European Commission Abandons One Share, One Vote Initiative

In a very significant move, the European Commission has abandoned its one share, one vote initiative primarily because of recent findings that there is no evidence of a causal link between deviations from one share, one vote and the economic performance of companies. In remarks to the European Parliament, Commissioner for the Internal Market Charlie McCreevy said that, instead of one share, one vote, shareholders should push for enhanced transparency and better dialogue with their companies. Separately, he stated that the Commission will propose legislation to create a European Private Company.

The aim of the study was to facilitate Commission evaluation of whether the present regime concerning shareholders' voting rights across the EU is an obstacle for financial market integration, and whether measures at EU level would, therefore, be appropriate.

The core concept of the proportionality principle is that shareholders with capital at risk in a company should have a say about the conduct of that company and that their voice should be proportionate to the risk they take. Common deviations from the principle, which the Commission calls control enhancing mechanisms, are multiple-voting rights and non-voting shares, for example.

The study found that, overall, investors globally perceive control enhancing mechanisms as something negative. Supermajority provisions, however, are seen as almost neutral. Although there is no strong consensus, more large investors tend to perceive preference non-voting shares as neutral, on a weighted average.

Investors did contend that transparency is necessary in order to improve the level of information on the existence and impact of any of the control enhancing mechanisms. When a company features a control enhancing mechanism, investors want disclosure of such mechanisms in the annual report, as well as a clear and recurring statement by the board as to why the mechanism is kept in place.
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According to Comm. McCreevy, existing EU Directives can effectively address transparency with regard to control enhancing mechanisms. In this regard, he mentioned the Transparency Directive and the Takeover Directive. A further layer of EU regulation on one-share, one vote is not the way to go, he emphasized.

Separately, the commissioner reasoned that a European Private Company statute would enhance the ability of the EU’s small and medium-sized companies to operate cross-border. Thus, the objective of the statute is to make it easier for small and medium-sized enterprises to conduct cross-border business by providing them with a European legal form, uniform in each Member State. The possibility to operate in various Member States according to the same corporate rules should significantly reduce compliance costs and, therefore, enhance mobility and competitiveness.