Protect minority shareholders when introducing multiple voting rights

Listed companies will soon be able to introduce multiple voting rights in addition to double voting rights. Without robust checks and balances and protection for minority shareholders, this could lead to a crisis of confidence.

A group of experts from the Belgian Center for Company Law (BCV) proposes that multiple voting rights be introduced for all listed companies in our country. They attach certain conditions to this, but the protection of minority shareholders remains underexposed. This concerns not only ‘small investors’ or average citizens who entrust their savings to the stock market, but also institutional investors, family structures, and governments that use public funds to acquire minority stakes in companies.

In itself, the transposition of the European Listing Act—which allows multiple voting rights—into Belgian law is not a bad thing. It lowers the threshold for promising young companies to go public: the founders can retain control while still raising capital. This could breathe new life into the ailing Brussels stock exchange in the short term.

But there is a downside to this. Without robust checks and balances, there is a risk of a crisis of confidence in the longer term.

A recent study by the European Corporate Governance Institute shows that dual share structures often yield an initial stock market premium, but that this usually evaporates in later years and can turn into a lower stock market valuation. The discrepancy between the ownership interest and the voting control of the reference shareholder can lead to a clash of views and interests.

Speculative and opportunistic trading

The problem lies mainly in the application of the principle of multiple voting rights. Even companies that are already listed on the stock exchange can introduce this. The BCV proposes a threshold of 75 percent of the votes at the general meeting. But in practice, the shareholding of some companies on the Brussels stock exchange is so fragmented that a reference shareholder with, say, 25 percent of the shares can already de facto dominate the general meeting. There is a real risk that a controlling shareholder could even obtain three-quarters of the votes cast. This would allow a reference shareholder to decide unilaterally to give his own vote greater weight and thus grant himself even more power.

Dual share structures often yield an initial stock market premium, but this usually evaporates in later years and can turn into a lower market valuation.

Stronger regulator

However, the solutions are on the table. During a parliamentary hearing in January this year, one of the proposals was to strengthen the mandate of the FSMA. The stock market regulator would, in its own words, be able to take legal action itself in the event of serious indications of regulatory violations or misleading communication. In addition, reversing the burden of proof in cases of clear signs of malpractice would be a logical step. You could also introduce the principle that decisions that strengthen the dominant position of a reference shareholder are only legally valid if a majority of minority shareholders agree to them.

Furthermore, a redefinition of the concept of ‘independent director’ is urgently needed. Minority shareholders who take risks must be protected against conflicts of interest that benefit a reference shareholder. A vassal of a controlling shareholder can still be elected as an ‘independent director’ by a simple majority at the general meeting. This must be curtailed if we want to prevent multiple voting rights from further undermining the basic principle of good governance.

The debate should therefore not revolve around the question of whether multiple voting rights are desirable, but under what conditions they can be used. The Belgian legislator has the opportunity to create a balanced framework. Anyone who truly wants a capital market that serves both entrepreneurs and investors must focus on trust and protection. Otherwise, multiple voting rights will not be a driver of progress, but an additional structural asymmetry in our company law that threatens to further undermine confidence in the proper functioning of our capital market.

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