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French companies caught in the fight against double voting rights attached to loyalty shares

French asset management company PhiTrust Active Investors is leading a "shareholder engagement campaign" against the new Florange law that gives double voting rights to investors who have held stock for over two years.20 Apr 2015

The Florange law was passed in March last year. While companies have always been able to offer double voting rights on an opt-in basis, the new law reverses this principle to introduce an “opt-out” mechanism for listed companies.

PhiTrust is encouraging investors to attend board meetings and encourage companies to opt out of the law and retain the one-share-one-vote system.

"The investor community has long promoted the principle of proportionality between capital invested and voting rights ('one share - one vote'), and of the neutrality of the Boards of listed companies during takeover bid periods," it said in a statement on its website.

"The Florange Law reverses these principles by automatically allocating double voting rights only to shareholders holding registered shares, and by authorising the board, in the event of a takeover, to take all measures to protect against the takeover. This provision is detrimental to the rights of minority shareholders," PhiTrust said.

Last week the French state bought 14 million shares in Renault, worth between €814m (US$876 million) and €1.23bn, raising its stake temporarily in time for the company's annual meeting in order to block a resolution to maintain the one-share-one-vote system, the Financial Times said.

Investment expert Christophe Clerc of Pinsent Masons, the law firm behind Out-Law.com has previously said that concerns about the Florange law may be overblown.

Clerc said: "Studies show that companies with loyalty shares perform as well as others on average; some are better than their peers, other are worse – there is no clear pattern. Investors should thus check on a case-by-case basis whether they should have a concern instead of taking a general view on this subject."

"More generally, from a global standpoint, there is wide-spread use of principles departing from the 'one share, one vote' legal mechanism; academic studies do not support the view that this use has a negative economic impact," he said.