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Introduction
By changing their commercial laws, national legislators compete to attract companies, or at least their registered office. This is true in general, but even more so within the context of the European Union given the freedom of establishment granted to undertakings.[1]
The purpose of this contribution is to analyze the report to an article in the draft of the “Decreto Rilancio,” where the Italian legislator carries out interesting considerations concerning competition among jurisdictions. Next, the discussion will be expanded to the theoretical dimension of the theme. Lastly, this article will mention a practical example of how companies are attracted to countries with favorable corporate laws, in this case jurisdictions that allow multiple voting shares.
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What is the “Decreto Rilancio”
“Mala tempora currunt sed peiora parantur,” a quote attributed to Cicero, the famous Roman orator: “Bad times are upon us, but the worst has yet to come.” Bearing this in mind, in order to avoid the consequences of the economic downfall caused by the current pandemic, the Italian government has approved the Decree no. 34 of May 19, 2020 (“Decreto Rilancio” or “Relaunch Decree”), containing urgent health measures, support for work and the economy, and social policies related to the epidemiological emergency of COVID-19.[2]
What is relevant for this analysis is a report attached to an article not approved in the final text, that appeared only in the draft that circulated a few days before: Article 45, which would have introduced multiple voting shares for listed companies in the Italian legal system. In order to understand the implications of this proposal, it is necessary to briefly recapitulate the history of this kind of shares.
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Brief history of multiple voting shares
A hundred years ago, in the 1920s, a debate in Europe and overseas challenged and shook the traditional principle of corporate laws comprised in the formula “one share, one vote.”[3] The academics and jurisprudence started to question whether it was possible, in the absence of provisions to the contrary, to allow multiple voting shares, and consequently to give certain shareholders the possibility to exercise a disproportionate amount of control compared to their capital investment in the company.[4] The debate revolved around policy considerations: legislators wanted to intake capitals without giving out the control of companies located in their countries.[5]
Even if the Italian Commercial Codes of 1865 and 1882 did not mention multiple voting shares, article 2351 of the Civil Code of 1942 expressly forbade them.[6] It was only in 2014 that Italy allowed the issuing of shares of this kind.[7] As for other countries around the world: in Spain, Germany, and Belgium they are still forbidden.[8] In the Netherlands, as in Denmark, Finland, Ireland, UK, US, and Japan, they are allowed.[9]
It has been argued that one of the reasons behind the reform of 2015 was the incorporation of Fiat-Chrysler, the giant automaker conglomerate, in the Netherlands, chosen for its corporate law regime.[10] To avoid incorporation of other companies in different countries the provision was implemented. The possibility of issuing multiple voting shares, however, was aimed solely at unlisted companies. On the other hand, according to article 127-quinquies of the Legislative Decree no. 58 of 24 February 1998 (the Consolidated Text on Finance), companies with shares listed in regulated markets can only issue majored shares (also called “Loyalty shares,” with voto maggiorato) with which the increase in voting rights for a maximum of two votes depends on the continued possession of the shares by the same person for at least 24 months. This partial reform could explain the concern of the Italian legislator today: the same fear of seeing more listed companies incorporate in the jurisdiction of the Netherlands or other. In fact, Italian listed companies that want to issue multiple voting shares need to incorporate in a foreign jurisdiction that allows them to do so.
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What would have changed
The draft would have modified article 127-sexies of the Consolidated Text on Finance, that forbids listed companies to issue multiple voting shares. The proposed article contained also a very interesting provision: a mechanism called “whitewash,” already comprised in the Italian discipline of Related Party Transactions, to protect minority shareholders. The resolution concerning the introduction of a category of multiple voting shares could be stopped by the cumulative opposing vote of minority shareholders that hold at least ten per cent of the share capital eligible to vote.
