Shareholders’ Rights and Shareholder Activism in France – an Overview

While 2022 proved to be a record year for shareholder activism in France, activity decreased significantly in 2023. Based on a global survey by the financial services company, Lazard, France only witnessed 7% of activist campaigns cast in Europe during this year – compared to 18% in 2022.

Despite this decreasing share, the public debate around shareholder activism that started in 2019 is still vivid, notably with a new guide on shareholder dialogue published by Paris Europlace in June 2024 as well as a new law enacted on 13 June 2024, providing more clarity on minority shareholders’ rights. Simultaneously, ESG-related shareholder activism has become a central topic, triggering various calls for legislative amendments.

Attempts to regulate shareholder activism in France

During the first trimester of 2019, several working groups focused on potential improvements to the regulatory framework on shareholder activism. In collaboration with three ad hoc committees led by think tanks and professional organisations – Club des juristes, Association française des entreprises privées (AFEP) and Paris Europlace – the finance committee of the French parliament set up a dedicated committee on shareholder activism, which issued a report on 2 October 2019.

On 20 April 2020, the French stock market regulator (Autorité des Marchés Financiers – AMF) contributed to this debate by issuing its own report. It started by underlining the benefits of activist intervention, stating that “[A]ctivist investors may contribute to proper price formation in markets, and to an improvement in the corporate governance and management of the issuers”, and that “on the academic level, several studies have highlighted the positive effects of activist behaviour, in both the United States and Europe”.

However, in contrast to the buzz that had surrounded these debates, no significant reform was either suggested or implemented. Taking a pragmatic approach, the AMF solely recommended targeted amendments to regulate the excesses of some activist behaviour. After consulting its advisory commissions, it eventually approved a few changes to its official non-binding doctrine on 17 March 2021, including some of the improvements examined in its previous communication.

In December 2022, the Club des juristes published a “follow-up report”, aimed at re-examining the recommendations made three years before in its 2019 report and amending its position in light of new practices. This report notably calls for new amendments to the AMF guidelines.

More recently, in June 2024, Paris Europlace, an ad hoc professional association gathering all stakeholders of the Paris financial market, issued its own guide on shareholder dialogue. This non-binding guide aims at presenting best practices in terms of “private” shareholder dialogue.

Transparency on stake-building

One of the most significant amendments discussed by the various working groups concerned lowering the first legal threshold for the disclosure of stake-holdings in the market. The threshold is currently set at 5% of the share capital or voting rights, which is the highest threshold allowed by the Transparency Directive (Directive 2004/109/EC).

Even though the president of the AMF had suggested lowering the threshold to 3% of the share capital or voting rights (in line with the legislation of the most comparable EU member states), the AMF did not incorporate this recommendation in its report of 20 April 2020, recalling that “activists readily disclose their acquisition of a stake in an issuer, whatever the level of their holding”. It also did not update its official doctrine on the matter, leaving it up to the French legislature to take over.

From the issuer’s perspective, such an amendment would not have triggered any significant disruption in terms of information, since the by-laws of most major French-listed companies already provide for lower disclosure thresholds, starting at 0.5% of the share capital or voting rights.

However, from a general perspective, the AMF’s position seems legitimate, since disclosing the presence of an activist investor too early can put pressure on both the issuer and the investor to go public, or undermine informal shareholder dialogue, with a potential negative impact on relations between the parties and the issuer’s share price.

The recent report of the Club des juristes highlights precisely that risk, indicating that lowering mandatory legal thresholds “would risk discouraging some investors, insofar as this would prematurely move the dialogue between issuers and activists into the public sphere and may prevent measured dialogue”.

In that regard, the Club des juristes expressed some reservations on the AMF’s proposal to enable issuers to publicly disclose any statutory holding notifications received from shareholders on their websites. The report states that such proposal would risk compromising shareholder dialogue, which requires some degree of confidentiality.

An exception could be made in takeover situations. In such context, the AMF considered imposing increased reporting obligations on activist investors, claiming that activists usually “played a significant role in the conduct of public offers”.

The AMF ultimately refrained from making any amendments on these points, but its official doctrine nonetheless echoes its will to improve transparency, as it now reminds investors in general terms to be “particularly vigilant” when carrying out their declarations in takeover situations. Investors should therefore expect the AMF to be more inclined in the future to sanction late or wrong filings, especially when made by activist investors.

Finally, the Club des juristes stated that it would support a discussion on the sanction applicable in case of non-compliance with the obligation to file a statutory threshold-crossing declaration. The loss of voting rights applicable in such case is deemed “not an appropriate sanction”, since activist investors do not need their voting rights to conduct their campaign.

