Position of the European Centre for Financial Law on shareholder activism – Alain Pietrancosta, Scientific Director of the OEDF

Paris, December 23, 2019

The European Centre for Financial Law had the pleasure to receive for a hearing on 18 December 2019 Mr Eric Woerth, Co-rapporteur of the parliamentary mission on shareholder activism, and Mr Michel Prada, Chairman of the working group on shareholder activism of the Club des Juristes.

As a result of the high quality debates that followed, the European Observatory of Financial Law wishes to take the following positions:

On the lowering of the level of compulsory declaration in case of crossing of thresholds

– The first recommendation of the parliamentary information report on shareholder activism is to lower the first threshold that must be publicly disclosed to 3% of the capital or voting rights of a listed company, instead of the current 5%. This proposal has been made on several occasions, notably in the October 2008 report by the AMF working group chaired by Bernard Field on major holding notifications and declarations of intent.

The Observatory is not in favour of this recommendation, which is also not supported by the reports of the Club des Juristes and AFEP. It is oversized in relation to the subject of shareholder activism, since it would generalise obligations to declare the crossing of thresholds to deal with cases of activism that not only remain very limited on the Paris market but also without any assurance of effectiveness with regard to the latter insofar as public campaigns of activism can start on positions below 3%, as experience has recently taught us.

Such a measure could also significantly increase the investment of some institutional investors and ultimately have a deterrent effect on issuers and the competitiveness of the European financial centre. The cost/effectiveness of the measure therefore seems to us to be largely negative.

Furthermore, the public statement of an activist investor’s position (generally accompanied by strong media coverage) tends to catalyse tensions and undermine the quality of private shareholder dialogue, which we are trying to improve and which must remain the priority. Nor can the recommendation be based on a desire to offset asymmetry of information between issuers and investors, since the former generally have superior means of identifying significant shareholders, notably through the inclusion in their articles of association of obligations to declare the crossing of statutory thresholds. Only the market is therefore affected by asymmetric information, which could raise the question of whether the market needs to be aware of the declarations made to the issuer when statutory thresholds are crossed.

Finally, while one can defend the idea that the current system of threshold crossing declarations could benefit from amendments, particularly to its statutory part and the setting of declarable thresholds, which would include the question of whether France wants to join the small number of European countries that have retained an initial threshold of less than 5%, it seems inappropriate to us to address this subject through an isolated measure designed solely through the prism of shareholder activism.

On the need to inform the market during campaigns initiated by activists

– We support, on the other hand, the idea put forward in the report of the Lawyers’ Club that the decision of the investor activist to make his strategy known to the public means that he is subject to certain specific obligations of transparency.

– In the same spirit, it would be desirable for the Autorité des marchés financiers to be given new means of action that would enable it to intervene rapidly, including in summary proceedings, in public campaigns initiated by an activist to request corrections or additional information, as it can do today with regard to issuers.

– Consideration should also be given to the advisability of setting up bodies for dialogue or mediation between issuers and shareholders, especially institutional investors, which could be inspired by the English, Dutch or Italian examples.

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