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Competition between jurisdictions
Article 45 of the draft never saw the light of day in the final text. However, a significant food for thought is represented by the report contained in the draft itself[11], because it offers a comparative corporate law point of view. It recognizes that several foreign legal systems, both within and outside the European Union, allow joint stock companies, even with shares listed in regulated markets, to waive the “one share, one vote” rule by allowing categories of shares with multiple votes.[12] It then affirms that it is well known that this difference in regulation risks to bring about a competition between legal systems, to the detriment of the Italian stock market.[13] Moreover, the report states that there have also been cases in which the decision to move abroad Italian companies with listed shares in a regulated market or to choose a foreign jurisdiction for companies resulting from mergers involving Italian listed companies, was in part motivated by the possibility to use a legal regime favorable to the provision that permits the direct or indirect issue of multiple voting shares.[14]
The report than concludes that for this reason, in the absence of any proven adverse effects that such a legal institute can generate to the companies that adopt it, it is considered preferable to leave to the statutory autonomy and market valuations the possibility of issuing multiple voting shares also by Italian companies with shares listed in regulated markets.[15]
A clear problem emerges: the anxious dichotomy between harmonization and competition between jurisdictions in a context of freedom of establishment provided by the European Union. When it comes to competition between jurisdictions, there are contrasting opinions among scholars: some think it leads to a race to the top, while others trace it to a race to the bottom.[16] In other words, if states compete for incorporations,[17] it is questioned whether this leads to better or worse corporate laws.[18]
The problem has been explored in the United States, where incorporation is very easy[19] and company law is still regulated at the state level, while securities and financial law has been brought at the federal level.[20] In particular, Delaware has become the main base for registered offices of companies, thanks to its corporate law regime Delaware, the “winner” of the race, among states,[21] now faces a new challenge: not against other states, but against harmonization at the federal level.[22]
In fact, the discourse moves on two lines: a “horizontal” one, where states compete, and a “vertical” one, where the federal government interferes through harmonization that softens this competition.
The same reasoning can be applied to the European Union. Decisions such as Centros Ltd. v. Erhvervs- og Selskabsstyrelsen[23] and Kamer van Koophandel en Fabrieken voor Amsterdam v. Inspire Art Ltd.[24] allowed mobility of companies and incorporations.[25] The ones advocating for more competition and its beneficial effect will oppose harmonization[26] stating that it disincentivizes legislators to enact better corporate law reforms. On the other hand, the ones who claims that it leads to the detriment of corporate laws, see harmonization as a useful tool to enact better common standards.[27]
On these two dimensions, from a “horizontal” perspective, European states have heterogeneous corporate law regimes with varying ownership structures, director duties and relationships with shareholders, and even different corporate governance systems.[28] From a “vertical” perspective, the European Union is going through a process of harmonization of corporate law[29] through new several common legislations,[30] but also with an entire new kind of company, the Societas Europaea (SE).[31]
One of the problems is that it is difficult to even define what “better” corporate law means: does it mean more favorable to the directors and the controlling shareholder, or more favorable to minority shareholders? Attractive corporate laws such as Delaware and the Netherlands are not “better” or “worse,” they are just advantageous for the directors and the majority shareholder.[32] For example, multiple voting shares allow consolidating control of the company while still having a plethora of shareholders, given that the controller can exercise control with less shares.
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Why this matters: the Campari case
Going back to more concrete evaluations, a topical case confirms the fear that other Italian companies will incorporate abroad: Campari, the producer of the namesake famous liqueur, announced in February of 2020[33] that the Board of Directors “resolved to submit to the shareholders the proposal to transfer the Company’s registered office to the Netherlands, with simultaneous transformation of the Company into a Naamloze Vennootschap (N.V.) governed by Dutch law . . . . ”[34]
The rationale for the transaction was indicated as follows: “From a strategic standpoint, through the transfer of the registered office in the Netherlands and the simultaneous introduction of an enhanced voting rights mechanism compared to the current double voting rights mechanism already adopted by the Company (voto maggiorato), Campari intends to pursue the following objectives: (i) adopting a flexible share capital structure . . . ; (ii) rewarding long-term shareholders more effectively and extensively . . . ; (iii) benefitting from a highly recognized and appreciated corporate law framework by international investors and market operators . . . .”[35]
It is unknown whether multiple voting shares would have changed Campari’s intentions, as an article[36] published on 15 May 2020 on Il Sole 24 Ore suggested. With a press release[37] on May 29, 2020, Campari confirmed the intention to move to the Netherlands, when the conditions would have allowed it.[38]
“The Transaction,” it was also stated, “constitutes one of the pillars of the long-term growth strategy of the Group”[39] proving how fundamental the organizational choices of corporate governance are, and how jurisdictions play a significant role in the achievement of the company’s objectives in the long run.
