One share, one vote - Proportionality between ownership and control in EU listed companies (debate) 
President
The next item is the joint debate on
the oral question to the Commission on one share, one vote, by Pervenche Berès, on behalf of the Committee on Economic and Monetary Affairs - B6-0014/2007), and
the oral question to the Commission on the proportionality between ownership and control in EU listed companies, by Giuseppe Gargani, on behalf of the Committee on Legal Affairs - B6-0016/2007).
Pervenche Berès 
author. - (FR) Mr President, thank you for allowing this debate to be organised on the 'One share, one vote' oral question. On 26 September 2006, a joint press communiqué from Institutional Shareholder Services (ISS) and the European Corporate Governance Institute (ECGI) informed us that they had won the contract to compile a study on the 'one share, one vote' principle.
This is a point which our Parliament, during a previous parliamentary term, debated at length, not least at the time of the report on takeover bids. At the end of that long, well-argued and transparent debate, it was decided that, in accordance with the principle of subsidiarity, the Member States would be allowed a certain amount of freedom regarding the 'one share, one vote' strategies, so as to define the way in which these strategies would work. The importance of management and of the other players as parties to corporate governance, whether they be employees, creditors, customers or suppliers, was also greatly emphasised on that occasion.
Nevertheless, as far back as October 2005, Mr McCreevy was confirming his determination to undermine the balance that had been reached at the time of the debate on the Directive on takeover bids, even before the workings of that directive had been evaluated and, what is more, even before that directive had been completely transposed into the Member States' domestic law. At the same time, when considering the issue of shareholders' status within companies and of seeing which shareholder strategy would be most conducive to an industrial strategy and to the development of Europe's strengths as a business location, we see day after day that it would be beneficial, at times, to open a debate on the issue of building loyalty among one branch of shareholders.
Finally, we are aware of the importance that the current Commission, under Mr Barroso, attaches to impact studies, especially when it comes to defining the right strategy to be followed. At the time when this debate was launched, I said, 'tell me whom you propose to have carry out the impact study, and I will tell you what their conclusions will be'. It seems to me that, in this instance, it is very likely that I will be able to predict those conclusions, insofar as those who have won the contract to carry out the study on the 'one share, one vote' principle are well known for having on many occasions advocated this very principle. We are therefore obliged to ask some questions, and that is the subject of the debate that we are going to initiate.
Why fund a study to the tune of EUR 450 000 when we already know what its outcome will be? What is the advantage of giving lobbies the means to fund their arguments, which are glorified by the results of a study backed by the European Commission?
I very much doubt that the joint contractors selected to carry out the study will really meet the general criteria of independence and objectivity that are required. It is also important to point out in this regard that, at the same time, in the United States, ISS's activities are coming under more intense scrutiny from the financial markets supervisor, the SEC, and from the New York Stock Exchange, suspecting, as they do, a high risk of conflict of interest. Like the SECSI and the New York Stock Exchange, we should be alert to the disproportionate accumulation of information and influence by some large players in the chain of intermediaries and advisors involved in the exercise of shareholders' voting rights in companies, and not react impulsively by giving added weight to those very shareholders.
Let us remember that, when our Parliament had the opportunity in July to give its verdict on the recent developments in, and prospects for, company law, it requested an objective analysis of the empirical and theoretical evidence regarding the effects of the different ownership models in the Member States on economic efficiency, owner-control of businesses and the possibilities for cross-border transactions. At the time, however, we also requested a sound analysis of corporate law as regards the wider economic and legal context in the Member States and the different models of corporate governance.
I do not have the impression that what the Commission has started by endorsing the proposal for a study by these two institutes provides us with the conditions for a debate that is equal to the challenge represented by the 'one share, one vote' issue. I hope, Mr Kyprianou, that you will be able to convey the concerns of this House to the Commissioner responsible, Mr McCreevy, and that, once the conclusions of the study are on the table, these concerns will be firmly established in people's minds so that we can hold a responsible and effective debate on this issue.
Klaus-Heiner Lehne 
Mr President, ladies and gentlemen, I can wholeheartedly endorse what Mrs Berès has just said, for the subject matter of both oral questions is, in principle, quite similar.
The reason why the Takeovers Directive is the way it is is that the 'one share - one vote' principle does not exist in Europe, and that has to be spelled out plainly. Another reason why it is the way it is is that, back when the Takeovers Directive was being hammered out, it was not possible to secure the acceptance of the 'one share, one vote' principle. I was prepared to accept it at the time, but neither here in this House nor in the Council could the necessary majorities be found to support it.
I think that those who speak in public debate read too much into the report that the Commission has now put forward on the implementation of the Takeovers Directive, for the report, in fact, says nothing more or less than that the directive has, by and large, been properly implemented by the Member States, which have availed themselves of the option provided by it, which is precisely the intention behind the legislation.
