23 January 2013

FT: Brussels aims to reward investor loyalty

Michel Barnier, the EU single market commissioner, is preparing to field views on potentially revising the “one-share one-vote” principle applied by the bulk of EU companies, according to drafts of the plan seen by the Financial Times. Rewards for shareholder commitment, some of which are already prevalent in France, would be designed to discourage destructive short-term speculation and stabilise conditions for companies and markets.

While no date is set for legislative proposals, the paper gives an indication of Brussels’ medium-term agenda. Given the controversy around any attempt to change the EU’s diverse patchwork of shareholder rights, there is still likely to be a debate in the commission over whether the idea should appear in the final paper. Other options include consideration of whether “particular types of long-term investments merit preferential capital requirements”, specifically for insurance groups.

The paper calls for debate on the favourable tax treatment given to debt over equity and whether “the use of fair value [accounting] has led to short-termism in investor behaviour”. With regard to shareholder rights, the draft proposes further work on “analysing the possibility of options around granting multiple voting rights to long-term investors” – forms of which are prevalent in France, Sweden and the Netherlands.

The draft paper in addition advocates “considering the possibility of options around linking dividend payments to the holding period of shares as a way of creating additional incentives for longer-term shareholder engagement and value”.

The consultation paper does reflect a distinct shift in commission thinking since the economic crisis. The previous single market commissioner, by contrast, attempted to make shareholder votes “more democratic” with a “one share one vote” reform.

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