John I. Sanders, Yiran Jiang and Italian counsel co-author article: Italian Reforms Reward Long-Term Investors with Voting Power
Moore & Van Allen (MVA) Finance Associates John I. Sanders, Yiran Jiang, and Italian Counsel Nicola Brunetti co-authored the article titled, “Italian Reforms Reward Long-Term Investors with Voting Power.”
The article
On March 27, 2024, the Italian legislature implemented reforms to support the competitiveness of the Italian capital markets and attract investors, in line with the 2022 guidelines issued by former Prime Minister Mario Draghi.[1] One of the reforms increased the potency of loyalty shares.
The by-laws of Italian listed companies can now provide that holders of loyalty shares receive up to 10 votes per share based on the duration of their ownership, a significant increase from the previous limit of two. The process by which loyalty shares increase in potency is straightforward. After holding loyalty shares for 24 months, shareholders are entitled to two votes per share, then earn an additional vote for each subsequent 12-month period, up to 10 votes in total per loyalty share. Understanding that some investors may be limited by law or policy from acquiring a certain level of voting power, the law provides (i) a right of recission for holders who do not favor the amendment of the by-laws to provide for the increase of the voting rights attached to the loyalty shares in excess of two votes per share; and (ii) that the by-laws may grant the right to waive all or some of the additional voting rights accumulated through continuous ownership of loyalty shares.[2]
The reform makes the Italian capital market more competitive with its rivals, which already permitted more flexible multiple vote share structures. Euronext Amsterdam, for example, permits companies to offer enhanced voting rights, typically starting at two votes per share, without a formal cap.[3] The main exchanges in the U.S., the NYSE and the Nasdaq, also permit loyalty shares, typically allowing up to 10 votes per share, as long as they do not disproportionately reduce the voting rights of existing shareholders. To provide maximum flexibility and allow currently listed Italian companies to benefit, the Italian reform allows companies to introduce loyalty shares either before or after an IPO, while Euronext Amsterdam and the U.S. stock exchanges only permit their introduction before an IPO.
Foreign institutional investors are already significant shareholders in Italian listed companies.[4] Such investors, especially index investors, tend to be remain passive long-term investors and naturally support loyalty shares that reward them with additional voting power. We believe that the loyalty share reforms will help achieve the goal of making the Italian capital markets more competitive and appealing to investors.
This article is a summary prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice with respect to the laws of Italy, the United States, or any other jurisdiction.
For further information about the participation in U.S. institutional investors in the Italian capital markets or the use of U.S. law to facilitate securities offerings by Italian companies, contact the U.S. qualified team at Moore & Van Allen PLLC.
For further information about the reform measures described in the article and Italian corporate law more generally, contact Nicola Brunetti at PedersoliGatt
[2] The reforms has also amended Article 2351 of the Italian Civil Code to allow Italian companies that are not listed on an EU regulated market to issue multiple voting shares carrying up to 10 votes per share (compared to the previous limit of 3). The reforms with respect to multiple voting shares (azioni a voto plurimo) will be addressed in a future article
[3] Although there is no formal cap on loyalty share potency, the market has curbed aggressive schemes by disfavoring companies with excessively high ratios.
[4] Per Consob, foreign institutional investors represented 18.2% of share capital at the 2023 annual meetings of the 100 Euronext Milan listed companies with the highest capitalization and are major shareholders in 40 Euronext Milan listed companies. CONSOB, 2023 Report on Corporate Governance of Italian Listed Companies (2023), available at https://www.consob.it/web/consob-and-its-activities/abs-rcg/-/asset_publisher/K2uhgZAhU021/content/2023-report-on-corporate-governance/718268.