Things will get interesting, though, only when the Commission does as the Takeovers Directive itself requires and, in 2011/2012, produces its first report on the use to which the Directive is put, for then we will have reached the point at which we will be able to arrive at conclusions as to whether what we have done with it - that is to say, setting a benchmark and leaving things to market forces - has or has not been successful, or whether it will then be necessary to consider further legislation, but that point will be reached only in 2011 or 2012, when we have the first definite report on the application of the directive; it has not been reached now.
I might add that we - by which I mean this House and the Council as legislator - laid down, by a large majority, certain things on a wide variety of issues currently under discussion, including, back then, the Takeovers Directive, insisting, for example, that the so-called 'break-through rule' - which is, of course, the decisive benchmark - should apply to all pre-bid and post-bid defences, although there would, of course, be certain exceptions to it.
We did not include those aspects that present no obstacles to takeovers, and we did this on the basis of simple accounting examples and the results of simple mathematical procedures, one of these being the so-called preference shares, which were exempted from the 'breakthrough rule' from the very outset. Why was this so? One reason why was that the owners of preference shares are paid more than are others; a second was that company law limits them to a maximum of 50% of capital, so that they can never, in fact, tie down more of the capital than can the actual ordinary shares, which carry with them an entitlement to vote.
It was for similar reasons that we, at that time, exempted French shares with double voting rights from the breakthrough rule, one reason for this being that these were not voting shares of a particular class, that might be said to be guaranteed in the long term, but rather intended to reward long-term investment, with these voting rights being converted, after a certain period of time, into normal voting rights; the second being that, with the breakthrough rule, the reaching of 75% - which is, as a rule, the quorum at which the breakthrough can kick in - no longer raises the issue as to whether the shares are double-vote or ordinary. If I hold them, I always have a majority in the general meeting. That is the reason why we made an exception for these voting rights.
We did, however, include multiple voting rights and limitations on voting rights in the breakthrough rule, since these are real obstacles to takeovers. Here, too, one finds the peculiar situation that there is a disparity between ownership on the one hand and control - that is to say, majority by number of votes - on the other, and we took the view that the application of the breakthrough rule to these would be justified in so far as companies or Member States avail themselves of this option.
I just want to reiterate something to which Mrs Berès has referred, namely that we, in the Szejna report, forcefully put forward the view that market forces should, in the first instance, be allowed free rein, so that we could see how this directive proved itself in practice, and that we would decide whether further steps were needed when the Commission, in 2011/2012, had brought out the first report.
Having now heard that the Commission is mulling over the idea of producing a recommendation on this subject, let me be quite frank in saying that I am less than enthusiastic about this, and that for two reasons, the first of which is that we, in this House, take an increasing sceptical view of recourse to this sort of 'soft law'. Moreover, the Commission is also running the risk of this House adopting such a recommendation in the form of an own-initiative report, into which it would put something quite different to what the Commission, in its recommendation, has envisaged, and if that happens, the recommendation will be rendered worthless, for a recommendation is effective only if it can be taken as read that the legislator will be prepared, in subsequent proceedings, to support such a regulation, but if the legislator says 'no' to it, the recommendation is of no value.
The second reason is that I am not wholly clear in my own mind as to what such a recommendation would be meant to accomplish. In Article 10 of the Takeovers Directive, we laid down comprehensive rules on transparency according to which all enterprises have to set out openly all the existing obstacles to a takeover. Those transparency rules are stringent, and I wonder just what the recommendation is meant to achieve over and above that.
There is yet another reason for this question, and the wording of the Committee on Legal Affairs' question alludes to it. We are of course interested to know what view the Commission takes of the development ushered in by the Advocate-General's summing up in the Volkswagen case, when he, for the first time, had to deal, not with traditional golden shares, but with restrictions on voting and other rules, and he saw these as being contrary to the Treaty in much the same way as golden shares are. Do we actually need to legislate if the ECJ follows this ruling? Does it not mean that all obstacles fall away of themselves? It would be interesting to hear the Commission's view of this.
Markos Kyprianou
Member of the Commission. Mr President, I would like to thank Members for their questions. My colleague, Mr McCreevy, regrets that he cannot be here this evening, but I can assure you that he will be informed of the results and content of the debate this evening.
It is true that a study was launched in September, and its intention is to cover the various aspects of proportionality between capital and control, how this is applied or not applied in the Member States, how it affects the deviation from the principle and how it affects institutional investors. The study was also designed to analyse the relevant regulatory national frameworks.
