Shareholders seek more democracy

By Stewart Fleming

Date: 24/03/05

The issue of shareholder voting rights is about to re-emerge on the European Commission's agenda, amid growing pressure from advocates of greater democracy.

A study to examine the capital structure of companies in the FTSE-Eurofirst 300 index was published yesterday (23 March).

It found that one-fifth of them issue shares with multiple voting rights, one in ten companies impose ceilings that limit the voting rights of individual shareholders at annual meetings and one in 20 companies restrict the number of shares that an individual owner can hold.

The Commission's internal market department is readying itself to re-examine options for action, on the grounds that variations in shareholders' rights constitute a barrier to a single EU market. During the Prodi Commission, Frits Bolkestein commissioned a study from company law experts, as part of his efforts to revive an EU-wide law governing corporate takeovers.

Peter Montagnon, director of investment affairs at the Association of British Insurers (ABI), which commissioned the study, said that pressures for intrusive corporate regulation in the EU might be reduced if greater emphasis were put on the importance of shareholder democracy.

He said the weakness of shareholder democracy in the US had contributed to the post-bubble scandals there, such as Enron and WorldCom, and to a regulatory over-reaction in the shape of the Sarbanes-Oxley legislation.

The ABI study was carried out by Brussels-based Deminor Rating, a corporate governance consultancy. It shows that France, Sweden and the Netherlands are countries in which it is most common for a single share to carry several votes. In Sweden shares accounting for 33% of market capitalisation have voting qualifications accounting for 67% of voting rights

ABI believes that for publicly quoted companies one share one vote, the system which rules in Belgium, should be the norm.

Montagnon said: "Our report shows that there is a long way to go before shareholder democracy meets widespread acceptance in European markets."

• Stewart Fleming is a freelance journalist based in Brussels.

According to a study, 'Application of the one share - one vote principle', prepared for the ABI (Association of British Insurers) by Deminor Rating, the Brussels-based corporate governance consultancy, only two thirds of leading European companies operate a democratic policy of one-share one-vote.

Deminor Rating: Reports: Application of the one share - one vote principle in Europe http://www.deminor.org/download.do?doc=deminorratingDocs/ABIOneShareOneVoteFullReport.pdf

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