France: American Pension Funds In France - Corporate Governance

American pension funds, the modifications of French Company Law resulting from the provisions of Law No. 2001-420 regarding the new economic regulations, from May 15, 2001 and their objectives in the field of corporate management.

The globalization of financial markets, the saturation of the investment opportunities in their domestic market as regards the sums collected through the alternative retirement systems have led the American pension funds (the "Funds") to seek geographical diversification of their investments by favoring access to the markets of the major economies outside the United States.

The Funds, both public and private, are subject to a "distribution" logic that does not have an equivalent in France. The Funds are required to adopt a carefully targeted investment policy by reason of the obligation to pay out to their members at the end of a long period of contributions a sum which is at least equal to the sums paid in, adjusted for inflation. This policy, based on a multifaceted approach, cannot ignore the economic fundamentals of each company or industrial sector. Beyond those criteria, the moral obligation of the Funds to obtain a certain result has led them to consider the totality of the parameters of long-term investment management.

Among these parameters are the principles of corporate governance. In fact, according to an Anglo-Saxon concept, which developed during the period following the stock market crash of 1929, the methodology employed prior to any decision to invest in a company should not constitute the only basis for the long-term nature of such investment. Beyond the economic analysis, the Funds consider that becoming a shareholder is only a first step, but that it is just as important to ensure that throughout the period of investment their obligations towards their members lead them to make use of all the prerogatives of a shareholder.

The "hold period" for an investment by the Funds is quite different from that of other institutional investors. The turnover rate of the investment portfolios of the Funds is approximately ten years, whereas the average is two to three years for mutual funds. This longer term approach, unlike approaches based on a higher turnover rate which permit recovery of the gains resulting from the volatility of shares, results in a close correlation between the performance of the Funds and the creation of wealth or of shareholder value which a company would normally achieve only over a longer period.

The actual exercise of the voting rights which attach to the shareholdings is compulsory for the Funds within the United States. In order to enable them to express their votes fully, the Funds have developed a permanent dialogue with the governing bodies of American companies. This dialogue is intended to facilitate: (a) the distribution of information to the entire market; (b) taking account of the sensitivity of the Funds; and (c) an understanding of the shareholder value created by the management of the particular company. As a result of this dialogue, the draft resolutions presented in the shareholders' meetings have been refined or amended. The Funds, which willingly define themselves as "shareowners" and reject the generic label "shareholders" have, through their policy of permanent dialogue, often sought to encourage the development of proposals allowing American companies:

  • to separate the functions of Chairman and Chief Executive Officer;
  • to provide greater transparency as to the conditions for granting stock options;
  • to prevent conflicts of interest which may arise in the course of company activity;
  • to reaffirm the principle of equality among shareholders by means of removing all by-laws provisions contemplating differentiated voting rights or limitations on voting rights; and
  • to remove all provisions allowing a company to render a takeover more difficult (poison pills).

In the recent past, the harmonization of the policy regarding the conforming of the rules relating to corporate governance with the wishes expressed by the Funds has often had a direct effect on the valuation of companies. The California Public Employees Retirement System ("CalPERS"), the largest public pension fund in the United States, willingly places itself in the category of "activist shareholders," to cite a term whose ambiguity leaves room for multiple interpretations. For the year 1995, CalPERS estimated at $150 million the return on investment generated by the adoption by certain companies of rules of corporate governance which were in compliance with the Funds' standards.

While France is considered as an opportunity for diversification, the Funds would not seize those investment opportunities if it meant diverging from the criteria and the requirements which they apply across the Atlantic.

Globalization also applies to the principles of corporate governance. The work done in France as from 1995, and in particular the two Vienot Reports and the successful completion of the work of the OECD could only be welcomed by the Funds which considered these as the first steps in a reconciliation between French market practices and the current norms in the United States or in other countries, and which were formalized in 1999 through the work of the International Corporate Governance Network.

The French Law No. 2001-420 on the new economic regulations which was enacted May 15, 2001, and which appears likely to go down in history under the name "NRE Law", is substantially based on the recommendations of the Vienot Report of July 1999.

Beyond certain modifications which could only be made by law, this text was intended to lay down the principles of an expanded regulatory regime even though "institutionalized" regulatory bodies already exist (in particular the Commission des Opérations de Bourse and the Conseil des Marchés Financiers) as do non-"institutionalized" elements (such as the "financial market" and the players on that market, in particular).

It would appear that, from the standpoint of the Funds, such intervention in a field normally left to administrative regulation could be interpreted as a new demonstration of the concept of the "French exception".

The NRE Law should be welcomed by the Funds, inasmuch as it:

  • authorizes the existence of a chief executive officer dedicated to managing the company's business and freed up from the functions of the Chairman of the Board of Directors. This new distribution of roles within a monistic structure (which has proved to be more flexible than the dualistic structure, i.e. Supervisory Board and Management Board) should allow the Chief Executive Officer to devote himself exclusively to the management of the company's affairs, by releasing him from certain tasks.
  • allows an easier reading of the compensation packages of the top executives, including the granting of stock options. The information on individual compensation introduced as a result of the wording of the text is consistent with the framework of the corporate governance charter adopted by the International Corporate Governance Network in 1999. The Commission des Opérations de Bourse, acting in its capacity as a regulatory body, has decided to require such a breakdown in each of the documents which it must review and approve, as from September 1, 2001;
  • submits, in the framework of the prevention of conflicts of interest, all agreements between a company and any of its shareholders holding a percentage of voting rights in excess of 5%, to prior authorization by the Board of Directors.
  • sets a limit on the number of directorships an individual may hold, and at the same time reduces the number of directors. In the logic of the Funds, this measure should allow directors who will be less "diluted" in the exercise of their functions to act more effectively in Boards of Directors which are more focused;
  • provides that, under conditions which remain to be defined by decree, information regarding the company's approach to dealing with the social and environmental consequences of its activities must be provided to the shareholders; and
  • moves to 5% the threshold of shareholding as regards the possibility for one shareholder, or several shareholders acting as a group, to submit written questions to the Board of Directors or to request the dismissal of a statutory auditor.

The NRE Law may, from the standpoint of the Funds, be considered as a reaffirmation of a concept of corporate governance, the globalization of which would naturally relate to the interrelationship among the different financial markets. Nevertheless, a certain number of provisions which continue to be sought by the Funds are today outside the purview of French laws or regulations. The frustration of the Funds is primarily focused on the following points:

  • the limitation to 2 (or 3, in certain circumstances) directorships to be held by any one director (source: CalPERS);
  • the limitation on length of the term of a director;
  • the limitation on the term of the statutory auditors;
  • the affirmation of the "one share, one vote" principle and the removal of any clause establishing a double voting right, a limitation on voting rights, or a differentiated rule regulating the allotment of dividends;
  • the elimination of all clauses rendering a possible takeover by a third party more difficult;
  • implementation of means of participation in the meetings for the benefit of the shareholders, such means being identical to those now granted to the members of the Board of Directors by the NRE Law;
  • the public access to the proceedings of the boards, audit committees and general meetings of shareholders; and
  • the adoption of "international" accounting standards.

A comparative analysis of the various charters of corporate governance adopted by the Funds and the current state of French law and practice reveals a certain number of points of divergence. A reconciliation, in the event it should be sought could be envisaged by means of the evolution of market practices at the initiative of the various players, i.e. the regulatory bodies, the issuers, the shareholders, or (when necessary for their implementation) by legislative action

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions