Regulatory trends and corporate governance

capital should not be part of the solution’.26 And yet, the world’s deepest and most liquid capital markets have no rules outlawing such distortions, as testified by the 2005 listing of Google with its two classes of voting shares, allowing the two founders a free hand in most strategic decisions. It is also interesting to note that the UK has never used regulation against multiple voting shares as a tool of shareholder empowerment. One-share-one-vote became the overriding (but not universal) standard in the London market as a result of investor pressure. Because of the higher cost of capital for companies that do not espouse the principle, an issuer now needs a very good reason to maintain control structures that do not conform to the standard.

The EU Commission’s 2007 study on one-share-one-vote confirmed the poor case for any legislative action in this area. Commissioner McCreevy has backtracked from his earlier position in favour of a recommendation promoting one-share-one-vote, as even a set of soft law principles might prove to be hard to agree on. What might prove more effective, and less costly in political capital, is to wait for the new transparency and shareholder rights regime for EU issuers to be fully implemented, and give the market another chance to develop its own ways to value asymmetric control arrangements.

Shareholder communications

One area which straddles both objectives of the Commission’s agenda for transparency and empowerment is that of communications between shareholders and the company, and communications among shareholders themselves with respect to a particular company. Both are essential for active shareholder engagement and for a board to understand the views and wishes of its shareholders before crises break out.

Communications between shareholders and the board became a central issue in the highly contested, albeit unsuccessful, cross-border bid by Deutsche B¨orse (DB) to acquire the London Stock Exchange (LSE).27 When such a strategic move is anticipated, the clear agreement of the non-executive directors is important in winning the support of investors. Indeed, the UK Combined Code explicitly stipulates that, while the Chief Executive and Chief Financial Officer should be the main parties regularly talking to shareholders, the board as a whole bears responsibility for maintaining a good dialogue. The Combined Code also recommends that the Chairman and senior independent director should regularly meet with large shareholders, update them on the situation and gauge their feelings. In contrast, the DB supervisory board never took a proactive stance with investors. Rolf Breuer, its Chairman, started taking an active part in discussions with investors only a few days before the deal died. His intervention

26Peter Montagnon and Roderick Munsters, ‘One share, one vote is the way to a fairer market’,

Financial Times, August 2006.

27A more extensive discussion of these issues can be found in the article by Stilpon Nestor, ‘How board governance cost Deutsche B¨orse its deal’, International Financial Law Review, 13, 2 (March 2005), pp. 137–55.

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