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Longread: Tenure voting under Dutch law, a case study of the loyalty voting schemes adopted by CNH Industrial N.V. and Cnova N.V.

1. Introduction

When the Dutch ruled the modern world and business was booming like never before, they founded the first company with free transferable stock: the Dutch East India Company (VOC). After the year 1602 an increasing amount of companies followed the example of the VOC, resulting in a new standard of transferable stock. We have come a long way since, resulting in different structures to award specific shareholders. In this article we will focus on the so called ‘tenure voting schemes’, in particular those that have recently been adopted by CNH Industrial and Cnova.

2. Tenure voting under Dutch law

While dual-class shares and the one-share-one-vote principle both have their flaws, tenure voting might be seen as the structure that fills this void. Tenure voting is a stock structure that intends to reward long term shareholders by assigning more voting rights. Dutch business law does not yet provide any regulation for a structure other than the classic one-share-one-vote principle, creating a void for creative lawyers to fill.

The DSM company was one of first to experiment with a loyalty structure for shareholders.

In the DSM-case, the company tried to reward long-term shareholders with a higher dividend. The Dutch Enterprise Chamber of the Amsterdam Court of Appeal (‘Ondernemingskamer’) held that this stock voting system was an infringement of the equality of shareholders principle, set out in art. 2:92 of the Dutch Civil Code. The court denied DSM the opportunity to adopt this structure. However, the Dutch Supreme Court (‘Hoge Raad’) determined a different outcome of this case and declared that loyalty dividend is allowed, but only under specific conditions.

The Supreme Court stated that it is not against the law to deviate from shareholder equality if this deviation is included in the Articles of Association of the company, serves a justified objective and is a proportionate means of achieving this objective. By analogy we can derive this to also be the case for a loyalty voting scheme.

3. Tenure voting in the merger of CNH Global and Fiat Industrial

In September 2013 CNH Global, best known for their agricultural line ‘New Holland’, merged with Fiat Industrial. The new holding resulting from the cross-border merger was registered as CNH Industrial (CNH Ind.) with its registered office established in the Netherlands. It appears that the shift of the registered office in this case was motivated by the flexibility of Dutch company law in respect of tenure voting. While Dutch business law does not provide any specific regulation on the subject of tenure voting, it seems to offer more freedom compared to the Italian regime applicable at that time.

About 30% of Fiat Industrial’s stock is registered in the name of Exor, which is controlled by the Agnelli family, resulting in Exor being the primary shareholder. CNH is listed at the New York Stock Exchange and the Borsa Italiana in Milan. The tenure voting scheme was adopted in order to mitigate the effect of dilution of Exor’s interest.

3.1 Acquiring loyalty shares

CNH Ind. allows shareholders to obtain loyalty shares in two situations: on the occasion of the merger and after the merger. To benefit from the first option the shareholders had to attend (or be represented at) the general assembly of the merging companies, in which a vote was cast regarding the merger. This option also required shareholders to retain their shares until the merger was finalized. After the general assembly, shareholders had to fill out a form to allow their shares to be registered in a loyalty register, which resulted in them becoming qualifying shareholders. When the merger was eventually finalized, the loyalty shares were distributed to those who applied for the register.

When a shareholder wants to obtain loyalty shares post-merger, his shares have to be included in the same loyalty register as mentioned above. A shareholder has to apply for said register, upon which the relevant common shares will be taken out of the regular trading system. In contrast to the first option, the shareholder will only receive his loyalty shares after the common shares have been registered for three years, uninterrupted. Noteworthy is the fact that shares do not have to be in possession of the same shareholder for the full term: they can be obtained by so called ‘loyalty transferees’.

3.2 Special Voting Shares

The second clause of the Terms and Conditions states that the purpose of special voting shares is to reward long-term ownership of Common Shares and to promote stability of the Company’s shareholder base. How is CNH trying to achieve this? First of all, the loyalty shares themselves have a nominal value of € 0,01, equal to the value of ‘normal’ shares. Secondly, the loyalty shares are limited to receiving a maximum 1% of their nominal value when profit is divided amongst all shares. This negligible percentage is necessary, since Dutch law does not allow an N.V. to issue shares that do not carry dividend rights. The dividend for these shares is not to be distributed to the shareholders, but will be deposited in a special reserve for loyalty shares. When new loyalty shares are created or are returned, the nominal value for these shares will be paid out of this special reserve, creating a self-perpetuating system.

It is evident that these shares are created only to grant an extra vote for specific shareholders. Although CNH Industrial could have chosen a different approach to accomplish this, i.e. shares with a double vote, it chose not to. Under Dutch law, the normal shares could be converted into a share with two votes. The path chosen by CNH industrial on the other hand allows the existing shares to remain untouched. The fact that the shares are not converted into special shares allows common shares to remain listed at a stock exchange, which is a considerable benefit of creating new loyalty shares. Because of this, the common shares can be sold or bought under specific circumstances.

3.3 The real winner of CNH’s tenure voting scheme

As mentioned before, Exor was likely to see its interest diluted as a result of the merger. By creating a tenure voting scheme, Exor was able to double its voting rights in CNH. This way Exor was able to claim about 43% of the total voting rights in CNH, compared to the 30% it possessed in Fiat.

A considerable problem seemed to arise due to the fact that Dutch company law obliges parties that have obtained 30% of the voting rights in a company listed at a regulated market, to make a public offer for the remaining shares of the company (mandatory bid rule). Exor therefore seemed to find itself in a bit of a pickle regarding the percentage of voting rights the company held.

Fortunately, creative lawyers found a way to tackle this problem as well: a special benefit of the loyalty scheme adopted by CNH is the fact that loyalty shares can be received on occasion of the merger. These loyalty shares will be distributed before all common shares are listed at the stock exchange of Milan (which is a regulated market in the sense of the mandatory bid rule). This way Exor will not be forced to make a public offer since the company is not yet registered, but can still retain a significant part of the voting rights CNH has to offer. This results in Exor being the real winner of this merger.

4. The voting scheme adopted by Cnova N.V.

Cnova N.V. is an e-commerce company, founded in june of 2014. Cnova is part of French global retail company Groupe Casino, and was created through a joint venture between Casino, GPA, Via Varejo and Exito.

4.1. The general structure in the Articles of Association

Looking at the Articles of Association as well as the Prospectus of Cnova, it becomes clear that its loyalty voting scheme differs substantially from the scheme adopted by CNH Global and Fiat Industrial in the context of the previously discussed merger.

Article 4.2 of the Articles of Association of Cnova establishes which types of shares the company’s authorised share capital is divided into. The article establishes that there are ordinary shares (A-shares) and special voting shares (B-shares). In respect of the profits realized by the company, article 27.2 states that one percent of the nominal value of the special voting shares shall first be added to a special dividend reserve, before the remainder of the profits is distributed to the holders of ordinary shares. For good measure the last paragraph of article 27.2 explicitly rules out any entitlement to profits for holders of special shares.

Article 25.2 establishes a special capital reserve for the exclusive purpose of facilitating the issuance of special voting shares. Similar to the special dividend reserve, no distributions shall be made from the special capital reserve. The Articles of Association remain silent on how these special voting rights can be acquired. The answer to this question can be found in the Prospectus published by Cnova N.V.

4.2 Prospectus

The Prospectus states that the principal owners are known as ‘Founding Shareholders’. These Founding shareholders receive one special voting depository receipt, each stapled to every ordinary share received in, or prior to, the Reorganization. This means that effectively, ‘Founding Shareholders’ will have one extra vote per ordinary share. In the event of a capital increase of the company in which one or more of the Founding Shareholders participate, they receive one additional special voting depository receipt per share that they acquire in relation to the capital increase.

Investing in Cnova N.V. holds the risk that when the ordinary shareholder’s interests are not aligned with those of the Founding Shareholders, those of the latter always prevail. The chairman of the company, Jean-Charles Naouri, beneficially owns 100% of the special voting shares and 96,9% of the total voting power in the company. In essence, he has managed to seize complete control of the AGM of Cnova N.V. by utilizing the flexibility of Dutch company Law.

5. CNH & Cnova versus Dutch Law

5.1 Similarities and Differences

When comparing the loyalty voting schemes adopted by CNH and Cnova, one can conclude they are both balanced on the thin line between tenure voting and dual-class stock. In both cases the nominal value of the shares is equal to that of common shares. Also, in both schemes dividend is reduced to a minimum and will be added to a special reserve, denying shareholders to obtain a meaningful financial profit from their shares. At CNH the nominal value of new loyalty shares will be paid out of this dividend reserve, Cnova chose to create two different reserves for this structure.

Notable is the fact that both structures tend to benefit a specific group of shareholders more than other shareholders. At CNH the Exor company benefitted most from the special structure in which loyalty shares can be obtained at the event of the merger. Cnova allows only founding shareholders to obtain these loyalty shares. This seems possible under Dutch law, in contrast to what is permitted under French and Italian regulations.

