Shareholders for Change (SfC), an 18-strong institutional investor network, has criticised the Multiple Vote Share Structures Directive formally adopted by the EU yesterday due to its negative impact on investor influence. The European Parliament adopted the directive in April, which follows the passing of the Listing Act Directive of 2022. Several European countries have recently introduced multiple voting rights structures, including Germany in December 2023, Italy in March this year, followed by France in June. SfC branded multiple vote share structures as a “control enhancement mechanism”. These typically create two distinct classes of shares, with at least one having a lower voting value. “Introducing multiple vote share structures in a company reduces the decision-making power of other shareholders [or] investors in proportion to their financial stakes,” the network said. Potential problems include shareholder entrenchment, diversion of the company’s assets and the extraction of private benefits by the controlling shareholder through related party transactions. SfC also highlighted that the dilution effect caused by multiple vote shares could enable controlling shareholders to block certain resolutions, including those focused on sustainability goals. The network called for the implementation of safeguards to protect minority shareholders, noting that while efforts to introduce safeguards in the directive are “commendable” that they are “not sufficient to guarantee the rights of all shareholders.”
