Changes in Italian and French legislation intended to promote investment have inadvertently had the opposite effect, Kames Capital has claimed.
The introduction of the ‘Florange Act’ in France and the ‘Growth Decree’ in Italy, permit double voting rights to investors who have held shares in excess of two years.
Kames Capital corporate governance manager, Miranda Beacham, claimed the decree could feasibly lead to majority shareholders gaining perpetual control of these companies, at the expense of minority shareholders or potential investors.
“In France, the Florange Act risks disproportionately benefiting large family shareholders and trade unions who often have stakes in French companies,” she said.
Adding: “When you consider 90 per cent of Italian companies have a dominant shareholder, it becomes a real concern.”
Ms Beacham’s concerns are magnified by the fact that double-voting rights will automatically be granted, unless a bylaw is passed prohibiting them, prior to the March 31 2016.
The inherent issue of this opt-out clause is that it could prove futile.
Rejecting the change will require those that the new law benefits – the majority shareholders – to use their majority against their own interests.
Subsequently it appears that double-voting rights will become a regular fixture in France and Italy.
A further issue caused by the change in legislation could also be a huge reduction in the possibility for a hostile takeover.
The Florange Act authorises managements to thwart hostile takeovers without shareholders’ consent, further threatening the interests of minority stakeholders and potential investors, Kames said.
In reaction to this, international investors, including Kames Capital, have voiced their concerns to the Italian government, regarding the voting arrangements for companies’ bylaws.
“The feedback caused the government to alter the requirement of a company seeking to adopt double voting rights from a simple majority, to the more democratic super majority,” Ms Beacham said.
“However, how this change will influence minority shareholders and potential investors remains to be seen, as it still appears that majority stakeholders are being handed too much power, in comparison to their economic exposure.”
