Frontis Governance and ECGS commented on Consob’s consultation on multiple voting rights

Posted on December 9, 2014

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Originally posted on the ECGS website

Frontis Governance, the Italian partner of ECGS and first Italian proxy advisory firm, presented its comments on the new Italian legislative provisions threatening the basic principle of equality of all shareholders. Like in France, ECGS partners demonstrate their strong opposition to the introduction of multiple voting rights, as a breach of the “one share – one vote” principle and a departure from shareholder democracy.

While the Italian market is still characterised by a high concentration of ownership and control, the aggregate market capitalisation strongly decreased over the last 10 years ranking 23rd in the World in 2013 from 13th in 2003. The new possibility will further strengthen the major shareholders’ power and will put a discount on the Italian stocks.

In France according to Proxinvest, ECGS member, there would be approximately 60% more rejected resolutions without the unfair play of the double voting right.

The possibility to assign an additional voting right per share will differentiate between registered and unregistered long-term shareholders and will only benefit local big shareholders, at the detriment of foreign shareholders and Italian independent investors.

There have been many examples of financial disasters caused by the excessive power of controlling shareholders in Italy and other European markets (Fondiaria-Sai and the case of Banco Espirito Santo in Portugal are just two recent and well-known cases). In our opinion, measures aimed at increasing the efficiency and effectiveness of internal and external controls are much more appropriate to attract foreign investors than strengthening the controlling shareholders’ power.

We believe at ECGS that the stability is guaranteed by an effective management, rather than by the presence of “domineering fathers”, the defensive measure against instability is the creation of sustainable value in the long term.

Therefore, ECGS will recommend opposing in Italy as in France all resolutions aimed at allowing the possibility to issue additional voting rights per share.

 The answers of Frontis Governance and ECGS to Consob’s consultation

  • Issuers should timely disclose, through a publication on the corporate website, the updated amount of shares registered in the special register for the assignment of the additional voting right. All shareholders should be aware of any potential changes in the total number of voting rights.
  • The registration and the assignment of the additional vote should be based on a direct communication from the custodians to the issuer, in order to eliminate eventual additional shareholder costs related to the request of the ownership certificate.
  • As the assignment of the additional voting right will strengthen the power of some shareholders, it is of outmost importance to reduce as much as possible the discretion of the management in defining modalities and timings to request and obtain the additional vote. Therefore, the registration and the assignment of the additional rights should be allowed on an ongoing basis: all shareholders should be able to register their share at any time and the additional vote should be automatically assigned after 24 months from the registration date.
  • In line with other European regulations (i.e., the UK Takeover Code and the Spanish Royal Decree on Takeover Bids), when shareholders come to involuntarily hold more than 30% of votes, their voting rights should be capped at 30% less one vote until the shares in excess are not sold to unconnected parties. Furthermore, we propose that the takeover bid should be always mandatory if shareholders that “involuntarily” came to hold more than 30% of voting rights buy additional shares.

Download here our answers to Consob’s questions (Italian only)

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