Shareholder dialogue

In order to improve shareholder dialogue, the AMF contemplated several amendments in its report of 20 April 2020, many of which resulted in an update of its official doctrine in 2021.

While the AMF initially promoted the setting up of dedicated shareholder dialogue platforms, this recommendation was not included in its official doctrine. However, it did re-emphasise the importance of consistent investor dialogue throughout the year, and not only prior to annual general meetings. In that regard, it endorsed the recommendation provided in the non-binding corporate governance code, AFEP-MEDEF, that issuers should appoint a member of their board of directors to be specifically in charge of shareholder dialogue, with a duty to report to the board. It also incorporated in its doctrine a new request for activist shareholders to first attempt a dialogue with the issuer before launching a campaign.

On this point, Paris Europlace recently highlighted a number of best practices in order to promote regular shareholder dialogue. These notably included the appointment of an independent administrator in charge of shareholder dialogue. More practical recommendations notably include the setting up of a dedicated email address, an annual letter to the shareholders, and greater transparency about shareholders’ meetings and related materials.

Secondly, the AMF has now clarified its current doctrine on “quiet periods” by clearly enabling issuers to reply to public statements made by activist shareholders during such periods and to provide the market with any necessary information. On that point, the recent report of the Club des juristes goes further by suggesting that investors should not release any statements of publications during quiet periods, should “exceptional circumstances” occur.

The AMF also completed its current policy on shareholder engagement in public campaigns. Such shareholders are now required to immediately disclose, to issuers and to the market, the material information and arguments sent to other shareholders (white papers, letters to shareholders, etc).

The Club des juristes again goes one step further by suggesting the introduction of a reasonable minimum period of time between the attempt at dialogue with the issuer and the launch of the public campaign. During that period, the investor would send its white paper to the issuer, on a confidential basis, thereby enabling the issuer to “report material errors, challenge interpretations or make comments”.

In its guide of shareholder dialogue, Paris Europlace goes in the same direction by recommending communication of any white paper to the issuer prior to the public launch of an activist campaign.

Finally, the AMF indicated in 2020 that it would seek clarification from the European Securities and Markets Authority (ESMA) and the European Commission regarding the applicability of the current regulation on investment recommendations (Commission Delegated Regulation (EU) 2016/958 of 9 March 2016) to public statements of activist investors. This is a welcome initiative that could clarify and secure the framework of activist campaigns, to the benefit of both issuers and shareholders. However, the AMF did not provide additional information on this topic at this stage.

Given all of these developments, the latest report from the Club des juristes supports the drawing up of a good practice guide to organise dialogue between shareholders and issuers. The drafting of such guide would involve the representatives of all stakeholders in the shareholder dialogue.

Short-selling and regulation of securities lending

As one of the most sensitive topics surrounding shareholder activism in France is short-selling, the 2019 working groups made several suggestions to amend the current legal framework, which mainly derived from Regulation (EU) No 236/2012. Notably, the French parliament’s dedicated committee had recommended the introduction of a presumption of abnormal market functioning when the short-selling of a financial instrument exceeds certain limits, prompting an AMF-led investigation.

The AMF did not take up these recommendations in its publication of 20 April 2020, nor in its updated official doctrine of 2021, considering that “[T]he existing framework already enables the regulator to respond in the event of exceptional circumstances and market dysfunctions. As a result, it does not seem advisable, as things stand, to recommend a radical change in the regulations applicable in this area”. The AMF merely indicated that it would support proposals made at the EU level to request short-selling investors to disclose their exposure to debt instruments (notably, bonds and credit-default swaps).

On that point, the follow-up report of the Club des juristes clearly supports an amendment of Regulation (EU) No 236/2012 to impose information on debt instruments in these mandatory declarations, which should also be supplemented with the declaration of intent if certain thresholds are crossed. The report also suggests that investors acting in concert should file joint declarations.

These recommendations may regain some public attention given the recent short-selling campaigns targeting major French issuers (notably Vusiongroup and Eurofins Scientific).

As for the regulation of securities lending, the AMF had announced in its 2020 publication that it would reiterate, by way of recommendation, what constitutes good practice for fund managers to repatriate loaned securities before any general meeting and effectively exercise their voting rights. This recommendation was issued in its 2021 communication.

