Since 20 August, date of publication on the Official Gazette, the Italian law allows listed and private companies to issue multiple voting shares. Here are the main changes, as partially amended by the Parliament.
Additional voting rightItalian listed companies may assign an additional voting right to each common share uninterruptedly held for at least 24 months, provided that the shareholder had previously requested the registration of the shares (new Article 127-quinquies of the Consolidated Financial Law).
The necessary amendment to the articles of association will require a simple majority vote at all extraordinary general meetings convened before 31 January 2015, notwithstanding the legal provision requiring a two-thirds majority for extraordinary resolutions (such an exception was not included in the original decree-law). Thanks to this provision introduced by Parliament, Enel, Eni, Finmeccanica, Snam and Terna – in which the Government controls approximately 30% of the share capital, either directly or through Cassa Depositi e Prestiti (“CDP”) – would be able to approve the additional vote even without the consent of the majority of independent shareholders.
The temporary simple majority vote is not the only waiver of (once fundamental) Italian legislative principles: shareholders not voting in favour shall not have the right to withdraw, which is provided by art. 2437 of the Italian Civil Code on all resolutions modifying shareholders’ voting rights. Furthermore, the exception to the withdrawal right was already included in the original decree, and Parliament decided not to eliminate it despite the opposition of Mr Giuseppe Vegas, President of market authority Consob, at his hearing at the Senate on 2 July.
Mandatory takeover bids: the threshold for mandatory bids is no longer linked exclusively to share ownership, but also to voting rights, and (in addition to the 30% threshold) a new threshold of 25% has been introduced, which will apply if no other shareholders hold a higher percentage. According to the amended text of Article 106 of the Consolidated Financial Law, a bid is not mandatory if the 25% threshold is exceeded following the allocation of the additional voting right. However, the law is not very clear on this point, and Consob’s regulation, due to be published by 31 December, will clarify it.
The additional threshold of 25% should make Italian companies more contestable, softening the effects of the additional voting right. However, if Consob confirms that the mandatory bid is exclusively linked to acquisitions (as stated by the current version of art. 106), it risks to have exactly the opposite effect, making the additional vote even more favourable to major shareholders. For instance, it may be of great advantage to several banking foundations, which have been recently forced to strongly reduce their positions in listed banks, because of the egregious losses suffered to keep their control in the past. Thanks to the double voting right, many foundations may regain a strategic influence on the management of the bank, even individually holding less than 30% of voting rights.
Multiple voting sharesPrivate companies will be able to issue shares granting multiple votes (up to 3 votes per share). In the event of subsequent listing of the shares, the multiple votes will be maintained and new multiple voting shares may only be issued through free share capital increases (i.e., scrip dividends). Existing listed companies may not issue multiple voting shares, and companies that issued multiple voting shares may not issue the additional voting right provided by art. 127-quinquies.
Arguments supporting and (mainly) opposing the multiple vote
Two main arguments have been used by the supporters of the additional voting right:
- It exists in many developed markets, causing a regulatory competition that encouraged companies to change their headquarters (such as Fiat and Fiat Industrial, which recently moved to the Netherlands).
- It may guarantee a stable management, while higher contestability may expose companies to hostile takeovers, which had detrimental effects on some Italian companies (as it happened in Telecom Italia).
Regulatory competition is a dangerous argument to support poor laws, as national legislation should be based on the specificities of each market, aiming to eliminate its own distortions. While the Anglo-Saxon model (dispersed ownership) is characterised by the great power of top managers, in Italy many scandals and market distortions have been caused by the strong influence of controlling shareholders on management (which will be strengthened by multiple voting rights).
During the semester of Italian presidency of EU, it would have probably been more appropriate for the Government to move in the same direction of the European Commission, which seems more oriented in supporting the engagement of independent shareholders, through the recent proposal to amend the Shareholder Rights Directive.
The notion that the absence of controlling shareholders is the antithesis of stability is often contradicted by the facts. A clear example is Telefónica, which has no controlling shareholders and cannot rely on anti-takeover measures, yet it has not been the subject of as many hostile takeover bids as Telecom Italia, which has seen its major shareholders change several times over the last 15 years. One need only read the minutes of Telecom Italia’s shareholders“ meetings to realise that more than 50% of asset managers who voted at the AGM in 2014 also voted in 2007, compared with 0% of ”strategic shareholders’. Moreover, the changes at Telecom Italia were mainly caused by difficulties faced by the major shareholders, and not by the increased influence of independent shareholders, who have recently contributed to strongly improve its corporate governance. Finally, many Italian family-controlled listed companies have been acquired by foreign groups, some of which with no controlling shareholders.