“One Share – One Vote: A European Rule?”

Abstract

In this paper, I tackle the question whether “one share – one vote” should become a European law rule. I examine, first of all, the economic theory concerning one share – one vote and its optimality, and the law and economics literature on dual class recapitalizations and other deviations from one share – one vote. I also consider the agency costs of deviations from one share – one vote and examine whether they justify regulation. I subsequently analyze the rules implementing the one share – one vote standard in the US and Europe. In particular, I analyze the self-regulatory rules of US exchanges, the relevant provisions of the European Takeover Directive (including the well known “break-through rule”), and the European Court of Justice's position as to “golden shares” (which also are deviations from the one share – one vote standard). I conclude that one share – one vote is not justified by economic efficiency, as also confirmed by comparative law. Also the European breakthrough rule, which ultimately strikes down all deviations from one share – one vote, does not appear to be well grounded. Only transparency rules appear to be justified at EU level as disclosure of ownership and voting structures serves a pricing and governance function, while harmonisation of the relevant rules reduces transaction costs in integrated markets.