Ref. Ares(2016)140624 - 11/01/2016 Proportionality Between Ownership and Control in EU Listed Companies External Study Commissioned by the European Commission Report on the Proportionality Principle in the European Union Table of Contents Table of Contents Acknowledgments 3 Executive Summary 5 Chapter One: Objectives and Scope of the Study 7 1.1 Objectives of the Study 7 1.2 List of Control Enhancing Mechanisms 7 1.2.1 CEMs analysed in the Study 7 1.2.2 Deviations not analysed in the Study 9 Chapter Two: The Theory and The Empirical Evidence 10 2.1 The Theory 10 2.2 The Empirical Evidence 12 Chapter Three: The Regulatory Framework 14 3.1 General Presentation 14 3.2 Regulatory Framework by CEM 18 3.2.1 Multiple voting right shares 18 3.2.2 Non-voting shares 19 3.2.3 Non-voting preference shares 19 3.2.4 Pyramid structures 19 3.2.5 Priority shares 20 3.2.6 Depository certificates 20 3.2.7 Voting right ceilings 20 3.2.8 Ownership ceilings 20 3.2.9 Supermajority provisions 21 3.2.10 Golden shares 21 3.2.11 Partnerships limited by shares 22 3.2.12 Cross-shareholdings 22 3.2.13 Shareholders agreements 22 Chapter Four: Control Enhancing Mechanisms in Company practice 23 4.1 Sample of Companies Analysed 23 4.2 Overall Results 24 4.3 Control Enhancing Mechanisms by Type 26 4.3.1 Multiple voting rights shares 26 4.3.2 Non-voting shares (without preference) 28 4.3.3 Non-voting preference shares 28 4.3.4 Pyramid structures 28 4.3.5 Depository certificates 30 4.3.6 Voting right ceilings 30 4.3.7 Ownership ceilings 32 4.3.8 Golden shares 32 4.3.9 Cross-shareholdings 34 4.3.10 Shareholders agreements 35 1 Table of Contents 4.4 Control Enhancing Mechanisms by Member State 36 4.4.1 Belgium 36 4.4.2 Denmark 39 4.4.3 Estonia 40 4.4.4 Finland 41 4.4.5 France 43 4.4.6 Germany 47 4.4.7 Greece 49 4.4.8 Hungary 53 4.4.9 Ireland 56 4.4.10 Italy 58 4.4.11 Luxembourg 63 4.4.12 The Netherlands 64 4.4.13 Poland 68 4.4.14 Spain 71 4.4.15 Sweden 74 4.4.16 The United Kingdom 77 4.5 Control Enhancing Mechanisms outside the EU 81 5 Chapter Five: Impact of Control Enhancing Mechanisms on Investors 82 5.1 Introduction 82 5.2 The Survey 82 5.2.1 Respondents’ profile 82 5.2.2 Investors’ perception of Control Enhancing Mechanisms 84 5.2.3 Investment decisions 85 5.2.4 Control Enhancing Mechanisms and Discounts 88 5.3 Comments to the Survey 89 5.3.1 Perception of CEMs by investors 89 5.3.2 Do CEMs affect investment decisions 89 5.3.3 Why investors invest in companies with CEMs 91 5.3.4 Why investors do no invest in companies with CEMs 92 5.3.5 Discounts 92 5.3.6 Refining the perspective 93 5.3.7 Measures to be taken 94 5.3.8 Conclusion 96 6 Annexes 97 Annex 1 Methodology: Profiling of issuers 97 Sample of companies analysed 97 Process of analysis 98 Profiling tool 98 Annex 2 List of Abbreviations 102 Annex 3 Investor Survey 103 Annex 4 Existence of Control Enhancing Mechanisms in European companies 117 Annex 5 Academic Papers 141 Annex 6 Full Legal Review 142 Annex 7 Table of Figures 143 External Study Commissioned by the European Commission Open call for Tenders N° MARKT/2006/15/F Proportionality between Ownership and Control in EU Listed Companies: 2 Acknowledgments Acknowledgments This Study, undertaken by Institutional Shareholder Services in collaboration with Sherman & Sterling LLP and the European Corporate Governance Institute (ECGI), is the result of a team effort involving offices across Europe and individuals from many different backgrounds and opinions in many different EU member states. The team has striven to produce a study that provides the “full, systematic picture of the essential features of Corporate Europe that the European public opinion is waiting for” as Commissioner McCreevy called for when inviting us to undertake this project. The Project Coordinators would like to express their gratitude to all contributors. First we would like to thank the members of the European Commission who commissioned this survey. We thank Commissioner McCreevy, as well as Head of Unit Pierre Delsaux and Deputy Head of Unit Philippe Pellé, for giving us the opportunity to research this fascinating subject. We also thank Mr. Paolo Santella and Ms. Corinna Ullrich for their comments, their encouragements, and for the close working relationship built over these past months. We are grateful to the members of the European Parliament for the interest they displayed regarding this study throughout its drafting and for the pertinent questions they raised to ensure its independence. The authors of the Study benefited from the wealth of intellectual resources in the field of corporate governance present at the Corporate Governance Forum, represented by Mr. Peter Montagnon, Mr. Jaap Winter and Mr. Eddy Wymeersch. We are indebted to them for their time and insightful discussions. Our thanks also go to Luca Enriques for his valuable comments and his effective coordination of the legal scholar network as well as to Professors Colin