French Company Law now has  a further measure which French companies can use to block dissident shareholders from using their influence at general meetings of shareholders. On 8 December 2010, the French President signed into law an an amendment to the Commercial Code, one part of which inserts three additional sections relating to voting at general meetings.

This proposal was the subject of a letter earlier this year from the ICGN to the French senator who sponsored the amendment. The ICGN suggested that the proposal would "mainly limit the ability of foreign shareholders to actively vote their shares in the French market' and that the proposal would breach the shareholders equity principle".

"Article L. 225-106-2 imposes – a request that does not appear in the Directive – that the proxy or any active proxy solicitor publishes a proxy voting policy and that he will be held responsible for its application. However, when the Chairman of the company is the beneficiary of the proxy solicitation no proxy voting policy discipline will be imposed and no conflict of interest ought to be disclosed.

Article L. 225-106-3 creates the most detrimental obstruction to the use of voting intermediaries. It creates for the end-shareholder’s company or the end-investor a right to refer to the French local Court of Commerce the question of possible betrayal of the end-shareholder’s intent with regard to their final vote cast".

The ICGN stated that the end result of the  Ordonnance is therefore to protect management of French companies by allowing them to cancel, if needed, the vote instructions coming through proxy agencies. These votes can now be cancelled simply by questioning whether the final voting instructions are in line with the intentions of the beneficial owner or because of inconclusive proxy voting policies.

With French companies often providing for the ability to use anti-takeover measures such as double voting rights, the use of capital authorities during offer periods and the issue of 'bons bretons' warrants, L.225-106-3 now provides a further means for an entrenched board of directors to fight off "unwanted"  shareholder activists.

Further Reading

French Government News Release

ICGN Letter to French Senate