A new commitment toward shareholders’ rights: “one share, one vote”
As Shareholders for Change, we firmly believe in the “one share, one vote” principle. Therefore, in line with our previous commitment to preserving shareholder rights, we do not support the current development of European shareholder rights legislation.
The Listing Act
In December 2022, the European Commission published a series of proposals as part of the “Listing Act”. These included a Directive aimed at achieving a minimum harmonisation of national laws on multiple voting rights structures for companies listing on SME growth markets. The European Parliament adopted the Multiple Voting Rights Directive in April 2024. Following the Listing Act directive of 2022, sevreal European countries introduced multiple voting rights structures: Germany in December 2023, Italy in march 2024 and France in June 2024.
Multiple vote share structures are an effective mechanism to enable controlling shareholders to retain decision-making power in a company, while raising funds from the public. Multiple vote share structures are a form of a control enhancement mechanism involving at least two distinct classes of shares with a different number of voting rights. Under such structures, at least one of the classes of shares has a lower voting value than another class (or classes) of shares with voting rights. The share carrying the superior amount of votes is a multiple-vote share.
Potential problems with multiple-vote shares
Introducing multiple vote share structures in a company reduces the decision-making power of other shareholders (investors) in proportion to their financial stakes. This reduced voting influence can lead to several issues if not properly managed.
Potential problems include shareholder entrenchment, diversion of the company’s assets and the extraction of private benefits by the controlling shareholder through methods such as related party transactions. Additionally, the dilution effect caused by multiple-vote shares can enable controlling shareholders to block certain resolutions, including those focused on sustainability goals, prioritising their interests over the company’s long-term sustainable development.
The safeguards
However, implementing safeguards to protect minority shareholders and the company’s interests can mitigate such issues. Such safeguards include setting a maximum voting ratio, introducing sunset clauses (e.g. capping the number of voting rights per share, as well as the maximum time duration during which these rights can be granted), and limiting the use of multiple-vote shares in specific situations, such as those involving sustainability matters.
The current safeguards according to the directive are “ensuring that a company’s decision to adopt a multiple-vote share structure and any subsequent decision to modify a multiple-vote share structure that affects voting rights are taken by the general shareholders’ meeting of that company and are approved by a qualified majority as specified in national law.” Other safeguards should “limit the voting weight of multiple-vote shares on the exercise of other shareholders’ rights”. Although the efforts to introduce safeguards in the Directive are commendable, we believe they are not sufficient to guarantee the rights of all shareholders, especially minority shareholders.
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