EU plans for MVR "lacking legal basis"

February 3, 2023

The European Commission’s (EC’s) plans to harmonise the structure of multiple-voting rights (MVR) for SMEs have been criticised for “lacking” any legal basis.

A piece on the Oxford Business Law Blog (OBLB) has disapproved of the proposals, highlighting the fact the MVR is not regulated by the EC due to this being handled individually by separate EU member states.

For this reason, the OBLB has attached the fundamentals of the EC’s plans and questioned the viability of any harmonisation being possible in this area.

In December, the EC proposed regulation to alleviate the administrative burden for companies of all sizes, but in particular SMEs. 

The measures included provisions that would require all EU member states to allow SMEs to adopt an MVR structure.

Read Minerva's previous coverage of voting rights in the EU:

https://www.old.manifest.co.uk/eba-publishes-standards-on-voting-disclosures/

The EC proposed the measures because MVR may cause ‘specific problems if not properly mitigated’, such as the abuse of power by controlling shareholders.

Authored by Jesper Lau Hansen, professor of law at the University of Copenhagen, the piece argued the MVR structure is unsuitable for harmonisation because governance systems vary among member states due to culture, language, and law.

The lack of an overall legal basis from the EC to implement, and enforce, these proposals means “there is no valid reason to harmonise corporate governance in this way” according to the OBLB.

The blog also levels criticism at the EC’s reasoning for the proposals.

Here, the EC has extolled the virtues of MVR to ensure SME founders can seek investment via public trading venues without sacrificing a focus on a long-term vision for their company.

Professor Lau Hansen points out this problem is common in company law and may occur whether a company has an MVR structure or one share, one vote (OSOV) structure.

The EC also expressed concerns the MVR structure may allow controlling shareholders to block certain resolutions, including those aimed at sustainability goals.

However, Lau Hansen claims shareholders are unlikely to block these decisions because they are acutely aware of climate-related risks and encourage companies to deal with these problems.

Professor Lau Hansen argues a shareholder will only block a proposal if they believe it could be economically detrimental to the company and unviable in the future.

This example of blocking a decision could continue to occur irrespectively of an MVR or OSOV structure.

He wrote: “It is not possible to argue a priori that an MVR structure would increase the risk of such abuse of power, because it may equally be argued that the OSOV principle has the effect of dispersing the influence of shareholders and thus enables control by holding fewer shares.”