Finally, with a press release on June 23, 2020, Campari’s Chief Executive Officer announced the fulfilment of the conditions required for the operation that is now expected to be completed in July 2020.[40]
The Italian legislator, on the other hand, probably postponed the discussion concerning multiple voting shares until the pandemic is over. Such important corporate law reforms require adequate consultation and academic debate; emergency decrees are not the optimal instrument for innovations of this kind.[41]
[2] D.L. 19 maggio 2020, n.34, in G.U. May 19, 2020, n.128 (It.). The full text (in Italian) can be consulted at: https://www.gazzettaufficiale.it/eli/id/2020/05/19/20G00052/sg.
[3] Vincenzo Cariello, Un formidabile strumento di dominio economico: Contrapposizioni teoriche, “battaglie” finanziarie e tensioni ideologiche sul voto potenziato tra le due Guerre Mondiali, 32 Quaderni romani di diritto commerciale, Giuffrè 41–70 (2015) (It.).
[4] Id.
[5] Id.
[6] Marco Ventoruzzo, The Disappearing Taboo of Multiple Voting Shares: Regulatory Responses to the Migration of Chrysler-Fiat 1 (Bocconi Univ. Legal Studies, Research Paper No. 2574236, 2015; Penn State Law, Research Paper No. 3, 2015; ECGI Law, Working Paper No. 288, 2015), https://ssrn.com/abstract=2574236.
[7] Id. at 13.
[8] Id. at 7.
[9] Id. at 7.
[10] Id. at 9.
[11] For the full text of the draft, see D.L. Rilancio 13 maggio 2020, n.34, in Corriere della Sera, https://www.corriere.it/economia/aziende/20_maggio_13/dl-rilancio-l-ultima-bozza-provvedimento-che-approda-consiglio-ministri-testo-completo-1d700a0a-951e-11ea-b53d-888d5c72a186.shtml (last visited July 15, 2020) (It.).
[12] Id. at 79.
[13] Id.
[14] Id.
[15] While the Italian legislature states that there are no proven “adverse effects,” much literature has been written on the subject. See id. at 80; cf. Lucian Bebchuk & Kobi Kastiel, The Perils of Small-Minority Controllers, 107 Geo. L.J. 1453, 1456 (2019).
[16] See generally Daniel Greenwood, Democracy and Delaware: The Mysterious Race to the Top/Bottom, 23 Yale L. & Pol’y Rev. 381, 384-399 (2005), https://ssrn.com/abstract=662261; Klaus Hopt, Comparative Company Law 2018 30 (ECGI Law, Working Paper No. 460, 2019), https://ssrn.com/abstract=3421389.
[17] Contra. Lucian Bebchuk & Assaf Hamdani, Vigorous Race or Leisurely Walk: Reconsidering the Competition Over Corporate Charters, 112 Yale L.J. 553, 553–615 (2002), https://ssrn.com/abstract=325520; Marcel Kahan & Ehud Kamar, The Myth of State Competition in Corporate Law, 55 Stan. L. Rev. 679, 679–749 (2002), https://ssrn.com/abstract=334120.
[18] Hopt, supra note 16, at 30.
[19] Federico Mucciarelli, Freedom of Reincorporation and the Scope of Corporate Law in the U.S. and the E.U., 8 (NYU Law and Economics Research Paper No. 11-07, 2011), https://ssrn.com/abstract=1783607 (drawing a comparison with the EU system of corporate mobility).
[20] See Roberta Romano, The Genius of American Corporate Law, 14–31 (1993).
[21] Delaware is home to 67.8 percent of the Fortune 500 companies and hosted 89 percent of IPOs in the United States in 2019. See Delaware Division of Corporations, Annual Report Statistics, https://corp.delaware.gov/stats/ (last visited June 14, 2020).
[22] Mark Roe, Delaware’s Competition, 117 Harv. L. Rev. 588, 600–633 (2003), https://ssrn.com/abstract=354783.
[23] Case C-212/97, Centros Ltd. v. Erhvervs- og Selskabsstyrelsen, 1999 E.C.R. I-01459.
[24] Case C-167/01, Kamer van Koophandel en Fabrieken voor Amsterdam v. Inspire Art Ltd., 2003 E.C.R. I-10155.
[25] Christian Kirchner, et al., Regulatory Competition in EU Corporate Law After Inspire Art: Unbundling Delaware’s Product for Europe, 12 (U. Ill. L. & Econ., Research Paper No. LE04-001, 2004), https://ssrn.com/abstract=617681.