Mayer, Julian Franks and Joe McCahery, our scientific committee, for overseeing the drafting teams and networks. Their dedication to the ECGI was exemplary. A special word of thanks is owed to Leo Goldschmidt, independent board member of the ECGI. He provided wise counsel throughout the nine-month project, starting from the definition of the project and setting up of a methodology, all the way to the final report, including precious comments on the many drafts during the editing and proofreading of the manuscript. His writing skills as well as his thorough understanding of the Study’s subject matter were invaluable to the project’s completion. We are deeply indebted to Professor Renée Adams, Professor Mike Burkart, Dr Daniel Ferreira and Samuel Lee, four financial economists, members of the ECGI network, for the great added value of their review of existing research and literature. We would also like to thank the ECGI’s correspondent network for providing the survey authors with useful assistance and comments, when called upon.1 We are very grateful to Shearman & Sterling’s Hervé Letréguilly (France), Hans Diekmann (Germany), Domenico Fanuele (Italy), Kenneth Lebrun (Japan), Peter King (United Kingdom) and George Casey (United States), as well as Freehills (Australia), Eubelius (Belgium), ACCURA (Denmark), Raidla & Partners (Estonia), Roschier (Finland), Karatzas and Partners (Greece), Gárdos, Füredi, Mosonyi, Tomori (Hungary), McCann FitzGerald (Ireland), Mori Hamada & Matsumoto (Japan), Elvinger, Hoss & Prussen (Luxembourg), Houthoff Buruma (the Netherlands), Soltysi`´ nski, Kawecki & Szlçzak (Poland), Despacho Albiñana & Suárez de Lezo (Spain) and Vinge (Sweden), all highly qualified law firms, for contributing their legal review for all jurisdictions. We are specifically indebted to Professor Hervé Synvet, a leading professor in French corporate and finance law, for his most valuable comments and suggestions. We would also like to thank Shearman & Sterling’s Michael Buckworth, Matthias Decker, Federico Mucciarelli, Nora Pines, Brian Wheeler and Fang Xue for their precious help throughout the project. We also thank Professor Jennifer Hill (Australia), Professor Christoph Van der Elst (Belgium), Professor Mette Neville (Denmark), Professor Andres Vutt (Estonia), Professor Pierre-Henri Conac (France), Professor Matti Sillanpää (Finland), Professor Peter Mulbert (Germany), Professor Nicholas Georgakopoulos (Greece), Professor András Kisfaludi (Hungary), Professor Irene Lynch-Fannon (Ireland), Professor Ettore Scimemi (Italy), Dr Harald Baum (Japan), Professor Isabelle Corbisier (Luxembourg), Professor Erik Vermeulen (the Netherlands), Professor Arkadiusz Radwan (Poland), Professor Candido Paz-Ares (Spain), Professor Erik Nerep (Sweden), Professor Niamh Moloney (United Kingdom), Dr Allen Ferrell (United States), all highly experienced legal scholars from the ECGI network, for their careful review of the legal study. Likewise we wish to record our appreciation for the role played by the Advisory Committee of ISS: Randal Hancock, Stanley Dubiel, Geof Stapledon, Paul Frentrop and Stephen Dean, who in their capacity as senior external advisors and regional corporate governance experts, kindly reviewed and commented on various portions of the Study. 1 A full list of the network members can be found at http://www.ecgi.org/osov/correspondent_network.php 3 Acknowledgments Our gratitude also goes to project managers Christel Dumas, Kristian Pedersen and Cristina Vespro for coordinating all aspects of the research. They led the project teams, coordinated them across borders, liaised between the partners and were instrumen- tal in drafting and producing the Final Report. They were assisted by Anna Brunialti whom we thank for tirelessly making and sending copies of company profiles to issuers. They also received the precious help of Alexis Hul who gave technical assistance and answered the many questions of investors wishing to participate in the survey. Finally we would especially like to thank the many country analysts from ISS who helped with the collection of data and its treatment: Gabriel Alsina, Eva Chauvet, James Clarke, Roland Escher, Torsten Frey, Kristof Ho Tiu, Daniel Jarman, Kenneth Kabuye, Jan Kluck, Etelvina Martinez, Aneta McCoy, Tosin Osoko, Juan Pajuelo, Catherine Salmon, Brendan Sargent, Antigoni Skylakou, Maria Vologni, Natalie Defilette and Sergio Schuchner. They contributed their time, diligence and expertise to the Study, notwithstanding many other current projects and commitments. The Project Coordinators Jean-Nicolas Caprasse Christophe Clerc Marco Becht Managing Director, Europe and UK European Counsel Executive Director Institutional Shareholder Services Europe Shearman & Sterling ECGI 4 Executive Summary Executive Summary Scope of the Study The structure of share ownership may have an important impact on a company’s behaviour and performance, and also on investors.