Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Tuesday, November 01, 2005

One share – one vote proposal likely to win support from investor organisations.

European Trade Commissioner Charlie McCreevy last week called for “one share, one vote” to be accepted across the European Union’s 25 member states. The move marks a significant step towards achieving shareholder democracy in Europe. Speaking to the Financial Times recently, he said that he wants to get the "one share, one vote" principle accepted across the 25 member states. It will not be easy but success would be good for Europe's economy and good for tens of millions of investors denied their rights.

Today, the situation is highly fragmented, as is highlighted in a new study from Deminor, the governance consultancy. Approximately one third of European listed companies fail to follow the principle of one share – one vote. Some impose an ownership ceiling, limiting the stake of individual owners; others impose a voting right ceiling limiting the right of individual holders to register their opinion by voting at annual meetings. There are also “priority shares”, which give specific powers to their holders. And a 20% of the companies surveyed issue shares with multiple voting rights, which give additional rights to selected shareholders.

The Commission – and investor organisations support them – are arguing that this muddle is a real obstacle to a true single financial services market in Europe. The Commission - through its Shareholder Rights Directive – are already working to empower investors and the voting processes at AGM’s, however the proposal for one share – one vote moves on the idea of enfranchisement of shareholders.

Another reason why this move is felt to be so important is its connection to the “comply or explain” principle that has underpinned corporate governance best practice for many years. And of course the responses to the FRC’s consultation on the Combined Code were largely behind “comply or explain”. This principle subjects companies to proper oversight, but it only works well if shareholders can exercise their ownership rights.
When the rights of owners in individual markets are enough, the market will be able to improve the ability of investors to exercise their voting rights across borders. Combined with an effective comply-or-explain principle, issuers will be able to avoid expensive prescriptive regulation.

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