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
