On the 4th of June 2007 the European Commission published a report on proportionality between capital and control in EU countries’ listed companies. It is the final result of a comparative study conducted by Shearman & Sterling LLP law firm in cooperation with Institutional Shareholder Services Europe (ISS Europe represented by Jean-Nicolas Caprasse) and the European Corporate Governance Institute (ECGI represented by Marco Becht) under the auspices of the EU Commissioner Charlie McCreevy, the Head of Unit Pierre Delsaux and the Deputy Head of Unit Philippe Pellé.
The report comprises of a practical survey made among 464 European listed companies from 19 countries (16 from within the EU area: Belgium, Denmark, Estonia, France, Finland, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Poland, Spain, Sweden and the United Kingdom and three other countries: Australia, Japan and the United States), as well as theoretical information provided by economists and legal scholars.
The report and underlying documents have been prepared with substantial participation of Centrum C-Law.org’ members, namely: Luca Enriques (leader), András Kisfaludi, Arkadiusz Radwan, Christoph Van der Elst and Andres Vutt, who were responsible for reviewing and consulting parts pertaining to Hungary, Poland, Belgium and Estonia.
The study was carried out since the late 2006 and dedicated to the creation of a comparative image of existing deviations from the proportionate allocation of capital and control across EU listed companies. It was also intended to answer the question whether such deviations have a real economic significance and have an impact on EU financial markets. The idea was to create a deep and thorough analysis of the problem which could be treated as a basis for later decisions of the Commission.
Research focused on most important aspects of this broad topic such as: multiple voting rights shares, non-voting shares (both with and without preferences), pyramid structures, priority shares, depository certificates, voting right ceilings, ownership ceilings, golden shares, cross-shareholdings, shareholders agreements and use of special legal structures like partnerships limited by shares. Other potentially influential issues like inter alia competition laws, taxation or well-established market practices (e.g. share lending or derivatives) have been left outside the scope of the survey. All of the above-mentioned factors (called CEMs – Control Enhancing Mechanisms) are seen throughout the report as a conjunction of two principles - the proportionality principle (or One Share, One Vote principle - OSOV), which tends to call for the suppression of CEMs, and the traditional freedom of contract principle (Inherent Right to Self Organisation principle - IRSO), which is based on the premise that, subject to certain precautionary measures, corporations should be left with the ability to organise themselves as they see fit.
Conclusions of the survey are also (at least in some aspects) rather surprising. The study finds that, on the basis of the academic research available, there is no conclusive evidence of a causal link between deviations from the proportionality principle and either the economic performance of listed companies or their governance. On the other hand, there is some evidence that investors perceive these mechanisms negatively and consider more transparency would be helpful in making investment decisions.
Complete report with separate data on methodology, a summary of regulatory framework for control-enhancing mechanisms and a broad study on particular legal problems specific for each of the surveyed countries can be found on