Representatives of the European asset management industry believe that lawmakers in Brussels need to step up their efforts to make sure that new voting rules for SMEs and scale-up companies strike a balance between the needs of investors and issuers. The proposal is also of importance to private equity firms investing in these companies.
The European Fund and Asset Management Association, a group known as Efama that also includes Luxembourg’s Alfi among its members, is urging policymakers to stick as much as possible to the “one share, one vote” principle and calls for safeguards that ensure voting rights in these companies are respected properly.
“Ensuring that EU capital markets are a competitive source of finance for SMEs is of key importance,” said Chiara Chiodo, regulatory policy advisor at Efama, in a statement. “We believe that any new rules governing multiple voting share structures must, however, strike a balance between issuers’ and investors’ interests.”
The revision of EU corporate voting rules is planned in legislative package known as the EU Listing Act, adopted by the European Commission in December last year. This initiative is aimed at enhancing the appeal of EU public markets and facilitating capital access for small-medium enterprises, or SMEs, as part of the Capital Markets Union.
Different voting rights not available to SMEs
Large public companies, especially listed ones, already have the possibility of adopting shares with different voting rights. That option is still not available to SMEs and scale-up companies working towards an IPO. The Listing Act includes a new proposal for a Multiple Voting Shares Directive, known as MVSD. This can permit certain shareholders to have significantly bigger voting rights in a company.
Social-democrat MEP Alfred Sant (Malta) currently is working on a report about this proposal for the European Parliament’s Economic Affairs Committee. At this stage in the policymaking process in Brussels’ lawmaking ”sausage factory”, industry associations are actively lobbying to make sure that their members’ interests are heeded.
Efama now urges the introduction of clear and harmonised safeguards to govern their use, in order to protect minority shareholders and promote the overall integrity of EU capital markets. Among the technical recommendations it has issued, it proposes to set a boundary on multipliers of voting rights, with a preference for a maximum weighted voting rights ratio of 5:1.
Expiration clauses
The group also proposes mandatory inclusion of expiration clauses, with rights expiring either after five or seven years, as well as restrictions on the types of decisions where supplementary voting rights can be exercised during general meetings. It also wants to prohibit the transfer of enhanced voting rights to third parties and reverting enhanced voting shares to ‘one-share, one-vote’ upon transfer.
Furthermore, Efama said that the MVSD needs to be aligned also with the principles that back the Shareholding Rights Directive II. This directive conders that shareholders are expected to play a more active role as stewards of companies’ sustainable transitions.
Limiting multiple-vote share structures to listings on SME growth markets, as proposed by the European Commission, would ensure that the main goal of the initiative is supported, without broader unintended consequences, Efama said.