ABI Study Finds European Corporations Lack Shareholder Democracy

Only two thirds of leading European companies operate a democratic policy of one-share one-vote, according to a study prepared for the Association of British Insurers (ABI) by Deminor Rating, a Brussels-based corporate governance consultant.

The study, which examined the capital structure of companies in the FTSE-Eurofirst 300 index, showed companies use a wide range of structures that distort voting rights and make management less accountable to shareholders. The system in effect gives preferential treatment to some investors. Among the practices identified by the ABI were the following:
— A fifth of companies analyzed issue shares with multiple voting rights, which give additional rights to selected shareholders.
— One in ten companies impose a voting right ceiling limiting the right of individual holders to register their opinion by voting at general meetings.
— One in 20 companies imposed an ownership ceiling, limiting the stake of individual owners.

As the insurance industry, both in Europe and the U.S., invests large amounts of money in publicly traded companies, the preferential treatment for certain shareholders diminishes the power of investors to have a say in how these companies are managed.

Peter Montagnon, Director of Investment Affairs at the ABI, commented:
“Our report shows that there is a long way to go before shareholder democracy meets widespread acceptance in European markets. Making companies properly accountable to their owners reduces the need for intrusive regulation of the type we now have in the US. Shareholder rights are key to this, and to the development of a single capital market in the European Union. We believe Deminor’s research should focus this debate.”

Jean-Nicolas Caprasse, Partner of Deminor, said the study set out simply to record the situation in a factual way. “But,” he observed, “there are many departures from the principle of one share-one vote and the situation is changing only slowly.”
Key findings included:
— 65 percent of all companies analyzed applied the ‘one share – one vote’ principle.
— Distortions occur in most markets but are widespread in France, The Netherlands and Sweden. The report highlights that the concentration of these voting devices in certain markets does have a systemic impact.
— The report highlights a striking variety of exceptions to the ‘one share – one vote’ principle. Multiple voting rights are used by 20% of those companies analyzed and are particularly prevalent in France, Sweden, and the Netherlands and in a number of smaller European countries.
— Voting ceilings exist in 10 percent of European companies and are prevalent in Spain and Switzerland.
— Ownership ceilings, limiting the stake investors can hold in a company, are found especially in Italy and the UK and a number of smaller countries in Europe.
 Priority shares, granting specific powers to their holders, are found in 4 percent of European companies and specifically in companies based in The Netherlands, the UK and France.
– ‘Golden’ shares [priority shares which are issued to the benefit of the government of the country in which the company is incorporated] exist in 2 percent of European companies.

The full report is available on the ABI Website at: http://www.abi.org.uk.