Game of Votes: Loyalty Shares and the New Battleground for Corporate Control

Abstract This paper explores the adoption and impact of loyalty shares ‒ also known as tenure voting or time-phased voting shares ‒ as a mechanism to counteract short-termism in European corporate governance, with a particular focus on the Italian market. By diverging from the traditional ‘one share, one vote’ principle, loyalty shares seek to promote long-term shareholder engagement while addressing the dual objectives of ownership stability and minority shareholder protection. The analysis is structured into two main parts. First, the study explores the regulatory framework governing loyalty shares, with an emphasis on the Italian regulatory landscape, including the Capital Law introduced in response to the corporate exodus to the Netherlands. A key interpretative issue examined is whether enhanced voting rights should be conferred automatically or necessitate explicit shareholder action within a defined timeframe. In particular, this is considered when the potential retroactive recognition of pre-listing shareholding periods for voting entitlements is requested. Second, an empirical analysis of Italian listed companies from 2013 to 2022 assesses the practical effects of loyalty shares. Contrary to concerns regarding managerial entrenchment and minority expropriation, the findings indicate that loyalty shares strengthen ownership stability without adversely affecting dividends or market liquidity. While not a comprehensive solution or a panacea, loyalty shares emerge as both a stabilising mechanism and a catalyst for broader governance discussions.