The “loi Florange”: companies look to minimise impact of controversial French law on weighted voting

Those who spent the Easter holidays in France may have seen recent press coverage around the “loi Florange”, which passed into French law last year and provides that shareholders of French listed companies are entitled to exercise augmented voting rights after a two-year holding period, unless such rights are expressly excluded by the company’s constitution.

The law was intended to promote long-termism amongst investors in public equities, but this year’s French AGM saison has seen a number of household names seeking to exclude the right to weighted votes through the making of appropriate changes to their constitution. The legislation has drawn sharp criticism from a number of commentators both in France and the UK, but the French government is determined to give the law some teeth.

It was recently widely reported to have spent in excess of €1.2bn increasing its stake in Renault to around 20%, to ensure that the car-maker was unable to pass a resolution at the beginning of this month preserving the one-share, one-vote system. The French government promised to sell down its newly acquired holding shortly after the general meeting, the irony of which was not lost on some. Encouraged by its success at the Renault meeting, the French government has also reportedly increased its stake in Air France in order to undertake a similar blocking manoeuvre.

Weighted voting globally

Away from the controversy of the current debate in France, weighted voting rights are a common feature of public companies in many jurisdictions, including the US – with the likes of Google and Facebook amongst the most famous exponents of the dual-class structure favoured by many US corporates which enable founders (and, in some cases, management) to retain control following a public listing. The Hong Kong Stock Exchange is consulting on weighted voting following the loss of the Alibaba IPO to New York, a move in part due to the accommodation of weighted voting by NYSE rules.

Weighted voting in the UK

In the UK, perhaps surprisingly (given overwhelming sentiment amongst UK investors against them generally) weighted voting structures were only prohibited under the Listing Rules for companies with a Premium listing in May 2014, when the Financial Conduct Authority (FCA) introduced Premium Listing Principle (PLP) 3. This enshrined the “one share, one vote” concept (with PLP 4 supporting PLP 3 by ensuring voting rights are broadly proportionate to equity interests for companies with multiple share classes). At the time of the introduction of PLP 3 the FCA estimated that only around 10 Premium listed companies had a non PLP 3-compliant voting structure.

Weighted voting is still permissible (in theory at least) for companies with a Standard listing and for companies admitted to trading on AIM – in its consultation paper on the introduction of PLP 3, the FCA expressly stated that companies with weighted voting structures are more suited to a Standard listing.

The Kay Review: encouraging long-termism in the UK

Encouraging a more long-termist outlook amongst investors has been a priority for UK (and other) policy makers since the financial crisis. A principal advocate of long-termism in investment matters was Vince Cable, the Business Secretary until 7 May 2015. It was Dr Cable who commissioned the economist Professor John Kay to produce his 2012 report “The Kay Review of UK Equity Markets and Long-Term Decision Making”, which contained an extensive series of suggestion for policy changes to support a long-termist agenda. It will be interesting to see whether Sajid Javid, Dr Cable’s rather more Thatcherite successor, continues this interventionist emphasis.