The Florange Law voted in this year introduced a new, previously unheard of governance rule for all French listed companies implementing double voting rights for investors holding registered shares for more than two years.
The decision challenges the "one share, one vote" principle that most French (FRR, ERAPF, etc.) and foreign (NBIM Norway, PGGM Netherlands, Railpen UK, Calpers USA, etc.) institutional investors have adopted in their investment criteria. These investors, who are the real long-term investors, demand that their asset managers comply with these criteria in their investments. The law will inevitably result in some preferring investments in companies that comply with the "one share, one vote" principle.
The decision is unique because, for technical reasons, foreign minority shareholders and UCITS' are mostly bearer and not registered and it will be very difficult to get them to register because they want to maintain some "flexibility" in their asset management.
The government and companies that pushed for the measure were aware of these technical points as many investors and heads of companies had pointed them out. This didn’t stop them from pushing through the measure for political agenda reasons...even though the implementation of simple systems such as "loyalty shares" for bearer shareholders would have been possible.
The decision will inevitably strengthen those shareholders who take control of our companies with derisory holdings (e.g. Carrefour and Vivendi) and they will benefit from the measure. The Technicolor affair may take on a different complexion when its main shareholder, an investment fund, automatically benefits from double voting rights in 2016, if its other shareholders don't take any action!
Thankfully, there is still a window for companies that haven’t yet implemented double voting rights. They can modify their by-laws at their 2015 general meeting to eliminate the double voting rights. However, the registered shareholders of companies that don't change their by-laws in 2015 will automatically enjoy the benefit in 2016. Their approval will be required to eliminate the rights at a later time.
It is therefore urgent that shareholders mobilise to demand that companies change their by-laws and remove the double voting right clause at their next general meeting in 2015.
PhiTrust Active Investors has just written to the chairmen of CAC40 companies pointing this out; however, all listed companies are affected by the clause. If we aren’t able to react quickly, how will companies be able to believe that investors are attached to the principles they have subscribed to?
If double voting rights become generalised, we shouldn't be surprised if many investors remove companies listed in Paris from their investment universe. It will be our own fault!
Olivier de Guerre
Chairman of PhiTrust Active Investors