Double vote law risks bolstering control of dominant investor

The control freaks are out in force for France's annual meeting season, seizing on the unintended consequences of a law designed to stamp out short-termism and reward shareholder loyalty. The Florange law automatically doubles the voting rights of shares held for more than two years - unless two-thirds of a company's investors opt out. The risk is that the law ends up bolstering control by a dominant investor.

Not enough votes were mustered at Vivendi's annual meeting last week to stop entrepreneur Vincent Bollore, using double-voting rights, to tighten his grip on the group. Nor is he alone: the French government has lifted its stake in Renault to 20 per cent from 15 to help defeat the carmaker's plan to opt out of the double-voting scheme at its April 30 meeting and limit the government's sway over it. For all its flaws, the Florange law is part of a deeper malaise. Of the 6,500 companies analysed by MSCI, 59 grant double-voting rights after a minimum period - and of these, 54 are in France.

But does it make sense even to try to encourage long-term ownership and reward loyalty through legislation, when listed company investors are split between hedge funds, traders, index funds, active managers and long term retail holders? Each group has different priorities, and all deserve equal treatment. Loyalty is not the issue for all of them. For some the priority is short term gain; for others it is long term growth; for others still it is the dividend.

In any case, shaking up the voting rights through legislation is not the only way to promote long-term priorities. A board has a primary stewardship role, but institutional investors also have a voice and a duty to oversee investee companies (and are judged on that by their own investors). This notion prompted a stewardship code for asset managers in Japan, South Africa and the UK, predicated on the benefit of a number of institutional investors getting up close to a board to flag issues. Even if it works only for long-term investors, that sounds a better way to steer a company than one-size-fits-all legislation.

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