Loyalty Shares: an International Perspective. A Suitable Instrument to Fight Short-Termism?

Abstract

556 The Act 5/2021, April the 12th, that modifies the Spanish Companies Act, approved by Royal Legislative Decree 1/2010 of 2nd July (“LSC”) goes beyond the Transposition of Directive 2017/828 and introduces ex novo “loyalty shares” within the Spanish Companies Act (Official Journal, April 13th). This novelty is an evolution in the corporate legislation, the purposes of which is to encourage long-term ownership. Under the self-explanatory heading “Additional loyalty votes”, the law implementing Directive 2017/828/EC introduces a set of rules (Arts. 527 ter to 527 undecies) fundamentally equipollent to the ones already in place in both France and Italy and, more recently, in Belgium. According to the preamble to the Bill, long-term ownership is a new concept promoted by policy makers (including the European Commission), some institutional investors, stakeholders and even issuers who have been facing for a while an increasing pressure to maximize short term results. Against this background, the question that immediately arises (duly discussed in this paper) is whether loyalty shares really promote long-term ownership. More intriguingly, the question is whether short termism is really a problem for listed corporations. The short term vs. long term dichotomy has led us to analyse the rise of the prominent role played by “activist” investors. If short termism exists, are loyalty shares the proper mechanism whereby a real change can really materialise? Moreover, are these new instruments the right solution to overcome the entrenched shareholder apathy and, therefore, the key to achieve their engagement?557