Vivendi’s move has addressed shareholders’ corporate governance concerns on two fronts. First, it has dismantled its anti-takeover poison pill defenses, including two tiered voting rights which allow long time holders of Vivendi shares to exercise double voting rights. Second, it has reduced the amount of time that shares need to be “blocked” by shareholders in order to cast votes. In reducing the blocking time from five days to one day, Vivendi has taken action that may trigger a sea change at French public corporations. The amendments are significant concessions by Vivendi and go far to addressing concerns of shareholders who viewed Vivendi’s corporate structure as cumbersome and protectionist.

To the extent that custodians and other agencies remain unwilling to vote French proxies on behalf of their clients due to certain (old and outdated) French legislation, there remains a block to voting of French proxies by foreigners. However, we expect this impediment to be short-lived. Indeed, the reduction of share blocking by Vivendi to only one day means that the freeze on trading that share blocking entails will be reduced substantially and resets the bar for other French corporations who have longer blocking periods. For an institutional investor, a restraint on trading caused by blocking that lasts one day instead of five will go far toward improving the quorum at Vivendi meetings.

Quorums have been a problem at French shareholder meetings, which is probably why Vivendi did not eliminate

voting restrictions placed on major shareholders along with the double voting rights for long-term shareholders. The voting restriction limits by formula the voting power of shareholders holding over two percent of the outstanding voting rights, and since the Bronfman family would hold about 7% after the amalgamation, Vivendi may have been nervous that the Bronfman family could exercise too much voting control in the absence of the special limits because of low voter turnout.

Obviously it would have been preferable, from a corporate governance perspective, to see Vivendi adopt a clean one-share-one-vote structure by eliminating all voting restrictions. It may be that the company intends to do that if Vivendi shareholders become more active in corporate governance themselves, and vote their proxies. Since the company has reduced the share blocking impediment to proxy voting, in fact, the ball may be in the shareholders’ court.

Implications for corporate governance in France are very positive if more companies follow Vivendi’s lead on even just the share blocking issue. The necessity to “freeze” their holdings for a full five days has forced money managers to compromise one fundamental right of ownership, that is, the ability to sell their shares, in order to exercise another fundamental ownership right, that is, to vote their proxies. With increased shareholder pressure in the wake of Vivendi’s amendments, other French corporations will find they have little to gain and lots to lose by resisting this change.