The Engaged Shareholder and Loyalty Shares Prof. dr. Christoph Van - - PowerPoint PPT Presentation

The Engaged Shareholder and Loyalty Shares

• Prof. dr. Christoph Van der Elst

Réseau transnational de droit bancaire et financier Inaugural Conference 14 October 2016

The Engaged Shareholder and Loyalty Shares

• Long standing debate of one share one vote:

– Pro’s:

• Desirable for shareholder democracy
• Shareholders can voice their opinion in proportion to

their owned risk-capital

• Control is less likely present, thus limiting

entrenchment problems (perks, tunneling, monopolies, etc.)

The Engaged Shareholder and Loyalty Shares

• Long standing debate on one share one vote:

– Con’s:

• Polically attractive but not optimal
• Not sufficient nor necessary condition of shareholder

democracy

• Control can offer substitute for underdeveloped

institutions

• Current state of the art:

– Deviation from OSOV helpful to promote long- term shareholder engagement

The Engaged Shareholder and Loyalty Shares

• Research question:

do loyalty shares increase the engagement

• f shareholders?
• Assumption:

engaged shareholders participate in AGM => granting loyalty shares increases attendance

The Engaged Shareholder and Loyalty Shares

• France abolished multiple voting rights in 1933
• Introduction of system of double voting rights:

– Articles of association can provide in double voting rights – for shareholders holding named shares – for more than two years (or longer period as provided in articles of association)

• In 2014 system broadened in listed companies:

– Automatic double votes for named shares held more than two years

The Engaged Shareholder and Loyalty Shares

• Double votes are widely used:
• AGM 2007-2016

CAC 40

Companies with double voting rights 22 Companies with single voting rights 8 Companies that switched to single voting rights 3 Companies that switched to double voting rights 5 Companies that switched more often 2

The Engaged Shareholder and Loyalty Shares

AGM Double voting Single voting 2007 26 14 2008 27 13 2009 26 14 2010 26 14 2011 26 14 2012 26 14 2013 25 15 2014 25 15 2015 25 15 2016 27 13 All 259 141

The Engaged Shareholder and Loyalty Shares

• Number of double voting rights in double vote companies

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Avg.% double voting rights

• Avg. % single

voting rights

The Engaged Shareholder and Loyalty Shares

• Attendance at AGM

50% 52% 54% 56% 58% 60% 62% 64% 66% 68% 70%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Vote attendance Share attendance

The Engaged Shareholder and Loyalty Shares

• Attendance of shares in double voting vs. single voting comp.

50% 52% 54% 56% 58% 60% 62% 64% 66% 68% 70%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Share attendance "double voting companies" Share attendance "single voting companies"

The Engaged Shareholder and Loyalty Shares

• Attendance of shares in double voting comp.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

• Avg. attendance

double voting rights

• Avg. attendance

single voting rights

The Engaged Shareholder and Loyalty Shares

• Intermediary conclusion:

– Less than 20% shares have double votes + stable

• ver time => low incentive system for shareholders

– “share attendance” in single voting companies is higher => if any, low effect of double votes – But avg. attendance of double voting rights is higher => Loyalty shares have at best limited effect on engagement

The Engaged Shareholder and Loyalty Shares

• Analysis with ownership
• Use of double voting rights can be different in:

– Controlled companies – Uncontrolled companies – Companies with significant shareholder

The Engaged Shareholder and Loyalty Shares

Ownership and AGM years

• ne vote

double votes companies with controlling shareholder('s concert) 9,7% 13,3% companies with a significant shareholder 7,7% 19,4% companies with dispersed ownership 18,4% 31,5%

The Engaged Shareholder and Loyalty Shares

Share attendance

0% 10% 20% 30% 40% 50% 60% 70% 80%

• ne vote

companies with controlling shareholder('s concert) double vote companies with controlling shareholder('s concert)

• ne vote

companies with a significant shareholder double vote companies with a significant shareholder

• ne vote

companies with dispersed

• wnership

double vote companies with dispersed

• wnership

The Engaged Shareholder and Loyalty Shares

Double votes and large shareholders

# double vote shares # double voting rights controlling/sig

• n. shareh.

attendance double votes double vote companies with controlling shareholder('s concert) 36,47% 85,10% 93,56% double vote companies with a significant shareholder 20,22% 56,86% 92,84% double vote companies with dispersed

• wnership

10,74% 72,19%

The Engaged Shareholder and Loyalty Shares Double votes and small shareholders

not largest/concert shareholder attendance of single voting shares not largest/concert shareholder attendance of double voting rights double vote companies with controlling shareholder('s concert) 51,73% 72,31% double vote companies with a significant shareholder 55,21% 77,80% double vote companies with dispersed

• wnership

54,32% 66,52%

The Engaged Shareholder and Loyalty Shares Conclusion

• Loyalty shares do not create engagement
• Loyalty shareholders participate more in AGM
• Large, controlling shareholders make use of

system of loyalty shares

• Loyalty shares are a power instrument, not an

engagement instrument