One Share - One Vote: Fairness, Efficiency and (the Case for) EU Harmonisation Revisited

Abstract

One of the most controversial aspects of the Company Law Action Plan of 2003 was the European Commission’s ambition to establish real shareholder democracy and to impose the principle of proportionality between capital and control – One Share One Vote (1S1V) – for listed companies in the EU. This paper considers the arguments that have been raised in the animated debate between advocates and critics and analyses whether such a rule – either a general and permanent 1S1V or a breakthrough rule (BTR) limited to takeover situations – could be justified from the viewpoint of efficiency and/or fairness. Starting from the premise that the law can have an impact on ownership structure, this paper argues that the EU legislator, by imposing a mandatory bid rule, has expressed a preference for dispersed ownership of listed companies. In the long run, the continental EU will therefore gradually converge towards the UK model. The mandatory bid rule reduces the odds that a BTR or a general 1S1V rule would result in more concentrated ownership. A consistently formulated BTR has an added value in speeding up this process, because it exposes existing block-holders to the market for corporate control. Whereas contestability of control would solve most of the problems which 1S1V remedies, the merits of 1S1V are not limited to takeovers and therefore a general 1S1V rule should at least be reconsidered. A Fifth or Ninth Directive, while perhaps not feasible politically, would be useful to resolve closely related issues (e.g. board rules, pyramids) and could constitute a less intrusive means of achieving more uniform capital and voting structures while allowing for some flexibility. Finally, if the EU legislator remains unwilling or unable to advance further on the path towards 1S1V, the case law of the European Court of Justice on the free movement of capital and the freedom of establishment could prove to be a useful substitute for secondary EU legislation.

Keywords: ownership and control structures, agency problems, one share one vote, mandatory bid, control contestability, minority protection, harmonisation, multiple voting rights, pyramids, golden shares