Views on improving the integrity of global capital markets
06 May 2015

Corp Gov Roundup: Double Voting Rights Causing Stir, Spring Proxy Season in Swing

In the corporate governance world, April brought France’s Florange Law (which gives double voting rights to shareowners who own shares for at least two years) back into the spotlight, saw pre-peak proxy season in the US, and revealed the creation of the Saudi governance index, to name a few.


The Brazilian stock market BM&F BOVESPA and the Brazilian Securities and Exchange Commission (CVM) launched an initiative recently aimed at restoring market confidence in the wake of the recent Petrobrás scandal. The State-Owned Enterprise Governance Program (PGOVE) plans to draw up voluntary corporate governance guidelines for companies in which the government owns a significant stake. The program is based on three principles: credibility, alignment of interests, and best practice in corporate government. The PGOVE guidelines are scheduled to be published in June. Stay tuned to this space for more details then.


The Florange Law, passed last year in France, has dominated the corporate governance world there this year. The law gave double voting rights to shareowners who own shares for at least two years. The French government passed the law last year to foster more long-term investing in the markets, but governance experts are concerned that such a rule will only serve to entrench insiders or strengthen the hand of government ownership in some cases.

At the Vivendi annual meeting 17 April, investors voted for a resolution opposing the double voting rights by the slimmest of margins, with those voting for a ban on such rights receiving 50.05% of the vote and those voting against at 49.85% of the vote. Unfortunately for Vivendi shareowners who oppose the Florange Law, a two-thirds vote is required to overturn the double voting rights in such a vote. However, at some other French companies, such as L’Oreal and Vinci, 99% of the ballots were cast against double voting rights.

Those concerned about government entrenchment may have a point. In early April, the French government announced it would spend up to €1.2 billion to increase its stake in Renault from 15.00% to 19.74%. Such a stake will likely be enough to block any resolution against double voting in the future. Interestingly, the Renault board of directors has endorsed a one-share, one-vote system directly opposing their biggest shareholder — the French Government.


Corporate governance events are coming fast and furious in Japan lately. At the end of March, the Japanese Government Pension Investment Fund published a statement of investment principles. The GPIF is the world’s largest pension fund with approximately $1.1 trillion under management, so the adoption of the principles have the potential to make big changes to governance in Japan. The principles, from the Japan document, are excerpted below:

  1. Our overarching goal should be to achieve the investment returns required for the public pension system with minimal risks, solely for the benefit of pension recipients from a long-term perspective, thereby contributing to the stability of the system.
  2. Our primary investment strategy should be diversification by asset class, region, and timeframe. While acknowledging fluctuations of market prices in the short term, we shall achieve investment returns in a more stable and efficient manner by taking full advantage of our long-term investment horizon. At the same time we shall secure sufficient liquidity to pay pension benefits.
  3. We formulate the policy asset mix and manage and control risks at the levels of the overall asset portfolio, each asset class, and each investment manager. We employ both passive and active investment to attain benchmark returns (i.e., average market returns) set for each asset class, while seeking untapped profitable investment opportunities.
  4. By fulfilling our stewardship responsibilities, we shall continue to maximize medium– to long-term equity investment returns for the benefit of pension recipients.

Things may really be changing in Japan for the better, due in part to the new Japanese governance code and expected beefed up listing standards at the Tokyo Stock Exchange. A recent report from Institutional Shareholder Services (ISS) states that Japanese companies are quickly adding the outside directors called for in the governance code. (Sorry the report is for ISS clients, so no direct link is available.)

The report finds a 13% jump in the prevalence of companies with outside directors. Movement is modest, as now 84% of the nearly 300 companies that have held their annual meeting through March of this year now have at least one outside independent board member. A decade ago, that number was much closer to zero; two years ago it was only 62%.

According to the terms of the governance code and expected listing standards, Japanese companies are to have at least two outside directors, although the code is a “comply or explain” model, and is not binding.

Saudi Arabia

Alfaisal University in Saudi Arabia has announced plans to launch a Saudi governance index.

The criteria for the governance index were developed by the school’s College of Business Administration in collaboration with international experts in corporate governance.

United States

Proxy access votes have begun to come in. To this point results have been mixed; votes in favor of shareholder proxy access proposals (those where a shareholder proxy access proposal has gained 50% support) are about evenly split with those in which a shareholder proxy access proposal has been voted down. We are early in the heart of proxy season, however, so check this space for a recap of proxy access next month.

While we await the end of the spring proxy season to evaluate just what happened around proxy access, a couple developments merit following.

  • A growing number of companies, including GE, Prudential, Citigroup, Yum Brands, and others have adopted proxy access, without waiting for a shareholder vote, possibly lending momentum to the cause.
  • There are about a half dozen companies this proxy season that are pitting a company proposal for proxy access against a shareholder proposal for proxy access. Often the management proposal requires a higher ownership threshold. Thus far at The AES Corporation, the shareowner proxy access proposal gained 66% approval, while the management proposal earned 36%. However, at Excelon, the management proposal earned 53% approval while the shareowner proxy access proposal earned only 44% approval.
  • Some institutional investors are split between supporting an ownership threshold of 3% or 5% for proxy access. Most institutional investors support and have voted in favor of 3% proposals. However, Vanguard and Fidelity, two giants whose votes carry a lot of weight, have thus far voted against most 3% proposals and generally support versions of proxy access with a 5% ownership threshold.

The people most pleased that proxy access has become the governance cause celebre in 2015 have to be compensation committee members at US companies. Compensation committees have been in the spotlight ever since annual say-on-pay votes became the law of the land thanks to Dodd-Frank. But not this year, as proxy access has taken the spotlight away from compensation issues.

The SEC hasn’t forgotten about the hardworking men and women of compensation committees, however. In late April, the SEC passed a rule that will require US issuers to disclose certain pay-for-performance metrics.

According to the SEC press release: The proposed rule would require a company to disclose executive pay and performance information for itself and companies in a peer group in a table and to tag the information in an interactive data format. As the measure of performance, a company would also be required to report its total shareholder return (TSR) and the TSR of companies in a peer group.

Many institutional investors who make up the vast majority of those voting on say on pay already have this type of information, either from their internal work or from proxy advisory firms who provide TSR data along with a whole host of other compensation metrics. So the announcement by the SEC is not revolutionary, but it would codify with a rule something that is largely already happening.

Of course issuers are free to give more and better information about pay for performance if they feel TSR doesn’t tell their story well enough. That wouldn’t be such a bad thing.

Comments are due to the SEC 60 days after the announcement, so the end of June.

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Image Credit: YinYang

About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a director of capital markets policy at CFA Institute, where he focuses on corporate governance issues. He was named one of the 2008 “Rising Stars of Corporate Governance” by the Millstein Center for Corporate Governance and Performance at the Yale School of Management.

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