[26] See, e.g., John Armour, Who Should Make Corporate Law? EC Legislation Versus Regulatory Competition, 2–3 (ECGI Law, Working Paper No. 54, 2005), https://ssrn.com/abstract=860444 (making the case for future development of European corporate law through regulatory competition rather than common legislation).
[27] Compare Romano, supra note 20 with Uwe Blaurock, Steps Toward a Uniform Corporate Law in the European Union, Cornell Int’l L.J. 378, 393 (1998).
[28] See, e.g., Klaus Hopt & Patrick Leyens, Board Models in Europe: Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France, and Italy, 3–18 (ECGI Law, Working Paper No. 18, 2004), https://ssrn.com/abstract=487944.
[29] See generally Luca Enriques & Matteo Gatti, The Uneasy Case for Top-down Corporate Law Harmonization in the European Union, 27 U. Pa. J. Int’l Econ. L. 939 (2006).
[30] See, e.g., Directive 2017/828 of the European Parliament and of the Council of 17 May 2017 Amending Directive 2007/36/EC as Regards the Encouragement of Long-Term Shareholder Engagement, 2017 O.J. (L 132) 1 (“Shareholder Rights II Directive”) (EU).
[31] Council Regulation 2157/2001, 2001 O.J. (L 294) 1 (EC). On the impact of Societas Europaea (“SE”) the SE on corporate mobility, see William Bratton, et al., How Does Corporate Mobility Affect Lawmaking? A Comparative Analysis 4, 13–15 (ECGI Law, Working Paper No. 91, 2008), https://ssrn.com/abstract=1086667.
[32] Dutch corporate law offers flexible corporate governance for listed holding companies and a highly protective defense system against takeovers. See generally Jaron van Bekkum, et al., Corporate Governance in the Netherlands, Int’l Congress on Comp. L., Wash. 1 (2010), https://ssrn.com/abstract=1507633; Tjalling van der Goot & Peter Roosenboom, Takeover Defenses and IPO Firm Value in the Netherlands (ERIM Report Series, Reference No. ERS-2003-049-ORG, 2006), https://ssrn.com/abstract=423660.
[33] Press Release, Campari Grp., Campari Group Announces the Transfer of Registered Office of Davide Campari-Milano S.P.A to the Netherlands (Feb. 18, 2020), https://www.camparigroup.com/en/campari-group-announces-transfer-registered-office-davide-campari-milano-spa-netherlands.
[34] Id.
[35] Id.
[36] E. Miele, Campari Brinda in Borsa, ma novità su voto plurimo mette a rischio sede in Olanda, Il Sole 24 Ore (It.), May 15, 2020, https://www.ilsole24ore.com/art/campari-brinda-borsa-ma-novita-voto-plurimo-mette-rischio-sede-olanda-AD7IpmQ.
[37] Press Release, Campari Grp., Clarifications on Certain Rumour Concerning Campari’s Redomiciliation to the Netherlands (May 29, 2020), https://www.camparigroup.com/en/clarifications-certain-rumour-concerning-camparis-redomiciliation-netherlands.
[38] Id. (“The Transaction is not aborted, its completion depending on a number of factors such as (i) the outcome of the liquidation procedure of the withdrawn shares . . . (ii) the potential decision of the shareholders to cancel it based on the (currently unknown) outcome of such liquidation procedure and on the (currently unknown) costs associated thereto, (iii) the outcome of the potential subsequent placement of the unabsorbed withdrawn shares, (iv) the differential between the withdrawal price and the market price of Campari’s shares during the relevant periods.”).
[39] Id.
[40] Press Release, Campari Grp., Transfer of Legal Office: Results of the Exercise of the Option and Pre-emption Rights’ Offer (June 23, 2020), https://www.camparigroup.com/en/transfer-legal-office-results-exercise-option-and-pre-emption-rights-offer.
[41] Cariello, supra note 3, at 1 (“It is increasingly noted that the domestic legislator . . . introduces, suddenly and ‘cold’ . . . institutes of certain and significant systematic impact, suitable for deeply touching and cracking, if not in some cases subverting what were once called the ordering principles of the subjects. And it is noteworthy that this is done, frequently and mainly, with specific interventions outside organic reforms, in the absence of effective and recognizable needs of general urgency and/or so-called public interest or public utility and/or legislative harmonization, in the absence of preliminary weighted assessments in the perspective of the internal and comparative economy . . . .”).