Powers of the AMF

In 2020, the AMF suggested that several provisions of French legislation should be amended in order to strengthen its enforcement powers. Notably, it wishes to be able to impose fines following failures to comply with its administrative injunctions and to order any investor financially exposed to the securities of a listed issuer to make corrective or supplementary publications if errors or omissions have been identified in its public statement.

While no legislative action has been taken on these topics, the latest follow-up report of the Club des juristes insists that strengthening the injunction powers of the AMF is essential in order to prevent market manipulation and ensure market transparency.

The AMF also indicated that it would enter into discussions with ESMA to suggest the publication of a “white list” of activist behaviours that may not, in and of themselves, lead to those shareholders being regarded as persons acting in concert. Shareholders considered to be acting in concert are ultimately obliged to file a tender offer on the remaining shares that the group does not hold and/or are deprived of voting rights if legal or statutory thresholds have been crossed by the group without adequate notification.

This list would follow the precedent of the white list already published by ESMA with regard to the Takeover Directive (ESMA, 12 November 2013, Information on shareholder co-operation and acting in concert under the Takeover Bids Directive, ESMA/2013/1642). No updated information has been shared on this matter to date.

International investors would certainly welcome such a clarification, since it would reduce the uncertainty they face when taking part in an activist campaign, provided the white list of activist behaviours remains a sufficiently comprehensive, but not too restrictive, list of typical examples of non-concert situations, since the qualification of an action in concert relies on very specific circumstances. The recent follow-up report of the Club des juristes also supports this initiative.

The rise of ESG-related activism

In parallel with the aforementioned developments, the last three proxy seasons in France witnessed the rise of ESG-related activism, triggering a public debate around the validity of “Say on Climate” resolutions.

Instructive proxy seasons

Since 2020, French issuers have continuously faced shareholder initiatives aimed at adding draft environmental resolutions to the agenda of the annual general meeting. The past four AGMs of TotalEnergies SE clearly illustrate this trend.

In 2020, TotalEnergies SE was indeed the first company facing a shareholder resolution aimed at amending its by-laws in order to compel the board of directors to:

• disclose the company’s strategy to achieve the objectives of the Paris Agreement in its management report; and
• provide an action plan with specific intermediary steps.

TotalEnergies added the shareholder resolution to the agenda without board support, stating that the resolution would interfere with management’s attributed competence “by seeking to specify in the Articles of Association of the Company the content of the Management Report”, since “the proposed resolution aims to have the General Meeting decide directly on a specific and quantitative strategy, which is the sole prerogative of the Board”. The board also emphasised that it had duly exercised its prerogatives by implementing a climate strategy. Based on these explanations, this resolution received a rejection rating of 83.2% by shareholders.

In 2021, TotalEnergies itself submitted a resolution to its shareholders aimed at enabling the general meeting to issue an advisory vote on the sustainability policy of the company. This resolution received an approval rate of 91.88%.

In 2022 there were further interesting developments, with a group of 11 shareholders submitting a draft resolution similar to the one filed in 2020, aimed at requiring the company to frame its climate strategy “to align its activities with the objectives of the Paris Agreement”. The board of directors did not add this resolution to the agenda, indicating that it “encroaches on the public policy competence of the Board of Directors to define the Company’s strategy”. Some of the shareholders challenged TotalEnergies’ decision by urging the AMF to force the board of directors to add the draft climate resolution to the agenda. However, the AMF refused to intervene, and its president explained that the AMF had no power to issue such an injunction, which is the sole prerogative of the commercial court. In parallel, the company’s climate strategy submitted to the shareholders on an advisory basis received 89% approval in 2023.

At its 2023 shareholders’ meeting, TotalEnergies faced a new type of shareholders’ resolution. This time, a shareholders’ coalition filed a resolution aimed at issuing a mere advisory vote, urging the board of directors to align its existing 2030 reduction targets of greenhouse gas (GHG) emissions in the use of its energy products (Scope 3) with the goal of the Paris Agreement. While this resolution was submitted to shareholder vote, the board of directors advised to vote against it, indicating that the proposal to achieve the global GHG emission reduction targets was contrary to the company’s interests. The shareholders followed the board of directors’ advice and rejected this proposal, which nonetheless received significant support (30.44% supportive votes). The climate strategy submitted by the company on an advisory basis was, in turn, largely approved (88.76% supportive votes).

No ESG-related shareholder resolutions were submitted at the 2024 general meeting of TotalEnergies. It should however be highlighted that the advisory resolution submitted by the company itself regarding the opinion on the sustainability and climate progress report was approved at a rate of 79.72%.

Board priority?

