we were very concerned about the preliminary report, on which we were asked to comment. In fact, the working group, which was composed mainly of corporate issuers’ representatives and their close advisers, published a preliminary report that did not bode at all well for the final report. Luckily, a large number of investors expressed their concerns about several of the recommendations and put forward their own suggestions for improvement, which were taken on board by the regulator.
Of all the recommendations included in the final report, we applaud the fact that the AMF unequivocally affirmed the importance of an open and transparent shareholder democracy, the need for intermediaries (proxy voting agencies) to facilitate investors’ analysis of draft resolutions and the importance of encouraging dialogue with all shareholders, including the smallest ones, after the initial recommendations to a certain extent called these principles into question.
Several of the recommendations mark real progress, but one in particular, although it may appear to be a technicality, strikes us as being by far the most significant, namely the AMF’s call for reform of the regulated related-party agreement procedure.
The current regulated related-party agreement procedure is unique in France since it enables the links between a company and its Board members to be identified and helps investors to pinpoint potential conflicts of interest. The law requires statutory auditors to publish a report on new agreements concluded during the financial year that fall outside the scope of the company’s “ordinary activity”. The shareholders are invited to vote on these agreements, even if their vote is merely a consultative one.
In its report, the AMF proposes that all new and existing regulated agreements between a member of the Board of Directors and/or the company to which he belongs or which he represents, on the one hand, and all the other companies in the listed group (parent and subsidiaries), on the other hand, be taken into account when significant amounts are involved in the agreement.
These proposals, if they are incorporated into the legislation, will greatly enhance transparency through the identification, in complete transparency, of all major transactions, notably with subsidiaries, that are currently beyond the control of the shareholders.
The report does not go as far as to recommend a non-consultative vote. Nevertheless, the fact that it enables all existing agreements to be identified, which is not currently the case, is a major step forward for shareholders.
Let us hope that this report will be implemented as soon as possible, triggered perhaps by the new government or the arrival of the new AMF chairman.
Olivier de Guerre
Chairman of PhiTrust Active Investors