The Multiple Voting Rights Directive: the Comeback of Multiple Voting Rights with the Listing Act

Multiple voting rights have always been controversial. On the European level, they are now celebrating a comeback with the new Multiple Voting Rights Directive (MVRD), a central element of the EU Listing Act. In a recent paper, I provide an overview of the background, the origins, and the essential contents of the MVRD and its significance, especially from a German perspective. This post summarizes the key points.

Against the background of the different approaches to multiple voting rights in the Member States (ranging from a long tradition to a general prohibition), the Commission’s 2022 proposal for a Multiple Voting Rights Directive (MVRD) was bound to stir controversy from the outset. After it briefly looked as if the project might fail, an agreement was reached during trilogue negotiations and confirmed by COREPER on 14 February 2024 (ST 6524/24); on 24 April 2024, the MVRD was adopted by the European Parliament (P9_TA(2024)0352). Although the MVRD still needs to be officially adopted by the Council, this is likely to be a mere formality.

The aim of the MVRD is to facilitate access to capital markets: especially in the case of start-ups and companies with long-term projects, shareholders should be able to use multiple voting rights to ensure that they can retain control of the company despite a listing on the capital market. However, the elimination of competitive disadvantages also plays an important role.

The MVRD’s scope is linked to its objective of facilitating access to capital markets and is quite narrow. It only requires Member States to allow multiple-vote share structures for companies seeking admission of their shares to trading on an MTF for the first time.

As a minimum standard for the adoption of new, or the modification of existing, multiple-vote share structures, the European legislator requires a qualified majority and, where applicable, a special resolution by each class of shares the rights of which are affected. On the one hand, this ensures a high standard of protection, but, on the other, the adoption of multiple-vote share structures remains feasible.

With regard to safeguards for minority shareholders, the MVRD only establishes minimum standards, allowing Member States to choose either of two protective tools: a maximum voting ratio or special rules for qualified majority decisions. Additional safeguards (such as sunset clauses) are permitted, but not mandatory.

At the same time, the European legislator appropriately relies on comprehensive transparency both in the context of admission to trading and in the case of subsequent changes; in addition, there will be a special marker in the stock name of the companies concerned.

The Commission and the European Parliament had proposed to include further restrictions on multiple-vote share structures with respect to their potential ESG impact. However, these would have been highly problematic because, in the end, any resolution is in some way related to the impact of the company’s activities on human rights and the environment; multiple voting rights would thus have been significantly devalued. Fortunately, their proposal was not included in the final text agreed upon (although a relic can still be found in recital 19 MVRD).

Against the background of the different approaches in the Member States regarding multiple-vote share structures, the MVRD only creates a basic harmonisation with a narrowly limited scope, which leaves Member States a great deal of room for manoeuvring. This approach has the advantage that, on the one hand, even Member States that have so far been sceptical will have to allow multiple-vote share structures at least within certain limits, and, on the other, Member States that want (to continue) to allow multiple-vote share structures to a larger extent will not be unduly restricted. In the end, regulatory competition will let the market decide what is best and this can then be incorporated into the review of the MVRD.

From a German perspective, the MVRD does not entail the revolution it might have marked only two years ago. Germany had eliminated the possibility of creating multiple voting rights in 1998. But multiple voting rights recently celebrated their comeback into German law on 15 December 2023 with the ‘Zukunftsfinanzierungsgesetz’ (ZuFinG). Hence, the implementation of the MVRD into German law will only require new transparency requirements. However, as my paper argues extensively, the German legislator should take the generally very liberal framework of the MVRD as an opportunity to reconsider the restrictive legal framework created by the ZuFinG. In particular, it would be preferable to allow the adoption of multiple voting rights by a qualified majority and leave setting the voting ratio as well as the possibility to lay down sunset clauses to the articles of association.

Overall, permitting multiple-vote share structures have many advantages: They provide companies with more flexibility, allow shareholders to secure an influence beyond their equity participation (which can be of particular interest to the founders of a company or to family businesses, especially – but not only – if the company is to be listed on the capital market) and may serve as protection against hostile takeovers. Moreover, it puts EU capital markets on an equal footing with other major capital market jurisdictions that allow multiple voting rights (e.g. USA, UK, Hong Kong, Singapore, Japan). Hence, the MVRD is a building block for making European capital markets more attractive. However, as multiple voting rights are only one factor among many for the attractiveness of a capital market, the MVRD, on its own, is unlikely to trigger a ‘capital market boom’.

The author’s full article can be found here.

Jessica Schmidt is a Professor of Law at the University of Bayreuth.