Institutional shareholders are losing ground in a little-noticed battle for equal treatment of all shareholders in Europe. First in France, now in Italy, regulators have reversed long-standing one-share-one-vote principles.
On December 19, 2014, Consob, the public authority responsible for the regulation of the Italian securities market, approved amendments to its issuer regulations to implement the new rules regarding voting rights at Italian corporations, which came into effect on August 21, 2014.
Law no. 116 of August 11, 2014 (converted, with amendments, from Law Decree no. 91 of June 24, 2014) will allow companies to amend their articles of association to allow the grant of up to two votes per share to shareholders who have held their shares continuously for at least two years. These superior voting stocks are sometimes referred to as “loyalty shares.”
The law also provides that until January 31, 2015 resolutions to amend the articles of association to incorporate these increased voting rights will only require a simple majority vote rather than the supermajority requirements normally required to amend a company’s articles. Furthermore, such resolutions will not include any withdrawal right as contemplated by the Italian Civil Code.
In response to the regulatory change, several companies (Astaldi S.p.A., Amplifon S.p.A. and Davide-Campari-Milano S.p.A, thus far) have rushed to take advantage of the lower majority voting requirements required to adopt loyalty shares. Executive director Franco Moscetti, speaking on behalf of the board of Amplifon S.p.A., voiced his support for the new tool available to listed companies “for the purpose of increasing the loyalty of its shareholder base.” Likewise, at Davide Campari-Milano S.p.A., the board is strongly in favour of such loyalty schemes, noting the benefits of “the long-term commitment of the
Similar efforts to incentivise long-term shareholders appeared in France during 2014 with the introduction of the Florange Act, which introduced the automatic granting of double voting rights for registered shares held by the same shareholder for two years. French companies have the option to opt out of the clause and continue to adopt the one-vote, one-share principle, an option several French companies have exercised. Although Italy has taken the opposite approach, requiring a proactive adoption of double voting rights, the prevalence of controlling shareholders in Italy may presage the dwindling influence of minority shareholders at a large number of companies choosing to adopt such measures.
Assogestioni, the Italian association of asset management companies, was quick to criticise the new regulation, stating that such a scheme deprives minority institutional investors of their right to vote with the same weight of controlling shareholders, resulting in disproportion between the capital invested and the voting rights recognised (“Voto maggiorato e voto plurimo: Un vulnus al principio di one-share one-vote”). Seen as a scheme for building a loyal relationship with long-term investors, Assogestioni states that loyalty shares may instead discourage the willingness of issuers to engage with minority shareholders whose voting rights have been diluted, potentially removing minority shareholders from any governance dialogue with companies. This, Assogestioni believes, is in direct conflict with the upcoming revisions to the Shareholder Rights Directive, set to be finalised in 2015, which includes measures to encourage dialogue and engagement between issuers and their investors, particularly institutional investors. Rather than loyalty voting initiatives such as this one, Assogestioni considers the improvement of cross-border voting rights and the recognition of equal voting rights for all shareholders to be better methods for improving engagement.
Being a relatively recent development, it remains to be seen how other institutional shareholders will react to the new regulation. The inaugural votes on the issue, at the meetings of Astaldi S.p.A., Amplifon S.p.A. and Davide-Campari-Milano S.p.A., will provide an indication as to how investors may respond to the new provisions; however, with all three companies having a controlling shareholder and the proposal needing just a simple majority vote, the result is a foregone conclusion. In fact, these three companies provide a perfect example of why Glass Lewis finds these regulatory efforts to increase a long-term focus of investors misguided—the beneficiaries in each case will be the controlling shareholders who already determine the companies’ strategic focus. Rather than combatting short-termism, these changes are more likely to give already dominant forces in listed Italian companies more reason to ignore the increasingly distant voices of minority institutional shareholders calling for important long-term governance reform.
Contributors: Patricia O’Donoghue and Andrew Gebelin