The contractors were chosen in the usual simple way. There was a public invitation to tender and the choice was simple. The best author was chosen and the specific contractors made and presented the best offer. However, I have to clarify two things: there will not be an impact study, so research will be carried out in a factual way on the current situation in the Member States, and no proposals or recommendations will be brought forward.
Both the contractors and the subcontractors have a strong record of original, independent, high-quality research in areas of company law and corporate governance, and their European presence constitutes a significant advantage in terms of providing comparative analysis covering different legal traditions. The subcontractors are of high standing and specialise in corporate law and securities regulation, and the study team provided the best offer based on scientific competence, professional reputation and integrity.
As already mentioned, the study will cover multiple voting rights, non-voting preferential shares, company pyramids and other instruments which fulfil the same function of protecting controlling shareholders, and the study will include golden shares and the attribution of special rights for public authorities, as already mentioned.
In this respect, the Commission has noted at this stage the Advocate-General's opinion on the Volkswagen law. The Advocate-General considers this to be as an unjustifiable restriction that infringes EU law. The Commission awaits the Court's judgment.
As far as the directive on takeover bids is concerned, we know it aims at eliminating certain defences applied by companies in takeover situations. One such defence for companies is to leverage voting rights vis-à-vis capital, but experience shows that, faced with potential takeovers, the vast majority of Member States are reluctant to neutralise their companies' disproportionate voting rights. Nevertheless, it is still early days for the implementation of a directive. The Commission does not intend to reopen a debate on the takeover directive at this stage. Whatever the policy indications the Commission draws from the proportionality study are, they will not apply to takeover bids. The Commission believes that these two should be considered as two separate initiatives.
To conclude, I would like to emphasise that a decision on any future steps on the issue under discussion on the proportionality issue will be taken in the light of the outcome of the study. Whether we present a proposal, and what the content of this proposal will be, will depend on the outcome of the study and of the impact assessment that is currently being carried out in parallel. We are therefore still at the study and first procedural phase. We will, as always, take very seriously the position and the views of the European Parliament.
Manuel Medina Ortega
on behalf of the PSE Group. - (ES) Mr President, we must thank Mr Kyprianou for being with us until so late, although the discussion would probably have been much more interesting if Commissioner McCreevy had been with us, since we hold a constant dialogue with him on this kind of issue.
It is clear that this discussion has hardly begun. Parliament and the Council adopted the directive on concentrations of capital. We have recently adopted a directive on the rights of shareholders, and it is clear that fundamental problems are emerging with regard to the structure of companies.
The democratic principle of 'one vote, one share' is not currently functioning throughout the European Union and, as Mrs Berès pointed out, we are now facing the possibility of great market manipulations by means of certain operators.
It is clear that impact studies can be useful, but impact studies are only useful if they are carried out properly. This Parliament's concern is that wolves should be put in charge of the sheep, so to speak. In other words, if impact studies are carried out by big companies that specialise in market manipulation, then those companies' recommendations are naturally going to move in the direction of greater market manipulation.
As Mr Lehne has pointed out, the Court of Justice's virtual decision on the Volkswagen affair is going to have an impact on the future development of European Union law, but this Parliament does not want the Commission to take the recommendation route, the so-called European Union 'soft law' route, under any circumstances.
A more appropriate route is legislation, although it may not yet be the time to legislate, bearing in mind that we have not yet had an assessment of what is happening in the field of concentrations of capital.
There is currently a kind of great revolution going on in Europe in relation to concentrations of capital, with great political involvement and great uncertainty in cross-border operations, given the co-existence, for example, of public protection systems and private systems. This issue is of very great significance politically speaking, but it also has certain legal aspects.
I believe that it is important that we point out, firstly, that Parliament does not take a positive view of what is known as 'soft law', which requires legislative status, that Parliament welcomes impact studies, but that they must be carried out objectively and not be left in the hands of sectors that may carry them out in a way that benefits themselves, and that there may not be any need to rush into any kind of legislative measure without having studied the situation first.
I believe, however, as I said before, that we are at a time of great change throughout the European Union's system, and the consolidation of a European law in the field of concentrations and shareholders' rights requires much more study and above all much more cooperation between Parliament and the Commission.
I hope that Mr Kyprianou will communicate to Mr McCreevy our interest in this issue, our concern and our desire for Parliament and the Commission to carry on discussing it as we should do.
Wolf Klinz
on behalf of the ALDE Group. - (DE) Mr President, the principle of 'one share equals one vote' is a very attractive one in what is termed 'shareholder democracy', and Commissioner McCreevy - who is responsible for these things - fears that any deviation from it might diminish transparency and curtail the shareholders' rights, but modifications do not necessarily have to be damaging in their effects, for they can bring with them more competition and innovation, while at the same time taking account of the different types of shareholders, who have differing interests and behave in different ways.
