Why shareholders must support Phitrust proposal to return to “one share = one vote” at VIVENDI ?

At the next AGM of VIVENDI, the French fund Phitrust Active Investors has proposed a resolution “A” to restore the « one share – one vote principle » which has been co-filed by ten other responsible investors : RailPen, Aviva Investors, PGGM ,  CalPERS, AMUNDI, DNCA Finance, Edmond de Rothschild Asset Management , OFI Asset Management, OFI Gestion Privée, Phitrust Active Investors  and Proxinvest. For the purpose of this co-filing, thse co-filers sent sent certificates of ownership amounting to 1.96% of share capital.

 It is proposed to modify the articles of association by restoring the “one share = one vote” principle.

The purpose of the fund PhiTrust Active Investors  (FR0010027094) is to help investors to engage collectively on governance issues at french listed firms.  Proxinvest is the Corporate Governance adviser of the fund. Prior to the 2015 proxy season, Phitrust Active Investors launched a campaign to restore minority shareholder rights at French listed firms. Indeed, the so-called “Florange” Law  introduced a double voting right in every French listed company.  The sole opportunity for shareholders and firms to restore the « one share = one vote » principle is to adopt an « opt-out » provision by modifying the articles of association.  This matter has become urgent since the double voting rights will be definitely granted in April 2016 to holders of registered shares after a registration period of two years in the company’s registry of shareholders. The abolition of the double voting right provision would require an approval by a special meeting of holders of double voting rights (which have clearly not interest to give up this special right).

Phitrust, Proxinvest, ICGN, the French Asset Management association and many investors urged French companies to return to the « one share = one vote » principle. This campaign has been quite successful since most of the French issuers have tabled agenda items to modify their by-laws and restore the « one share – one vote » (ex : Air Liquide, L Oréal, Unibail-Rodamco, Veolia, Renault, GDF Suez, Vinci).  The lack of such proposal at Vivendi AGM is therefore very disappointing from VIVENDI, a company with a large free float and many non-French shareholders.

The double voting right provision does not comply with the proportionality required between the investment in shares and the voting rights influence derived from this investment. The French double voting right is for registered shareholders only while most of the French and non-French investors cannot register their shares due to excessive administrative or financial burdens.

According to Vivendi’s Management Board report on this agenda item, this resolution would “contravene a law that was designed by the public authorities to help groups like Vivendi, whose activities are regulated, to stabilize their capital and encourage long-term share ownership”.  Vivendi minority shareholders must remind Vivendi’s management that Vivendi is a private company, just owner of Canal +, a subsidiary with broadcasting activities subject to an authorization of an independent agency. Proxinvest believes that this willingness to please the French State is a ridiculous excuse, especially as the Law leaves the right to opt-out the double voting right provision.

Vivendi’s Board of Management (“Directoire”) is likely to act in the interest of the main shareholder, Vincent Bolloré, who increased his stake from 5% to 12% of the share capital over the last month. According to our estimate, Bolloré is expected to hold more than 20% of the total voting rights once the double voting rights definitely granted, corresponding to more than 33% of the exercised voting rights based on 2014 AGM turnout (57%), and providing him with a  veto power at Extraordinary General Meetings.

Contrary to Management’s argument, double voting right does not help to stabilize the capital. Indeed, arbitragists or high frequency traders do not care about voting. Only responsible investors voting their shares and not holding their shares under the registration form (“actions au nominatif”) will be (negatively) impacted by double voting rights as they will be diluted in % of voting rights.

Proxinvest demonstrated that the double voting right is not a tool to reward long-term shareholders. The double voting right provision is a protectionist tool used by dominant shareholders to keep control of the company while reducing the rights of the minority shareholders.  For example, during the 2014 proxy season, 32 resolutions should have been rejected by the general meetings of shareholders without this double voting right : dominant shareholders use their double voting rights to impose their view, mostly on issues related to minority shareholder dilution and execution remuneration.

It is surely not in the interest of an investor to accept to be diluted in terms of voting rights, even more when this investor has a fiduciary duty.

The « one share – one vote » principle has been supported by investor associations for a long time, for example by Proxinvest, ECGS, the French Asset management association or by ICGN (International Corporate Governance Network).  In January the latter reaffirmed its commitment to the “one share – one vote” principle and urged French issuers to filed agenda item to return to the “one share – one vote principle”. ICGN also reminded that the registration of shares (“enregistrement au nominatif”) is not compatible with the management of financial assets for institutional investors, especially for non-resident investors.

« One share = One vote » is a longstanding principle of Proxinvest too. Equality of treatment of shareholders is absolutely necessary to ensure that minority shareholders can protect their interest and participate responsibly to the corporate control mechanisms.  “One share – One vote” is a fundamental cornerstone of shareholders trust and good market valuation.

Proxinvest congratulates the responsible investors which co-filed this proposal which contributes to the implementation of the best corporate governance  practices and shareholder democracy.

The full proxy report written by Proxinvest is available for purchase on the ECGS store.

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