5.2 Dutch Law

As mentioned before, the Dutch Supreme Court has held that three conditions must be met for a loyalty structure to be in line with the principle of equality of shareholders clause enshrined in Dutch company law. First of all, both regimes were adopted in the Articles of Association, meaning the first condition, inclusion of the deviation in the Articles of Association, is met. These articles stated that the purpose of those ‘loyalty shares’ was to benefit long term shareholders and to improve stability of investors. Comparing this to the DSM case means a check on the second condition too, that the deviation should serve a justified objective.

That leaves us with the proportionality condition. It is highly questionable whether these structures provide the best way to reward long term shareholders, since the granting of loyalty shares to common shareholders who have held onto their shares for a specific period of time seems not to be the real reason for introducing the loyalty shares in these two cases. In the CNH case the main beneficiary of the adopted structure was Exor, the controlling shareholder, whereas Cnova excludes common shareholders altogether from its loyalty scheme. For that reason, the legality of the latter loyalty voting scheme seems to be questionable under Dutch Law.

6. Conclusion

Both firms seem to have failed in adopting an unadulterated loyalty voting scheme. CNH rewards shareholders, and loyalty transferees, who have retained their shares for an uninterrupted period of three years. Extraordinary is the fact that it also provided an option for shareholders to obtain these loyalty shares on occasion of the merger, allowing them to receive a benefit for the first three years.

Cnova uses a scheme that may be compared to a dual-class system with A and B-shares. Although there is no difference in the nominal value of these shares, the founding shareholders are exclusively allowed to obtain B-shares. This creates an even more questionable variation of a tenure voting scheme than the version adopted by CNH.

Dutch Business Law does not yet provide any specific regulation in respect of tenure voting. However, tenure voting schemes must comply with several conditions laid out by the Supreme Court in case law on the principle of equality of shareholders, which is enshrined in art. 2:92 of the Dutch Civil Code. CNH Industrial and Cnova try to skirt the edges of these principles and conditions. Although Dutch Law does not prohibit a specific structure expressly, it is submitted that the Dutch Supreme Court can tighten the belt on tenure voting schemes by striking downs schemes that do not pass the proportionality test.


A. Donders

T. Lam

L. van der Boom

S. van Woerkom

A. Zijlstra


  1.  Solomon, ‘Tenure Voting Could Shift the Balance of Corporate Power’, New York Times, 1st of March 2016.
  2.  See also: Marquenie, ‘Loyaliteitsdividend DSM’, Vennootschap & Onderneming 2008/1.
  3.  See also: Bootsma, ‘Loyaliteitsaandelen naar Italiaans recht en bij Fiat Chrysler Automobiles N.V.’, Ondernemingsrecht 2015/5.
  4.  See also: Van Olffen, ‘Nederlandse loyaliteitsaandelen met een Frans sausje’, Ondernemingsrecht 2013/67.
  5.  See clauses 4 and 6 of the Terms and Conditions for Special Voting Shares from CNH Industrial N.V.
  6.  Article 2:105 sub 9 of the Dutch Civil Code states that none of the shareholders can be excluded from sharing in dividend.
  7.  Article 2:105 sub 1 of the Dutch Civil Code allows the articles of association to deviate from the default rule that shareholders should benefit from the dividend.
  8.  Art. 5:70 Act on Financial Supervision. This article provides: “Any party that, either on its own or together with persons with which it acts in joint consultation, acquires, either directly or indirectly, predominant control over a public limited company having its registered office in the Netherlands whose shares or depositary receipts for shares, issued with the public limited company’s concurrence, are admitted to trading on a regulated market, shall make a public takeover bid for all the shares and all the depositary receipts for shares issued with the public limited company’s concurrence, and shall announce this without delay after the end of the period referred to in Section 5:72(1).” In Art. 1:1 of the Act on Financial Supervision ‘predominant control’ is defined as “the right to exercise 30 percent or more of the voting rights in a general meeting of shareholders of a public limited company”.
  9.  Prospectus Cnova N.V., p. 38.
  10.  Prospectus Cnova N.V., p. 38. Also see ‘Position of minority shareholders in companies with a controlling shareholder’ by Eumedion, comparing different Dutch companies where the voting rights of beneficial owners are completely out of proportion to their capital contribution.
  11.  Bootsma, ‘Loyaliteitsaandelen naar Italiaans recht en bij Fiat Chrysler Automobiles N.V.’, Ondernemingsrecht 2015/5, 1.2.

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