A critical analysis of the ‘one share–one vote’ controversy

EXECUTIVE SUMMARY

The question of whether companies' share structure should be based on proportionality between ownership and control has been debated for decades. Powerful institutional investors have over the years tried to convince the EU that a harmonisation of share structures across Europe improves corporate governance. This, however, has been heavily disputed by the several listed companies and their organisations, which fear a standardisation is not in the long-term interests of the firms stakeholders. This paper describes the latest attempt by the EU Commissioner Charlie McCreevy to challenge nonproportional share structures such as dual-class voting shares — a highly relevant question, as it turns out that nonproportionality is often more the rule than the exception. The paper provides sound arguments as to why regulators should not set aside the freedom of contract principle in order to standardise listed companies' share structure as ‘one size does not fit all’. However, the freedom of contract principle goes hand in hand with transparency. Moreover, disclosure about a company's share structure is essential in order to give investors information about which types of shares best satisfy the preferences of different investor groups. EU Commissioner McCreevy surprised almost everybody last year when he declared at the European Parliament that he had decided to abandon his quest for imposing a system of ‘one share–one vote’ across Corporate Europe. This does not mean that the debate is over, as the issue of share proportionality will come up again in a few years when the takeover directive is to be reconsidered, hence we may speak about ‘a newer ending story’. This paper seeks to tell the story's most interesting pages.