ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School

Abstract: More than one third of companies listed in the FTSE EUROFIRST 300 index are governed accordingly to principles differing from the One share – One vote standards. These exceptions could be illustrated by several practices such as Scandinavian multiple voting shares, non voting shares as seen in some State members as authorised by European Directives, French double voting shares, “golden shares” concerning recently privatized firms, or even preference shares as observed in Holland. Such variety can be explained by the fact that “control rights” and “cash-flow rights”, understood as essential to the company's activities, are distinctly considered in the shareholder practices. The question at stake is to know if the application of the One share – One vote as a European standard would be justified with regard to European Law, including its underlying principles, and to economic efficiency in general. Indeed, One share – One vote enthusiast affirm that this rule participates to corporate democracy and contributes to increases firms' performance. The aim of our study is to determine whether these principles are reached or not. As a preliminary remark, we can notice that the European Commission intervention is questionable. First, its competence, and therefore the legality of a potential action, is not obvious. Indeed, owing to the subsidiarity principle and the article 48.2: (“co-ordinating to the necessary extent the safeguards which, for the protection of the interests of members and others, are required by Member States of companies or firms, with a view to making such safeguards equivalent throughout the Community”.) and the European Parliament position concerning the Takeover Directive, the legitimacy of the European Commission in this case is undoubtedly compromised. Then, the application of One share - One vote, by the cancellation of certain rights attached to a share, would violate a democratic principle, founder of the European Union, and dedicated by Member States Constitutions, known as private property. It would have, as a result, an unjustified, not compensable and therefore, illegal expropriation. We also have to question ourselves concerning the concept of corporate democracy and its consequences on Europeans companies. Unquestionable at first glance, is the notion of democracy transposable it in corporate Law? Is it only referring to a strict equality between shareholders or rather intents to limit unequal situations and therefore, prevent dominant shareholders from unilaterally capturing the company's performance? The respect of principles such as equity, shareholders general interest and company's interest, combined with transparency rules and protection of minority shareholders leads us to favour the second supposition. Finally, we underline that the ultimate argument relating to efficiency as a result from the strict application of the One share – One vote rule, is tempered by economical studies and by the practice observed in several State members. The One share - One vote rule could definitely be necessary for market readability purposes. But, some exception to this rule might be justified with regard to the company's interest. Therefore, some flexibility principles should remain. A dogmatic approach focused on shareholders, or certain type of shareholders, would disadvantage the development of the internal market and could not be justifiable on a legal ground. We believe that promoting corporate democracy requests an enhancement of transparency with a better bordering of existing practices and a strengthening of minority shareholders (by improving an “upper standard” harmonization).

Keywords: Corporate Governance; One share-One vote; Shareholder Democracy

JEL-codes: H00; K00

18 pages, December 2006

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