In a context of increased vigilance and investors contestation in the French general meetings in 2014, shareholders rights are now threatened by certain provisions of the Florange Act that offer two unacceptable protection mechanisms : double voting right as default regime and the end of the Directors neutrality in case of public offering.
In its eighteenth report on French general meetings, Proxinvest analyzed the vote results of 6252 resolutions proposed at 369 French AGMs and observed a significant increase in the dispute by shareholders. The average dispute rate of resolution increased from 4.62% in 2013 to 5.23% in 2014 and 56 resolutions were rejected in 2014, against 35 in 2013, in twenty-two companies (Alten, Innate Pharma, Latécoère, Kaufman & Broad, Mauna Kea Technologies, Riber, Faiveley Transport, Numericable, Sodexo, Saft, Thales, Neopost, Neovacs, Prologue, PCAS, Altamir, Alstom, Rexel, Eutelsat, Inside Secure, Groupe Steria Soitec).
This investors challenge should have even appeared much higher without the extensive use of double voting by by 64% of the companies analyzed, a reserved to shareholders registered in the company nominative book , a gimmick insuring the main shareholder a disproportionate weight allowing him to control a company and to to pass resolutions that would otherwise have been rejected. This was especially true in 2014 with 32 additional resolutions that should have been rejected without the mechanism of double voting rights, mainly on issues of remuneration or dilutive financial authorizations (Accor, Alten, Cegedim, Maurel and Prom Steria, Eurotunnel, Ipsos, Latécoère, Mauna Kea Technologies, Orpéa Pierre et Vacances, Zodiac Aerospace). The control of major shareholders in general meetings is also strengthened in 2014 due to the decline in participation observed (average turnout of 68.40% in 2014 and 69.33% in 2013).
The Florange Act generalizing these protectionnist devices all French listed companies significantly increase the companies cost of capital and damages the attractiveness of Paris as financial center. Minority shareholders will respond in order to restore the “one share – one vote” rule in the articles of association of companies and avoid being diluted in terms of voting rights. Proxinvest encourages investors to support the shareholders engagement campaign by the PhiTrust Active Investors open fund. Proxinvest also invites French companies to better respect their shareholders and to restaure the equal treatment of shareholders in their statutes.
In 2014, 55% of the resolutions were rejected because of dilution risk : requests for authorizations to increase the share capital without preferential subscription rights of shareholders. A quarter of rejected resolutions dealt with compensation issues: stock options, free shares to executives, directors’ fees, severance or pension plans. Other releases concerning related party agreements, appointments, anti-takeover devices or statutory changes.
The first season of the advisory vote on executive compensation in France, otherwise known as “Say on Pay“, produced an average score of 92% approval: this will also have contributed to the increase of criticism during the 2014 season, this originating mainly from the State as shareholder and from French investors. In some cases, a majority of the minority shareholders opposed, as at LVMH. Proxinvest actually alerted its investor clients on 72% of “Say You Pay” résolutions , mainly for reasons of lack of transparency of the variable compensation performance criteria implementation, the final lack of connection with the performance, the excessive total compensation or excessive post-employment benefits .
If investors do not hesitate to use their right to vote, this is not the case for their right of initiative in general meetings. Excluding the resolutions proposed by employees funds or work councils, few shareholders filed proposals and finally only two external resolutions have been proposed by minority shareholders. Certainly barriers to the filing of external resolutions are multiple in France. As an example, the Church of England would be considered too small to France to be legally allowed to file resolutions on the consideration of climate change as it did in 2015 at BP and Shell. Without legislative changes required to implement the third proposal of the Poupart-Lafarge AMF report aimed at reducing the obligation to equity holdings required to table a resolution, many minority shareholders are deprived from the possibility to file in the agenda.
The 2014 season, however, was the opportunity to observe the first external shareholder resolution of the State, at Safran on Directors fees and a rather successful activism on the part of Nexans Amber Capital Funds requiring the dismissal of the CEO Frédéric Vincent as Director of the company, which received enough support to result in a separation of the functions of Chairman of the Board and ofChief Executive Officer.
Beyond the statistics on the 2014 season, the Proxinvest report is projected on the 2015 season and includes the 2015 Proxinvest voting policy that will be presented Jan. 6 to French issuersand to the public. The season 2015 promises to be active and loaded as shareholders will likely increase their level of control link between variable remuneration and performance. In the area of executive compensation, the Proxinvest voting policy now recommends a measure of performance over longer periods, such as five years, the introduction of variable pay restitution clauses (“clawback”), a better measurement of the qualitative share of the variable remuneration through the definition of key performance indicators (“KPIs”) and a finally a more significant investment policy by top exécutives.
In the event that the governing bodies attempt to introduce the double voting without consulting shareholders and that responsible investors fail to file an external resolution to restore the “one share – one voice “, the trust relationship will be assumed broken with the corporate bodies and the renewal of administrators responsible for this deterioration of shareholder rights, primarily the Chairman of the Board, will not be supported.
The Proxinvest reports are available at Librairie LDEL / JUSTICIA – Tel: 01.48.56.89.89 librairie.justicia(at)gmail.com or by sending the order form or contacting Deborah Slama at Proxinvest 0145 51 50 43