Authorizations to issue shares and disapply pre-emption rights in the UK, Belgium and France: law, economics and practice

Abstract

In this paper, I analyze the role of shareholder approval and pre-emption rights in protecting shareholders in share issuances by listed corporations in the UK, Belgium and France. In these jurisdictions, shareholder approval and pre-emption rights are in principle required for share issuances, but the general meeting can authorize the board of directors to issue shares and disapply pre-emption rights. Therefore, the protection offered by pre-emption rights and shareholder approval crucially depends on the support for these legal strategies by shareholders. Proxy advisors and institutional investors have adopted guidelines that signal that investors strongly support pre-emption rights and shareholder approval of share issuances. However, I provide new empirical evidence that these guidelines are often not followed in France and Belgium, especially for smaller corporations with high levels of insider ownership. I contrast this with the strong impact of the guidelines from institutional investors in the UK. I also offer a few explanations for these differences. Whether stricter authorizations would be efficient is uncertain, but I conclude with some low-cost policy proposals that would give shareholders a larger say on the balance between flexibility and accountability with regard to authorizations to issue shares and disapply pre-emption rights.

Keywords: Share issuances, equity finance, authorizations, shareholder protection, pre-emption rights, shareholder approval