04 June 2007

Commission study on proportionality between capital and control in EU listed companies

The Commission published an external study on the question of proportionality between ownership and control in EU listed companies. The objective was to identify existing deviations from the proportionate allocation of capital and control across EU listed companies, and to evaluate their economic significance and whether such deviations have an impact on EU financial markets.

The study finds that there is no conclusive evidence of a causal link between deviations from the proportionality principle and either the economic performance of listed companies or their governance.

The report also shows that Control Enhancing Mechanisms (CEMs) are rather common in the sample of listed companies in European member states. Of all the 464 European companies considered, 44% have one or more CEMs.

A majority of the investors surveyed perceive all CEMs negatively. However, some CEMs are perceived as more negative than others.

In most cases, CEMs are significantly regulated in order to prevent abuse. Relevant regulations mostly include well-grounded principles of corporate law and often add specific rules to enhance the protection of shareholders. Understanding the broader legal context in which CEMs are implemented is essential for a fair assessment of such mechanisms.

Commissioner McCreevy said: 'The study provides a useful factual background to the issue of proportionality between capital and control – known as the 'one share, one vote' issue. Now that these facts are on the table we will examine, with an open mind, the question of whether there is a need for Commission action in this field'.

The study will provide input for an impact assessment that the Commission will be carrying out between now and autumn 2007.

The scope of the study encompasses the review of such mechanisms as multiple-voting rights, voting caps and non-voting preferential shares, as well as of tools such as shareholders' agreements, cross-shareholdings and company pyramids.

Press release
Study Report on the proportionality principle in the European Union - 18 May 2007
FAQs
The Academic surveys:
The One Share - One Vote Debate : A Theoretical Perspective - May 2007
Ownership Proportionality and Firm Value : The Empirical Evidence - May 2007
The Comparative Legal Study: The synthesis
Exhibit A – Methodology
Exhibit B - Regulatory framework for control-enhancing mechanisms: summaries
Exhibit C - Part I - Legal study for each jurisdiction
Exhibit C - Part II- Legal study for each jurisdiction

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