French companies do not need the 'Loi Florange'

In the years since the financial crisis, policy makers have looked hard at the public company to see whether it remains fit for purpose.

The issues are genuine and various. The public company's owners are many, and often have only a tiny stake in its performance, knowing even less about how it is run. Huge powers have been conferred on intermediaries who have perverse incentives. Active professional investors concentrate on beating the market in the short term, focusing too little on the underlying performance of the business.

Academics such as John Kay in Britain have pondered whether the incentives on financial intermediaries may harm the climate for investment and erode the supply and demand for public equity. Generally, the conclusion has been that it is up to engaged investors to drive change.

In France, however, corporate reform has taken an altogether more eccentric turn. A law passed last year - ostensibly to promote long termism - has in fact become a vehicle for large existing investors to entrench control.

The so-called Loi Florange may seem an odd vehicle for such an initiative. It has its origin in a 2012 decision by ArcelorMittal, the steel group run by Lakshmi Mittal, the Indian-born billionaire, to close two blast furnaces in Florange, northeast France. The uproar over lost jobs led France's parliament to pass legislation requiring companies to make every effort, before closing a plant, to find another buyer.

But lawmakers built another objective into the Loi Florange. As well as the rule on closures, the legislation made it easier for shareholders holding a company's equity for more than two years to claim double voting rights. French corporate law already allowed anyone owning shares in a company to do this, but only as long as the company's constitution was amended to permit it. The Loi Florange in effect reversed the presumption. Double votes are now the norm after two years unless specifically disapplied.

The Financial Times is not ideological in its belief that voting power and share ownership should always go hand in hand. Differential voting may sometimes be suitable for growth companies at certain stages of their development - especially tech companies reliant on human as well as financial capital. But these structures should be limited in scope and duration.

The Loi Florange provides no such discipline, offering undated protections to the growing and sluggish alike. It even disapplies the 30 per cent threshold that triggers a mandatory bid, allowing minority holders to creep towards voting control.

It is striking that many companies in the CAC 40 index have moved to disapply the law. Those that have not are established companies with big shareholders and state-controlled entities. For instance, a proxy battle at Vivendi revolves around the desire of Vincent Bollore, a 10.2 per cent holder, to augment his voting power. The French government has been buying shares in Renault, in which it took a 14 per cent stake last year as part of a bailout. The purpose is to prevent a move to disapply the double voting law.

The Loi Florange is not the answer to any of the questions hanging over the joint stock company. It is a sleight of hand on investors, that threatens to raise the cost of capital for French enterprises.

It is, moreover, unworthy of a government led by self-proclaimed reformers such as Manuel Valls, prime minister, and Emmanuel Macron, the former investment banker who is now finance minister. A truly pro-business administration would scrap it.

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