These developments around ESG-related shareholder activism reawakened a long-standing debate in French corporate law on the prerogatives of the board of directors and the limits to shareholder initiatives.

This debate is based on Article L. 225-35 of the French Commercial Code, which states in its current version that “the board of directors determines the orientations of the company’s activity and ensures their implementation, in accordance with its corporate interest, taking into consideration the social and environmental challenges of its activity”. Issuers targeted by activist investors tend to waive this provision and argue that shareholders have absolutely no say on strategic decisions. This argument is usually backed by the Motte ruling dated 4 June 1946, pursuant to which the French Cour de cassation stated that “it is not within the responsibility of the general meeting to encroach on the board’s [sic] on matters related to management”.

As illustrated above, applying this analysis to ESG-related initiatives led by shareholders has major consequences, since these initiatives intrinsically relate to the strategic decisions of the company. In particular, draft shareholder resolutions requiring the board of directors to implement a specific environmental policy could be considered as falling within the exclusive powers of the board and therefore never be put to a shareholder vote.

Given these implications, a public debate is ongoing in France around the distribution of prerogatives between shareholders and directors.

In its 2020 report on corporate governance and executive compensation in listed companies, the AMF had already stated that “a clarification of the current state of the law, as the case may be through legislative amendment, could contribute to legal security in that field, for the issuers and shareholders, who should be able to express their view on ESG topics”. The AMF reiterated its position in 2021, acknowledging that the “Say on Climate” debate was a marketplace debate.

In March 2021, the Association Nationale des Sociétés par Actions (ANSA) took a strict position, stating that, “as the law stands, a request by shareholders to submit a draft resolution on the agenda, requiring the board of directors, the general management or the directorate to submit their sustainable development strategy to a vote of the general meeting, necessarily disregards the principle of hierarchy and the independence of the corporate bodies in that it encroaches on the powers and attributions legally devolved to them”.

Taking a more nuanced approach in November 2021, the French Minister of the Economy, Bruno Le Maire, entrusted Yves Perrier, President of Amundi, with the task of issuing a report providing Paris financial centre operators with guidelines on how to bring their actions into line with the targets set by the Paris Agreement. The report was issued in March 2022 under the title “Making the Paris Financial Centre a reference for climate transition: a framework for action”. This report notably states that “the requirements for filing climate resolutions at shareholder meetings must also be clarified with the public authorities and made more flexible”. In that regard, the report entails a clear recommendation to “formalise an automatic say on climate requirement, the monitoring and sharing of best practice and commitment coalitions”.

Finally, the French government sought an expert report from the High Legal Committee of the Paris Financial Centre (Haut Comité Juridique de la Place Financière de Paris – HCJP), clarifying the applicable legal framework for advisory shareholder votes on the environmental policies of listed companies.

The main conclusion of the HCJP, which issued its report in December 2022, is that French law is sufficiently clear regarding the validity of non-binding advisory shareholders’ votes on the climate strategy of issuers. The report therefore states that French law does not require any amendments from that point of view.

However, in the same vein as the ANSA, the HCJP considers that French law does not enable shareholders to impose a climate strategy on a board of directors. Notably, the report clearly highlights that shareholder resolutions aimed at forcing the board of directors to align the company’s strategy with the objectives of the Paris Agreement would be contrary to French corporate law. Following this report from the HCJP, several members of the French national assembly submitted a series of amendments in July 2023, aimed at introducing an obligation for listed companies to submit to their AGM an advisory resolution on climate and sustainability strategy every three years, and to submit an advisory resolution to approve the annual report on the implementation of climate and sustainability strategy every year.

While these amendments were finally rejected, a new law enacted on 13 June 2024 (Loi visant à accroître le financement des entreprises et l’attractivité de la France) clarified the procedural regime allowing shareholders to challenge a refusal from the board of directors to add a resolution to the agenda. Dedicated fast-track proceedings on the merits are now available in such cases, offering shareholders more legal certainty before the French courts in the event of a legal action.

Outlook

In line with most expert reports, a major legislative amendment will probably not materialise in the coming months.

Rather, it is probable that the current trend of minor and targeted amendments to the applicable French law will continue – together with soft-law recommendations.

This is in line with the AMF’s position pursuant to which: “[A]ny additional regulations specific to the Paris marketplace, notably regulations significantly increasing the obligations incumbent on all the market participants, including investors, might have undesirable effects, especially concerning its attractiveness.”

Any views expressed in this article are strictly those of the authors and should not be attributed in any way to White & Case LLP.