The Commission is now planning to publish, in the autumn, a recommendation on the principle of proportionality between capital and control, which will be based on the results of an extensive study. Mr Lehne has already referred to the problematic aspects of this recommendation, and Mrs Berès has - I think rightly - surmised that a survey entrusted to ISS, the European Corporate Government Institute, and Sherman [amp] Sterling might well not be as objective as the matter in hand might require, and so I appeal to the Commission to delay its practical proposals until after extensive and objective consideration of how things stand in Europe and after a critical and all-embracing assessment of our experience with the Takeovers Directive. What is important in this is that consideration be given to the advantages and disadvantages of all systems deviating from the 'one share, one vote' norm, whether pyramid structures in Italy, preferential shares in Germany, double voting in France or the 'A' and 'B' shares found in the Nordic countries.
We have to carefully distinguish between, and balance against each other, the desire to make the shareholder's control proportionate to the shares he owns and the company's desire for contractual freedom, between stable shareholding structures on the one hand and sufficient discretion on the other, with it being guaranteed in each instance that any deviation from the 'one share - one vote' standard will be transparent, and that the shareholders are entitled to know whether or not the shares they own or acquire limit their ability to play a part in determining the business's direction and their control over the way it is managed.
Ieke van den Burg
(NL) According to this morning's Dutch papers, ISS, the company we are talking about, is advising its customers to thwart the plan to pay out an extra loyalty dividend to the shareholders who leave their shares in that company for three years or more at the forthcoming shareholders' meeting of DSM, a major Dutch multinational. I think this plan by DSM is, in fact, a fantastic idea to promote responsible shareholdership. Extra dividends could be a means to achieve this, but so could higher vote weighting, which could be another legitimate form. This is why I have always opposed those who persistently advocate what they call shareholder democracy on the 'one share, one vote' principle.
This was broached for the first time when we discussed the Take-Over Directive. The original intention of the thirteenth directive was certainly not to create the kingdom of corporate control by shareholders on earth, but simply to protect minority shareholders and allow for a decent buy-out. A handful of fanatic interested parties, however, managed to make this one share, one vote idea absolute, the key advocate being ISS. Not only based on ideological motives, but also because their trade simply consists in collecting voting rights and granting proxy services to shareholders.
With all due respect for the Commission's statement, I consider it highly unusual that an inquiry should be launched within a party that is so outspokenly prejudiced and implicated. I have just been familiarising myself with the way the inquiry was conducted; I have seen the questionnaires that are still being circulated among investment companies on the one hand and companies on the other, in which companies are simply being asked whether they use certain Control Enhancing Mechanisms (CEMs), including pyramid structures, certification, gold shares, and suchlike, while investors are approached in a totally different way, being presented with a number of leading questions that gauge their views about all these bad measures. I can probably predict the outcome of this inquiry.
In a nutshell, I already have major reservations about the outcome of the inquiry and do not think it can be a sound basis for further conclusions and intentions, such as drafting recommendations. We should first of all look into the reasons why companies have these CEMs and why, in this day and age, in which shareholder activism on the part of hedge funds is rife, there is a renewed need for protection against short-term investment activity. A fundamental debate with this House will be needed before the Commission is ready to develop any measures or any further activity.
Markos Kyprianou
Member of the Commission. Mr President, I would like to thank the Members for the debate. I will be very brief.
First of all, I would like to say to Mr Medina Ortega that I am sorry that I could not stimulate a more interesting debate, since I am not the Commissioner responsible. However, it was very interesting for me because it reminds me of my previous life as a lawyer. I find these issues extremely interesting. Let me assure you first of all that I will of course brief and inform my colleague. However, I understand that you will all have the opportunity to discuss these issues further with the Commissioner responsible because he will be attending both the ECON and JURI committees sometime in March and all these issues will be taken into account.
I would like to repeat that what the Commission does will depend on the study and the impact assessment. With regard to the study, the choice of contractors was made on the basis of our rules and regulations, taking into account the requirement of the European Community. Again, I would like to remind you that it is a factual study that will not put forward recommendations. This will be done by the Commission itself. So, I am sure that the outcome will be a balanced and proportional view, depending of course on the results of the study.
Pervenche Berès
(FR) Mr President, we have listened carefully to the Commissioner's reply. Nevertheless, the message that needs to be conveyed to Mr McCreevy is as follows: we certainly cannot tell what the Commissioner will make of the results of the study, but our concern stems from the study itself, even before the results are known, given the issues that have been outlined by the authors of this study.
I believe that this is the message that needs to be conveyed to Mr McCreevy.
President
Mrs Berès, I am sure that Commissioner Kyprianou has understood you perfectly.
The debate is closed.
