REFORME DES RETRAITES ET PRIVATISATION L

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REFORME DES RETRAITES ET PRIVATISATIONLexpérien
ce dune Proxy Firm

• OCDE
• Paris Sept 22. 1999

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PROXINVEST, the first
continental proxy firm
focuses on

• independence
• expertise in depth legal and financial
  research,
• technology First Web Full Proxy Station (88
  resolutions, 60 criteria)

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A very favorable regulatory framework
for a self-correcting democratic proxy practice
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Full shareholder legal power Lassemblée
générale est souveraine
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Full shareholder legal power

• AGM approval of accounts, dividends, related
  party transactions, mergers ...
• No change in the by-laws or in the capital
  structure without a 2/3 approval of the
  extraordinary meeting
• Disclosure BALO meeting agendas, COB tested
  Reference Document
• No underwater rights issuances without PR

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...offering rather time to management than
obstacles to the shareholders

• 6 years maximum terms for Directors and Auditors
• Possible Poison pills subject to the approval of
  the Shareholders
• Possible Double Voting Right provision
• Possible vote limitations / unlimited
  partnerships
• ...but no more than a third of Executive
  Directors at the Board

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The 1995 Viénot Code

• Insist on a difference between the companys
  interest and the shareholers interests
• Defense of the PDG structure
• Defines independence of directors
• Ban cross-shareholding and cross-directorship
• Limits external directorships to five for ED
• Three commitees (independent for audit and
  remunerations)

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A new set of Guidelines from the French Asset
Management Association following the 1995 Viénot
Code the AFG-ASFFI Code

• June 30. 1998

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the AFG-ASFFI Code requests more (I)

• board to serve the interest of all shareholders
• diligent proxy voting
• ban on underwater options
• compensations and fees adjusted to performance

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the AFG-ASFFI Code requests more (II)

• limit number of directors to 16
• independent directors clearly defined
• three independent committees
• more dedicated directors limits
  multi-directorships to 3 mandates for
  non-independent directors

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The 1999 Viénot II Code

• Shortening of the Directors mandates to 4 years
• Yearly monitoring of the Boards work
• The Board and the committees should be made of a
  third of independent directors

July .1999
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Proxy voting in France

• Block your shares days before the meeting
• The 5 days legal blockage allows to sell
• Put a general request to your custodian
• Obtain documents or use local service
• Execute and Send by yourself the proxy cards or
  your delegation of vote to reach the company or
  its bank 3 days before latest

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Modernizing French Practice, increasing taste
for equity...

• Withdrawal of the State Eramet, CNP, Crédit
  Lyonnais, GAN...
• Reduction of Cross-Shareholdings
• Still Endogenous and Cross Directorships
• Still many Double Voting Right provisions 56
  of the 250 French listed companies, 67 of CAC 40
• Still almighty PDGs...
• But only 15 big listed companies are really
  locked (SCA, 10 years double voting rights, vote
  limitations, golden shares)

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The BNP Soc Gen Paribas open battle could not
have occurred in Germany Netherlands or Sweden or
Swizerland
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Looking at the French Privatized Companies
Corporate Governance not yet superior

• 16 out of the CAC 40 Companies are privatized

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Comparing their Corporate Governance Features (I)

• Number of Directors 16 comparing to 14.5 (CAC
  40)
• Number of non independent directors 12.2 (76)
  comparing to 10.7 (74)
• Number of women 0.5833 comparing to 0.5853
• Number of shareholders 552000 comparing to 337
  000

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Comparing their Corporate Governance Features
(II)

• Double voting right 8/24 (33) comparing to 29/
  40 (72)
• Vote limitations (Ceiling or SCA) 5/24 (21)
  comparing to 10/40 (25)

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Comparing their Corporate Governance Features
(III)

• Split Chairman CEO 3/24 (12) instead of 11/40
  (27)
• Specialized committees 1.9583 v.1.9512
• Audit committees 22/24 (91.7) comparing to
  34/40 (85)
• Remuneration Commitees 21/24 (87.4) comparing
  to 35/40 (87.5)
• Nomination Committee 6/24 (25) comparing to
  8/40 (20)

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Privatized companies are targets

• 8 out of 24 have been acquired or merged in the
  last years UAP, AGF, Suez, Eramet, Paribas,
  Pechiney, Rhône Poulenc, Elf...

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Why privatized companies are targets ?

• Some lack of clear entrepreneurial objectives
  Suez, AGF, Saint Gobain, CNP...
• Lack of private markets culture at the top Only
  2 CEO out of the 24 companies have never been
  associated with the public service or
  governement, 20 have made most of their carreer
  in poublic service
• General lack of equity culture subsidized
  shareholding (rebates, low IPO)

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Why privatized companies are targets ?

• LOW INTERNATIONAL COMPARATIVE VALUATION
• WEAK FRENCH EQUITY MARKET FOR LACK OF EQUITY
  INVESTED SAVINGS

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French shareholders become vote selective
examples

• keep active the capital increase authorizations
  in time of public offer 97 before 1996, 96
  in 1996, 94 in 1997, 91 in 1998
• global capital increase authorizations without
  preemptive right 99 before 1996, 98 in
  1996, 97 in 1997, 96 in 1998
• approve dividend reinvestment plan 99.7 before
  1997, 99.6 in 1997, 99.1 in 1998

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but still approve shareholder unfriendly
proposals examples

• election or reappointment of controversial
  directors (99.50 in 1998...99.? in 1999)
• mergers and financial operations
  Kingfisher-Castorama Dubois merger, or Lagardère
  1999 doubling of the unlimited partner fee 97
• vote limitations and poison pills Rhône Poulenc
  1999 failed on its poison pill but passed its
  vote limitation

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A need for ACTIVE COMMITTED SHAREHOLDING

• PENSION FUNDS ARE NEEDED TO FUND FRENCH PENSIONS
• THE ONLY OPPORTUNITY FOR PARTICIPATION IS TO VOTE
  PROXIES
• NEW PENSION FUNDS AND EMPLOYEE OWNERSHIP SYSTEMS
  SHOULD LEARN TO VOTE

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www. proxinvest .fr the French Link
PROXINVEST